Finally a confirmed turn up

Our indicators began their turn positive at the close of Friday's trading. Actually intraday Friday if you were watching. I've been too busy positioning to update before now but here it is. We finally have a turn that's confirmed by 3 other indicators. Based on the dramatic plunge of late, we anticipate this run lasting weeks-months retracing close to 50% of the Oct/Nov plunge.

More Pain

Broken!

Today was significant. We broke through key support with decent volume. All indicators point down. DON'T BE FOOLED by a sucker rally.

Dollar Watch

In a previous post I noted coorelation between commodity deleveraging and it's affect on the Dollar and Stocks - link . With that theory as a basis I believe the action in the dollar will have implications in commodities, namely a weakening dollar should accompany stronger commodity prices. The descent of commodities (in general) seems to have stalled although no tradable pattern has emerged yet. However the short term action in the dollar is flashing sell signals.

Dec Dollar futures, DZX8 as a proxy for the Dollar:

Ag commodities look poised to fare best in this scenario (hat tip to Tim). The pattern is not fully formed nor confirmed by volume, but promising and one to watch nonetheless.

I would like to see a reversal in the commodities index as well.

To summarize, I'm looking for the dollar to lead commodities. The dollar may be topping. I think AG commodities may be a better play than say oil or precious metals. The latter still have a bearish look to them.

Gut check

Sorry folks, not every setup provides a clear indication. We are again at support. At this point its probably best to sit back and let the market speak. If we break support we could look to 2002 for our next support level.


Putting the chart aside, my gut is telling me this market still has some issues to resolve. It's inability to sustain a rally and move off of support is bothersome to the bull case. Although I reticent to short at these levels. In fact if we do break support my gut also tells me it will be shallow and fleeting. I am carrying a med-small long position based solely on the fact that we have fallen so far so quickly. The successful tests of support are looking less relevant as time goes on. The next few days are important.

Bullish hopes abound - is it a trap?

The four major indexes are flashing bullish signs right now. We successfully tested the bottom last week with a hard bounce. The next day's profit taking resulted in a higher low - not unexpected and still positive.


Let's review some facts affecting biases. Selling in the past month has been violently amplified by deleveraging across all asset classes. Deleveraging cares not for valuation, but survival. We know in every case market plunges produced powerful rebounds that revert to or near the mean. We are dramatically off significant moving averages. However, aside from these developments alternate indicators cannot rule out the potential for more downside.





The dramatic fall in commodities seems to have caused a rise of the US Dollar and a fall in stocks. This is most likely due to the unwinding of leveraged bets back into cash, i.e Dollars.



The chart below indicates the Dollar's rise may not be over implying the potential for more pain in asset classes. I say this tenatively because I believe the Dollars rise is an "effect" not the "cause". The tail doesn't wag the dog, but the chart should nonetheless considered in our decision making.





So is it safe to go back into the pool? Maybe. I sense we're close if not there. The Hedge fund redemption window closed this Saturday. This could signal an end to deleveraging. I'll be watchting the performance of commodities for clues. But let's not get lulled into thinking all lights are green. They are not.

Intraday Alert

Exiting AAPL short @ $91.55

INTRADAY ALERT

Positive reversal in progress (2:30pm). This is a very bullish sign. The market bounced hard off of support (DOW 8000 see previous post/chart) and is poised to finish 100+ today. Trimming shorts, adding longs. i.e IWM

After Close Update

Bloodbath!

The market has rewarded short positions and is likely to continue to do so in the days ahead. And while individual stock charts may be attractive (to short) in their own right, they should also be viewed in the context of the overall market. We are at very oversold conditions. We may go lower, in fact with the new wrinkle provided by Paulson et al, we will likely probe new lows. The market loaths uncertainty and the turn about has raised more questions than it answers. Longterm the market will likely go MUCH lower. However, risk based trading demands favorable odds. Shorts (and longs) should be kept with tight stops and positions scrutinized before the end of each trading day.

Breakout! and charts of interest

GXDX

A thin stock on the cusp of a new 52 week high showing impressive strength on a down day and managed to pierce a new high (intraday) off of a Cup and Handle. Volume was light so look for continued strength and increase in volume at or above $40 for buys or followups.

From a fundementals standpoint the recent move is not a fluke. The last two quarters show accelerating earnings growth in a leading sector (medical services) with an increase in sales.


EBS

Also making new all time highs with strong fundementals to back them. This one demands patience though.

And a short candidate - FSLR

I'm inclined toward a general market rally from here which makes me cautious with shorts right now. But....

PMG's

An interesting divergance may be occuring in the Platinum Metals Group (PMG's). Palladium appears to have bounced off a bottom while Platinum looks poised for another leg down. These typically trend together so it will be interesting to see if the divergance persists. Both are at very oversold levels so I suspect Platinum breaks from tradition.

Charts of interest

Our current stock market is in a secondary up trend. This is a counter move to the primary down trend and may last a few months. I expect bullish activity to prevail until the primary trend resumes. The movement of the US dollar has been effecting the markets of late so a chart is also included.

USD






SYNA





APEI

Some Short ideas:

Mastercard

Google

Apple

Rally Update

S&P



DOW

A study of Market plunges

1987 Big plunge amidst a bull market. A rally ensues right after the plunge but that isn't entirely useful since economic conditions are much different than they are now.

1973 A double bottom and then a rally making up the entire plunge.

Two plunges from the late 30's, two rally's ensure - eventually making up more than half of the plunge.

Of course no plunge study would be complete without the infamous 1929

And now a look at our current market.

It's difficult to make an absolute conclusion, but after a plunge the bias is clearly upward. The risks are in the potential for retracements. The 1937-1938 chart shows one possible pitfall. What looks like a bottom is in actuality a pause before making a new low. One comfort is that this new low is not much below the initial plunge and recovers very quickly and eventually follows with a legitimate rally that makes up more than half the plunge.

One clear warning eminates from the 1929 era. Although the market went on to rally for a few months, it then launched a long, slow brutal bear market that erased over 80% of market value. Buyer beware.