Wednesday, September 17, 2008

Buddy can you spare a dime.

The markets are crashing. Any bounce will be followed by more selling. I don't think the problem is the short sellers. The public has lost confidence in the financial markets and the government which regulates them. This is a wholesale liquidation of equities which has to run its course.

The talking heads are out in force, asking the experts "Is it time to buy?" And, of course, the so called experts, an "economist" who has never seen a bear market, starts talking mathematical mumbo-jumbo which sounds like "well maybe" Now before I became an artist I studied math, I kinda understand this "economist" mumbo-jumbo, and well....

In the normal course of oscillating markets we can talk about "overbought" and "oversold" and use them as points of entry and exit. Statistical and other technical indicators work most of the time, and that's why we can use them. However, every once in awhile things get really out of whack and the general rules do not work and that is where we are now.

In the prior posts I spoke about threshold levels of the McClellan Oscillator's 10% Index. The 10% index is a 10% exponential average of the NYSE Advances minus the Declines. It measures market breadth (how many stocks are going up or down) and doesn't know anything about the prices.

The blue squiggle, the second indicator from the bottom is the 10% Index. It means this: If the 10% index is +100, it means that over the last 20 days (roughly) 100 more stocks were up than were down. That would generally indicate a rising market, on average over the period. Conversely if the 10% index was -100, it would indicate the opposite and that the trend was weak.

In the chart above you can see the 10% index is -635. This means that over the last 20 days, with a heavier emphasis on the more recent data, that there have been 635 more stocks down than up each day. This is very negative behavior and most likely your stocks are going down.

In the prior posts I have spoken about the -500 threshold level for the 10% index. First off -500 isn't a hard number, it's a bit approximate but I need something to quantify the issue. I marked each time the 10% went below -500 in red and drew an arrow to the required retest which follows. In all cases over the last year, not only has the retest failed, but each time the 10% Index also went into the red again (see chart). This is extraordinarily weak market behavior and will not end just because the market is "oversold".

This is just an update of the daily chart. The regular technical indicators are a minimum of 4-5 days away from making a turn higher. (The 65 min chart indicators mentioned in last night post, aborted in the first 5 minutes of trading) Since it is Wednesday, with only two trading days left this week and with September options expiring on Friday, there is little chance of more than a one day bounce here. In addition, the expiration will close out any hedge protection using September options. Players can roll over into the next strike which could put additional downward pressure on the markets Monday and Tuesday.

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