Monday, January 4, 2010

Technical Update…

Sixteen of the past eighteen Mondays have been up, today was obviously a part of that bizarre trend. On the day, the S&P gained 1.6%, closing at 1,133, the DOW rose 1.5%, the NDX gained 1.4%, and the RUT finished the day leading with a 2.4% jump. The dollar was down significantly, oil closed at $81.57 a barrel, and gold up at $1,121 per ounce.

There were 322 new highs on the NYSE and 1 new low. Not as high as the 404 we had recently, but once again at levels only seen near tops. NYSE upside volume came in at 86%, advancing issues at 77.7%, indicating that the buying was strong but not panic. The volume levels rose over last week, but were still overall quite weak. The indices finished with the 60 and 30 minute stochastics overbought, and there are new and very clear RSI divergences on the 60 minute chart to go along with the daily time frame divergences.

The current support pivot is at SPX 1107 with overhead at 1,133 which stopped today’s rise. Of course 1,115 is the SPX flag top and it acted as a springboard for today’s rocket launch. SPX 1,090 is the next lower pivot and 1,168 is the next higher.

The obvious, probably too obvious, SPX target is 1,200. You can see the flag in the 3 month daily chart below:

On the longer term weekly SPX chart you can see that we have retraced just slightly more than 50% of the bear market losses. The 1,200 flag target is up near the top of the old rising wedge, and 1,227 is the 61.8% retrace of the bear. Here you can see that the weekly stochastic has been overbought for months. There’s actually a small RSI divergence even on this timeframe, a rare occurrence:

Here’s the DOW daily, it managed to climb back into the rising wedge, non log chart only, and back above the top of its flag, right to the top of the upper Bollinger. It is a new closing rally high, but the volume is less than convincing:

The XLF managed to climb strongly, something it hasn’t done for quite some time. To me I see a pretty clear A,B,C type of move forming, this being wave C up. If C is the same length of A, it will make it up to close the little gap at about $15.40. We’ll see, this chart still looks weak, and while JPM and GS made moves today, there is weakness elsewhere:

Here’s a good example of that weakness, PHK, the Pimco High Income Fund (junk bonds). But the weakness seen here is not only in this fund, it is spread across several corporate bond funds. It would seem that someone knows something and is advising their clients to exit. Pimco put out a report that was pretty bearish this morning. As they put it, "You can only eat what’s in the cafeteria, and right now the cafeteria doesn’t have anything particularly appetizing in it." Stress like this in corporate bonds was seen prior to the top in ’07 and again in May of ’08:

Oil broke out of its latest formation and the Point & Figure chart picked up on the breakout producing a new target of $104 a barrel:


It’s freaky but the weirdo’s commenting on our economy call this a good thing! James Kunstler had a humorous quip this morning on the subject:
Yesterday, The Seattle Times published a story with the idiotic headline: Oil Touches $80 on US Economy, Demand Optimism. Apparently, they think high oil prices are "a good sign."

How much can a nation not get it? Would $100 oil ignite a new orgy of "consumer" spending and another round of investment in commercial real estate? Welcome to the Futility Economy. This is the economy where Nature and its material companion, Reality, punish us for our stupidity and fecklessness.
Up is down, right is left, and credit flowing out of control is good.

The bond markets hung right around where they finished last week. In the case of the TNX (10 year treasuries) that is just above the neckline of a two year H&S pattern with a now confirmed target of 5.8%. When achieved, that target will hit mortgage rates hard making houses all the more difficult to afford:

USB, the 30 year bond fund, is in about the same relative position with its massive H&S top as the TNX, except in this case price is on the right hand scale instead of yield. The H&S target is 90, while the P&F diagram has a target of 94:

Last year the SPX rose more than 2.5% on the first trading day of year, but by the 7th of January a decline began that did not let up until March. Bullish sentiment is at an extreme and there are huge market divergences in place… I am therefore practicing extreme patience and not chasing anything, although day or very short term traders may want to play long and if you do I hope you use good stops. Wall Street and their Monday up days game (16 of 18) leaves me in a New York state of mind…

Billy Joel – New York State of Mind: