Saturday Rock Blog: Wheel in the Sky (DIA)

DIA Chart (bouncing soon)

Disclosure: I have no position in DIA but am looking for it to bounce significantly soon, perhaps at $146.

Pi Day Rock Blog: Dow reaches cup n' handle target at record high for tenth day in a row

Do or Die for the Dow

After breaking down out of a huge rising wedge pattern last Tuesday, the dow (dow tracking ETF DIA seen above) retraced back to the break point where heavy cumulative volume (see volume by price on the left) seems to confirm strong resistance near $130 (or ~13,000 on the dow). The multi-year uptrend is still clearly in tact, in my view, but stocks are positioned for a correction from here. In just glancing at this chart, a correction to 12,000 looks very reasonable and well within the scope of a longer term (~3 years) uptrend. If you zoom out further you see that stocks have been range bound for about 10 years, and we are near the top of that range. I wouldn't be surprised if something more serious developed than a 1,000 point correction but you can't make a technical argument for that here. I think even the most bullish of bulls would like to see stocks pullback to gain lower risk entries in overextended stocks. With the federal reserve meeting this week, the bears could finally get the catalyst they've been waiting for for the first real decline in stock prices this year.

However, should stocks push just a little higher from here, say above 13,060 on the dow, there could be a powerful squeeze as new shorts once again run for the exits. This would set up the dow for a test of the all time highs near 14,000. A correction to 12,000 might be just what the pulls need to muster the strength for a rally later this year towards those highs. We'll just have to wait and see how things play out but caution is warranted in the near term.

Saturday Rock Blog: Dow Golden Cross Positivity

AAPL year-to-date performance vs popular ETFs

Disclosure: No positions, but maybe soon.

Dow Jones Three Month Chart

I'm fairly confident that markets will sell off next week but what will the dow do at its rising 50 dma? A break to the downside of this narrow range should give us a 50 dma test but if we bounce from there the bulls may get the confidence to push us to close at new year highs for op ex the following week. In that scenario my "out there prediction" would clearly end up false. On the other hand, markets are ripe for a sharp and severe correction as the US dollar corrects to the upside. I know its not exactly with the Christmas spirit but I would love to see a bloodbath this week that follows through into op ex as the VIX approaches its falling 200 dma. I like how most bloggers I am reading are looking for a big push before the market severely corrects, few seem to be expecting Christmas carnage. Maybe I am early, that's often the case. I certainly wouldn't be surprised if the Dow clearly broke out of the current range to the upside for a few days before getting whacked. But the market tends to move in such a way that makes most traders wrong so we shall see.

Disclosure: I have no position in the dow but I am net short.

The most bullish of the indexes: DJIA

A Chart a Day #16: DJIA % from 200 dma

Today's chart is actually completely unorginial, I borrowed it from bloomberg.com. I hope they don't mind. Aparently, the Dow Jones has only rallied from being down 10% to being up 10% from it's 200 dma a few times in the last century. Since 1921, the Dow Jones has done this only 21 one times but they have all led to profits over the following 12 months for an average of 18%. The chart above shows the last four times this has happened. I guess we can officially put this signal to the test starting July 2009! Again, I got this chart from here and this link has more detailed information.

Saturday Rock Blog: Armagideon Time

Oil: The Model Short

Its somewhat stunning to see the lifeblood of modern society to fall by 2/3 in less than six months, could we have seen it coming? The oil crash of 2008 was a textbook short and gave a number of winning sell signals on the way down. If you are looking for some good signals for trading anything take a look at this chart:

There is still no sign of a bottom in oil but its obviously way too risky to short here. Maybe if oil could manage to rally back up to the 50 dma but thats pretty far off at this point. I have the "ultimate fib" on there, but so far it has not provided any support at $56.50. If oil could recover that level it might be worth watching for a ride up to the 50 dma (~$75), I'm not holding my breath.

For a quick comparisson check out the dow over this same six month time period. There's not a whole lot to say here other than that volume is picking up which suggests some kind of bottom is near. However, after cracking through some major support levels last week its going to be tough for the market to rally without a capitulation event which we just haven't seen yet.

The ideal situation for the dow from my perspective would be a big washout early this week followed by a seasonally reinforced rally into 2008. Perhaps a Citigroup bailout will be the catalyst for a major panic/capitulation next week. Good luck!

At the edge redux

Well, after heavy selling late last week we are back at the edge. See last Wednesday's post for more on the details of that. I'm still expecting a big rally, noting the positive divergence in multiple indicators. But the possibility of a big break lower must be taken seriously and I would point you to moontrader's work which I thought was interesting. He's seeing a spiral in time, a Fibonacci series pointing towards a major bottom on 11/24 - 11/26.

Markets face resistance but is a Santa Claus rally looming?

The only missing component of a sustained multi month rally is an obvious higher high on the dailies. After massive worldwide government stimulus, the Dow Jones has managed to trace out a series of higher lows as confidence slowly returns. Most indicators are showing positive convergence on the daily time frame but a wall of resistance lies just above with recent highs at 9654 and 9794, also the 50 dma at 10,000. I expect that if that recent high at 9654 breaks we could see a domino effect of strength up through 10,000. If that scenario comes to pass then I think it would be easy for stocks to follow through with a seasonaly favorable December rally. My target would be the 200 dma up around 11,500.

IWM looks similar but is much closer to breaking out than the Dow Jones. If IWM get over $55 I'd expect to see some real fireworks in the small caps since the measured rule for the inverted H & S below targets roughly the 200 dma (over 20% post breakout).
Disclosure: I own calls on a number of stocks and ETFs.

Failed Moves Lead to Fast Moves

What we had today was an orgy of failed patterns. As I mentioned on Sunday, all of the major indices had broken down out of huge symmetric triangles with the NASDAQ and small caps making new 5 year lows. I won't speculate on why, though I have some ideas, but the breakdowns all failed. I got the title of this post from Brain over at Alpha Trends and it nails exactly what happened today. All last week and yesterday you had bears banging their fist on the table calling for an "extreme capitulation" event where everyone goes into a state of panic and the Dow drops 1,000 or so more in a day. Wouldn't that have been nice? Everyone was expecting it and just when it looked like it might happen, reversal. From that failed breakdown we got this massive rally, the biggest in history. All major averages except the Russell 2000, curiously, were up more than 10% today. I think this chart from Moontrader over at Luna $ Ticks really captures the significance of the reversal and ensuing breakout:


I love this chart, it really demonstrates the power and utility of technical analysis. So where do we go from here? As I have been saying for weeks, I am looking for a bear market rally that will last 3-4 months from this bottom. Was today the bottom? We will only know with certainty after a few follow through days but after today I think the odds are very good that the lows for 2008 are in. Tomorrow is a big day with the FOMC meeting, then the negative GDP data is Thursday and I would expect a bear attack after both. Also, I am worried somewhat about the weakness in the Russell 2000 which, as you know, I think leads the way. We need to see that index play catch up over the next few days as the other indices consolidate. Despite some issues, I think the tide is finally turning for the bulls but I'm going to try and remain objective.

It's over nine thousaaaaaand! (the dow)

Stocks are back in freefall or Why stops are essential

There's just no way around it, stocks remain in freefall. Hopes for an intermediate term bottom failed miserably last week when the major indices broke down out of their famed symmetric triangles. While the dow jones and S&P 500 have not made new lows, this appears a technicality with the leading indices (nasdaq 100 and Russell 2000(above)) getting crushed to new five year lows on Friday. This scenario has set up a test of the 2002 bear market lows and brings new measured rule targets into play, all of which are significantly lower. Here's the dow's traingle:

The best thing for the stock market now would be a quick panic of "extreme capitulation" down to the lower 7,000's on the dow or lower 700's on the S&P. With the failure of the early October bottom the market needs some sort of extreme event to entice investors to come back to the market and shorts to cover. Right now we are back into a steady free fall so it is more important than ever to honor stops. The obvious example here is JASO. When JASO broke that 5.3 area (IPO support) the stock was crushed beyond belief, falling almost 40% in two days. The problem is that 100% of investors in JASO are now at a loss and most of them probably would be happy just to get out break even. There will be enormous resistance for JASO to rally now. That's why I suggested a stop at $5.2 when I mentioned it last week. From a technical standpoint it is impossible for me to like JASO while it remains below that IPO price.

I guess the next step here is to exploit (profit from) the weakness yourself. If stocks are gonna get crushed after breaking support then we might as well short that break and go on the offense. Take a look at ICE:
Now I realize ICE has fallen a large amount, my target was met a while ago and the PE and PEG look very attractive especially with all this volatility and volume to boost earnings. But none of that matters if the stock is going to keep making new lows. In fact the irony and absurdity of a stock falling so rapidly in the face of booming business might even accelerate the downside as panic ensues. If stocks are going to be massively devalued here I want at least some exposure to that downfall. I'm trying to keep my eyes and mind open to anything in this crazy market. Right now things look and feel pretty damn foreboding.

Jim Rogers is covering US stocks, buying Yen, Francs, agriculture, China. Watch the dow ticker!!

I really like his perspective on the issue of government intervention in the stock market and how it will actually destroy liquidity.

Like a hot knife through butter, the Dow slices through 9,000 and the bears are ready to feast

The bears are dining at the Ritz this weekend, meanwhile AIG canceled its luxurious spa getaway. Looking forward, I still see no bottom at all whatsoever. Buying here it definitely trying to catch a falling knife but stocks are insanely oversold. To look for support in this market you need a ten year chart. I see 8,000 as a major level with the confluence of a 90's trendline and horizontal support. Then the next levels to watch would be the 2002-2003 bear market lows at 7,533, 7,416 and 7198. If you're looking at the S&P 500, 875 looks very solid but after that expect a panic down to the last bear market lows at 789, 776 and 769. We have a situation where you have to be crazy to buy given such a massive downtrend but even crazier to not take advantage of this frenzy of fear. I'm hoping to add near 8k tomorrow, good luck!

The second leg of the 2008-20XX Bear Market may be over or Argument for a Rally

Here's a quick update on how I see the markets today. We appear to have concluded the second leg down of the bear market that I feel began in the first week of this year. As you can see above, the dow seems to have chosen roughly 1000 poiont increments as pivot points over the past few years. The most important prices have been 13,700, 12,700, 11,700 and more recently 10,700. The dow has been rallying 1000 points then it drops 2000 points, rally 1k, then drop another 2k. We now seem to be at the end of a 2000 point drop in the cycle (12,700-10,700) and I think theres a decent chance the dow sees 11,700 before the end of 2008. Curiously we have a presidential election in a few months and a generally bullish season for stocks, will the campaigning and holiday distractions be good or bad for the stock market?

On the same 3 yr weekly time frame you can see that VIX spikes mach up well with market bottoms. While there is a possibility that the VIX is entering a new range (over 30) like it did back in July of last year (moved up into 20-30), it seems like the VIX doesn't like to spend much time above 30. Note that the VIX still lies over 30 (it should drop soon (bullish)):


Now looking at a shorter term time frame on the S&P, you can see how the second leg of this bear market began from a bounce off the 200 dma. I've added the fibs for refference, a 62% retrace of the move seems likely. That would take us back up to around 1325 where that 200 dma should be. To further strengthen the argument, the volume was extremely light on today's pullback. All the bulls need is a follow through day now. That would involve a day of above average and increasing volume where we take out last weeks's highs. After that I'd expect a decelerating rally for a month or so until the next leg begins. And just for refference, the most recent leg (#2) took the S&P down 21.4%. So there may be some amazing short opportunities in a few months. For now though, I'm going to be patient and try out some longs.


On the short selling ban, I think the shorts deserve every penny they made. Peter Schiff had this pretty well figured out a very long time ago and I bet he's made a fortune:

Now check out the q&a session from at the end of this Banking conference:

Imagine that Schiff sat down at a table with both of those two dopes and they agreed on a bet. That bet involved Peter profiting from mortgage declines while the bulls would profit otherwise. These bets were made on grande scales and the shorts were RIGHT. They deserve every penny, the bulls were drunk. Here's the rest of that talk by Schiff two years ago by the way.

Crashing stocks may bounce, but not for long

With all the horrific news over the weekend (and the past few weeks (and months (over a year really))), today's 500 point decline in the Dow should come as no surprise. Rather, I'm surprised it has held up for so long and that we didn't decline more today. AIG, one of the dow components and the largest insurance company in the world, declined over 50% today after losing $30B in market cap last week. That is jaw droppingly, mind blowingly insane to me. Just, wow. Luckily for the dow, the components are price weighted so an $8 decline is bad but not -50% bad when you compare it to the other dow 30.

Tomorrow the fed will come to the rescue (sarcastic smile on my face) and the bulls have a good chance for a bounce based on the dow chart I have above. There is support around 10,830 and today's decline brought the dow well below its lower Bollinger Band. Typically a drop below the lower BB leads to a short relief rally or at least few days of sideways movement. On the other hand huge volume today (over 2B) confirms a follow through of the long term trend lower as we made a new closing low for the year. Furthermore, the dow is not oversold on a daily time frame by any measure. I would expect any rally to be short lived. The only reason to buy stocks now is for a high risk, short term rally. Owning or buying stocks at this point is only for people who like loosing money. When (not if) minor support at 10,830 breaks, the measure rule targets another 1000 points lower and I bet it happens fast. Bears rule the world right now. The god damn hurricane brought the bears with it:



And here's the S&P, it actually broke down pretty bad today but there is also some minor support just below at around 1,175. Similar to the dow, the S&P closed well below its lower BB and a bounce seems likely tomorrow there as well. Of course the longer term trend is down so anyone playing for a bounce is doing so with a low reward to risk ratio.


One thing worth noting is that futures on both indexes are down significantly right now, currently at:

Dow: 10,823 (just below support)
S&P 500: 1,177 (at support)

Here's the VIX, it had a nice breakout today. The VIX is actually getting up to levels that most would say is a sign of capitulation. While the VIX is indicating some sort of bottom here, I think it has plenty of room to go higher. Why shouldn't the VIX break all the previous bear market highs (37.57), shouldn't market participators be more scared now than ever? Many traders will see VIX in the upper 30's and cover their shorts as a result. That might catch many off guard and allow the market to fall further. Its just that far too many people are now using the VIX to find bottoms. For now I don't want to try and be too smart for my own good and I will just be cautiously expecting a rally.


So if you put a gun to my head I would say the market does gap down to support tomorrow and rallies all day until the fed does what ever it is they do, then shortly after the plunge resumes. Tomorrow around 3pm EST (FOMC decision at 2:15pm) may be a great time to sell stocks. If the fed cuts rates significantly (0.5% or more) then we may get a nice rally in commodities. My favorite, as you know, would be agriculture (DBA). Good luck tomorrow, its gonna be crazy.