Monday, February 02, 2009

Weekly Stock Charts review from Bullish short term but not much optimism

Another depressing week for the market has passed. What are the expectations going forward?

Yong Pan shows a mixed bag of signals with neutral positioning dominating:

SPY's showing a sell signal; short of overbought conditions, so perhaps we will see it move sideways:

January is now cooked and its barometer predicts a bad 2009....

Maurice opens with an opinion piece of the stimulus package. Once again, individuals fail to understand the importance of R&D in employment creation (sigh!); it's no wonder few American citizens choose a career in research - why endure lengthy a 'apprenticeship' of up to 12 years in college to enter a marketplace which is severely underfunded, poorly paid (low morale), ignored during booms but targeted during recessions.

The business of science in America has been driven by Republican disdain into a huge domestic outsourcing program; working in research is like working at the UN! Unfortunately, this is not without its risks; you don't want to be in a room when someone tries to open a pressurized autoclave, or work in a lab where radioactive and/or carcinogenic material is improperly disposed of because the user doesn't understand how to use the equipment or material safely. Adequate resources to train people isn't available when you are struggling to keep the lights on. R&D in America is going down a dangerous path and America's preemience in science is under threat. There are plenty of grey heads knocking around but who will be left to fill their shoes?

For the cost of redoing Thain's office you could have funded six different projects for three years with a postdoc and grad student per project. Think what you could have done with the billions thrown at a failed banking system. If the country is to pull itself out of thie recession it needs new ideas (produced by R&D), not more of the same. Republican doctrine has failed miserably, it's time to give the other side a chance. It's funny the most vocal critics of Obama's plan were the ones touting the "soft-landing" approach 12 months ago.

But life goes on.

Maurice has marked a key support area for the S&P; watch this closely because Monday's futures suggest this will break.

Maurice looks to be siding with Yong on a short term bounce:

I bailed out of the ultra proshares when they formed an island reversal last Thursday, that was the day before 4Q GDP was announced. Since then prices have tumbled down to test the rising minor trendlines on the daily charts. That is near 820 on the S&P 500, and Friday's intraday low was 821. We now have a divergence on the 15 minute charts, but it may only produce a short rally in order to get another lower high on the daily and hourly charts.

The 5 day stochastic (5, 3, 3,) on the S&P 500 daily chart turned bearish on January 30 (top of page 3). Even the full stochastic (14, 3, 3) on the S&P 500 got a bearish cross on Friday. Additionally, the MACD histogram turned bearish, starting another slope down. There is one encouraging thing to watch for, if we get a higher trough low, we will have confirmation of a higher low on the daily chart.

The QQQQ on the 15 minute chart has a divergence, as it finds support at the 61.8 Fibonacci retracement. That means we will likely bounce off these oversold levels for now.

The S&P 500 60 min chart reversed off it's secondary trendline and is now testing the new minor rising trendline. If it holds up, the MACD will likely recycle back up and confirm a higher low. Then the S&P 500 still will have resistance in the 850 range to contend with, and the last minor high of 877.

If we get a reversal tomorrow, I will do some day trading. Again, I want to remind you, that we are not in a confirmed trend according to our indicators. But I do want to see evidence of a reversal. Therefore, day and swing trading are the way to play it until the market clearly starts to trend on the daily and hourly charts.

Maurice is liking the financials:

I still think there is a chance that the financials can lead the market out of this mess. The complex inverse head and shoulders patterns on the indices are still credible. Although, the last minor high of 877 on the S&P 500 failed to make it to the neckline. That often happens on this pattern, so it is not clear if prices are still carving out the first right shoulder or if they have moved on into the second right shoulder.

I bought my shares back of the ultra proshares for the financials (UYG). The gap was filled and overshot that $3.28 level. Prices came down and tagged the rising trendline. You can see that XLF's hourly chart (page 2) has filled the gap. If you are a johnny come lately with reference to the financials, You might want to look at options on XLF. I like the March and June $9 calls. The June $9 calls have 141 days to expiration, whereas the March $9 calls expire in 50 days. But I have jumped back in on UYG and fully expect a run back up to the intermediate trendline. Then for prices to break out and find resistance at the confirmation line for a double bottom. That is the 14 dollar area on XLF. If the financials do form a double bottom here, they may lead the charge for reversal patterns across the board.

Richard Lehman has his 2 cents and views Monday as key:

1/31 -- Friday's sell-off changed the short term picture, but it still says we work higher in the short term. The blue upward short term mini channels started breaking Thursday on a few indexes and broke for all of them on Friday. All day was spent in a narrow mini downward. The DJIA, SPX QQQQ, XLE and XTC, however, all closed PRECISELY on a line (shown in green) that indicates a larger channel still heading up, albeit much more slowly. I've drawn these on the hourly charts. The Naz and RUT are still slightly above these green lines.

What this means is that the blue countertrend rallies from 1/23-1/29 were not sustainable at that angle, but this pullback allows the up move to continue at a slower pace. Remember though -- all of this is still happening inside the larger purple downtrends, and is thus countertrend action.

A bounce HAS TO START MONDAY to keep this scenario alive - ANY material declines at all on Monday for the DJIA, SPX and QQQQ would negate this scenario and have us heading down to the lower purple support (mid-7000s on Dow). Also, a couple of the sectors (XLF and XLK) may be breaking their greens to the downside, so they bear watching.

1/30 -am- Several breaks occurred yesterday on the hourlies, putting this mini advance in serious jeopardy even before it reaches the upper purple line. That is definitely troublesome. This counter trend rally is on its last legs and is probably being held up by seasonal factors more than anything else.

Joe Reed has his week in review:

Summation Indices tell their own story; Joe calls a top in the NASI

Finally, not liking the backtest of former support - now resistance - in the Bank Index:

The way futures are looking it could be a rough Monday.

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