Saturday, March 14, 2009

End of day/ Week/ Weekend Update 3/14

Hey, everybody has a dream, especially those who believe any actions in the prior week saved the banks or the markets. Nothing’s changed, this rally is just like all the others in this bear market, a rock and roll fantasy…

Bad Company – Rock and Roll Fantasy:

Friday saw the DOW gain 53 points, the S&P rose .8%, the NDX gained .3%, and the RUT gained .8%. IYR was down 2.1%, the XLF gained .6% and was up an amazing 40% on the week… 2 whole bucks!

Hey, that’s a giant move from under $6, but it, like all the others was a false rally. The root causes of the problems have not been eliminated and those who think that the banks can earn their way out of their debts with a falsely wide interest rate spread are simply mistaken. I know, maybe they can earn their way out by charging fees on unemployment debit cards! Unemployment Debit fees…

Market internals showed 56% of the issues advancing on the NYSE with 62% advancing by volume. New lows have dropped very significantly over the week and Friday there were only 14 on the NYSE. The percentage of stocks above their short term moving averages is at extreme highs, a bearish indication.

The Put/Call ratio is sitting at .71 which is low and has been hovering in the low 70’s without a significant push lower for the past three days. Unusual. There was a related negative divergence on Friday in that the VIX bounced off its 200 day moving average and was UP on an up day for equities.

McHugh had a turn date that was supposed to occur on Friday… the trend into Friday was up, so if his turn date is correct it argues for lower prices next week.

Several of the Elliott Wave experts I follow favor wave 5 down being complete. I do not see that count on a small timeframe, what they see as wave 4 was too small in relation to wave 2, much too small. The current move is in relation to wave 2 and thus I am going to base my analysis on the past week being part of wave 4 as my primary thinking with my alternate being that wave 5 down is complete and we’re just starting a larger A-B-C correction up. For this to be correct, prices need to begin correcting last week’s move soon.

I note that next week is a busy week with options expiration, an FOMC meeting, and lots of economic data, so it’ll be exciting, I’m sure. This weekend already we’re learning that the G20 is agreeing to pump up the IMF so that they can enslave the entire world with debt from their fake money. They believe this will strengthen the Euro (LMAO), and thus cause further rally of the Krona and Swiss Franc as well. That, of course, would mean a weaker dollar and a rally in stocks? Well, we’ll see about that, adding onto this past week’s rally may not prove to be as easy as some people are thinking.

When we look at the SPX weekly chart over the past 6 months, we see that there have not been two consecutive up weeks in that time frame other than a couple of doji weeks that moved sideways. If wave 5 is truly over, however, that could change. Notice how we had closed beneath the weekly Bollinger the prior week and this week we closed above it, that is a buy signal on this timeframe, but that signal during this bear market has not meant much:

Next is the one month daily SPX. That is a legitimate outside hammer, with NO overlap of candle bodies. That raises the odds that hammer will be a reversal, but prices need to start lower right away on Monday to confirm that as a reversal (I can’t find examples in the past year where an outside hammer at the top of an uptrend was not a reversal. In fact, if you look back over the year on the SPX you will find that nearly every hammer like this resulted in lower prices the next day and sometimes significant declines). Note that the fast Stochastic reached overbought on the daily timeframe already. While you’re here, take a look at the 50dma which is just above 810. If we’re etching out an ABC, that area could be the final destination, probably for the C wave which would by then probably be just over 800 and would be coincident with the upper Bollinger which is moving down at a pretty good clip:

Next is the SPY. I’m showing it just to point out that this is more of a doji than a hammer and Friday’s advance was on decreasing volume:

Next is the DOW daily. Close to being a hammer too, and also on slightly decreasing volume. The volume the past three days on the DIA has been very low. The daily stochastic is already touching overbought and is higher than where wave A of 2 began to turn:

While we’re looking at daily charts, let’s look at the XLF. Here is a black outside hammer, again on decreasing volume – volume confirms price and this declining volume pattern on advances has not gone away. I’ll be surprised if prices continue over that candle, it looks like a top of some degree to me, but must be confirmed by Monday’s action:

Here’s a look inside a 10 day SPX chart. Here I do see a pretty obvious 5 waves up that ended in a double top on Friday. If prices do advance, it’s possible that will produce an ending diagonal, but by the looks of the hammers, it may not get there. This has tracked that green channel very well and topped out very close to where I had the larger blue channel drawn. Prices do not go in a straight line like that forever; a correction of some magnitude is coming. The stochastic is overbought on all the shorter timeframes. On the 30 minute chart I am seeing the RSI diverge bearishly on the last three peaks. You can see some of that here by looking at the double top and seeing a lower RSI, but it’s more noticeable on the slightly longer timeframe – that said, going out to a 60 minute chart I can see a bullish divergence. This could mean some short term pullback followed by further rally of some degree:

I normally don’t do forward projecting of prices onto charts, but I was playing around on TOS and drew in my favored idea of a wave 4 triangle (which would be followed by wave 5 down). Wave 4 could be a triangle because wave 2 was not. As I have that triangle drawn, it is a little more than a month in duration, but wave 2 was not that long, so an actual triangle may occur more quickly with steeper boundary lines. The other path is a slight pullback followed by more rally in my most bullish scenario which I consider a secondary possibility. If wave 4 is happening and is not a triangle, it could unfold as a simple ABC. Again, I don’t really like doing these for anything more than fun and wouldn’t trade based on either one of those possibilities as there are many others too. It is possible that news over the weekend drives prices a little higher before pulling back:

Next is a series of Advance/Decline lines compared to their respective indices. The red/black lines are the A/D line and the solid black is the index. On the NDX and AMEX I point out BEARISH divergences. Again, McHugh has been incorrectly drawing these and calling them bullish… they are not and the bearish divergences grew over the past week, especially on the NDX. The NYSE is the closest together:




Overall, I keep hearing a lot of bullishness, more than is warrented. If you stayed long going into the weekend you may have overstayed your welcome. I still do not see where wave 5 down happened… I could be wrong about that, but the time relationship of what people are calling wave 4 in the last decline does not fit the time of wave 2, not even close. I see decreasing volume and bearish divergences on the RSI, VIX to market, and A/D lines coupled with extreme percentage of stocks above their short term moving averages.

Sure, we could just keep running like the Energizer Bunny, and everybody on CNBS has a dream too…

Billy Joel – Everybody Has a Dream: