Thursday, February 4, 2010

Post-Market Update

Today the DOW Industrials fell 268 points (2.6%), the SPX fell 34 points (3.1%), the NDX gave back 51 points (2.9%), and the RUT lead the way by losing 21 points (3.4%). Volume was substantially higher across the board – volume confirms price.

Oil lost 5.1% to close at $73, a huge move. Likewise, gold sliced through support, giving up nearly $50 in one day worth 4.3%. The dollar jumped higher and closed just a smidge under 80, bonds jumped as well, while the Euro was pummeled.

The internals were the nastiest in quite some time. This is an indication that today’s move is likely the beginning of wave 3 down of the larger wave 1. Ninety percent of the issues on the NYSE were decliners, and a tremendous 97% of the volume was on the downside. Bounces or sideways action are typical following such extreme readings, however, since this comes at what is likely the beginning of a wave, the selling may not be done and much will depend on tomorrow morning’s employment situation report for the month of January.

The number of new 52 week lows is beginning to pick up again, now at 13. It won’t take too much more of this action before they start to rise in earnest and that could set up the possibility of a Hindenburg Omen down the road, possibly in a few weeks.

Let’s look at the damage done to the charts.

On the 3 month daily chart of the SPX you can see what is clearly a very powerful down move that landed nearly on the bottom Bollinger which is now pointed steeply downwards. A larger channel is beginning to emerge and prices ended just above the 1,061 pivot point. The next lower pivot is at 1,041, the next higher is 1,090 but there is now strong overhead in the 1,078/ 1,080 area:

If we zoom into a 30 minute SPX chart, we can see the channel more clearly. It looks to me as if we received a very weak wave 2 retrace that went just above the 38.2% and now we have entered wave 3 down. Yes, rules allow for some type of flat formation, but I think the internals are not suggesting that. Note how deeply oversold the oscillators are on the short time frames:

Below is a 3 month daily chart of the DOW Industrials. They landed just above strong psychological support of the 10,000 level. That is the most bullish thing I see. The down slopping blue line is the old bear market downtrend line that we broke and are now coming back to. The volume is higher on the down moves and is more pronounced in the other indices:

The DOW's P&F chart produced a bearish target of 9,350:

Here’s a shot of the Russell 2000 which led the way downward today:

The XLF is coming up on key support here. A breakdown below this level will be bearish. Note the rising volume:

The dollar is at the 80 area, there’s a gap in the 81 to 82 area that is just begging to be filled. This is a very powerful move, continuing to move higher despite being overbought. Remember how many people were short the dollar? Remember about lopsided trades, when they get too far to one side, they MUST go the other direction, at least for a while, and nothing moves in a straight line:

Gold broke hard through support and the gold P&F chart produced a new bearish target of $930 an ounce:

The VIX made a powerful move upwards, again shadowing the third leg of the move. The upper Bollinger is moving upwards and out of the way on this 3 month chart:

Here is a two year chart to give some perspective of the VIX. Pretty clear example of a bottom megaphone, that is bullish for the VIX, bearish for equities:

Tomorrow’s action should be another clue to what’s transpiring, the jobs data with its revisions will also be important. Pretty uninspiring to see such large corrections in the data, every such occurrence is another blow to credibility and confidence. Here’s what the bulls are singing this evening:

The Band & Neil Young – Helpless:


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