Monday, March 23, 2009

End of Day 3/23

It was the best of times, it was the worst of times…

But difficult to keep your eye on the ball. It’s tough to stay focused on what’s real through all the government actions, media hype, and 500 point bear market rallies. Just remember that 7% rallies DO NOT HAPPEN IN BULL MARKETS. They only happen in bear markets when volatility and emotions are running high.

Today the DOW finished up 497 points (6.8%), the S&P gained 7.1%, the NDX lagged with a poor boy performance of only 6.1%, and the RUT raced to a 8.4% gain. Long bonds were down, the dollar was down, gold was down, and oil was up.

The XLF zoomed a buck thirty-three to finish up an amazing 16.4%! But guess what? It didn’t break the high from two days ago! Same with IYR which rocketed 15%. Give me a break! If you are feeling in a panic to buy, like you are going to miss it, then you most likely did miss it. If you haven’t gotten long yet, you definitely should be waiting for a meaningful pullback before you do. And if you happen to be one of those who never sold and wished you had. You are getting very close to possibly the best exit you are going to get. There may very well be more, but this is already getting extended.

We have “professionals” on teevee who couldn’t find a trendline with both hands claiming that since we have rallied 20% off the bottom that we have now entered a new bull market! What bull! It took a 23.6% SPX rally, which is where we finished today (an exact fib extension of 666), just to get to within 15 SPX points of a 61.8% retrace of the last wave! And it finally caught the S&P back up to where the same time was during the Great Depression! AND, we are still not even close to making a new high! So keep it in perspective, we certainly have not received any long term buy signals.

Here’s Doug Short’s Four Bad Bears and Four Mega-Bear Quartets just to keep it in perspective:

But to be fair, yes, it’s been one hell of a two week rally. And it’s killed the idea that we’re in wave 4 as we have now invaded wave one’s space and that would be a no-no for EW rules. Thus we are doing something more bullish. My guess would be that we are working on wave A of an ABC. McHugh believes that this is wave C of a larger ABC… while I don’t see how he’s able to produce that count, I defer to him as he is far more knowledgeable than I when it comes to Elliott Wave and he actively tracks every wave, I do not, but I do know that not all EW experts agree on where we are in the count. This count does mean that the next leg to a lower low is probably a ways off. How far will depend on a lot of factors, I know a lot of people are looking at the end of April and some are even looking as far out as the Fall. I am very skeptical that we can hold it all together that long.

And regarding Geithner’s plan, I heard it best described as “money laundering,” and that’s exactly what it is. It is the opposite of transparency, and it is galling to say the least. But the most egregious thing I heard all day was someone on CNBS saying that they plan on creating a MUTUAL FUND out of the toxic waste so that regular Americans can invest their retirements in it! That is truly the epitome of shame, it is like doubling down and then doubling down again. Regular people who have lost a large chunk of the value of their homes and have had their 401K’s pounded into the ground are the very last people who should be investing in these assets TWICE, because they already are as taxpayers!! And Obama says he wants to create a sustainable, non-bubble economy moving forward? That is NOT how you do it.

Okay, let’s talk internals… Wildly bullish, panic buying. Ten to one issues advanced on an insane 97.5% upside volume on the NYSE. That’s the type of panic buying that can mark a top. On the Nasdaq the up volume was ‘only’ 93.6%. The NYSE had 8 new highs and 8 new lows, the first time in many months that they have been at least equal.

While I’m thinking about it, Doc found a good article on Theta, the time decay of options. It’s short, has some good charts, and will keep you mostly out of front month stuff when you see the exponential curve that theta resides upon: Know Your Options - Theta.

Let’s start on the charts with the 20 day SPX. I was forced to redraw my channel lines that are actually not a channel, but a rising wedge. It’s very difficult not only to count this deformity, but it’s also hard to channel it. Again, that’s what happens when the entire market is just pure manipulation from start to finish, nothing natural about it. You can't see it here, but we did partially fill the gap from Feb. 17th and are just a couple points from a complete fill. Not a lot else to say about this other than the stochastic is overbought on all timeframes up to the WEEKLY, which by the way, is already half way up the scale and the daily is very overbought as you’ll see. I keep seeing small divergences on the RSI. If you look at the peaks on this chart since the 11th, you’ll see that the peaks are generally lower, but then you look up at the price and see it going to the moon:

Here’s the same chart of the NDX. It’s also hard to channel but really looks like a good rising wedge that finished just outside the top. We’ll see if there’s more or not, they are going to have to keep throwing trillions out the window every week at this rate:

Next batter is the SPX daily... +7.08%!? Wow. That’s quite a candle, and you can see that it closed OVER the upper Bollinger and over the 50dma as well (the 100dma is at 842). The next pivot point is just over the 100dma at 848. Here you can see that the daily stochastic dipped just a little and is now coming back up into deep overbought territory. The slow is getting to a height normally reserved for the C wave of an abc, showing how strong and persistent this rally has been:

The DOW daily also closed above the upper Bollinger and the 50dma (100 is at 8,175). What’s striking here is the volume pattern. Lower volume on a monster up day? Well, that’s only on the DOW and Transports, but not in the ETFs or futures which is peculiar. Is there a shift in the type of people who are buying? Are the bears just conditioned to sit back? Where’s the volume? The DIA had slightly higher volume today, but not much, same with the SPY. Sometimes bullish momentum dies on extreme volume, which today was not, but the internals certainly were extreme:

The XLF and IYR were insane (SRS lost 30% today and closed beneath $50). Here you can see that the XLF is trapped between the 50dma and the upper Bollinger. It was on higher volume than yesterday, but not much higher. This volume pattern is certainly more bullish than the DOW, however:

The Put/Call ratio came down again and is now sitting at .70 which is pretty low:

As I looked around the P&F charts I see a few strange things. First of all, the target on the S&P has been adjusted way the heck up there, like 1,065, which seems odd because it hasn’t broken any other major technical resistance areas that I can see on that chart. In fact, we’re just now running into solid overhead volume resistance. The other indices are still on the same bullish targets as before.

The XLF P&F, however, on Friday’s pullback triggered a new sell signal with a target of just 2.5, which is even lower than the old target of 3.5. The interim target was quite a bit higher. The REITS did the same thing, and neither tripped bullish signals on today’s monster move. The real unexpected P&F for me is the VIX. It tripped a bullish target today with a target of 64 despite falling nearly 6%. That’s opposite the direction of the indices targets, so somebody’s wrong. Of course it is a volatility index and could have held as high as it is simply due to the volatility. We’ll see what it does when the price swings settle down a little:

Overall a superfragilisticexpialidocious day if you were a bull in Turbo Timmy land. I don’t see that Timmy’s plan actually changes the fundamentals of the situation. The debt is still there and it must be serviced. Good for the bankers, bad for the people and bad for America as it will add to our debts eventually. Forget about profits, that’s laughable. While I know I told Frank the Tank and others that I wouldn’t do any more Styx for awhile, this just seems too good an opportunity to pass up. Call me a liar if you want, heck, these are the worst of times, these are the best of times…

Styx – The Best of Times: