Thursday, April 2, 2009

End of Day 4/2

What a zoo. The very people who are supposed to set standards for accounting rules are being overrun by bankers and politicians. Meanwhile the Administration, not an adult among them, heads to the G20 where they all stroke each other with yet another freshly minted trillion. Definitely no adult supervision, and we WILL pay the price in the long run although it sure felt like a fun party (with riots outside) in the short run. Our economy appears to me to be nothing but a teenage wasteland!

The DOW gapped up at the open, rose to a little above 8,000 and settled at 7,978 for a 216 point gain and a new high for the rally that has gone on now for nearly a month with no legitimate pullback. The SPX gained 2.9%, the NDX 3.3%, and the RUT with 4.9%.

Nearly 7 to 1 issues advanced on the NYSE with 91% of the volume on the upside producing yet another panic buying day. Boy, that leaves me with an edge of the cliff feeling, not a solid and rugged base. Still too many believers, too much money, and too much of a rally to be outside of a bear market.

Along those lines, keep in mind that we are in an area of heavier resistance, and still a ways from breaking out to a new high (above 878). While today was obviously a bullish day, we are overbought (still and again), and I see the potential for some “island” candlesticks should the market go lower tomorrow. Some of the financials, like GS, have them and if they are confirmed tomorrow then they will be shooting stars (only on a gap down). The gap down may not happen after RIMM’s report that exceeded estimates and sent its shares zooming 20%+. We’ll see, it was apparent there was some nervousness just prior to the close.

And everyone’s all giddy about the G20… TRIPLE the size of the IMF, it’s GREAT for emerging markets (if you don’t mind being a debt slave)! And more regulation for everyone! But what about the debt? What about the toxic assets? What about the derivatives? Ahhh, the accident that involves you is almost never the one you see coming.

And while I’m mentioning emerging markets, EEM jumped 5.4% today with a huge gap up. Here’s a 1 month chart, you can see that today’s candle is isolated above all the others. That sets up a potential shooting star with a gap lower, but this candle is more bullish looking than the one on say Goldman, although there are many others. This particular candle is on a resistance area from 3 months ago. It’s also on higher volume which is common with shooting stars and also note that it’s up against the upper Bollinger:

Now let’s look over the SPX starting on a 20 day 30 minute chart. Here you can see the down slopping blue trendline that comes off the Nov/Jan highs – we threw over it and closed just beneath that line and just above the prior high. The pivot above is at 848 and we nearly got there today, close enough to say that pivot turned it away. Note the stochastic on this timeframe – the fast is mid-range (McHugh would call that indecisive) but the slow is just coming down, I would call that bearish. The 60 minute is overbought and just coming down on a fresh sell signal, also bearish in the short term, but the 5 minute is oversold, so a little rise followed by a turn wouldn’t surprise me tomorrow from what the stochastics are saying (they haven’t been that much help lately):

Zooming out to the one month daily, we can see that the SPX finished just above the 100 day moving average – that’s bullish if it can hold it. There’s that blue trendline, we threw a pin through it and pulled back. The daily fast turned up from the 50% area which is the most common place to turn if it’s not going all the way to the bottom, and that’s bullish in the short term. Note that the bottom Bollinger is turning up steeply now and has already risen to the 690 area. That’s an indication that any sell off will have problems making a run for the old lows. I don’t think that happens right away, I think we get a mild retrace and possibly another run higher – no, I don’t think we’ve had a valid pullback yet to qualify as a wave B:

Zooming still further out to a three month daily, we can see the layers of Fibonacci retracements from each of the peaks. Today’s rally was stopped by the confluence of the prior high’s 78.6% and the January high’s 61.8%. The red up slopping line across the chart is the bottom of the old big pennant. Remember that?

Now that you’ve seen that bullish looking SPX candle, let’s look at the SPY… now that’s a different looking picture! That is a top looking candle, a big time potential shooting star that is right on the 100dma and on higher volume. Bulls had better pray for a higher open tomorrow, a gap down would confirm the shooting star. The DIA is basically the same candle. It’s also possible that if we don’t gap lower that we move sideways for a while creating a multi-day “island” with the gap below. Again, be wary of a gap lower in the morning, that would be very bearish (the Q’s are in the same boat):

The DOW daily looks like the SPX, except here we pinned the 100dma and pulled back beneath the original channel line. Again, the DIA looks like the SPY, not like this and is vulnerable to a gap lower open:

The XLF has an ugly black candle with a gap beneath. This is less of a shooting star because of the candles behind it, but a gap lower here would be bearish nonetheless. Note that the XLF and IYR failed to exceed their previous peaks:

Yesterday I pointed out the hammer on TLT that was on the upper Bollinger and said that if it reversed it was bullish for the equity market. That turned out to be the case and the clue of the day. Now what? Follow through from here? Bonds down usually means stocks up. It’s a confused picture here, one that’s been muddled by intervention. At some point it’s all going to make sense and I’m afraid it’s not going to be pleasant when it does:

I also pointed out GLD’s hammer yesterday and mentioned that a break beneath was bearish and man, was it ever. All the way down to the bottom Bollinger with a spinner on higher volume. I heard something about the ECB selling gold today, just incase the inflationistas wanted to run the price on them throwing money all over the planet. Just a reminder that the gold P&F chart is targeting $870:

Possibly today’s clue, the VIX produced a hammer right on support. The VIX is not as reliable for TA work, but that looks like a potential bottom indicator. It’s outside and on support. You can see we made an inverted hammer I pointed out a few days ago and it produced a huge gap up. The fact the VIX was down only a half percent is a bearish market divergence. A gap higher here would make shooting stars in some of the equities:

The Put/Call went down to .69. Gee, everyone’s favorite number, perhaps it’ll have meaning? That’s a way low reading perhaps another clue:

What can I say? The world is awash with debt and derivatives yet none of the actions of the world’s leaders are working to clean any of it out of the system. Quite the contrary, they are working their damndest to push more into the world. It’s nuts, it’s literally insane, it’s like we’re being lead by groupies in a teenage wasteland.

The Who – Baba O’Riley (Teenage Wasteland):

Pete Townshend - Teenage Wasteland (slow and more adult version):