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Reading the Tea Leaves...
Sunday, August 22, 2010
Floor falls through, big intervention & reversal
click on above images to enlarge
I need to save a default post for this situation, LOL. On Friday the big MAs pushed the five down through two more MA lines and we fell out of the brown mother channel and brown 4 week descending channel. Then by late morning the bailout team worked its special brand of magic and the market reversed and went back up.
Looking at the top chart cluster in row 2 we see that the vix/fear index fell back down in Friday's four trading bars but stopped right on the blue line which does not give us direction either way, it has to either slip thru or bounce from it. In row 3, the bonds are starting to go sideways now but are still above the channel. If the bond price comes back down to the upper channel line and draws back into the channel, people will assume that was it for this upwave in this last 2 weeks in bonds and the big hedgefunds will slush money back into the stock market for a while. If the bond price bounces up from the upper black channel line, that would be a breakout confirmation and short term bond money is going to stay put for a possible ramp up in bond prices (ie. you don't want to miss the first upwave in a new bubble). No vix or bond sell or buy signals are showing yet because the vix chart is sitting neutral and the bond chart more or less went sideways the past 2 days.
Looking at the lower chart cluster, for viewing convenience I added the 108 into that chart so you can see how both the red 108 is pushing Tues & Wed price bars down and the green 10 pushed the 5 thru the orange 324 and pink 50 MAs. They have punctured thru and this is called a broken chart. The S&P / SPY has no technical reason to go back up now. As you see in chart 3 of 1, Friday we fell out of the brown mother channel. In chart 2 row 1, Friday's candle is a reversal which is what always shows when the market sells down and comes back up in the afternoon. Basically we have broken down bullish technical analysis but intervention by the bailout team with a closing below the brown mother channel in chart 3 row 1.
In row 2, I added the third blue line of the horizontal channel which is obviously what the bailout team is trying to sell to us. Friday's rescue did bring us back up into the 4 week brown downhill channel. If the bailout team will just allow the market to trade freely in a sideways channel from 1070 on the S&P up to 1125 on the S&P and just stay out of the market as long as it is in this channel, it will allow traders to start coming back into the market and hopefully, fairly normal trading will resume. They will have to leave it alone however, within that trading range. There will be many oscillations inside that horizontal channel and there has to be a down move in order to have an up move, this is how the market works. If they instead decide to come in and try to keep even tiny oscillations from coming back down a little and then their failed attempt to do so produces a sharp drop down instead of the controlled normal down oscillation, they will continue destroying investor and trader confidence in this market.
The article I posted Friday night was about the great Stanley Druckenmiller, one of the few fund managers that has managed to show positive gains for 30yrs back to back, thru all the bear markets, recessions, internet bubble crash, and everyone expected him to be the #1 guru for another 10 years, the man is only 57 years old. He has grown so sick of the market interventions that happen every week this year that he has basically decided he has had enough and is walking away from the game. He, along with everyone else, knows that markets must be allowed to trade freely in either direction. A market that is not allowed to ever go down is also a market that does not have the ability to go up. It ends up a shadow of its former self , stuck in a long term sideways trading range similar to the non-precious metal rare coin market. There has also been a large number of hedgefunds of all sizes closing shop this year because the market is not really a market anymore. The market has had extreme difficulty maintaining 3 up days in a row because they do everything they can to keep it from having 3 down days in a row. The cost of doing this every week has to be mind boggling. Prior to 2008 the Plunge Protection Team (PPT) (set up by Ronald Reagan) was taking care of the markets. Interventions only came in after there were very long legs down and very long legs up. They were not used weekly as a way to keep voter sentiment upbeat. Since Geithner's team became the bailout operators, the markets just haven't been the same. Granted this is election season and market manipulation is heaviest at this time in the cycle but every 2-3 days is just ridiculous. By doing this so frequently, they are scaring investors into bonds in droves and eventually there is not going to be enough willing investors for the stock market and then they will find that they will have to hold it up full time because of what they created, which won't be possible because it's no secret that these relentless bailouts are unsustainable.
Ok, I am getting down off of my soapbox now.
Let's just hope that in a few days all of the different colored channels drawn in row 2 of the lower cluster can be removed except for one sideways blue channel, 2 weeks up and 2 weeks down like the old days. Looking ahead to the coming week, the S&P daily chart is broken, but the powers that be are determined to "fix it". The only thing you can say for sure about that is it's going to be an interesting week
P.S. I added a 30 minute bars chart to the left of the adv/dec chart in Row 3 of the lower chart cluster, to show intraday trading.