Saturday, October 20, 2007 Weekly review

It was a busy close of week for the averages. How did the Stockcharters see it?

Dr. Joe offered up his bullet point summary on the week:

Joe has highlighted the buy signals for the Nasdaq (but no sell triggers) using the Nasdaq Summation Index:

He has a good Dow chart with a MACD histogram overlay (from John Murphy???). Friday's selling didn't completely reverse the MACD - but it looks like it will only be a matter of time before it does:

Ted Burge is looking for support with further details available on his website. His 60-min intraday chart for the Dow is interesting as it shows the next level of support down at 13,350:

His daily Nasdaq chart shows support at 2,695:

While his semiconductor chart has support marked at 472:

and the Russell at 771:

Jack Chan has marked fresh 'sell' triggers for the Energy sector - although he looks to have changed his opinion from a sell - to a hold - before back to a sell (see some of my earlier reviews):

and Gold indices:

Maurice Walker has his weekly review up:
10/19 Today marks the 20th Anniversary of Black Monday, which on October 19,1987, the market crashed dropping over 22 percent. The Dow is now down 4.76 percent from our recent all time highs, down 571 pts this week losing just over 4 percent for the week.

All my index ETFs and Ultrashorts have done well except Crude Oils ETF ticker USO. But even the energy ETF XLE, dropped 4.74 percent today, so now I have a positive trade in energy and I expect further downside for the sector and Crude Oil as well. Since we got involve in DXD and SDS, we are now up 9.25 percent on both. The Smallcaps Ultrashort TWM was up over 7 percent today and I have made over 12 percent with only having the position for 8 trading sessions. My DIA position is now up 4.30 percent from when I got involved and SPY is just above 4 percent. DUG broke out today and I made over 9 percent just in today's move. I think the move is just beginning for DUG. But I locked in some nice gains on the index ETFs, liquidating a good portion of my positions.

Investors reacted to some disappointing earnings this week and another downgrade of several residential mortgage-backed securities. This has investors concerned that the credit crisis may spill over into the broad economy. Also $90 per barrel Oil is acting as a psychological barrier, creating fear in many investors. I continued to hear talk of recession all day today as another excuse for the selloff.

I have examined many of the economic indicators that economist use to determine recession and inflation. Based on those current figures, I would have to conclude that fear mongering is taking place. You have read my economic commentaries and you know that we have low core inflation, low interest rates (with more cuts to come) and acceptable GDP, a positive yield curve slope between the 3 Mo T-Bill and the 30 year Treasury Bond, retail sales we better than expected, and nonfarm payrolls were OK for Sept. and a positive revision for August. Read the Elliott Wave commentary below the 1st chart.

He has an interesting wave review for the Dow:

with associated commentary:
10/20 Elliott Wave Commentary:

The current move down appears to be a Zigzag. According to Elliott Wave Theory the rule of alteration occurs between wave 2 and 4. If wave 2 displayed a sideways correction, which it did, then wave 4 will manfiest a sharp correction. That is what appears to be taking place right now. Now I did revise our current wave on the 60 minute charts to reflect an extended wave 3, thus producing a 5 wave construction for wave A. Now I do expect an abc recovery move, then another push lower.

I do expect the 13,390 area to hold up on the Dow. Elliott Wave 4 cannot move below the peak of wave 1, which is at the 13,390 area. Notice that the rising trendline intersects well with the 61.8 Fibonacci retracement

I also believe that we are in wave 4, because the RSI moved above 66.67 and that tells me that we are still in an uptrend. Corrections should be contained above 33.33, and so far the indice daily charts have done so. Most reactions have a tendency to get a bottom reading around 40 on the RSI.

part of his larger picture:

His S&P volatility index also makes for good viewing:

as does his resistance channel in Crude Oil:

whereas Robert New is more optimistic:

I will finish with the interesting commentary of Richard Lehman:

10/20 -- Here's my take on things at this point. We were already in short term downtrends and had seen some big warning signals on the breaks of minichannels in the longer term charts. This decline confirms that we have seen interim peaks. I emphasized how the Naz had recently hit a major 3-year line and backed off. Each prior hit led to a significant (100 points plus) sell-off in the next several weeks.

The ST downtrends were well defined and not too serious until Friday. Between option expiration and the ugly rememberance of certain past Octobers, emotion took over and selling got rampant. As a result, the short term charts on the Dow, RUT and SPX accelerated through their lower channel supports. That was not the case, however, for the techs and thus the QQQQ and Naz, all of which closed on or near existing ST channel support.

So we need to view the longer term picture now for better perspective. The Dow 3-year chart shows that the upchannel from last year is still intact and gives us another few hundred points on the downside to a potential channel support point at around 12,300 or so. (Hourly support would not be until 12,750 however.) The QQQQ is only back to where it was on August 12th and a sideways channel is still intact. Remember, the Naz was up 16% from mid August and has only dropped a few percent thus far. That gives you a sense of the potential for further decline here.

Now, I do not expect another '87 debacle on Monday morning, but I do see a potentially nasty week as portfolio managers all rush to the same exits and mutual funds continue their October tax selling. We have had a pretty good year considering deteriorating economic fundamentals and I expect PMs will want to lock in what they can. The short term charts may not be as useful until things stablize a bit, so I'd watch the hourly and daily charts for support levels. Bounces could be significant, so try not to get sucked ion on the long side unless we bounce off solid support lines.