Wednesday, May 6, 2009

End of Day 5/6

I am writing an update this afternoon as it is the first time in a while I have seen signs that some form of a top could possibly, maybe, might be at hand? Did I mention maybe, and that it depends on the game du jour from Goldman? And, if indeed it proves to be a top, then yes, I will take full credit for calling it. However, I reserve the right to deny calling it because I added so many caveats. Am I clear? Did everyone bet their life fortunes on it? Good, because by calling it both ways I will be able to point to either my top call or my caveat, and be right either way! Where are we seeing that trick? Just remember, monkeys pick their bottoms, only crazy anti-establishment bears would pick their top.

Okay, today the SOW, I mean DOW finished up 101 points, the S&P finished up 1.7% at 919, the NDX finished almost exactly FLAT, and the RUT finished up .5% at 505. A lot of Seth qualifying numbers there, just to point that out.

The XLF gained a fraudulent 7.96%, IYR gained 3.35%, and GLD gained 1.5%.

The internals were positive on the NYSE with about 2.5 to 1 advancing issues and 75.5% of the volume on the up side. The number of new lows diverged slightly against higher prices by climbing to 9.

So, despite all the “greenshoots,” this market is way, way overextended and I see signs that today the rally could be in trouble. First of all notice that the prior leaders, the NDX and the RUT did not lead today. In fact, the NDX barely finished positive after being down most of the day. The internals were positive, however, on the NDX.

Let’s take a look at the percentage of stocks above their 50dma… (again, ht Maize). Below is a chart showing that this indicator is at the highest level of the past year, a full 2 standard deviations above the mean:

And looking at a 3 year version of that chart, you can see that the percent above the 50dma is higher than even at the peak of mania in 2007:

The SPX created what looks like another potential ending diagonal on the 10 minute chart in blue. Note the stochastic on this timeframe is neutral, and that there may be a slight bit higher to go in this diagonal, but when I look at the daily candles, I doubt it:

On the 30 day, 30 minute chart you can see the latest pattern and that the stochastic is overbought. Here you can see lower RSI on higher price, a bearish divergence. The 60 minute stochastic is also overbought:

Now let’s look at the DOW daily. Here we see what appears to be a very bullish candle on much higher volume. Note that the close was above the upper Bollinger where it has closed for the past 3 days. The daily stochastic is deeply overbought as it is on the weekly as well. You will find a similar picture and candle on the SPX, so I won’t show that:

However, when we go over the ETFs and look at their candles we see something quite different. The SPY daily candle is a perfect clear air hammer above the upper Bollinger. This is a candle I would short and be right a high percentage of the time. Again, the volume is higher, but that’s not uncommon for what could be a mild case of buying capitulation:

Now let’s look at the DIA candle. Again, same thing and I would short that, but I would not stay with it on any price higher than the body of that candle:

Now let’s look at the NDX. A black hammer up against the upper Bollinger. Not completely free air, but close enough to look like a potential reversal indicator. Again, it will need confirmation in this trumped up, over-hyped, fiat market tomorrow:

And look at the XLF. Way above the upper Bollinger, way overbought:

And here’s IYR. Again a hammer and way overbought:

Here’s GLD… a hammer exactly on the 50DMA with the 50 descending and the 100 rising. (USO, btw, is above the upper Bollinger and getting close to resistance):

And in the bond market, TLT after producing three hammers in a row produced an inverted hammer that indicates bonds may rise up the stem tomorrow and that would normally mean declining equities, but that relationship is manipulated in this environment of course:

So, that’s my case for lower prices tomorrow. If prices rise above those hammers, I would NOT be short. And if I am right about tomorrow and prices decline, I do not have the slightest clue as to how deep or how long a decline might go. Sorry. You know me though, I think the market deserves to be much, much lower than here on a fundamental debt infested, cockroach lead, dead bank fed, anti-rule-of-law, basis.

In other words I think this rally could be in trouble…

Lindsey Buckingham – Trouble: