Wednesday, March 4, 2009

End of Day 3/4

Wow, a good shot of whiskey sounds in order after a day like that! But not to worry, I’ll wait until AFTER the update, lol. Hey, try calling the market for tomorrow and you may need one too!

Okay, on the day the DOW finished in the green by 149 points (2.2%), the S&P gained 2.4%, the NDX rose 2.7%, and the RUT led the advance gaining 2.9%. The XLF diverged against the market by losing 1.3%. WFC and JPM were downgraded sending them both down between 8 and 10% (gee, did Buffett exit WFC just before his other company issued the downgrade? Nawwww…).

And of course after the financials were beat down earlier in the day they come on CNBS to float the RUMOR that mark-to-market suspension is a possibility as it’s going to be looked at next week and “if that happens the entire financial sector could double in a matter of hours!” LOL… What a blatant game. If you look at the key financials, immediately following that “announcement” the volume picked up heavily and the attempted rally didn’t happen because all the volume was met with selling pressure. That’s called DISTRIBUTION, as the people who floated that rumor were probably exiting their positions on that “news.” Hey, hate the game, not the player – I’m just reporting my observations, take ‘em for what they are.

Oh, and I LOOVE how Pigman extraordinaire, Bill Gross, gets on CNBS to pump GE and tell everyone how there’s no way GE’s going out of business. Of course he owns hundreds of millions in GE bonds! Oh, and his appearance is immediately followed by a PIMCO commercial! LOL, I am thoroughly disgusted that this type of BS is even allowed to happen. Oh, AND he is being hired by the government to run some of the bonds that are now owned by the taxpayers! I’m telling you, this is a huge part of how we got into this mess and why I think that corporations have no business involved in government AT ALL. In fact, anyone who owns any position should not be allowed to comment on that position in public. Free speech is fine, but manipulating people, robbing them blind, and wrecking our financial system is not.

The Transports were pretty strong today, rising 4.8%. Of course they have been a complete disaster – this was only the second up day for them in the past 17 trading sessions. And what sparked the rally? Well, last night the Chinese floated the fact that they would soon announce more stimulus plans. That was the rally heard ‘round the world’ as Asia, then Europe, and then the U.S. rallied on the news. Oil shot up and even though oil rose, so did the transports! It’s all funny to me… did you know that part of their stimulus is to send Chinese workers to farm parts of Africa? No joke, that’s going to cut their unemployment. Yep, no doubt about it, I think everyone should buy stocks based on that! Just another example of mass psychosis…

Oh, and the President’s housing plan. I’m not even going to go into the details that were released today. Sickening. You’ll hear about them elsewhere. And we’ll all be paying for it, that’s for sure. No accountability anywhere. And the real benefactors are the banks, not the home owners.

Internals obviously improved today with advancing issues 4 to 1 over decliners and about 70% of the volume on the up side. New lows were cut in half from yesterday.

Okay, let’s run through the charts… Here’s a 20 day, 30 minute SPX, and below that is a 5 minute version. Note that we left the last wave’s micro channel (black) but remained within the primary down channel (red). We moved sideways creating another small channel. There’s a couple of ways to look at this, so let me start with what I think is happening and then give you another possibility. I’m thinking that this is most likely the finish of wave 4 of wave 3 which I thought was likely done yesterday. The reason I believe so is that I can count a nice clean pattern up off yesterday’s lows, it remained within the channel, and the corrective channel was small and thin. The rule on channels is the thinner they are, the less important they are and the shorter time they last. I think it ended just prior to the close because the NDX broke that micro channel just prior to the close. I also see that the 10, 30, and 60 minute stochastic indicators are overbought. The 5 minute fast is oversold, but the slow is not. You can see the 30 min fast here is just about to cross the slow issuing a sell. Of course they can remain overbought and the 60 minute slow does have room, but it looks to me like the odds favor at least some correction soon. That said, the alternative is that that channel could be wave ‘a’ off the bottom, then we’ll make a wave ‘b’ and then a wave ‘c’. Thus, the tell is whether we break the prior low or not. Also note that we touched the 38.2% retrace almost exactly. That’s a typical wave 4 retrace point. While we’re here, note the open gap between 730 and 735… that does lead me to believe that an abc to fill it is possible. 734 also happens to be the next pivot point above with 696 below:

When I look at the SPX daily candlestick I’m actually a little more bullish. That type of candle often has upside follow through. Again, we’ll need confirmation by tomorrow’s action. Note that the stochastic looks like it’s about to cross the slow, but until it exits oversold is not really a buy indication as it can stay oversold for quite some time even with multiple crosses, but once it leaves oversold is more likely to make the trip to the top:

Now let’s look at the DOW. Same candle as the SPX, but the DIA produced a spinner which does not look as bullish (same with the SPY). Note that the DOW, too, pinned the 38.2% fib line and pulled back to the 23.6% mark. Same story with the daily stochastic:

Next is the NDX. Note that it exactly pinned the top of its red channel line and pulled back. That candle is not as bullish looking as the others but could go either way:

When we look inside the NDX on a 5 minute chart, we find that we perfectly touched the top of the channel and rolled hard into the close, breaking the channel, even if you move the line down to the earlier underthrow. Again, I see what I think is a complete wave count within that channel – the question is what level was that correction on? We’ll likely find out tomorrow:

The Put/Call ratio opened at just .7 this morning and swung up rapidly, finishing the day at .96, a neutral reading:

This chart does not show all that movement. The VIX closed down 6.6% at the 47 level, but was down earlier to 45 pinning the 50dma and zoomed at the close producing a potential hammer:

Bonds moved lower on the day, but TLT still has not fallen into that open gap.

Tomorrow should offer some clarity on where we are. We need confirmation on whether the small level wave 4 just completed or we have begun a higher level correction that may produce a higher level wave 4, possibly starting with an abc move. My thinking is that we still have more downside, but I don’t eliminate the possibility that wave 3 of 5 has ended and that the higher level wave 4 is in progress.

So, the bottom line is that our country is in a deep moral morass. A depression is just the thing to make everyone rethink what’s going on, and a sip at the whiskey bar is especially apropos:

Doors – Whiskey Bar: