WEEKLY SECTOR PREVIEW (11/17 - 11/21)

The uncertainty surrounding GM will not allow this market to begin a powerful rally. There is too much uncertainty and too little time. This uncertainty alone will be able to drive the markets lower. What must be absolutely considered is the fact that we could start another primary leg down. This will be true if the market cannot 1) cancel out Friday’s 4-5% loss on Monday, and 2) break through the 20-day MA within three days. The market must achieve both, or else we will be testing the lows again at which point a breakdown is almost entirely certain.

5 out of 9 sectors are in the process of forming bearish continuation flags (to the downside). The other 4 are forming symmetrical, ascending, and /or descending triangles. Although these sectors are the strongest, they will stay within a range until a clear direction is determined. Most volume and outlooks are bearish and I wouldn’t give any individual sector a “bullish” outlook given the continued consolidation.

The point is that we can’t hang around in the tight range here at the bottom. This is 100% bearish and will be the precursor to another leg down if #1 and #2 are not accomplished. In this market, each day counts.

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WHERE DID THE BAILOUT MONEY GO SO FAR?

Riiiiiiiiight here...

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WEEKEND FAMILY GUY (FULL EPISODE)

WEEKLY ECONOMIC REVIEW (11/10 - 11/14)

We didn’t have many reports this week, but three key reports were the Jobless Claims, Retail Sales, and the University of Michigan Consumer Confidence reports. The markets are down between 6-8% this week, depending on which index you use, and they fully reflect the grim confirmation of the state of our economy. I don’t really have to say anything because you already know what kind of situation we’re in. What is frightening is that we can throw as much money at this problem as we want, BUT:

• People are losing jobs, hundreds of thousands of them. How are they going to pay for their house, their car, student loans, credit cards, day-to-day expenses?
• A lack of disposable income fuels the lack of consumer spending. The end result that businesses cannot make money and will cut further jobs.
• This results in a significant decrease in tax revenue for the Federal, state and local governments, and they too will (are) cutting jobs and public spending on programs and services.
• The end result is that everyone has to cut down on everything, and it is not because of choice. It is forced because it is a vicious cycle that feeds upon itself. Consumers drive this economy (or kill it).
• Rinse and repeat, because we just started.

This simple explanation gives the clearest picture as to what is happening right now. This will go on for many, many, many months. There is a lot of talk on CNBC about “preventing” a recession. I’m not a Ph.D economist, but you don’t have to be smart to say that 1) this cannot be prevented: the wheels are already in motion and the road down is steep, and 2) recessions are a normal and necessary part of the business cycle. Why does everyone keep forgetting that? We must clear out the excess created during the expansion. This one will just be much, much more painful than the rest. The best policy is for people to stop “hoping and praying”, which is only reserved for religion, and to financially and mentally prepare themselves for the worst possible outcome, and that is currently TBD.

Jobless Claims

The consensus was 482K claims for the week of 11/8 with a consensus range of 475K to 500K. We blew that out of the water and hit 516K. The previous reading was 481K. Take a look at the chart as the labor market’s contractions continue to become parabolic in the not-so-good direction:


Retail Sales

We had a lot of retailers that reported earnings this week, so when Friday rolled around, it was nothing surprising, except for the fact that this decline is the worst decline on record since this economic series started in 1992. Retail sales dropped -2.8% while the consensus was -1.9% with a range of -3.2% to -0.6%. The previous reading was -1.2%, so we fell off a cliff and the chart shows it (reminds you of the Oct crash, doesn’t it?):


University of Michigan Consumer Confidence

Confidence edged up slightly, but this recent reading is worthless. It came in at 57.9 while the consensus was 56 with a range of 48.6 to 65. The previous reading was 57.5. We all know the economy is going to get worse, so don’t put much weight on this reading. They must have surveyed billionaires. We are still near multi-year lows and I have a feeling that we’ll hit 50 soon.

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WEEKEND TESTIMONIAL

"Getting introduced to John's Technical Analysis blog was the best thing to have had happened in my aspiring trading career. I have always wondered how TA can be used in making money consistently, and John has shown me the way, especially with the benefit of live, real time trading. He has always stressed patience and in waiting for the high probability opportunities, and our reward for such patience on a key reversal day as today certainly paid off handsomely; I am up 14.7% for the day. Thanks John, for teaching patience and due diligence. You are the real deal!"

- WN. Li, Sacramento, CA
Private Coaching Student

TODAY'S ACTION

A reversal, then another reversal, and one final reversal in the last half-hour. If you can't handle this rollercoaster and adapt to the changing environment, then you shouldn't be trading. Also, to someone whom I will keep anonymous, you should not be trading if you fall asleep during the day with open positions.

It was a deep correction which was expected. However, the last half-hour was not expected. As for my order's today: A "Hold" order was issued at 10:33AM (for yesterday's positions), a "Buy" order was issued at 1:26PM. and a "Sell" order was issued at 3:27PM when the right shoulder of the H&S was in formation prior to the plunge. Therefore, I am 100% cash into the close, having added just under +4% for today.

Looking at the 10-day charts on the SPX/COMP, I noted yesterday and the day before that the diagonal line was important. I paid attention to it all day long to confirm a "Buy". This line was also critical to shaping the rounded bottom. At this point, we are again close to support levels. The RUT is doing the absolute worst, having broken entirely through today's intraday support. If we break on Monday on all indices, then the chances of a new low are very much in. I hope so, so I can issue a multi-day "Short" order and stop this daytrading nonsense. Just like the Cialis commercial, "When the moment is right, you can be ready". So, be ready.

SPX 1-day

SPX 10-day

SPX 6-month

NASDAQ 1-day

NASDAQ 10-day

NASDAQ 6-month

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TODAY'S INTRADAY = SPX 1990s - 2008

How similar is today's intraday pattern to the S&P 500 from the 1990's till now? Eerie, isn't it?

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MARKET CARPET

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CONGRESSIONAL HEARING ON TREASURY'S USE OF BAILOUT FUNDS

Congress established the $700 billion Troubled Asset Relief Program on October 3, 2008 to deal with the financial crisis. One of TARP’s core functions was to prevent future foreclosures through the acquisition of mortgage-related assets, such as whole loans, mortgage-backed securities and other financial products, and the implementation of a plan to stem foreclosures on those loans. In creating TARP, Congress was aware of the efforts of the private mortgage servicing industry to prevent foreclosures, and committed an extraordinary sum of taxpayer funds to expand upon those efforts. On November 12, 2008, Treasury Secretary Henry Paulson announced that TARP would not acquire mortgage-related assets. In light of this significant change in TARP’s mission, important oversight questions arise.

Witnesses for the hearing include:

Chairman Kucinich's Opening Statement
Testimonial of Mr. Neel Kashkari
Testimonial of Mr. Michael Barr
Testimonial of Mr. Anthony Sanfers
Testimonial of Ms. Alys Cohen
Testimonial of Mr. Larry Litton
Testimonial of Mr. Stephen Kudenholdt
Testimonial of Mr. Thomas Deutsch

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DON'T GET CAUGHT WITH YOUR PANTS DOWN

TODAY'S ACTION

I found exactly what I was looking for, even the increased spike in volume. This was no surprise to me as it was bound to happen. I am up 14% today and up 42% for the month so far and 3 out of 4 of my students are up over 10% today alone after joining me in killing the bears (at least for a day). I even said that today was the day to pay attention to (in my post yesterday), so if you didn't make money and you were trading all day, then something's wrong [nice version]. Let me tell you something, it's days like today where you make the biggest buck, days where you sense tremendous reversal. Other days are just "normal" days. You don't even have to trade everyday.

Also, if you watched CNBC into and after the close, you could see all these people try to give fundamental reasons to try to explain the rally. Let me tell you something again, don't listen to those idiots, because there was absolutely nothing fundamental about it. It was a pure technical rally and if you know your technical analysis, you made a killing today while the fundamentalists remain dazed and confused as to what just happened.

I just don't play shorts on days where a potential reversal is imminent. That's the smart thing to do. We hit an intra-day capitulation point and formed a V-spike. I issued my buy order at 1:52PM and went 100% long and the rest is obvious. I stayed in cash for the most of 2 days prior to today for the sole purpose of waiting for...today. You must have patience to find the best possible entry and bank on it.

As for tomorrow, let's see what happens. Watch the 20-day MA. Be ready to sell if needed.

SPX 1-day

SPX 10-day

SPX 6-month

NASDAQ 1-day

NASDAQ 10-day

NASDAQ 6-month

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MARKET CARPET

Most of my students are up double-digits today, as am I (now up +42% for November). I have no clue about my newsletter subscribers but they should be up as well. I issued a "Buy" order at 1:52PM (no shorts) for the industrial/materials sector stocks to be held into the close.

'nuff said.

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CONGRESSIONAL HEARING ON HEDGE FUNDS

The Committee held a hearing titled, “Hedge Funds and the Financial Market” on Thursday, November 13, 2008. The hearing examined systemic risks to the financial markets posed by hedge funds and proposals for regulatory and tax reforms.

The following witnesses testified:

Chairman Waxman's Opening Statement

Professors:
Testimony of David Ruder
Testimony of Andrew Lo
Testimony of Joseph Bankman
Testimony of Houman Shadab

HF Managers:
Testimony of George Soros
Testimony of John Paulson
Testimony of James Simons
Testimony of Philip Falcone
Testimony of Kenneth Griffin

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TODAY'S ACTION

We are dangerously close to testing the Oct lows, and I'm not kidding. It'll be tomorrow and I expect some sort of bounce here. There's too much support for a no-support slice through. I also expect considerable volatility as the bulls and bears fight for control on an important day. We should also see some increased volume levels. Tomorrow will mark the 4th time we test. I would like to remind you that for anything, a 3rd or 4th retest is usually a bad sign, a breakdown typically follows not to long afterward, but in the words of Hank, "let's not speculate".

Especially pay attention to the diagonal downward trend in the 10-day charts for the SPX/COMP. They'll provide significant overhead resistance. As for support, there aren't anymore left besides the Oct lows. And yes, I am in cash until I see a sizable rally coming after a retest or a total, abysmal failure of the last support level.

In other news, I got invited to only one Wall St party. Usually, every firm is buzzing during this time to speculate on who's got the biggest and baddest party. Unfortunately, 8/9 out of 10 have completely canceled their parties. Duh, we all know why. I guess MS can send me a cool monkey pen this year instead of the gold one last year. Also in other news, I was given advice to seek out "SINBAD" girls - "Single Income, No Babies, And Desperate". Interesting...

SPX 1-day

SPX 10-day

SPX 6-month

NASDAQ 1-day

NASDAQ 10-day

NASDAQ 6-month

Examples of FAILED tests:
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MARKET CARPET

Could have been worse, right? My subscribers were in cash today since covering their shorts yesterday. Yea sure, we could have shorted, but we're too damn close to the Oct lows. All I have to say is don't get lazy at this point, cause reversals could be sudden, forceful, and sweep your account away. Just be vigilant and don't get complacent, that's all.

Here's W. Fisher from Philadelphia, one of my coaching students. He is a brand new trader kicking some ass:

"I started Reading the blog post after reading the Technical Analysis 101 lesson sent with the wallstreet survivor subscription. After reading the blog for a few days and applying some of the lessons to my own trading strategy I realized the benefit of Technical Analysis. That same week John offered the one on one coaching program and i jumped all over. Its not even been a full two weeks into the program and I am already up 12 percent from when I started. So in a little over a week I have made more than the money I paid for the program and what im learning is priceless. JC and TA..hell of a combination!!!!" -W. Fisher, Philadelphia, PA

Damn right. Technical analysis works.

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TODAY'S UPGRADES & DOWNGRADES

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TUESDAY'S ACTION

I was at my local Chartered Market Technician (CMT) meeting tonight which is held once every 2 months, so I couldn't get my daily market action post out in a timely manner. This also means that I missed the highly anticipated CNBC show on high-class hookers. I was really looking forward to that, seriously, so someone tell me how it was. Anyway, the market acted in the way the stick sandwich said it would act, so there's nothing special about that. What was interesting was how the market reacted when our favorite politicians spoke - we spiked considerably higher, but failed and reach the level we were at before they opened their mouths. Why do they keep blowing hot air into the markets? That resulted in an intraday head-and-shoulders that slightly recovered into a bearish flag but ended up...if you are confused, don't worry because I got confused up till about 3:50PM and just said 'screw it' and went into all cash. There is no point in gambling with timing if you do not have an edge that's greater than 50%.

Speaking of direction, my students and e-mail subscribers received the order from me to short at 2:25PM on Monday to be held overnight. I issued a cover order yesterday at 1:54PM before the stupid balloon rally took place, and anyone that didn't cover...well, you were ok. I stated that I was 100% short (but was actually 200% short, fully margined). I made my coin yesterday and the day before...and I am up over 27% for November so far. You can't trade every day, you have to pick and choose the best probable days to go long or short. No 50/50 days, or you'll get killed. If you're a long-term investor, you've been dead a while ago. If you're not rapidly trading or are not hedged, then you're dead. If you're a fundamental person, you're dead as well. Anyways, I am in all cash right now until I see something good this morning. Really good.

SPX 1-day

SPX 10-day

SPX 6-month

NASDAQ 1-day

NASDAQ 10-day

NASDAQ 6-month

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