Wednesday, July 22, 2009

Morning Update/ Market Thread 7/22

Good Morning,

I’m back, and I’ll be ready to hit the posts again just as soon as I wade through hundreds of emails! Boy was it ever nice to leave the “financial engineering” behind for a few days and be out in nature! I have a couple of articles by others to post and I’ll get those up as soon as I can today. I also have a short anecdotal economic article I want to write regarding a small town I stayed in on my trip and I’ll be working to write up a “trip report” with a few pictures and a short story as we did get a lot of good pictures.

I’m not really caught up on the news yet but I did get to quickly go over the charts, so let’s talk about the technical landscape that I see at first glance…

First of all, the futures are down pretty hard this morning, here’s the overnight action in the DOW and S&P futures:

Looking at the longer tern charts, the most glaring thing I see is that the DOW Industrials made a new high yesterday as what appears to me to be wave c of B continued. You can see that we closed above the upper Bollinger yet again. A close back beneath the upper Bollinger will be a market sell signal when it occurs, which may very well be today. You can also see that we are way overbought on the daily stochastic. Exceeding the height of the previous “head” invalidates the prior bearish Head & Shoulder Pattern, the first time I have seen that pattern fail in this bear market. However, when you look at the volumes, they are still quite low compared to the volumes seen during the last declines:

A big warning for the bulls is that the Transports did NOT make a new high with the Industrials yesterday. In fact, both the Transports and the Financials were down yesterday, diverging against the rest of the market. Note that the Transports finally had the 50dma cross above the 200, but the oscillators are way overbought here as well. Yesterday’s candle is a red hammer giving you a clue that a reversal could be at hand but needs downside confirmation from today’s action:

The SPX produced an outside hammer yesterday which looks like a pretty good, but obvious, topping candle. Reversal needs to be confirmed by today’s action and so far the futures seem to be pointing that way:

The VIX produced an inverted hammer yesterday that is also outside and looks like a potential reversal indicator. I think we’re going to see a downtrend here if it’s confirmed, but I’m not sure how long that downtrend will last. Watch the VIX this morning, it should be telling:

Bonds rose pretty hard yesterday and that was divergent from an up market as well.

There was a historic eclipse yesterday across much of Asia, particularly in China and India. Could that mark a turning point in their markets? Could be, I’d be careful about being long right now, especially China as their rebound rally is WAY overdone.

Well Fargo I see got to mark their assets to their own fantasy and declared themselves to be profit makers like most of the big banks have this quarter – their stock, however, still got racked for more than $2 last night. Morgan Stanley, however, did not “make money” and missed expectations – they too got hammered in overnight action and are down significantly.

Thanks to those who keep the comments going on the market threads, I really appreciate it! It’s nice knowing that I can get away for a few days and still have a small community of people sharing their thoughts and observations.

Three Dog Night - Out in the Country (Whenever I need to leave it all behind or feel the need to get away…)