Turnaround Tuesday

Oops, wrong direction.
The 65 minute chart breakdown will take a minimum of a couple of days (about 12 bars) to stabilize and turn.
The cycle bars are just extensions of the ones from last May, they look like they are in the ballpark.

Generally closing below the BB's is good for a bounce, except when it's the start of a crash. I do not discount a crash (10% decline) here. The markets are under extreme pressure, like a hedge fund is liquidating OR the Volatility Hedge Funds are pushing prices around as we go into options expiry next week. Whatever the cause, the selling today felt panicky, the pressure on the downside was relentless.

Now, I would really like to see a bounce but the MCO is at -125 which is hardly oversold enough to start a runaway on the upside. So far the MCO metrics are holding up and potentially we could see a positive divergence develop between price and the indicators. So far I don't think it's going to happen over the next couple of weeks and any rally will fail taking prices to new lows.

While I generally pay little attention to the fundamentals, I do think it is difficult to understate the difficulties present in the current economy. I also believe that the Fed (G5, M9 and whatever spooks there are left) will do whatever it takes to try and save the economy.

FIRST IN LINE to be BILLED for this rescue is the common shareholder, the FED has essentially said that the Common shareholders of FNM and FRE are screwed, just like the shareholders of Bear Sterns were. I read this to indicate that any other financial institution which falls down the debt rat-hole will suffer the same fate. This uncertainty is rubbing off on other equity issues in a mad rush to convert assets to cash, or at least protect profits and equity.

I've been watching the markets since the late 70's and of all the spooky declining cycles I have seen this is one of the worst. Generally speaking I have a bullish mindset but the current market feels like an exception to the general technical rules in the sense that some of the events are "out of limit." This means that one can be trapped by assuming the charts will behave like they have before, and this is true, IF you have enough data to see what CAN happen because it did one before, 25 or 30 years ago.

On the other hand, when it does bottom, whoop-de-doo!

Fannie Pack Monday

Well, it was exciting day but not a whole lot changed except for some momentary relief from the banking panic. If one is thinking about bottom fishing in the financial sector, the Fed has made it clear that the majority of the risk is being carried by the common shareholders. If something bad happens the common shareholders will be thrown to the wolves.



On the more positive side, there is some evidence that the general market decline is starting to slow. I still feel that todays upside activity was not the start of a new leg up and that tax loss selling will put further pressure on the markets as we near years end.

SPX Cycles

The chart below is a SPX weekly plot with a 65 week cycle starting from the October 19, 1987 crash low. I've shifted it 1 bar to the right which realigns it to the 2007 high and adjusts for the 911 truncated trading week. The span of 65 weeks is 5x13 weeks, where 13 weeks is 1/4 of a year. The subdivisions of the 65 week span (lighter color) are the common fibonacci divisions of 65 weeks (0.09, 0.146, 0.236, 0.382, 0.500, 0.618 etc)

The October 2002 low was 780 weeks from the Oct-87 low (65*12 repetitions) and the following October 2007 high occurred at the 65*16 repetition bar (1040 weeks) The next 65 week count is 17 (1105 weeks) and occurs the first week of January in 2009. Ideally this would be a low and preferably a secondary low after the low I expect the first week of November.

I seriously doubt that any rallies which occur prior to the election will have significant force to do much more than work off oversold conditions. There is a considerable amount of fear in the markets and we are entering the tax loss selling period which should put additional pressure on just about all the issues trading on the major exchanges. In case you haven't noticed, hardly any stocks are in uptrends.

Caution is warranted.


S&P 500 Weekly

S&P 500 Daily

Fall la la

This market is in trouble and looks like it is starting to freefall lower.

The MCO, 10% components and SUM index shifted to the sell side today.

The daily SPX MACD is breaking down from the neutral area, and the 60 min MACD show nasty downside momentum as well.

Indexes closed below the lower 20 day 2stdev Bollinger band, the indexes need to bounce tomorrow or a crash lies ahead.
The downside looks like it could be about 70 to 100 SPX points lower from here.

Smells like forced liquidation, no need to be a hero.

Summer Rally?

I'm posting on the road, without access to many of my regular technical tools, including my cycle charts, but for the moment the markets are looking more positive than thay have been over the last two months.

The NYSE MCO looks like it has finally completed a complex bottom and reversed to the upside today. Stronger than market stocks should begin moving higher. This has been a fairly nasty decline and a bit more backing and filling could occur but I doubt prices of the major indexes will fall much further over the short term.

One caveat: I checked the unadjusted MCO values yesterday, including the values for the 10% index which were not good, in the minus 700 range. These are negative blowout values on the downside and will require a retest of the recent lows again within the next few months.

My general opinion is that one could short the upcoming rally, looking for the final lows in the August timeframe. The chart of the NYSE composite looks like it will fall to 8000 (another 6% or 7%) on the retest.

See the chart at Stockcharts.com:
http://stockcharts.com/charts/indices/mcsumnyse.html