Thursday, March 19, 2009

Short Term Top?

Can someone say WOW? 803 high. 50dma and 50% retracement of our major top at 945. First the fast break of the 780 range with committment and continuation towards the 800 range. I was honestly expecting a bit more strength behind it after the first push but you could clearly see prices topping at the 800 range with volume decreasing quite a bit as we continued higher.

Overall yesterday we saw extremely high volume on important breakout ranges. At this point I am more including towards the bullish side on the mid term, however short term wise we can now expect a bit of a retracement.

We should consolidate today and give back some of the gains from the past 1.5 weeks. We should start a 3-4 day retracement at this point that could bring us back to major support at 741, though I have to be honest I expect this to halt before and possibly turn at the 751.

Mid Term
Looking at it from my long term review, its quite funny to see how fast we have moved here.

[Mar 2 - Special: Review of Reviews]
What comes next?Well after the mid term lows are in I feel the market will find new bulls and new excuses to go long – yes I said excuses. I do see us trading back towards the 741 range with a possibility of kissing the 800 one last time before we say good bye for the long term [...]

Of course I was expecting those ranges to be reached in a much longer time frame. 1.5 weeks compared to my time target of 8-12 weeks. Additionally my long term review had very different assumptions on the bottom (620-640) and different time windows for a rally so it cannot really be applied but its quite funny that at least this held true if the 666 ended up being the bottom. Of course this really will give us great clues of our time and price targets. So wait for weekend update.

We have had many bear rallies in the past 2 years, what makes this one different, if there is any difference at all? Looking at our past peaks we have seen very similar behavior, as we increased in price after a major downturn our volume was below average and continued dropping the higher we went. As we started dropping after the top volume started to increase slightly before it came towards a tipping point and accelerated. However we have seen quite a bit of volume yesterday, a lot more then any of our previous tops - of course we had outside intervention but volume needs to be monitored very closely the next few days and especially once we reach our retracement points. Many have been short well below this range and have averaged down - now possibly above the 750 range. I honestly expect many to cover instead of being hopeful that we can continue on the downside. Of course the upside carries a lot of risk now so do not expect it to turn much higher then yesterday.

Our final decision will be made at our retracement point within the next week, either turn to the bullish side to reach 880 and possibly more or turn towards the downside. At this point the downside has 2 scenarios, one of course the double bottom test and the secondary with a break to create a new low either in the low 600 range or high 500.


  1. My bear ass is still raw. Hope everyone is still alive...

  2. yeah same here. I am still a bear, may switch to be a bull in the next 4-5 days lol. This is one of those times for my favorite quote. "Better being out of the markets wishing you were in, then in the markets wishing you were out".

  3. FYI I think the best case the bears have is the 771-773 range. Do not think it will drop below that in the next 3-4 days. We cannot ignore the fact that the bulls have taken out every chance to bears had in the past 1.5 weeks. Of course the upside for the bulls is very limited on the very short term, however the downside shows major limitations as well. It is very likly to remain in a sideways pattern here for the next 3 days with minor down turn but not exceeding the 771-773 range.

    The volume yesterday was too telling at major breakout points. I said if we break 780 we would fail but the volume told us that this was done with committment.

  4. and trust me, there are always facts and statements that can be made to justify your position, mcclellan, stochastics, RSI, MACD, major trendlines. I also love the quote "bear market rallies end with good news".

    What many are ignoring is that there is a great chance that we are seeing a breakout of a major bullish wedge (descending wedge). While its occuring a bit ahead of time it is very possible that this is the breakout here.

    Unfortunately since I am out of town I do not have all the time needed to do my analysis at night so we will have to wait for the weekend. But my bull radar is flashing quite a bit here - 4 digits on the S&P type of flashes.

  5. Great quote: "bear market rallies end with good news". Ironically, the previous FOMC announcement ended the small rally in late January.

    Financials have broken H&S neckline and are leading the market lower. I'm short via FAZ with 8.60-8.65 target for XLF.

  6. a psot from XTRENDS. Interesting

    The market is moving up, but something appears to be very wrong with the whole picture. Our 3 Special Charts today show some bothersome ALERT signs opposing upside movements in the market. Please see the 3 studies below for a picture of what is happening.

    Today, Thursday morning our headline is: "A healthy stock market process was just aborted by the Fed ..."
    There are 3 things we want to show you today ...
    1. How yesterday's New Ratio study signaled a "crisis problem" that the Fed reacted to.
    2. How the Fed's Trillion dollar commitment aborted a normal and healthy bottoming process.
    3. How, until yesterday, the 2002-2003 market bottoming process was the same as the current one.
    *** As you will see today, yesterday's Fed's action caused the stock market to jump to an Institutional Investor Accumulation level not normally seen until about 30 days after a new Bull Market starts. That was 5 to 8 months earlier than it should have been to be healthy.
    *NOTE* I feel that today's first 5 charts and analysis are a MUST read for all investors.

    ALERT for today ...
    Today, I posted 5 Special Charts showing you the above in a way that you can clearly see it. Please be sure to login and see today's first 5 charts. Yesterday's Fed action has the market in a short term overbought condition, so for now, and until this is resolved, we are maintaining our cash position.
    Underlying Market Conditions remain net negative. Remain in cash.

    Thursday (Today's Posting): The New Study continued ...

    What can you buy with 1 Trillion Fed Dollars? Chicago Tribune's Headline today: "Federal Reserve targets loan rates with $1 trillion plan."

    The strong dive on yesterday's posted chart A1 (seen above) spelled a crisis condition. The market was going up but there was a serious, behind the scenes, implosion starting to happen. The Fed intervened on a panic reaction and announced their Trillion Dollar+ commitment. That reversed the implosion as seen on today's updated chart below. As you will see in the next charts, that also aborted the normal, healthy bottoming process in the stock markets
    The Current Bear Market Bottoming Process manipulated ...

    Now, note the NYA bottoming process relative to where it was yesterday. We just had our lower/low and were moving up from there when the Fed made their Trillion dollar commitment yesterday.

    Especially note the red circle. Yesterday, the Institutional Accumulation hit the same level when the previous Bear Market had ended. BUT ... note that Accumulation WAS ONLY IN ITS 4th. DAY. It took a confidence build up of nearly 3 months in the last Bear Market to do the same. This level was induced by the Fed yesterday.

    The problem with this, is that it is 8 months EARLIER than where it should have happened relative to the last Bear Market. That 8 months was a needed process where companies showed that losses were bottoming out, that profits were starting to edge up, and where layoffs had stopped. It was an 8 months where investor confidence slowly built up and showed itself with investors committing more money into the stock market.

    The bottoming process was robbed of that scenario yesterday. It could be that Bernanke's panic reaction yesterday was about another threat to our entire financial system. It could be that his reaction was about a concern over a spiraling deflation that gets out of control. In any event, Bernanke's action yesterday opted for an action that could create a horrific inflationary problem down the road ... where he has decided that he will "deal with that problem" later. See the next chart
    The Current Bear Market Bottoming Process manipulated ...

    This chart is worth a thousand dollars. It shows the NYA Index bottoming process in 2002-2003 compared to where we are now ... before the Fed's interference.

    This chart needs no explanation. The bottoming process WAS the same ... at least until yesterday. I am not sure what happens next ... what the price is for the Fed's early intervention, for the fact that investors have not had the time to build up proper confidence yet, and for the fact that we have not had the time to have layoffs stop and companies to start posting profits.

    We are in uncharted waters that have not been seen in any other time in investing history.
    Yet, I remain very confident that our proprietary data, charts, and models will help us steer a steady course for what lies ahead

  7. George, I agree, but I was more referring to the point that there are MANY justifications why this bear market rally has ended ... if you are a bear. On the same token there are MANY reasons why the mid term bottom has been formed in favor of the bulls. At this point the reasons for the bulls are quite a bit stronger - on the mid term. Long term wise you all know what I believe, and still believe today.

    If I am honest, and I do not adversise or mention this because you get the "dooms sayer" label so easy nowadays (and it really adds no value towards anyone or the blog lol), 400 will not be the final bottom and we will find the end of this bear market quite a bit lower ... lets just leave it at that for now. =)

  8. samamehta, very interesting read, would be nice to see the charts too ;)

    And yes, this top yesterday, very similar to previous tops in terms of build up, moving averages, retracements etc. However the volume yesterday was a major difference from previous bear market rallies that formed tops, wheter it was the final top or not and to be quite honest, I am not sure what to make of it yet. I am still short but looking to cover very soon at the first chance I get.

  9. 15 min chart, Take a look at the point of yesterday before fed announcement, and yesterdays peak, now draw the pennant. We should see a breakout here soon, the question is will it be up and close above 795 (bullish) or break down towards 771 (still bullish).

  10. I'm playing financials short-term, but overall I agree that both bears and bulls can make a compelling case here. Energy and materials are very strong today while financials are weak. I'm staying away from SPY till we have more direction.

    Thanks as always for the analysis.

  11. I just keep wondering how much of that move from 780 and up was short covering. Seemed quite parabolic to me. Hell, this rally in general has been quite parabolic :) The way down after we crossed 800 was a slow grind to 666. Pretty much resigned to the fact that we will probably remain range bound (770-805) until next week. With options expiration tomorrow, not sure how we could get much more of a major movement. Next week will be, it seems like I say that every week to myself...