Thursday, March 5, 2009

End of Day 3/5

The last time stocks were in this range was the year 1996, sad but true. And this week we’ve seen two letter ‘G’ titans, GE and GM get sent even further back in time. GE was last at its current $6 level in 1992, but my chart for GM goes back to 1968 and we are way beneath any other low on the chart. Sad, but true.

GE 20 year:

GM 20 year:

On the day, the DOW lost 281 points or 4.1%, the S&P Lost 4.3%, the NDX lost 3.2%, and the RUT gave up 5.9%. Transports continue to crash, giving up 6.8% today. Banks got nailed hard too, the XLF was down 9.4% all the way to $6.24! Sad, but true.

Internals were horrific again with decliners 11 to 1 over advancers and declining volume at just under 94%, our 4th 90%+ down day in two weeks. New highs rose to 728 on the NYSE.

Well the news flow today was as bad as ever. We learned that the auditors of GM performed some CYA on their statements saying that liquidation was a possibility and then we learned that nearly 12% of all mortgages are in trouble and that mortgage delinquencies and foreclosures rose to a new record:

Meanwhile our leadership in Washington is clearly lacking. The truth is that in the end it won’t really matter as the math says that the destination for our economy is pretty much assured to be negative, but they sure are working their hardest to make it worse. The monthly jobs report comes out tomorrow morning, so be ready for that. I hate repeating the CNBS mantra, but it’s true that a bad report is probably in the cake already, so the surprise would be a better than expected report (manipulated of course), so be nimble.

I believe we are nearing the end of wave 3 down of 5 down. That wave can extend, or it can end at anytime. Once it does, I expect a higher level wave 4 up/sideways that could last a couple of weeks as that’s about how long wave 2 of 5 was. McHugh has a turn date on the 13th of this month, and more declines are possible, but we may need to work the oscillators off oversold a bit first.

On the 20 day, 30 minute SPX chart you can see that we’re still in the primary down channel and that we sit with oversold indications on all the stochastic time frames. If we were to rally from this area, a typical wave 4 38.2% would push us up to the 750 range and a 50% retrace would push the 768 pivot. The next pivot above us is at 696, and below is at 644:

When we look at the daily SPX candle there’s not a lot to say, it’s just a nasty bearish picture:

Same thing on the DOW daily:

Here’s the P&F chart on the Transports. I just want to show the target that the computer calculated – 1,330! That’s still a looong way down. The P&F charts first calculate a “preliminary” target and once the program satisfies certain parameters, establishes a more solid target based on the formation in play. Achieving that target would require a drop of another 41%! Sad to say it's yet another piece of technical data that puts the indices in the horrific range:

Next I want to show an update of the NYSE advance/decline line. McHugh was pointing out a large positive divergence and most of that divergence is now gone. Although the lines have merged again, there’s a slight divergence in the fact that the index is substantially below its last low while the A/D line is just below its old low. These look pretty darn close now:

Let’s take a look at some long term charts to see if we can identify some possible areas of support… When I look at a 20 year monthly chart of the SPX, I see that we just pierced one possible area of support that goes back to 1996, and there’s a pin low next down around 603. The 644 pivot point is between here and there:

When I look at the DOW, the next support I see is about 6,300ish. Don’t look too far down, you’ll get dizzy. Yes, I think we’re going down there, but it won’t be a straight line, at least when you look on the short time frames. Sure looks like a cliff dive to me already though, and remember that once we pass a support level it turns into resistance:

While the NDX has yet to break its 2002 lows, keep in mind that was a horrific low, much worse than the other indices. Yes, it appears we’re headed there and probably lower again:

So, the long term picture is simply a nightmare for our country and for the world. In the short term we could have put in or be close to putting in a short term bottom for a wave 4 bounce, but we are in crash mode, so we have to expect anything. I find it interesting that the put/call remains in the neutral range and that the VIX has been so calm. As Doc says, wave 5’s are grinding affairs… he also said that as he watched the markets he kept hearing Metallica’s tune “Sad, but True” in his mind! I figure that’s pretty appropriate as it also comes from the early to mid ‘90s time frame, same place as the market – sad, but true.

Metallica - Sad But True: