Monday, March 30, 2009

End of Day 3/30

I’m going to keep today’s update fairly short and simple. I’m still working on taxes and a couple other things, so my attention is divided. I may even skip doing updates for a day or two so that I can concentrate and just get them done, but I think tonight (like every night) is pretty important.

Today’s move was brutal in the sense that it trapped the bulls with a gap below most of their stops which were probably in the 800 area. And if you were waiting to short, there wasn’t that much left after the open and you were shorting a hole with a big gap above you – never my favorite thing to do. But all in all, I think this move goes to show what happens when you rally based upon manipulation instead of fundamentals.

It’s not based on anything real, so it comes back off fairly easily. Real rallies aren’t built upon the lies and half-truths of bank CEOs or on government intervention or printing. They are built on the back of production and savings.

Now we’re going to not only give auto companies bailouts, we’re going to guarantee all their guarantees (warranties) and offer tax savings to those who buy new. That’s great except that we have way too many cars on the road as it is now. Again, this shows that government involvement almost always leads to further misallocation of resource. Just think if we were working pyramids instead, LOL, at least we’d be building something that would last into the future! How about putting our resource into exploring the planets, science, and medical research? Again, at least we might stand a chance at gaining in the future or ensuring our survival. Keeping automakers alive isn’t going to bring us anything in the future except for more debt that has to be serviced.

And now we’re set up again to fool both the bears and the bulls – which way is it headed? The bulls think we get a shallow retrace then higher, while the bears are probably skittish of that happening and will take profits quickly – which might actually fuel a deeper retrace than most expect. We’ll see… it’ll be interesting as always.

Today the DOW finished down 254 points (3.3%), the S&P was off 3.5%, the NDX lost 2.5%, and the RUT lost 3%). The fact that the RUT and NDX held up better than the S&P is a positive divergence for the market.

The XLF lost 8.6%, which obviously isn’t good, and IYR lost 5.5%, both leaving large gaps overhead.

The internals were very bearish with decliners ahead of advancers by nearly an 8 to 1 margin. 95% of the volume was on the downside, showing how volatile these markets are. Usually there needs to be consolidation or sideways action following these lopsided days. New lows increased to 18 on the NYSE.

The CMBX Index speads widened today. It sounds like GGP is getting closer to bankruptcy. Here's the top credit and bottom CMBX charts:

Looking at an SPX 20 day 30 minute chart, you can see that we are beneath even the lowest possible channel a this point. The 787 close is just beneath the 789 pivot and the 23.6% retrace. I’m sure we’re working on a new down channel, but don’t have enough data points to do more than guess at where it will be. We obviously are done with that blue diagonal. Note that the 30 minute stochastic is on a buy, and the 60 minute is oversold and about to issue a buy as well. The 10 minute is mid range. The pivot points above are now at 789 and then 848, and the pivots below are at 768 and then 734 while the 50% retrace is at the 750 area:

The daily SPX shows that we closed just beneath the 50dma again. There’s a fresh sell signal on the daily stochastic and the fast has exited oversold which is confirmation of the fast/slow cross. It’s fairly rare to have the fast exit overbought like that and not have it come all the way down:

The DOW also closed beneath the 50dma and issued a sell on the stochastic. The volume here was slightly higher than Friday, but certainly still low overall:

The NDX gapped down beneath its latest channel bottom and bounced strongly enough at the end of the day to produce a hammer. That’s a clear air hammer too… and it could actually mark a bottom, IF, we gap above it and stay above it tomorrow (above about 1,230). Could happen but is unlikely with the fresh sell signals and now overhead resistance. But in any event will need confirmation one way or the other tomorrow. That is the most potentially bullish thing I see:

The XLF had a large gap down and closed beneath its 50dma as well. Again, a sell on the stochastic and higher volume on the day, but just a little. The XLF did bounce off the 38.2% retrace line and thus you can see is leading the other indices still. Today’s action did fill an open gap on the XLF, but it opened a big one in the process. There’s another one down by the lows at 6.50 as well as one up by 12.50 – gaps everywhere:

The VIX chart is the most bearish for the market of them all. This morning’s gap up leaped over BOTH the 200dma and the 50dma and closed above them! The 46 area is resistance that held though. I can see this easily running up to the upper Bollinger as the buy signal here coincides with the sell signals in the market on the daily timeframe:

The Put/Call ratio rose to 1.14, an area that is high enough that it can mark at least a short term turn:

Overall it looks to this simple man like we have begun a simple retrace, probably a B wave of an abc correction. I would expect at least a little upside or overall sideways action tomorrow to work off the short term oscillators and then I think we finish the retrace later in the week that will be followed by another rally leg of some sort.

This current rally ran us right into overhead resistance where the volume is located and turned around at the first sign of real overhead resistance. That’s really all you need to know, keep it simple, look at the chart of the Great Depression… once a level broke, it never made it back up above the prior level, and that went on for 2.5 years. Not only are we not going to correct the largest bubble in history in 17 months, we have yet to really get started on clearing out the debt which is still far greater per capita than the start of the Great Depression. It’s simple, adding debt on top of debt won’t lead to a debt solution.

Lynyrd Skynyrd - Simple Man: