Monday, October 13, 2008

Weekly review of Stock Charts

With the long weekend keeping markets closed for Monday what updates had the public listers made over the weekend?

Yong Pan has a bullish series of breadth indicators, but still a mixed set of indicators for the S&P. Getting there - but still too early for a bottom?

He is looking for a morning star from the open (given the European market action for Monday we should see a gap up)

Weakness in breadth indicators apparent on his SPY chart:

Incredible to see years of gains disappear in less than half of month:

I like the idea of the gap acting as resistance, also close to where the market pushed that huge volume relief bounce which is now supply.

Maurice Walker had a good opener:

The S&P's 500 Unholy Fall Of 666 Points

And followed:

The Fear Factor

The market fell prey to panic this week as the volatility index (VIX) (page 1) reached a record high of 76. The VIX is the gage of fear, and it is telling us that the masses are in panic mode right now. Uncertain about the Paulson plan and seeing their 401 K's go up in smoke wiping out the entire bull markets gains over the last 5-years. But it is a gage that is also signaling that capitulation is on the horizon.

Mr. Toad's Wild Ride

Mr. Toad's Wild Ride just isn't a ride at Disneyland! It is exactly what happened today on the DJIA. The Dow dropped 697 pts just five minutes after the opening bell. Then by 10:12 a.m, prices earased all losses. Then for the next few hours prices staggered falling first 512 pts and the 606 pts by 1:50 p.m. By 3:36 p.m prices managed to rally up 928 pts, putting the Dow in the positive column by 322 pts. As the last 24 minutes of trading occurred the DJIA moved back into negative territory closing the day down 128 or 1.49 %. The DJIA had the largest swing in history of 1019 points.

You can follow his trading information by going direct to his public list. He added this on the candlesticks (it looks like we are all looking for morning star patterns)

The Daily Candlesticks

We have been watching for any signs of a candlestick reversal. And it very well could have emerged on Friday. The S&P 500 daily chart put in a 2-day Doji Star pattern. Should a huge white candlestick appear at the next session, a Morning Doji Star pattern will be in place. This is a Morning Star pattern with a Doji candlestick materializing the second day of the pattern.

If that 3-day pattern is confirmed it in all likely hood could mark a bottom. The DJIA could be forming a regular Morning Star reversal along with the QQQQ.

But the Nasdaq is taking a different route, putting in a 2-day reversal pattern. An In Neck Line candle pattern has now illuminated on the Nasdaq. The pattern is one of the three variations of bullish Piercing pattern, which is the oppisite of a dark cloud cover. The three variations are In Neck Line, On Neck Line, and Thrusting. In Neck Line simple means that the second day didn't close deep within the real body of the first day. Study the second through the forth chart below to see the candle patterns.

I believe that there is a good chance that Friday was the bottom. But we must have confirmation of the Morning Star patterns and the Nasdaq's In Neck Line pattern, in order to establish a true reversal.

I hadn't considered this before, but a reversal head-and-shoulder pattern has potential:

The bigger picture may be that huge inverse head and shoulder patterns are being carved out on the daily charts, with the left shoulders at the mid-July lows and the left sides of the heads possibly have now fully emerged. If this pattern is carving out we will form the right side of the head with a massive retracement on the indices. The pattern is months away from completion and is now just merely speculation on my part. If it were to occur, the pattern would likely take another 4-months appear on the chart.

Maurice is looking for an L-Shaped Recession. Don't have an opinion on this:

Moreover, I largely changed my position as the credit markets almost locked up two weeks ago. This will do significant damage to the GDP. If the recession is shallow and short for 6 to 9 months it will be what economists call a V-shaped recession. If it lingers longer it will be a U-shaped recession lasting 1 year to 18 months. But if the government continues to muck things up, it could be an L-shaped recession lasting for 3 years or longer. Japan experienced an L-shaped recession in the 1990s, during a prolonged period of stagnate economic growth.

Joe puts the week in words:

A test of 2002 lows is calling:

Has the dollar made it past resistance?

And oil is bust

The Ted lines are interesting, particularly where they showed indecision in the markets as marked by doji:

The Nasdaq 100 has an accordian like range of resistance:

The point-n-figure chart target for the Dow is amusing:

Finally, Richard Lehman has some good (bearish) channels showing across the indices. The position of the Dow intraday reversal on Friday is worrying in this context.

10/11 -- The slope-changed short term channels turned out to be right on here as they contained both the lows and the highs in Friday's record-breaking whipsaw. MOST IMPORTANTLY: Only one index actually broke upward from its short term downchannel on Friday's rebound -- our friendly Financials. The rest are still in downtrends, though a couple briefly broke before retreating. The Dow chart here shows precisely why the index turned back where it did on the rally.

So...we're still in short term downtrends, though even a modest rally on Monday will yield some breakouts. Then we'll just have to see how the ST channels develop on the upside. The long term charts are going to be of little help for quite while as the magnitude of the selloff will require months of rebounding before the picture will change much there.

10/9 -- The long term charts like the Dow 3-year are showing price action that no longer follows straight line channels. However, the short term charts seem to be capturing all of the recent price movements in standard channels, and we are at support in many of them again on today's close. But again, there is panic and futility in today's markets, combined with never-before-experienced volatility, so you almost have to expect the unexpected now.

10/7-- IMPORTANT NOTE: After drawing in today's chart lines, folks, I have to admit that the situation appears to be accelerating out of control on the downside on many of them. Both the short and long term charts have taken a serious downturn now that is breaking down through the existing and already steep downchannels in non-linear fashion. Until now, I have been taking the perspective that we would find a 'natural' bottom from the existing channels, but I am now seriously concerned about the bottom falling out. I hate to sound so dire, but I'm calling it as I see (and feel) it. There are few projections on the current channels that give me any sense of confidence as support lines. I advise serious preservation steps here.

Dr. Declan Fallon, Senior Market Technician, the free stock alerts, market alerts and stock charts website