Thursday, May 21, 2009

Morning Update/ Market Thread 5/21

Good Morning,

Futures are down substantially this morning following yesterday’s Key Reversal:

A Key reversal occurs when the price action of the day exceeds the previous day’s high, and then goes on to close below the previous day’s low. That occurred Wednesday. These bearish key reversals usually occur at the top of uptrends, the opposite can occur at the bottom of down trends.

Here’s a chart of yesterday’s SPX:

And here’s a chart of yesterday’s DOW. Note the much higher volume as well:

IYR also produce a Key Reversal while the XLF produced what looks more like a “dark shadow” as the day’s high did not exceed the previous high and it closed substantially below the previous low.

Beware today as all the short term stochastics are oversold, almost exactly the opposite of yesterday, so there could easily be some type of rebound higher later in the day. That said, if the rebound rally we just experienced was wave 2, then yesterday was likely the start of wave 3 down and therefore the down move may be more powerful than most people expect.

Here’s a 10 day chart of the SPX showing the wave 1 down channel, the red wave 2 up channel and we are well beneath that now:

Jobless claims for the week prior fell slightly to 631,000, still a very deep and troubling number. Continuing claims soared to, get this Seth, 6.662 million people!

We still have the Index of Leading Indicators and the Philly Fed data coming out at 10 Eastern.

Have a good day,