Market update and a few charts

DOW - One possible outcome.....


PCG - Thanks for the ride... it's been a gas.

FDO - Hey buddy, spare a Dollar?

Some Breakouts !

STRA....

AFAM broke nicely from a consolidation range. Fairly extended intraday. We should get pullback near $42 making a good entry point.

New Chart

Charts of interest

ISYS

Although it appears to be breaking through support, the astute technician will also notice a Head & Shoulder pattern has formed back in August. A retest of former resistance levels is not unusual before a stock falls back beneath. Be careful of this one. It needs to build support above former resistance first.

Family Dollar

This stock has held up rather well through the mayhem (considering).



EBS

Looks promising, volatile and a little risky to enter at this point. One to keep an eye on though.

The Dollar peak

The dollar has stopped it's meteoric rise. It's important to understand that's it's strength HAS NOT come from strong economic fundamentals. The dollars strength can be attributed to a few things:

Deleveraging

Currency traders have had two favorite currencies to borrow from - the Yen and the Dollar. The Yen offered near zero interest while cross currencies from Australia and New Zealand were paying interest rates from 8-10% while appreciating in value. Free money! Until it wasn't. As these leveraged trades unwind the money gets repatriated to the country of origin to pay back what was borrowed. Both the Yen and the Dollar have seen rapid appreciation from the unwind of these trades while the investments (AUD, NZD, Commodities,etc) these currencies funded sold off ...massively

Flight to safety

As the Credit Crisis spread to Europe the darling Euro's potential as an alternate to the dollar has been questioned. Certain European nations are now asking themselves if they should bail out other members who engaged in reckless lending just to support a unified currency. That question remains. Many speculate that the Euro could be abandoned as a result. Those who sought safety in an appreciating Euro put that money back into the good old dollar.

Deflation

Lets not forget deflation. The destruction of credit-money now taking place is affecting money supply despite the Feds best efforts to keep the balloon inflated. The rapidity of the Dollars appreciation concurrent with the fall in equities is consistent with a nasty deflationary spiral of deleveraging and credit contraction.

But the important thing to realize is:

1) The Dollar's rise has abated.

2) It's current level is likely to be temporary.

3) Our economy is not strengthening, it's weakening.

4) Fed bailout's, stimulus and liquidity measures create inflationary pressure.

Notice in both charts the carnage began in July. Commodity and currency markets show a similar trend. This is indication that borrowed bets on commodities, equities and cross currencies started to deteriorate and positions were liquidated causing traders to buy back the currency they borrowed against - the Yen and Dollar.

All commodities should "benefit", but especially Oil related equities.

PCG - 1st Target Met!

PCG surges ahead today meeting it's first price target. The next price target is near the $38 level. (see previous post)

2nd UPDATE: PCG blew past it's first target and is close to meeting it's 2nd target at $38. It makes sense to take profits soon.

Stay tuned for a new post this evening.

Market update

Hopes for a bottom are fading fast as the indices enter dangerous territory. The last few sessions produced a series of lower highs and lower lows. A retest of former support levels looks likely.

The macroeconomic picture is deteriorating, not improving. Mish has two great articles detailing what's happening globally:
Economic Crisis Around The Globe Continues
Currency Crisis Meltdown in Europe, Japan, Australia

The news is always its worst at the bottom. The problem is, the worst keeps coming. Deleveraging continues with the Yen and Dollar carry trades unwinding causing them to soar while popular cross currencies and commodities continue to plummet.

Cash is a position that looks better every day.

Rally attempt update

Update on our newborn rally attempt. Despite todays -231 drawdown the market is trading above support. Remember "churning above support is Bullish". Continue to watch the diagonal trendline. A break of this line is a first sign of trouble. A break below the old low is reason to exit.

PCG is still attractive at $33.6 There are 2 resistance levels it must overcome. $36 looks very likely. $38-39 look like good secondary targets.

ACI still behaving but will face some tests in the near future. Since July it has failed to overcome previous resistance. $27-28 will be it's first test.

UPDATE: ACI climbed to the $27 level and fell hard from resistance to make a new low.

Monday wrap

Let's be clear about expectations for a bottom and a possible new rally. The market is in a primary downtrend. I suspect we will see DOW 7,000's again (actually much lower) before we see DOW 14,000's again, so trading counter trends is not for weak stomachs. What looks like a "bottom" and the onset of a new rally are is most likely a retracement to the mean. Volatility can change hope to fear quickly. But in light of our recent plunge the implications of just such a retracement are big. For many stocks a retracement to moving averages indicate 50-100% gains within the span of weeks or months.

The powerful sell-off we've seen in the past few weeks was amplified by deleveraging. Margin calls make valuations irrelevant. Cash to maintain capital ratio's or bolster investor confidence is the differance between living to play another day, or dying a quick and ugly death. Just ask Bear Stearns, Lehman or any number of Hedge funds. When it is over or even "over for now" opportunities will be left among the ashes.

And now for a chart:

Notice the weak volume. The price action indication confirms a new uptrend, but volume leaves a little to be desired.

I expect some profit taking but a violation of the lower trend line is the first que to an exit.

The Credit Market continues to show improvement which bolsters confidence in a new uptrend.

The Bloomberg chart hasn't updated for some reason

The Trade...

Probing buys have led to followup buys in Ag's, the OIH and Coal. I cut a laggard loose (RIMM) and still have a cash reserves and nothing on margin. I await a mild pullback to consider adding to existing positions. At this point I have no short positions but am building a watchlist while the bulls frolic.

So things appear to be easing, if only for now.

Monday morning update

Trade update:

I cut RIMM off this a.m. In the face of an early rally RIMM was selling off with decent volume. Bye bye RIMM @$53.8 My stop was never violated but if a beaten down ostensibly oversold stock can't rebound with the market, something is wrong.

Fertilizer stocks are showing strength so RIMM is replaced with long probes in AGU and MOS. I'm also keeping an eye on sister plays in CF and POT.

Coal is also showing strength with ACI in play and MEE on the radar.

Intraday Update: Added to MOS @ $38.3

RIMM, ACI

RIMM shows two significant Fibonacci levels, one at ~$82, another at ~$100. The $82 level looks likely and $100 less so. Not shown is the 50 DMA sloping just below $100 providing yet another ceiling.






Stops $50.12

1st target $82

2nd target $99







ACI

The picture is less clear here. The first conservative Fib level shows at ~34. The $42 level shows significant overhead supply threatening moves higher.

Stops $19.94

Target $34.10

The OIH

A nice chart. Lots of air between the current price and the first hint of resistance at $146.

Inaugural post: Bottom or just a pause?

The month of October has lived up to its hype logging one of the most dramatic sustained plunges in recent history. The notion of a Bear market and a recession are no longer questioned by pundits. Multiple measures point to a near term bottom, but in this market nothing should be taken for granted.

The case for a bottom (near term)

Exibit A: Note the 34% divergence from the 200DMA

We have to go all the way back to 1929 to find a similar MA divergance.

I say "similar" because in Oct 1929 the divergance was slightly less at ~30%.

Exibit B: The VIX (new) logged a record 80+ on record market volume. The VXO also reached a near record high above $100. (only 1987 saw the VXO spike higher) The differences between the VXO and VIX are subtle but important. Visit the CBOE site for more info. Nonetheless, spikes above 40 have reliably marked bottoms in the past.

Caveat: We are still at extreme VIX/VXO highs. The conservative (and likey late) move would be to wait until these retreat to near normal levels.

Exibit C: The Libor as measured by the TED Spread has backed off it's peak. This is the most significant development. The credit market has been leading the equities market by the nose. Without a break here the carnage would continue.

We're far from safe and buying here is unsettling as it should be at a bottom. I have become Bullish, albeit reluctantly and only temporarily. Position size should be commensurate with risk appetite and be assured risks are high. This is no market to make a last stand. However, with the above premise last Thursday I launched a few long probes (small experimental long positions) in RIMM, ACI, PCG and the $OIH. I made followup buys to these on Friday with Stops at last weeks lows. A detailed analysis of these to follow.