There has been a lot of rising/falling wedges and funnels as they can be seen most clearly on the 5-day chart. They are typically followed by a spike. Today's action suggests the market has an equal chance of going in either direction, diminishing any edge that once was present. As a result, I removed more than half my positions and hold onto a majority cash position until this resolved. The market has flagged the past 3 days, within a larger flag.
(Note: Futures indicate a large spike to the upside).
World indices are not breaking down as expected, with the FTSE leading the european markets with the DAX, and CAC following. The NIKKEI is leading the Asian markets. Not only that, almost all sectors negated their reversal patterns. Patterns do fail, so be aware of that.
My thinking is not "bullish", but rather neutral for the time being, just as the market is neutral. The market rebounded from the 50-day MA, but remains in a larger multi-day consolidation. The 5-month charts are drawn with a bullish bias, and I can clearly see the multi-day flag forming. I will have to see another 50-day MA failure to re-initiate committed short positions. It was definitely fun and very interesting while it lasted.
The M2M FASB meeting is scheduled for 8:00AM EST with approx. 5 hours of discussion. In addition, jobless claims will be reported at the usual 8:30AM EST. The consensus is 655K with a range of 630K to 672K, the previous reading being 652K. The employment situation report will be released tomorrow at 8:30AM EST. The consensus is -650K with a range of -711K to -525K, the previous reading being -651K. Shortly after, the ISM non-mfg report comes out at 10:00AM EST. The consensus is 42 with a range of 40 to 44, the previous reading being 41.6. Lots of news ahead folks, strap on those seat belts.
With the present allocation, I can take about a 40% loss on the current FAZ position before my March gains are entirely wiped out. As much as I would hate to see that happen, I am willing to hold if the market runs and tops out in the short-term. If you are short, daytrade long to recover as much of your losses as you can.
A few things. Don't forget about GDP and Jobless claims coming out today at 8:30AM EST. The GDP consensus is -6.6% with a range of -6.9 to -6.2. The previous reading was -6.2%. Claims are expected to come in at 650K with a range of 640K to 670K. The previous reading was 656K. There will definitely be some movement today.
As for the market, there are a few things to point out. First, the COMP is above the 100-day MA, something it wasn't able to accomplish since August 2008. The DJIA and SPX are not there yet. The WTF pattern, which allowed the market to bounce, occurred at the bottom end of the up channel, 3PM as usual. Beyond SPX 800 lies major congestion which is the area where we consolidated for a month before the major gap down.
On the 6-month SPX chart, obviously there are a lot of lines. This may indicate that the market may be boxed in. There are more support and resistance areas than usual. Immediate primary support is at 800 and immediate primary resistance is at 825. The secondary support level is at the 50-day MA or the upper boundary of the bullish broadening wedge, around 790-795. Secondary resistance is at the 100-day MA (for the SPX) at 840 and then the upper long-term channel at 850. Those are the levels to be watching.
This video has nothing to do with stocks, but it the coolest animal video I have ever seen:
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. 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!
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.
Yesterday's economic numbers weren't as bad people thought. That's what CNBC said. I though the numbers were horrible. We had the Challenger Job-Cut report that came in at 241,749. The previous reading was 166,348. Around when the recession first started around January 2008, the reading was 74,986, so we've come a long way and we still have a ways to go. ADP came out with a -522,000 reading with the previous reading being -693,000. As you can see from the charts below, both employment indicators continue to go parabolic.
The ISM Non-Manufacturing report came out with a 42.9 reading within a consensus range of 37 to 44, with the final consensus being 39. This might seem like something to celebrate, but look at the chart. This is far from over.
Don't forget that we have Jobless Claims at 8:30AM EST today. The consensus is 583,000 within a consensus range of 480,000 to 620,000. The previous reading was 588,000. I don't see how claims would decline when many states experienced a systerm overload from an overwhelming number of claims. Just last monday alone, we had 55,000 announced layoffs. Even if claims drop, that's just a blip. The chart below might as well be the VIX in Sept & Oct.
Today, we bounced off of the 20-day MA resistance level. Besides the 20-day, we also have the 30 and 50-day MA's, and 850-855 on the SPX as immediate resistance levels. Once we bounced, it appeared that we were forming a bull flag, but that failed after forming for several hours. From 2PM-4PM, it looks like we're forming a continuation bear flag to the downside.
What do we look for today? First, whether we gap up or down in response to the claims, productivity and costs (Also at 8:30AM EST), factory orders (10:00AM EST) and whatever the market speculates ahead of Friday's Employment Situation report.
If we gap up 845-847 becomes initial resistance (20-day + upper trend). If the market breaks out, then we are seeing 850-852 as the next major resistance level. If we breakdown, I would caution unloading some short positions at the 820 level prior to reach the lower tri-line. As you can see, we are in a symmetrical triangle, built over 35 days or so.
Look at the 5-month charts of the SPX and the DJIA. The SPX is forming a symmetrical triangle while the DJIA is forming a descending triangle, the latter of which has a much higher probability of a breakdown. The DJIA only contains 30 stocks, therefore, keep the SPX as your main index. Once you start seeing DJIA components like BAC, GE, C, JPM, etc. breakdown, then we're going to have some major problems.
We have a massive load of earnings pre-market today. Here they are: AMBD, ATG, LNT, ANR, STST, ARTG, STD, BIP, BPO, BG, BKC, CAH, CSL, CI, CBB, CINF, CNMD, DTPI, UFS, DUK, EXP, ELNK, ELON, EQR, EVR, FLIR, FLO, IT, RX, IPCC, IFF, KIM, KNL, EL, LII, LZ, MAG, MA, MMS, MNI, MD, MV, MF, MCO, MPS, NCR, NTT, NXXI, CHUX, OPTX, PARL, PENN, POL, PBH, RVSN, ROLL, RSTI, RGLD, SWM, SIRO, SON, SE, SPR, SPH, TEN, TBL, UN, UL, WMG, WW, WU ,WNS.
There's 2x more than that if you add in the ones intraday and after-hours, but you can go look them up yourself.
As of right now, I am still bearish, especially on the financials, but more so with the regional pieces of shit that are going to sub-$1.
Overbought as suspected. The 920 breakdown was my sell point for my long ETFs and that initial gap down really did it this morning. Luckily, I did manage to pick up some FAZ on the 2nd breakdown. Then, 3:00PM and beyond looked like it was forming a double bottom, so I got some FAS to hedge it. In the end, I made enough to buy a damn Chick-fil-A sandwich. Not bad considering the fact that today was stale, lifeless, dull, ho hum...whatever you want to call it.
There are hardly any spiker plays remaining. They usually come all at once in a 1-3 day blitz and then they either consolidate or turn into possible short candidates like FTK, APL, IVN, or NCX. If you noticed, all the stocks that jumped 50-100% were all cheap $1-5 shit stocks. It's kinda scary that they are the biggest gainers in the market. The strength of a rally is determined by it's leaders. Stuff like ACAS, FIG, MNI, ARTC, APL, MEA, AER, XTEX, DFT, GLS, KWK, AHD, GFIG, KFN, ARM, IO, and VCI are NOT leaders.
On another note, unbeknowst to me, I was following over 1,600 twitterers that included strippers, pornstars , self-proclaimed psychics, Bernie Madoff himself, "hotliquidsex" (+ a dozen other IDs starting with "sex"), "the_boob_nazi", and others who obviously didn''t create a healthy trading environment. Therefore, I cleaned out my Twitter account so if I accidentally "unfollowed" you, kindly let me know.
I ran my fibs and noticed that we are now at the 50% retracement from the rally's peak to trough (so far). We could have a volatile indecision day tomorrow due to the depth of the correction as well as our proximity to short-term oversold levels. 920 has once again become overhead resistance, the same level that took nearly a month for a breakout to occur. This level was penetrated without any trouble right at the open.
Even though a low volume sell-off is not as bearish as one on high volume, we can see instances from October-November where the market rapidly sold off on low volume anyway, regardless of what traders thought. In addition, we are no where near full market participation yet. Not even close. Use volume to confirm price action, not the other way around.
Also, look at the 4-month chart, we are still in a wedge! Just as we thought we left the wedge, we're actually in an even larger one, so be aware of it. Because of the continuation and duration of the wedge, I have to believe that we are going to breakdown sometime soon. Look at the short-term cup forming since December 15. It is attempting to create a handle. Watch that too.
Sector analysis indicates that the financial sector is, by far, the weakest. The materials come next. So far, everything else is maintaining their uptrends. As for breadth, there were 0 (NYSE) and 7 (NASDAQ) new highs and 7 (NYSE) and 1 (NASDAQ) new lows. This broke the positive streak we've had for four days (look at the $NYHL & $NAHL). We were doing really well too.
Tomorrow, we have the usual jobless claims (8:30AM - Consensus: 540K), chain store sales, and the Monster Employment index. Check out all the states with system crashes/delays due to overwhelming claims: NE, NC, NY, MI, VT, FL, HI, OH, TN, KY. There are more, but I don't want to frighten you. We have some major problems coming our way...
As for earnings we have PSMT, MTRX, FCSX, and RPM pre-market. We have SCHN during market hours and APOL, HWAY, LWSN, and RBN after-hours. There are a few microcaps mixed in, but they're still nice to know.
Lastly, I have to give credit to Danny and Woody for staying short, despite the relentless uptrend that would have induced any weak short seller to jump in front of a train. Ya'll got some brass balls. Congrats!
Yesterday was definitely a corrective day as evidence by the rounding cup in the morning. And then, after failing the near 920 level, the SPX dropped like 12 points and is now in a holding pattern. Technically, that's an intraday breakdown, however, if you look at a multi-day chart, it's a blip. We're back in the neutral range that formed since last Monday. Take a look at the 10-day chart.
We formed an "almost" inside day. I say "almost" because the entire day's range is not within Tuesday's range, but it's close enough. You can also call it a "spinning top", a candle with no bias toward either direction. Following large up moves, it's not uncommon to see a few spinning tops/doji before another move up. They are typically continuation patterns unless there's a major breakdown. This smaller-ranged days form the "measured move up" pattern.
What do I not want to see? A -2.5% day or more. In addition, if the SPX closes below 890, there is cause for concern. We must break out of 920 on SPX quickly (1-3 days) to keep the uptrend intact. On the 2-month chart, we can see that 920 has provided significant overhead resistance. Today was a test of see if the 50-day MA would hold up as support, and it did. As a result, the market is bound by both 920 and the 50-day MA (@900), creating a tight 20-point range. A major move is imminent.
As for the longer-term chart, the collective pattern can be summarized as either a 1) wedge, or 2) an ascending triangle. In my opinion, we're in an ascending triangle. If we break out and move past 940 on the SPX, then we would continue a wedge pattern. My initial target is 920 to break the triangle. 940 won't be as difficult to achieve.
As for the bears, the only chance they have is if the entire move on Tuesday is nearly cancelled out. Being up 360+ points and then correcting -100 points is not a reason to celebrate. A correction like that is normal, it's just a correction. If the market gave away half (or more) of Tuesday's gains, then bulls should get a little nervous because that would mark a total breakdown. If we correct subsequent days from there, the volume should decrease each passing day not to exceed the volume of the previous day.
I am anticipating additional upside movement. If we break out, volume should be equal to or greater than yesterday's volume. If we close below 900 on the SPX, then I'll have to hedge my long position equally. Enjoy the rally while it lasts, but like I mentioned before, be ready to bail out if things turn ugly. Flexibility is the name of this game. I know that many things just simply do not make any sense, but you really have to trade off of the market's reaction to these news events.
We have the usual weekly Jobless Claims at 8:30AM, but also the Leading Indicators and the Philly Fed, both at 10:00AM. We also have DFS, FDX, LEN earnings pre-market. PALM, PIR, RAD report during the day and COMS, ORCL, ZQK, and RIMM report after-hours. The consensus for the Jobless Claims is 560K with a range of 530K-600K. I'm pretty damn sure the whisper number is higher than the consensus. Last week's number was 573K. Aren't states running out of money to pay for this stuff?
