Ready, Beary, … Go?

TECHNICAL UPDATE – FRIDAY 22 JANUARY, 2010 – BMO

DOW JONES INDUSTRIAL AVERAGE ($INDU: CBOT)
10,389.88 -213.27 (-2.01%)
Volume: 304,288,874(? +49.69%)
Range: 10,374.69 – 10,614.94 (240.25 points)

Originally Posted by Conrad on Thursday 21 January View Post
… it’s only the worst day of the year and the biggest ranging day since 27 November 2009. Can’t say that it wasn’t expected. Also can’t say I’m not expecting worse. It has to happen some time. In fact, I think the bulls got lucky with the 100 point recovery in the afternoon. I wanna see how long this Plunge Protection Team can keep this up.

Apparently, the PPT went missing yesterday.

NASDAQ COMPOSITE INDEX ($COMPQ.IDX: NASDAQ)
2,265.70 -25.55 (-1.12%)
Volume: 791,888,266 (? +20.07%)
Range: 2,259.82 – 2,308.98

S&P 500 INDEX (SPX: CBOE)
1,116.48 -21.56 (-1.89%)
Volume: 6,059,780,000 (? +48.11%)
Range: 1,114.84 – 1,141.58

A lot of technical levels were busted yesterday to bring on all that fear … the DOW broke the psychological 10,500, sliced through the 20 and 50DSMA all in one session, it failed to break above the technical XOP at 10,731 after 4 attempts and has completed the second candle of a Three Identical Crows reversal pattern, the S&P500 is now wearing a 3 Inside Down reversal pattern and the DOW has formed an Evening Star on weekly candles and looks set to extend those losses.

Originally Posted by Conrad on Thursday 21 January View Post
This is my favorite day of the entire earnings season. In the past, besides PCP, UNH, GS and LM, Bear Stearns and Countrywide also used to announce on this day to make this one of the most volatile days of the season.

Woo-hoo! That’s what I call volatility! Just check out the VIX … it punched through the 20 and 50DSMA in one session and is back above 20points again.


The DOW, NASDAQ and S&P500 are now trading in the red for 2010 with only 6 trading days left for January’s Barometer indication.

Originally Posted by Conrad on Thursday 21 January View Post
There is no denying that the market prefers to sell than buy …
Decliners outpaced advancers by an average 2.8 to 1 on slightly higher volumes (+5.79%) on Wednesday (-122pts).

Decliners outpaced advancers by an average 3.3 to 1 on higher volumes (+49.69%) on Thursday (-213pts).

And the selling pressure increases. For the year, selling has outweighed buying pressure in spite of only having only 5 down-days compared to 8 up-days. Thursday was not a case of “preferring” to sell … it was a case of “must” and “should”.

Treasury Yields :

2 Year Note 0.82% -0.06 • 5 Year Note 2.34% -0.07
10 Year Note 3.59% -0.06 • 30 Year Bond 4.49% -0.04
2/30 Spread = 367bps (+2) … 2/10 Spread = 277bps (unch)

Originally Posted by Conrad on Thursday 21 January View Post
The curve continues to flatten. But unlike Tuesday’s lack of interest in selling 30s and 10s, Wednesday’s buying of those longer term bonds confirmed the lack of confidence in the short-term market.

Buying was rife in the bond market Thursday as investors obviously ran their monies out of equities and into bonds. Interest in buying was high across the board especially amongst the 5 and 10. The 30yr yield has fallen back below 4.50% indicating serious doubts amongst investors about the state of this so-called recovery.

Gold (CMX ) Feb 10 ($US per Troy oz.) : 1,103.00 ( -9.60 )
Light Crude (NYM ) March 10 ($US per bbl.) : 76.20 ( -1.54 )

___________________________________________

SUMMARY

Originally Posted by Conrad on Thursday 21 January View Post
It’s a shortened trading week and one that is historically more bearish than bullish. Expect a lot more volatility with the big banks announcing their numbers for Q4 earnings this week … Seeing that we’re just one triple-digit down-day away from the psychological 10,500 level, I suspect this is the week we make that tank.

There are times in this business that I hate being right. The bad news is that we still have today, Friday, yet to come. And looking at the way things went after the close on Thursday, the bulls will be damn worried.

Originally Posted by Conrad on Thursday 21 January View Post
Another day like this one (Wed 20 Jan) and we might see a capitulation of the Bulls. I don’t think the market can stand another day of bad news like this. But there is a high possibility that we will get a worse day than this and when it happens, I’m bailing on all my long positions.

Did that.
I had to make some massive cuts to most of my long positions when DOW hit 10,560 for a total realized loss of about $500. The drop below 10,500 on the DOW was not something I wanted to take lightly. Furthermore, I wasn’t going to wait for it to break below that 50DSMA either.

Thank goodness I made those cuts. If I hadn’t, I’d be looking at losses now close to $4,000 on those few positions. The last few days saw the market wipe out most of my profits on those positions and I wasn’t keen on making more losses than profits.

And that’s why it is always a good idea to have an opinion … especially when you get it wrong.

Well, don’t let the market get you down … there’s lots of fast money to be made if this tank persists. Will this tank persist? And for how long?

Truth is, I don’t know. But I do know that the Green Shoots are dying and dying fast. These are the latest updated and confirmed economic indicators:

• Nonfarm payrolls down 85k in December.
• Manufacturing production fell 0.1% in December.
• Retail sales fell 0.3% in December.
• Housing starts collapsed 4% in December.
• The trade deficit widened 10% in November.
• The NAHB index slipped to 15 in January from 16 in December.

Allow me to quote Jay Shartsis:

… the 21 day market-wide dollar weighted put/call ratio is now flashing bright red. At the Grand Stock Market Top recorded in Oct 2007, the gauge reflected only 58 cents traded in puts for every $1.00 in calls. That was a lot of option trader optimism. And now? A few days ago, this gauge reached 50 cents in puts for every $1.00 in calls – even more optimism than that seen in 2007! This extreme optimism seems even more worrisome, given the fact that stock prices are well below the peaks seen in the fall of 2007. I would rate this as a serious sell signal. Get out of the way.

Do your best to have a pleasant weekend and treasure what you still have.

Safe Trading and Happy Hunting always!

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