Wednesday, April 22, 2009

End of Day 4/22

Tricky bear market, just enough to suck you in and then turn right around and pound you. Bear markets like this have been the ruin of many a poor boy!

There were a lot of earning reports out today and a lot of news in general, I appreciate everybody’s input on the daily market thread, that made it a lot of fun, thanks!

Both AAPL and EBAY reported better than expected results after the bell and both stocks are higher; however all the index futures are lower as of right now. Quite a few more earnings reports tomorrow, so it should be exciting again.

Yesterday I mentioned that I thought we may run to 857 this morning, but we got the head fake lower on the open followed by a run up to 857, which is the 61.8%, then a throw-over by a few points (another head-fake), followed by a collapse in the last half hour. That was very typical wave 2 action and the late day sharp selling looked like the start of wave 3. If so, I would expect some follow-through tomorrow as the short term stochastic indicators sure look like that’s the set up.

Today the DOW finished down 82.99 points, the S&P finished down .8%, the NDX Gained .3%, and the RUT gained .1%.

Internally, advancing issues outnumbered declining issues on both the NYSE (a slight bullish divergence) and Nasdaq, while down volume did outweigh on the NYSE by 57%.

Let’s begin on the charts with the 10 day, 10 minute SPX. Here you can see Monday’s large decline is wave 1, yesterday and today’s rally were wave 2, and it looks like we have begun wave 3 down, most likely of wave 1 down. Note the 61.8% throwover into an ‘M’ top and decline. I drew in a tentative new down channel in blue that comes nicely off the red, now confirmed, ending diagonal. The 10 minute fast stochastic is oversold already, but the 30 and 60 are still just coming out of overbought with a lot of room for further descent:

I’m going to show you the SPY daily over my SPX chart just because it’s cleaner and has volume. You can see what looks like a gravestone doji… I prefer to see that in clear air at the very top, but it is very near the top of this 6 week run. Today’s volume was heavier than the past few days. The Daily stochastic fast is already a little over half way down and the slow is just exiting overbought. My settings have a fast fast and a slow slow. I do that intentionally, I find it’s more useful than having them both together. Usually by the time the fast reaches one extreme, there is a mid point headfake but the slow is not fooled and by the time the slow gets overbought or oversold it’s usually the real deal:

Here’s the S&P Point & Figure diagram… Monday it triggered a fresh sell after falling way short of its prior bullish target. New bearish target is 780:

The DOW finished beneath the 100dma and beneath 8,000 again. Despite the fact that it is still near the highs, you can see that the fast stochastic is already approaching oversold, but again the slow is just coming down. Volume was slightly lower here, but slightly higher on DIA:

The DOW’s P&F chart also tripped a bearish signal on Monday, the initial target is 7,400. Both the NDX and RUT have yet to go to sell signals, and I was noticing that the BKX did trigger a bear target but the XLF is still on a bullish one:

The XLF chart, however, produced a gravestone doji… the position is not perfect, but I would consider its positioning to be bearish, but it is inside the prior day’s candle:

The VIX produced a near perfect hammer today, this formation looks bullish for the VIX which would be bearish for equities:

Here’s about the last 4 months on TLT, the 20 year bond. You can see its been trading in a sideways range for the past 3 months. The lower boundary near 101 is what I call Bernanke’s line in the sand. Of course he’s not buying bonds in this time frame, but when the ten year gets into a corresponding range, we either see intervention or we see stocks decline which relieves the pressure on bonds. You can see that we touched 101 perfectly just prior to today’s late day selloff. The big white candle in the middle was the day Bernanke announced he was buying via Quantitative Easing. So, if stocks continue to sell off then interest rates can stay low, but any further rally in stocks is likely to pressure bonds and give Bernanke problems. I think the gun is running out of bullets. Guarantee that a break below 101 here would cause big problems in the not to distant future. Watch this formation, I would think that a break one way or the other would be violent. My personal belief is that they would rather let stocks go than face higher interest rates and NO, they cannot possibly buy every bond there is forever:

That’s about it tonight, again I think the set up is for lower as we correct 6 weeks of manipulated financials rally – not to mention nearly 30 years of the greatest credit bubble in the history of mankind. I really appreciate the good participation on the thread today, thanks. Here’s one of my favorite old tunes from the Animals. It’s hilarious to me how young Eric Burdon looks. He reminds me of little Timmy Geithner in that regard – lol. He didn’t match his voice until he was 40, and Geithner still doesn’t! They don’t make videos like this anymore, that’s for sure, but then again, very few original songs are as good as this either – of course I may have a little age bias there… naw.

The Animals - The House of the Rising Sun (1964):

There is a house in New Orleans
They call the Rising Sun
And it's been the ruin of many a poor boy
And God I know I'm one

My mother was a tailor
She sewed my new bluejeans
My father was a gamblin' man
Down in New Orleans

Now the only thing a gambler needs
Is a suitcase and trunk
And the only time he's satisfied
Is when he's on a drunk

Oh mother tell your children
Not to do what I have done
Spend your lives in sin and misery
In the House of the Rising Sun

Well, I got one foot on the platform
The other foot on the train
I'm goin' back to New Orleans
To wear that ball and chain

Well, there is a house in New Orleans
They call the Rising Sun
And it's been the ruin of many a poor boy
And God I know I'm one