Wednesday, January 14, 2009


First, Moran e-mailed me his new rap vid on Madoff. I'm sick and tired of hearing about Madoff, but check it out:

Second, the breakdown has just begun. As long as we don't get a +250 pt day on the Dow, the shorts are fine. For now, the selling appears like it will accelerate. For example, look at the Dow and SPX's red candles and volume pattern. The open-close ranges are becoming larger and the volume is expanding on the down days. Subsequent larger candles make good waterfalls or cliffs.

If you recall from my post yesterday, this is enough to satisfy #1's "price/volume divergence". #3's band expansion has only just begun. Look at the July-August rally, because there's nothing funny about it. The similarities are astounding. You are crazy if you're net long.

Also, I've mentioned the significance of the financial sector this entire week. They are responsible for dragging this market down and I explicited stated many times that the market could not rally if the financials did not participate. If you were long, that's your fault. Citi is still screwed and BofA now needs more capital so they don't look stupid for spending only 2 days hammering out a $50 billion deal. Come on, it took you longer than 2 days to think about buying your sub-$100,000 house.

So the problem now is, "How will taxpayers, with their own money infused into these banks, be protected in the coming decline?". They won't. I suspect there will be a significant level of outrage once the public realizes they got duped. What's the Treasury going to do now, buy more stock? Please stop.

Today's action was boring/sideways because, by 2PM, I realized that we were forming a bear continuation flag for tomorrow's set up with a range between 820-860. I was right. We need a 5+ pt gap down on the SPX tomorrow morning for the flag's fulfillment. I am not covering my financial shorts until there is capitulation on massive volume. I am also considering shorting REITs as many of them show signs of topping out and ready to roll over.

I also mentioned breadth for several days now, more specifically the $NYHL & $NAHL and less so the $NYAD & $NAAD. Not only did the New-Highs/New-Lows indices turn red, we can now visibly see them turning down. Not only that, keep in mind that the only time we turned green was right before the crash. We formed 96 new lows and 4 new highs today and I suspect it will not get any better for the short-term. As for Advance-Declines, we had 1-to-10. It's been over a month since we've had these kind of internals.

As for the NASDAQ, they're going to have some problems tomorrow pending reaction from the AAPL news. In other news, Jim Goldman is an idiot. Sometimes the truth hurts, but you don't withhold it from the public. He's my "Asshat of the Month" nomination - you don't have to wait until the end of the month for this one.


You can't ignore the fact that fear is coming back into the markets. I sense panic selling once again. The best sector to short is obvious the financials. Watch for a possible bounce at 820 SPX. Resistance is at 860 SPX. Watch C, BAC, JPM, and the rest of the financials very closely as well as a potential bounce off of the VIX at 54-55.

On a side note, beware the next several days. There is something evil in the air. This is beyond "WTF". I'm not bullshitting on this one. There will be a pretext.

Don't forget to try the Free Trend Analysis. It's FREE, so give it a shot!


Anonymous said...

A pretext? Can you comment further? Are you saying the market might go up unexpectedly?

JWC4 said...

Dow and S&P both formed dojis today (you were dead on about the range), Does this change your mind at all about the breakdown?

Anonymous said...

Senate approved(by a vote of 52-42)the 2nd half of TARP funds (plus some - now $850B)at the end of the day today. Almost had to with the finanicals falling into the black hole that is our US banking system. With today's succesful test and rebound from December's S&P low of 820 it will be interesting to see if this is enough to reverse the current trend.