WEEKLY TECHNICAL COMMENTARY

This market has to be taken day-by-day. As a result, a weekly commentary is almost useless due to the excessive uncertainty. Use Friday's market recap for today, and the daily recaps throughout the week. Thanks!

WEEKLY TECHNICAL COMMENTARY

Bear Market Comparisons

Charts courtesy of dshort.com

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WEEKLY TECHNICAL COMMENTARY

THIS WEEK’S ISSUE:
• Market Commentary: DJIA ($INDU), S&P 500 ($SPX), NASDAQ ($COMP)
• Where Are We Now?
• 1987?
• This Week’s Economic & Earnings Reports

U.S. FUTURES (as of 6:50AM EST): DJIA (+2.13%), SPX (+2.47%), COMP (+2.46%)

MARKET COMMENTARY – INDU 8,943.81, SPX 930.99, COMP 1,647.40

The market is either in a triangle or a range. It appears that the gap up this morning will bring the market above its 20-day MA on all indices. We will be testing this level today but it is likely that we will pass it following in Asian and European markets. If we form a doji or if we “stall” today, then that will be warning sign that the rally will be short lived. In either case, today is a reminder that anything can and will happen over the week and one must be prepared for such uncertainty.


WHERE ARE WE NOW?

It’s still amazing how fast and how far we’ve fallen. For the long-term, we have to map out potential support areas to anticipate a major bounce. Therefore, looking at 10 and 20 year charts for the INDU, COMP, and SPX, here’s where we are now:




1987?

Notice the deep consolidation and how similar the market is in its current stage. Even the triangles are similar.


THIS WEEK’S WATCH:
• If the market’s reaction to the Chinese stimulus holds. End of day volume to confirm the rally’s effectiveness.
• The end of the week’s economic reports. We do not have any noteworthy today or tomorrow. Friday will be the most important day for economic reports.
• A breakout or breakdown is imminent. Once it does occur, be prepared to trade in the prevailing direction of the market.

Noteworthy Economic Reports: Mon. (none), Tues. (None – Veteran’s Day, Markets Open), Wed. (MBA Mortgage Applications – 7:00AM, ICSC-Goldman Store Sales – 7:45AM), Thurs. (International Trade – 8:30AM, Jobless Claims – 8:30AM), Fri. (Imports/Exports – 8:30AM, Retail Sales – 8:30AM, Inventories – 10:00AM, Consumer Sentiment – 10:00AM)

Noteworthy Earnings Reports (planned): You can find at the complete list here: http://www.rightline.net/calendar/index.html.

WEEKLY TECHNICAL COMMENTARY

THIS WEEK’S ISSUE:
• Market Commentary: DJIA, S&P 500, NASDAQ, RUSSELL 2K
• Industry Analysis
• This Week’s Economic & Earnings Reports

U.S. FUTURES (as of 4:40AM EST): DJIA (+0.49%), SPX (+0.41%), COMP (+0.36%)

MARKET COMMENTARY – INDU 9,325.01, SPX 968.75.77, COMP 1,720.95. RUT 537.52

We have successfully broken out of the descending triangle and the 20-day MA. The DJIA is testing its October 13-14 short-term highs, and the SPX, COMP, and RUT are all testing their Oct 20 highs. I will be long, at least for the beginning of this week, and see where the election week takes us. Many sectors and stocks have also broken out of consolidation patterns, most commonly the double-bottom, rounded-bottom, ascending-descending-symmetrical triangles, bullish wedges, and Adam-Eve bottoms. I found it extremely rare to find stocks that did not move with the market. We should see a continuation in this rally, but the elections could change my opinion. Volume remains “average” and if a breakout does occur, I expect above average volume to confirm price action.

INDUSTRY ANALYSIS























THIS WEEK’S WATCH:
• The Election
• This weeks economic reports
• Support & resistance testing, consolidation in the markets

Noteworthy Economic Reports: Mon. (ISM Manufacturing Index -10:00AM, Construction Spending – 10:00AM), Tues. (ISCS-Goldman Store Sales – 7:45AM, Factory Orders – 10:00AM), Wed. (MBA Purchase Applications – 7:00AM, ADP Employment – 8:15AM, Challenger Job-Cut Report – 7:30AM, ISM Non-Manufacturing Survey -10:00AM. EIA Petroleum – 10:35AM), Thurs. (Chain Store Sales, Monster Employment – 6:00AM, Jobless Claims – 8:30AM, Productivity/Costs – 8:30AM), Fri. (Employment Situation – 8:30AM, Pending Home Sales – 10:00AM, Consumer Credit – 3:00PM)

Noteworthy Earnings Reports (planned): You can find at the complete list here: http://www.rightline.net/calendar/index.html.

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WEEKLY TECHNICAL COMMENTARY

WEEKLY TECHNICAL COMMENTARY

Some technical difficulty...I am unable to post due to a certain "meta" error. Therefore, you can enjoy it here: http://www.scribd.com/doc/7404019/October-20

WEEKLY TECHNICAL COMMENTARY (Oct 13-17)

THIS WEEK’S ISSUE:

• In-Play: The Global bailout – Countries Buying Stakes in Financials
• Market Commentary: S&P 500 ($SPX), NASDAQ ($COMP)
• Identifying Short-term Bottoms & Selling Climaxes
• This Week’s Economic & Earnings Reports

U.S. FUTURES (as of 7:00AM EST): DJIA (+4.56%), SPX (+5.58%), COMP (+4.99%)

HAPPY COLUMBUS DAY! Do people actually do something special today? I’m sure Christopher Columbus celebrated when he set foot on the New World. Likewise, longs will have reason to celebrate this week, but it’ll be a short celebration. Last week’s issue stated that we should see capitulation in the beginning of last week, however capitulation day came on Friday, towards the end of the week. Many times, technical signals are not very clear and may produce mixed results. Therefore, traders utilizing technical analysis must be flexible and adapt to the market situation we’re in. Currently, this is a trader’s market, not an investor’s market. Friday was our “special day” and we will get that bounce everyone was looking for. The technical aspects will be covered in the Market Commentary section.

IN-PLAY: THE GLOBAL BAILOUT – COUNTRIES BUYING STAKES IN FINANCIALS

While we’re in the process of planning our own bailout, Europe became next in line in the credit crisis. The extent of involvement in the CDO/CDS/MBS markets is across borders and without any bounds. I wouldn’t be surprised if Asia also takes a hit. We all know what’s happening in Iceland, and that’s exactly what the rest of Europe wanted to avoid. If you don’t know, Iceland is “seriously considering” going to the IMF now.

Therefore, over the weekend, developed nations all over the world pledged financial support amounting in the hundreds of billions of dollars. But it’s not free. These countries, including the U.S. will be taking massive equity positions in financial firms. The U.K. just became the largest shareholder in RBS and HBOS and will inject $29.2 billion in Lloyds TSB (total cost for all of this will be $63 billion so far). The French government created a 40 billion euro fund as they prepare to take stakes in certain firms. Germany and Italy are also creating their own bailout plans with Germany’s plan alone purported to be worth up to 400 billion euros.

The U.S. will be taking positions, the first ever since the Great Depression, in a coordinated plan of ownership in numerous financial institutions. Effective, the Federal government is the largest hedge fund managers in the world and other countries will receive that title. Should the government own such large stakes in public firms? At least they’re nonvoting shares, so the government can’t run these companies.

Most of the industrialized nations have also guaranteed all bank deposits. Germany, Iceland, and Denmark are guaranteeing all savings and CDs. Ireland is going one step further and guaranteeing banks’ debts. Many other countries have followed suit and the Federal Reserve issued a temporary order guaranteeing all bank deposits.

In addition the Bank of England, European Central Bank, and Swiss National Bank have all announced that they will conduct tenders of U.S. dollar funding at the 7-day, 28-day, and 84-day maturities at fixed rates for full allotment. The Bank of Japan is also considering a similar move. What does this mean? The developed countries are becoming the largest ATM machines in the world.

This massive assault on all fronts in a coordinated attack is the prefect step in the right direction. I don’t think people could really have asked for more given the short amount of time that the world had to make this decision. I will never forget 2008 as “THE” year. I hope we, as the whole world, can learn something from this mistake for the future, but human nature has proved otherwise.

MARKET COMMENTARY – SPX 899.22, COMP 1,649.51

The only real purpose of this week’s commentary is to confirm that we will bounce, starting today. I do not know the duration of the bounce, but it will be sharp, sudden, and in full force. Traders who did not go long on Friday will miss a considerable portion of the initial move.

There are three main items to look at in the above charts (S&P 500, NASDAQ): 1) the candle pattern, 2) volume, and 3) the Bollinger band width. We formed a doji, signaling indecision, or a white real body, forming a bullish piercing pattern. Both patterns are confirmed and back up by the strong volume that’s present in capitulations and selling climaxes. We’ve hit record volume. Notice how we opened and closed outside the lower band on the SPX and we opened lower, gapping down, on the COMP. Typically, a stock or index will return to its mean if it has been extended too far from its standard deviation.

This is a fair warning: This bounce will be short. Very short. It will give longs the opportunity to exit with a smaller loss than they have right now.

IDENTIFYING SHORT-TERM BOTTOMS & SELLING CLIMAXES

Finding a short-term bottom and predicting a bounce is a very skilled art. Below, we can see a 3-day chart of the S&P 500. In the initial stages of a plunge, the market will start to roll over slowly…sometimes way too slow. There will be numerous bull trap rallies that will quickly fade. You might know of recent days where a rally just completely died by the end of the day. This is because there is no serious buying pressure on the stock and there are still too many holders waiting to sell.

Next, we go parabolic or vertical. This is the “falling off a cliff” or “waterfall” stage. It doesn’t really matter what you call it, but if you can take a 6 inch rule out and put it against a chart and if it’s a straight line, there’s a good chance we hit this critical level called the selling climax. The end of the climax is marked by a capitulation spike. Why is it always a spike? Because people don’t calmly sell during a crash. They’re tripping over each others feet trying to be the first ones to sell before other investors drive their stock down. Makes sense, but that’s what happens when irrationality takes over and logic and sound judgment get thrown out the window.

This wave is formed when retail investors, always the last group to act, have completely washed out. They are desperately trying to recover as many pennies on the dollar as they can. What we saw on Friday were millions upon million of Americans dumping everything they own. They are the weak hands, and this phase shakes them out of the market. After all, the stock market isn’t a winning lotto ticket and investors need to be aware that it’s not a free ride. We now hit capitulation.

Capitulation is a psychological pattern. There are feelings of hopelessness, despair, depression (and others) will permeate market sentiment. Go talk to an ordinary person with little market knowledge, and I can guarantee you that they’re going to say something like “why would I want to buy stocks, they stink!” Most retail investors who just got crushed will not have the courage to start buying and this will go on for a long time. Think of this as a kid that burned his hand on the stove. He won’t go near that stove for a while.

At this point, retail investors are shaken out, there’s very little capital in play because more and more investors are ditching the idea of using margin, and most investors have lost real working capital (we lost $2.4 trillion last week alone!). After the decline, there is a lack of money at work in the markets, so it’s only natural to see low volume follow a spike in volume during the climax.

In the S&P 500 on Friday (chart below), you could see buying volume pick up and spike at the end of the day and this volume activity confirmed the price action (rally) that started in the afternoon. This extreme change in sentiment told me that something major will occur. When was the last time you had a 1,000 point range in a single day (on the Dow)? The markets were moving, and the price-volume relationship confirmed it.

The rally we will have will be a short reactionary rally. Why and how do I know this? Because after you lose trillions of dollars, where are you going to find the buyers to propel a rally? Every investor can pick up five jobs and work 24-hours a day and still not be able to come up with the lost capital in the same amount of time they lost it. Bull markets and sustained reactionary rallies are born from excess capital and having the financial ability to speculate in the markets. If you think we’re going to recover soon, stop dreaming.

THIS WEEK’S WATCH

• The tradable bottom in place starting today. Be ready to sell & sell short if an appropriate signal appears. This rally could last from one day to several days.
• Global developments on governments taking large stakes in financial firms and other world news
• Precious metals and their reaction
• A large number of earnings reports this week

Noteworthy Economic Reports: Mon. (none – Columbus Day)Tues. (ICSC-Goldman Store Sales – 7:45AM, Treasury Budget – 2:00PM), Wed. (MBA Mortgage Applications – 7:00AM, Empire State Manufacturing Survey – 8:30AM, PPI – 8:30AM, Retail Sales – 8:30AM, Business Inventories – 10:00AM, EIA Energy Status – 10:35AM), Thurs. (CPI – 8:30AM, Jobless Claims – 8:30AM, Industrial Production – 9:15AM, Philly Fed – 10:00AM), Fri. (Housing Starts – 8:30AM, Consumer Sentiment – 10:00AM)

Noteworthy Earnings Reports (planned): Mon. (STLY), Tues. (ADTN, DPZ, JNJ, PEP, CSX, ENZ, DNA, INTC), Wed. (ABT, KO, JPM, MV, PJC, STJ, WFC, DAL, EBAY, XLNX, LSTR, STLD), Thurs. (BBT, BBW, CIT, C, HOG, HSY, MEG, MER, NOK, NUE, RS, SHW, SON, LUV, UTX, WERN, WGO, CAL, DHR, GOOG, ISRG, PNC, AMD, COF, ESLR, GILD, IBM, LEG, SYK, TPX), Fri. (FHN, HON, SLB, SONC)

BLOG OF THE WEEK: FINANCIAL ARMAGEDDON! (http://www.financialarmageddon.com)

Would you like your blog featured here? E-mail me: JCLee84@hotmail.com

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WEEKLY TECHNICAL COMMENTARY (Oct 13-17)

Hi, hope you all had a great weekend. The commentary is being written up right now, so be patient. It will be posted/distributed before pre-market. This will be an exciting week, starting today.

If you haven't done so, sign up in the green box to the left to receive the PDF version automatically in your e-mail once a week. Thanks.



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WEEKLY TECHNICAL COMMENTARY (Oct 6 - 10)

THIS WEEK’S ISSUE:

• In-Play: The Battle for Wachovia (WB)
• Market Commentary: S&P 500 ($SPX), NASDAQ ($COMP)
• Update: Russell 2000 Small-cap Index ($RUT)
• Update: NYSE/NASDAQ/AMEX New-Highs/New-Lows Index, CBOE Volatility Index (VIX)
• Currencies: U.S. Dollar Index ($USD), Euro Index ($XEU)
• Commodities: Crude Oil ($WTIC), Gold ($GOLD)
• This Week’s Economic & Earnings Reports

U.S. FUTURES (as of 6:00AM EST): DJIA (-2.59), SPX (-2.95%), COMP (-2.94%)

IN-PLAY: THE BATTLE FOR WACHOVIA

Haha…I posted Part 1 of the battle on a previous post on my blog (http://www.weeklyta.blogspot.com) so I’ll get on with the developments, which is part 2 of the comic. If this goes on for a while, I will create an entire comic strip to chronicle the event. It’s an exciting and educational way of breakdown something that’s extremely complicated.

What’s happening now is that on Saturday night, Citigroup (C) asked NY Supreme Court Justice Charles Ramos to issue a order blocking the sale between Wachovia (WB) and Wells Fargo & Co. (WFC). Citigroup’s claim is that WB breached the exclusive agreement (entire agreement found on my blog) between WB and C. C is seeking $60 billion in punitive and compensatory damages against WFC for interfering with the deal.

In response, WB asked U.S. District Judge John Koeltl to declare that the agreement between WB and WFC “is valid, proper, and not prohibited by a letter agreement between WB and C. Koeltl vacated Ramos’ order, however scheduled a hearing tomorrow (Tuesday) for all parties to present their case. This is a complicated matter that can last for a very long time since both WFC and C are large institutions with a lot of money, backing, and attorneys and neither party will back down without putting up a fight. What’s for certain is that both WFC and C has devoted considerable resources in terms of time and money to engage WB, therefore, both institutions have personal interest to get this deal done. The question is: Who will win?

When WB signed the agreement with C to sell their banking operations, it was noted that if WB did not sell part or all of their operations, they risked seizure by the FDIC the very same day. Therefore, the ultimate loser in this battle is WB with possibly only days to survive. In any case of failure, the FDIC would step in as it has done many, many times this year.

The most important section of the letter agreement between WB and C is the following paragraph:

"In consideration of the foregoing and other good and valuable consideration the receipt and adequacy of which are hereby acknowledged. Wachovia hereby agrees that, during the period commencing on the date hereof and ending on Exclusivity Termination Date (Oct 6,2008), Wachovia shall not, and shall not permit any of its subsidiaries or any of its or their respective officers, directors, employees, investment bankers, attorneys, accountants, consultants or other agents or advisors ("representatives") to, directly or indirectly. (i) solicit, initiate or take any action to facilitate or encourage the submission of any Acquisition Proposal, (ii) enter into or participate in any discussions or negotiations with, furnish any information relating to Wachovia or any of its subsidiaries, assets, or businesses or afford access to the business, properties, assets, books or records of Wachovia or any of its subsidiaries to, otherwise cooperate in any way with, or knowingly assist, participate in, facilitate or encourage may effort by, any third party that is seeking to make, or has made, an Acquisition Proposal....."

However, many people argue that the letter agreement is non-binding. I am neither an attorney nor do I have inside information on the matter but it appears that this case is not clear cut. I do agree with the fact that the deal between WFC and WB may be the best for shareholders given that the deal goes not require government assistance, keeps WB intact, and benefits taxpayers. Ultimately, shareholders and regulators will have to approve of any deal and that cannot take place during litigation. What everyone can agree on is that a deal must be consummated quickly. This has once again placed uncertainty in the markets in a time where we don’t need any more uncertainty.

According to the Wall Street Journal, C and WFC may “carve out” WB with C taking WB’s northeast and mid-Atlantic branches and WFC taking southeast and California branches to reach a compromise. No deal has yet been consummated at the time of this writing.

MARKET COMMENTARY – SPX 1,099.23, COMP 1,947.39

The market continues to decline, hitting new lows 2-3 days out of the week. As I mentioned before volume must confirm price action. Once the short ban on financial stocks began, volume on all exchange got cut in half. This past week we are again seeing volume increase on the down days and volume decrease on the up days, which is bearish. This has occurred many times and I have stated this many times in previous commentary. The start of a major rally and the subsequent confirmation days must be confirmed with volume. With the short ban in place, that is extremely difficult to do.

I would like to point out that we may see a short-term low, marked by a capitulation day sometime this week. I am looking for a major gap down at the open today possibly followed by a sharp decline. If a sudden and sustained rally does occur and closes near its highs, then it is time to go long. I am advising all short positions to be covered during the weakest first hour of today’s trading. This is in support of the major oversold levels in several technical indicators, mainly the slow stochastics. This will be corrected soon.

The SEC stated that the short ban will be removed 3 business days after the bailout plan is signed into law. This could be Wednesday or Thursday, depending on the time in which the SEC decides to remove the ban. We should see a marked increase in volume on Thursday and Friday as a result, giving the market the opportunity to act in an undisrupted manner.

As for support levels, the 10,000 level in the DJIA is key support in 2005, the S&P 500 must hold the 1,000 level which is a key level in 2004 and the NASDAQ must hold the 1,900 level which is a key level in 2005.

UPDATE: RUSSELL 2000 SMALL-CAP INDEX ($RUT)

I’m adding the Russell 200 ($RUT) in a separate section to highlight the importance of the index this past week. Below, the chart on the left is a 5-year chart and the one to the right is a 10-year chart:

The significance is that the RUT broke out of its consolidated reactionary rally on Friday and hit a new low. The RUT is the last remaining index to decline to the levels of the DJIA, SPX, and the COMP. Looking at a 10-year chart (to the right), we have a long ways to go for the small caps. The larger capitalized stocks took the first hit in 2008 and it only makes sense for the small-caps to follow suit. Due to their smaller size, small-caps face a greater risk of a sharper decline in the next few months. Also note that the other 3 indices started their 3^rd primary leg down and the RUT only started it’s 2^nd primary leg. This divergence will soon be corrected and I expect the RUT to take the largest hit in the next few months of all indices.

Critical support is at 600 in 2005, which I expect it to break. Afterwards, the 500 level in 2004 is the next target area. At this point, given the sharp decline in the past two days, I expect the RUT to decline in a sudden, volatile and erratic move. Expect considerable selling in the small-caps in the coming weeks.

On the head-and-shoulders pattern, every technician views a pattern slightly different from other technicians. In the 5-year chart (to the left), I view the pattern drawn by the blue lines. Others may consider the purple lines. In either case, there is no disagreement that the pattern has now been reached due to break in the necklines.

UPDATE: NYSE/NASDAQ/AMEX NEW-HIGHS/NEW LOWS INDEX, CBOE VOLATILITY INDEX (VIX)

Below are the New-Highs/New-Lows Indices for the NYSE, NASDAQ, and AMEX. Notice that we are still hitting a lot more new lows than new highs. On Thursday, we hit 5 new highs and 778 new lows and on Friday, we hit 4 new highs and 1076 new lows. This gap is getting wider and wider, killing the chance for a major recover that certain people are still preaching about. Charts do not lie and they paint a very clear picture of what is going on in the markets. This is an undeniable truth in technical analysis. Notice how the AMEX fell the sharpest – most companies on the AMEX are small-to-micro caps. These indices must improve for any confirmation of any type of rally.

I stated in the previous commentary that the VIX will breakout and stay elevated in the 40’s level. This has held true. This is a high-and-tight flag that formed, and these patterns have extremely high reliability and a low-failure rate. These patterns are one of my most favorite patterns to look out for. The VIX is currently consolidating between 40 and 47, however, there is concern as the pattern is overextended. I do expect a bounce in the markets this week and also a slight pullback for the VIX. The fear level remains elevated now that Europe and Asia are the next regions to fall amid the credit crisis.

CURRENCIES: U.S. DOLLAR INDEX ($USD), EURO INDEX ($XEU)

Focus is placed on the U.S. Dollar and the Euro because of the significance of the levels they are at. The USD made a new high and I do expect consolidation, if not a breakout higher. The XEU is testing support. On long-term charts, it appears that the USD will be heading higher after forming a higher low and the XEU will be heading lower. These trends can remain in place for many months unless there is a great and sudden shift in global macro factors affecting both currencies. Both currency indices use the 50-day as support (USD) or resistance (EUR) and make note of their guiding pattern.

COMMODITIES: CRUDE OIL ($WTIC), GOLD ($GOLD)

Just like the XEU (Euro Index), commodities such as oil and gold are testing support levels. Oil follows the 40-day MA and gold follows the 20-day MA as of now. Make note of their respective support levels and react to any clean and full breakdowns. A low-risk trade would involve waiting for a confirmation day of any bounce or a continuation of the decline.

THIS WEEK’S WATCH

• Make note of any intraday reversal and rally into the close on either Monday or Tuesday to make capitulation day. Expect the market to gap down considerably in the morning.
• Pay attention to the VIX
• Note successful or failed tests in support/resistance for the USD, XEU, Oil, and Gold
• Be aware of the notable economic and earnings reports below

Noteworthy Economic Reports: Mon. (ICSC-Goldman Store Sales – 7:45AM, Consumer Credit – 3:00PM), Tues. (MBA Purchase Applications – 7:00AM, Pending Home Sales – 10:00AM, EIA Energy Status – 10:35AM), Wed. (Chain Store Sales, Jobless Claims – 8:30AM, Wholesale Trade – 10:00AM, EIA Gas – 10:35AM), Fri. (Import/Export Prices – 8:30AM, Int’l Trade – 8:30AM, Treasury Budget – 2:00PM)

Noteworthy Earnings Reports (planned): Mon. (AEP, IDT, VOXX), Tues. (PAR, AYI, AA, ZZ, YUM), Wed. (COST, LNN, MON, RT), Thurs. (RBN, SABA), Fri. (GE, HST, SLAB)

BLOG OF THE WEEK: HEADLINECHARTS BLOG! (http://www.headlinecharts.blog.com)