Monday, February 2, 2009

Morning Update 2/2

Good Morning,

Three bank failures on Friday, the “big announcement” delayed until at least next week, and International sales crashing… South Korea exports down more than 30% in the month of January.

As I type, the DOW sits under 7,900 and the S&P is about 810, having held above the prior lows and the 800 level SO FAR. But the current pennant bottom, the uptrend line from the November lows is going to be broken at the open. That would be bad, as in very bad.

But don’t expect a straight line to that horrific sub 300 target, it won’t be. We are oversold in the short timeframes and thus the odds of retesting that break are very high. Be patient and let the market do its thing. Part of the market’s job is to suck in as much of your money as it can so that it can please the fiat currency gods!

Here’s what’s happening with consumer spending:
U.S. Consumer Spending Falls for Sixth Straight Month

Consumer spending in the U.S. fell in December for a record sixth consecutive month, capping the worst year since 1961, a slump that is likely to persist as companies slash payrolls.

The 1 percent drop in purchases was larger than forecast and followed a 0.8 percent decrease in November, the Commerce Department said today in Washington. The Federal Reserve’s preferred measure of inflation was little changed for a third month.
ISM Manufacturing Index comes out later this morning, and the big report this week will be the employment report this Friday.

Here’s a one month chart of the SPX. Note that at 810 – 815 that we are beneath that dark red line that represents the bottom of the pennant on this chart. There’s support at the old lows of 804, and after that there’s not much before the November lows at about 740. I say that, although there’s a lot of very long term support in that area, that’s why we’ve spent so much time here waiting to break it! People don’t want to believe that we’re headed below the 2002 lows and that we are going to lose more than 50% of the market’s value, but we are.

Note that on my chart the daily stochastic hasn’t crossed. I noticed that on the more standard settings that they have crossed and already issued a sell – thus we are now on a sell signal on the daily and weekly stochastic.

The dollar is strengthening this morning, bonds are volatile but up a little, GLD is down huge showing the effect of resistance and that outside hammer I pointed out, and keep your eye on the VIX today, if it breaks above 46, the bulls had better get out of the way as the good Doctor mentioned.

Should be a volatile day, I’ll be here and now that I have that darn Inflation/Deflation article out of the way will give the markets my full attention today. That was a difficult article to write, I could have written a book, so it was hard to keep it under control, although it may not seem that way!

Best to your trades, feel free to show us your best chart or ideas,