Spikes – What to watch for (long & short)

How long does this rally last?	1-2 more days Till friday Mid next week end of next week 2 weeks 3 weeks 1 month 2 months 3 months This is the ULTIMATE bottom!!!
	Current Results

So, my current allocation is 22% long/10% short/RIC. Nothing special, I know that. I didn’t remove my existing shorts, but I plopped on double the longs at the open. There will be a point where I do go massively short, for only 2 days, and that will come very soon. This is to catch the top end of the spike for a quick double-digits, and then, who knows what happens? We could head higher or lower, I simply do not know what will happen. If you missed the entire rally and are planning to go long tomorrow for a swing, then you might be better off waiting for a major pullback – just a thought. You do not have any buffer to protect yourself against one up here.

As for the short signal, for a 2-day short spike play, I need to see a number of reversal candles, such as doji, hammers, shooting stars, black-filled bearish gap ups, dark cloud covers, etc., combined with resistance at a MA such as the 20- or 30-day, and short-term technical overbought levels. Combine these three, and the short-side Spiker™ is highly successful when nearly all components of the sector exhibit similarities. It’s obvious which sector best qualifies (hint: you make deposits in these).

On bottoms – bear market bottoms are carved out over a lengthy period of time. It is proper to assume that this is another bear rally, until it isn’t. On a technical level, a bear market is over when the market is able to breakout above and stay above the 200-day MA, which is over 335 pts on the SPX. On the short-term, there will be significant resistance at 745-750, which is the location of the November lows, and the 20-day MA. Depending on what happens at this pivot point, we could head much higher, or make a new low. Right now, enjoy the long side and I’ll alert you to the day to short the Spikers™.

Near-term resistance is at the green lines drawn on the 10-day chart. The red line is the 10-day MA.

On a personal note, I adopted a black lab puppy, and will be giving it away in the morning to a trusted friend. He is TOO MUCH WORK, but it was fun while it lasted.

The market was flagging all day long in a downward channel. As a multi-day/week holder of shorts and cash, the actual shape of the channel and 2-day flag/flagpole means a lot to me. In fact, the last few minutes should have determined a highly likely scenario for the next day, but it looked 50/50 to me. I simply saw no rush to “load up on longs”.

Mathematically, slopes have very high importance to the technical flag pattern. I’d say that today’s flag had a negative slope of around -0.60. For me to give consideration to a potential Spiker™ play, I like to see a slope of between 0 and -0.30, and no positive slopes. Deeply negative-sloping flags increase the chances for failure to the downside. In addition, the length of the flag is also critical. I will give the market one more day to figure it all out.

Not only that, we are in a very slow and boring measured move down on the 1-month/60-min chart. We are still in a downward move until there is a force spike to the upside well above the upper area of the channel. What’s interesting to note is the dried up volume today. Compare today with the past several weeks. It confirms that we are temporarily consolidating here.

Another interesting note is that the COMP has finally caught up with it’s brothers and is making the habit of making new lows on a daily basis. This was a divergence several weeks ago when the COMP was noticeably outperforming the SPX, which was falling off a cliff. Today’s COMP close is entirely under the November intra-day low, an intermediate-term breakdown.

Something to think about: during the Dot-Com crash, the COMP lost -83% during 3/00-10/02. If you round up all the S&P financials, they lost -84% from 2/07-3/09.

The “Crisis Map”

Will getting rid of mark-to-market actually help bank stocks?	Yes, banks will fully recover as a result. Yes, but only temporarily. Hell no, are you kidding me? They’re dead. I don’t know, man.
	Current Results

Global equity markets (all are in a short-term, multi-day consolidation):

NYSE & NASDAQ Advance-Decline, New Highs-New Lows, VIX:

DJIA, SPX, NASDAQ, R2K 15 year long-term weekly charts:

TrimTabs Weekly Inflows/Outflows (mostly outflows):

Nothing has really changed, so I’ll keep this short. We are still in this downward channel, which can either be 1) part of a bottoming process or 2) another primary leg down. If you don’t know what a primary leg is, then you can read an old article I’ve written on my 3rd tier blog. The lower Bollinger band and flagging action suggests that we still have more downside from this point, despite the fact that we are oversold. I wouldn’t commit all capital to shorting, but rather wait for the major reversal day (whenever it comes) and commit to a full-scale long position on a major spike on massive volume.

As for the employment situation, the consensus is a -648K M/M change, with a range of -800K to -500K. The previous reading was -598K. The unemployment rate is projected to be 7.9%, with a range of 7.8% to 8.1%. The previous reading was 7.6%. I’ve stressed this before, but the monthly employment situation report is the most important economic report. Let’s see what happens!

On another note, 50,000 NYCers protest the budget cut. Next up, riots.

When will the recession end?	2009 2010 2011 2012 2013 2014 2015 2016 2017 Never. America is finished!
	Current Results

I am in over 90% cash, so I have no bias toward either side, long or short. The reason is because I see conflicting signals. A good example of a high probability reversal to the upside is GE on a gap up. However, if you look at the XLF, it’s obvious that the financial sector will once again drag this market down. Financial volume has been weak for the past three days, which doesn’t confirm a sustainable reversal and besides, look at the market carpet below. If you look at GE’s volume, combined with oversold indicators, the hammer reversal, and the lower Bollinger bounce, then it’s likely that GE will be up. See what I mean?

Instead of holding overnights, I elected to observe the open and see what happens in the first 30 minutes (as always) today. For bounce names, I am looking at the insurers, and possibly some cheapies including, but not limited to, PNX, RDN, FOE, HW, and MIC. It all depends on what happens in the morning for Spiker™ classification. In the event that we head lower, you might as well hit various financials since they are still the absolute weakest sector in the S&P. We are still in a neutral range (so far) and I’d like to see some quick multi-day decisive action take place.

I want to express caution here as we approach March 2nd’s opening gap resistance (which was already tested yesterday). I will focus on the 724-735 zone as overhead resistance. I won’t short much unless we breakdown from the flag, but at these levels, it is too dangerous to short in large amounts. It is also dangerous to go considerably long. Personally, I found no reason to trade yesterday (as a primary swing trader), so I watched a movie (Running Scared), and caught up on reading my first non-financial book in 2009: The Audacity of Hope by the “O-Man”. Unfortunately, I cannot trash the book because it was a gift from mom.

Looks like we will get a small bounce this morning. I am waiting for a nice sized bounce, preferably an inside day, to add short positions. There is no way I will be loading up down here. Likewise, people who are going long should be aware that we have not reached a capitulation point. If the day does end positive after a gap up (no more than +2%), then the chances of going ‘largely short’ are high.

Take a look at the 5-month chart of the SPX. Volume is picking up and it is supporting the selling. Although this “sell-off” has been very slow, if you know what I mean, there is enough volume to back it up. At some point, we will hit capitulation and form a short-term bottom.  When the reversal day does come, it will be blatantly obvious. Either you wait for a bounce, or you go long on the reversal day. I plan to do both.

From a swing trading perspective, I have no other charts to offer, because we are in ‘uncharted’ territory with no immediate support/resistance levels.

On another note, America doesn’t need to wait for a ratings agency for a downgrade. We’ve been downgrading, or more accurately, degrading ourselves for years. Just take a look around you, around society, on the streets. etc. America is downgraded in education on every level. 50% of high school students do not graduate. Asia is killing us with their armies of engineers, scientists and doctors. America is downgraded physically. Take a look at all the morbidly obese people walking the street. Many diseases are preventable by just keeping a healthy diet, not smoking, and not drinking (excessively). Yet, most people just don’t care. America has also downgraded itself psychologically, morally, spiritually…everything. Every facet of life. We’re in a much larger crisis than a financial one.

What’s the largest crisis we face?	Family/Relationships Moral Financial Education Physical/Health Spiritual Psychological/Mental Social
	Current Results