Saturday, March 7, 2009

End of Day/Week 3/6

Yesterday was 3/6/09 and stock prices were sent back to the year 1996 – 13 years ago. The SPX hit a low of 666 and GE had a low of $6.66! “Nawww,” I thought… "that can’t actually be the low of the day! Can it?" Well, it was, and the only guy I know who was brave enough to go long on that low (and announced it as he was doing it) was Seth. Now, we all know Seth as a self-titled moonbat… but I think of him as a “curved” or non-linear individual. A lot of artists would fit into that category, my own mother is one, that’s how I recognize it! Most people in America are linear by nature – that would be my father. Me? Mostly linear, but a little of curvy got in there too, that’s why I understand Seth. He recognizes patterns and boy have there been some in this bear market!

So, I was going to Econotune this update with Boston – “The Launch” in honor of the last minute rocket shot reversal (linear me), but instead I’m going to go more Seth on you here and present some tunes that were officially released early in the year 1967, but were likely first written in the year 1966, thus keeping his string of ones, sixes, and nines alive. Here’s a classic, fitting because the bulls have seen a horrific decline over the past couple of months… one I’m sure that has left them a whiter shade of pale.

Procol Harum - A whiter shade of pale (released May, 1967):

And I’ll bet they were looking pretty white as the DOW sunk down to its low of the day, beneath 6,500, touching 6469.95 (sixes and nines) before rocketing back up at the end of the day to close at 6626.94, a GAIN of 32 whole points! The SPX finished the day after that 666 low UP a fraction (.1%), while the NDX LOST .9%, and the RUT gained .5%. The XLF lost 1%, and the Transports had yet another down day losing 2.1%, now down 41% in the past 9 weeks.

In that 9 week period the Transports have only had 10 positive days out of the past 41. Since September, they have lost an amazing 58%:

Internally, there were some divergences with the green close. The NYSE, which closed up slightly (.4%), had declining issues ahead of advancing by a 19 to 11 margin, and 52% of the volume was down. New highs also diverged against prices, rising to 827 on the NYSE.

So, the question becomes, was the rocket shot at the end of the day a reversal or not? Well, it certainly was not what you would call a Key Reversal as we did not finish above the prior day’s candle and heck, some of the indices didn’t even make it back into the green. But it did put some doji candlesticks on the charts and those can sometimes be bottom markers (used here I am talking about a short term bottom, not THE bottom). Those dojis usually indicate indecision, and the truth is that this one follows a 90%+ down day… heck, I would not have been at all surprised by a substantially positive day which Friday was NOT.

Thus, I will state right here that I cannot tell if Friday produced a reversal that will hold for awhile, it NEEDS CONFIRMATION, by proceeding higher from here. Compared to other reversal candles, this one is weak and not even in the same category as the prior ones over the past year that have stuck for awhile – especially considering candles like that on the Transports that doesn’t look anything like a reversal. Big reversals look that way across all the indices – this one does not, that’s because there was NO NEWS, no change of fundamentals at all that would change the underlying fundamentals nor the underlying psychology.

Remember the Bear Stearns save day? Fear spiked and then we were “saved!” This produced a clear reversal candle across all the indices. Heck, this time I don’t even see a spike in fear, at all. The Put to call ratio finished down at .87 (neutral but leaning bearish because too many are bullish), and the VIX finished down 1.7% and has yet to really break out of its range despite two months of declines. Wave 5 resignation? Perhaps. Wave 3 was much more sharp and laced with fear, whereas this is more of a grind, yet hugely damaging in terms of percentage and wealth destruction.

Heck, my own Martin/Mann Reality Index shows that $3 trillion worth of wealth has been destroyed in the U.S. markets just since the beginning of the year. How much has been destroyed world wide? That’s why the government’s actions cannot take root until the deflationary forces have run their course (chart is currently being worked on and improved - thanks Josh).

At the end of each week I usually will show you the weekly candle, but this week I’ll just describe it as being a big red one on all the indices that was pretty close to closing on its lows, overall. On the week the SPX lost 6.3%.

How’s the Advance/Decline relationship doing? I wish I could show you a total market chart, but I can’t. Remember that McHugh’s been touting a “massive” positive divergence? He’s just wrong about that – his mistake is that he’s using the top of the highs on one and the bottom of the lows against the others. In fact, what was a slight positive divergence on the NYSE is now neutral and there is a negative divergence on the AMEX with the Nasdaq about neutral too. Here are all three (the red/black lines are the A/D lines, the solid black are the corresponding index):



Nasdaq A/D:

Okay, so let’s dive into a 5 day SPX chart. Here we see what looks like a small ending diagonal followed by an end of day ramp. Well, I’m sorry to report that there had better be more than that and soon on Monday or the bulls are just living on HOPE again. But, the most positive thing I’ll say is that this fits my primary wave count as being the end of wave 5 of 5 of 3 of 5. Then again, that ramp job at the end of the day could be micro wave 4 of 5 of 5 of 3 of 5, and if so, there is one more small wave down to finish wave 3. Our alternate count, however would have us in 3 of 3 of 5 with quite a ways to go. Frankly, that ending diagonal doesn’t look right and it’s not large enough to be on a larger scale, so I have problems with it. Point wise, the decline does fit into the larger framework, so again I think we just need to see what happens on Monday. The stochastics are overbought on the 5 and 10 minute timeframes, but just coming out of oversold on the 30 and 60 minute:

On the daily SPX we have a clean doji. That indicates indecision or consolidation. You can see its right in the middle of the down channel. The daily stochastic has crossed, but to be a valid buy signal, they must exit oversold:

The DOW daily is the same thing and you can see Friday was on slightly lower volume. Reversal days that stick are usually high volume affairs. Sorry, not there:

When I look at the NDX I see a candle that looks even less like a bottom marker:

The last chart I want to show is a P&F of oil. On Friday it produced a positive breakout and a bullish target of $60 a barrel.


Overall, I see the potential for wave 3 of 5 to be over. If so, we should move up/sideways for a couple of weeks to etch out a wave 4 which should be followed by wave 5 of 5. We need immediate follow through for that to be the case. Otherwise, we are still in the channel and may have further to go before 3 of 5 completes.

I was conversing with Seth about his love for poetry (he likes Jim Morrison for that) and I mentioned that I also appreciate musicians that can put poetry to music - definitely a rare and difficult art form to get right, something that is probably not fully appreciated. One of my favorite songs is the Moody Blues “Nights in White Satin.” The song was officially released in 1967, but had some difficulty getting to market as it was more than seven minutes in length. The recording industry doesn’t like songs that long, of course, because they don’t fit radio format (and they exceed the attention span of most people). So, they did two versions, the long one with the poetry at the end, and a short one without. The short one is what most people hear, but it’s the last two minutes of the extended version that I think are the best (btw, I've seen them several times in concert, the last was 15 years ago at the Puyallup Fairgrounds, WA. This song is one of my top all time classics).

The Moody Blues - Nights in White Satin 1967:

Moody Blues - Nights in White Satin (extended version):

Best part of the song from 5 minutes on:

Breath deep
The gathering gloom
Watch lights fade
From every room
Bedsitter people
Look back and lament
Another day's useless
Energy spent

Impassioned lovers
Wrestle as one
Lonely man cries for love
And has none
New mother picks up
And suckles her son
Senior citizens
Wish they were young

Cold hearted orb
That rules the night
Removes the colours
From our sight
Red is gray and
Yellow white
But we decide
Which is right
Which is an Illusion