SPX Flagging

Fri Feb 27, 2009 4:45am EST 3

We had 3 bank failures in 2007. We had 25 in 2008. So far, we have 14 YTD 2009. The FDIC’s troubled bank list now contains more than 250 institutions. How many banks will fail in 2009?

Have you noticed that when a politician speaks, such as Obama, Bernanke, a bunch of senators, or the occasional Geithner, the market trades in a neutral bound range? It’s a coincidence. It’s important to note who is speaking and when. For example, both the Boston and San Fran Fed Reserve bank presidents will be speaking later today. Have you noticed that Obama has been speaking almost every day? The market trades in a consolidation waiting for clarity, to find a direction at least for the day. It is dangerous to be rapidly trading in these environments. For days now, I have advised against it.

The SPX is still boxed in despite the intraday breakdown. This brings the market to a neutral status where I expect consolidation between 740-780. I warned that the market is flagging and it is very bearish sign. Each day that passes where the market trades in this range, the sooner the market will be able to continue to the downside. Most notably of the three indices, the COMP is the last to test it’s low. This divergence will soon be corrected. The probabilities for a downside move (over several days) are higher, simply because they are continuation patterns in most cases. Be careful trading in this range. There will be continued whipsawing.

We have GDP Q4 in the morning (8:30AM) in addition to the Chicago PMI (9:45AM) and Consumer Sentiment (9:55AM). I am 100% cash, so again, I could care less. Trade the reaction, folks.

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Failed Intraday Inverse H&S/Boxed In

Thu Feb 26, 2009 1:07am EST 9

I did not do much today and only rebalanced my existing minuscule long/short positions. The market is once again boxed in after failing to hold the inverse h&s pattern. This time, they do not involve the major moving averages. You can take a look at the 10-day SPX chart to see that the SPX is at overhead resistance around 780, support at 755, and a lot of whipsaw in between. I will personally be waiting for an exit from this box to load up on positions.

On the daily chart, if the market flags down here, then the chances of going many more points lower is well above 90%. It’s almost a near certainty. This is why the market needs to spike higher to avoid flagging down at the lows for a meltdown set-up. We formed a doji yesterday which is more of a 50/50 day (not good odds). There’s no rush. Really.

Still reading “When Giants Fall: An Economic Roadmap for the End of the American Era” by Michael Panzner (Wiley, 2009).

[youtube:http://www.youtube.com/watch?v=Ztvtga20D5A 450 300]

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“Possible” Inverse H&S Forming

Wed Feb 25, 2009 1:34pm EST 10

We’re seen these things fail many times, but it’s possible. The symmetrical triangle is due to Ben’s congressional testimony. Whenever the Fed or the Treasury have scheduled or unscheduled meetings, you’ll usually see the day form as a doji/inside day/or any of the technical triangles. You see this occur almost every time of FOMC days. I just look for the breakout of breakdown from the consolidation in response to how the market reacts to the words spoken.

3-day chart SPX

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Pipe Bottom or Pipe Dream?

Wed Feb 25, 2009 7:49am EST 11

Remember that pipe bottom we had that formed the November lows? It’s possible that we made one. I cannot say with as much certainty for this one because you can compare the volume levels between the two. If you don’t know what a pipe bottom is, notice the red and white long candles in November and how they “canceled each other out”. They are effective short-term reversal signals.

I am expecting to swing long this market and enter longs on any decent pullbacks. If you look at the 10-day chart, we formed a cup, and the question is “do we form the handle on it or breakdown like a dumped gf”? This is why I like to wait for a successful test of the handle, if there is one. On the breakdown, I will add shorts. It’s simply not easy to tell at this point.

Either way, there is quite a bit of significance to the move that occurred yesterday. First, it canceled out Monday’s losses. This at least gives the market some hope for a bounce. Second, the bounce occurred on the lower trend line of the DJIA’s down sloping channel, the COMP bounced off of 1400, and the SPX on the 740-750 major support level. This gives added significance to the move. The downside to this? Someone can open their mouth and plunge the markets immediately.

I have no comment on Obama’s speech yesterday except for the fact that there were A LOT of promises made. I don’t know man…

I’ll be taking it easy today due to my swollen mouth (double root canal yesterday + the ‘feel good’ drugs I have to take).

There are quite a few people who don’t know much about TA. I am writing a 25-article series for WSS that will cover most topics on TA. Here are the articles I’ve written so far:

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Individual Index Analysis

Tue Feb 24, 2009 6:03am EST 6

Yesterday was boring. I did make some adjustments to the existing small short positions I had and I broke even for the day despite my original thinking and despite the fact that I had a 10% BAC long position from Friday. The technicals said that we we’re going to gap up and maintain momentum higher. That obviously did not happen and it shows the importance of keeping an open mind to all possibilities. I am net short with a large cash position.

I am aware that we have been down for 6 straight sessions, but know that the MSCI World index has been down 11 straight sessions, so heck, who knows, anything is possible. There are some things to note though on the individual indices.

First, the SPX closed 2 pts above the Nov low, which was 741.02. Volume indicates that we have not yet seen capitulation for all the dip buyers at the top. This sell-off is so slow and the buying is so weak that I’m questioning both sides of the market. Typically, the best thing to do is to have a large cash position available.

Second, the COMP is divergent with the SPX/DJIA and has yet to test it’s own lows (Nov low: 1295.48). The volume is definitely not capitulatory and there is a lack of selling pressure. I see more downside room for the COMP, and by default, the SPX has more downside.

Third, the R2K, after the SPX, is likely to test it’s own low (Nov low: 371.30) next. I also see more downside room for the small-caps.

Fourth, the DJIA is broken and it’s the first that’s going to the abyss. Take a look at the comparison of the 4 large bears. This makes me wonder – we may actually be starting a new primary leg down on the DJIA. It is possible and I won’t rule out it. The DJIA did break and close below the 2002 low (7197.49).

Where is the selling (the fearful and panicky type)? Long investors, when are you going to puke it all out? I remember the days when we would get huge gap downs, effectively marking capitulation, and a rush of buying would come in to mark a bottom. You also had cases where there would be huge massive intraday reversals that completely wiped out all losses on huge volume days. Those are the reversals you want to be buying, not the dips on a slow meltdown.