I was wrong with a capital "W" last week when I thought the markets might go up following last Monday's big gains. It was downhill or flat-land at best from there. Looking back though, I was right in some respects in that the market has remained range-bound and down in what is still a bear market. New bull markets never begin with values wildly inflated beyond their ability to produce a return for their owners. Nor do they begin with short-covering on only moderate volume.
But back to being wrong. . .it isn't the first and won't be the last. It is also a stark reminder for me that bar charts and stochastics follow price action, not the other way around. Mia Culpa's aside, I have anther opportunity to be wrong again today!
When you get right down to it, nothing really happened today. Sure we got the news that the FBI issued a credible warning to avoid banks in the Washington D.C. out of fears of another potential terrorist attack. While we might think that was the reason for today's selling in the Dow, such was not the case. The markets opened down with the D.C. bank threat only adding perhaps another 20 Dow points to the loss. While there was a mild attempt at recovery, it couldn't stick and the Dow fell back to lose 97 points.
Why? Blame GE and C. For GE, they suffered from a weekend article (I believe in the New York Times?) that in essence said GE was not entirely comfortable with the economic picture going forward. Hello recovery from the largest, best run conglomerate in the world? NOT!
Then there was C (Citigroup) that just flat blew it on earnings. While it was embarrassing to have to admit they missed earnings, they still employed the worn out "pro-forma" numbers in an attempt at obfuscation, then admitted they still had a loss even after one-time, extra, optional, additional, non-recurring, never-to-be-repeated-again, Argentina-was-a-one-time-charge-last-time-too expenses. "If it weren't our Argentina losses, we would have seen double-digit earnings growth" according to Sandy Weill, C's CEO. Sure, and if it weren't for my losses at the card tables in Vegas, my gambling junket would have been profitable too! Sheesh! What passes for justification of earnings. Note to Sandy: You are a smart and capable guy, but your words and evasion are part of the problem with Wall Street's credibility. When you B.S. the owners, you do us a disservice - no thanks. Hit the "sell" button.
Aside form some $1 plus losses in retailers WMT and HD, the volume was quiet on both exchanges - NASDAQ 1.34 bln; NYSE 1.23 bln. With volume like that, there is no bull market in site. The public is losing interest in the speculative aspects of the market and rightfully having second thought about "buy and hold" too. Again, this is a bear market (and as much as some will disagree with me on this), cheap interest rates, a big year for write-offs, sluggish recovery from a recession that never happened (according to some), inflating currency, and deflating prices of goods sold still cannot keep grossly over valued equity prices up. Lest you think I'm telling people they should sell while I'm buying all I can get my hands on, think again. I'm building an ark. Other than my doggie tech-losers I still own that are worth the price of a few baloney sandwiches, I own few equities unless they pay stable dividends.
OK enough from the curmudgeonly bear corner. What do the charts say? At the risk of being wrong again, nothing says "bullish pop" like a daily stochastic buried in oversold. While it may not be a spectacular bull move, the indexes are coming up on major levels of daily support in conjunction with their oversold condition that could cycle us up for the week (though all my thinking and judgment says we sink like a stone).
Here's what we see:
Dow industrial chart - INDU (weekly/daily/60/):
From lat week, I noted that 10,100-10,150 was a level of support that might hold. Looking mighty shaky here now that the Dow is under the 50-dma (magenta line) of 10,212 while the stochastics can't get enough lift to soar into overbought. On the other hand, the lower daily Bollinger band at 10,053, the psychological 10,000 level and the 200-dma of 9950 could be the level of ultimate support for the dailies to pop up for a round of calls.
NASDAQ chart - COMPX (weekly/daily/60/)
Interest in the NASDAQ? None. 1.3 bln shares and virtually no movement bare that out. This has-been of an index needs a shot of adrenaline. Bearish stochastics abound. A bearish wedge can be seen on the daily chart - 1700 floor with declining highs. Has it bottomed yet? Will the stochastic reverse soon or will oscillators oscillate back up to overbought? I can't say for sure. But with oversold stochastics near a level of support, a short-term bullish move could be in store for the not too distant future.
S&P 500 chart - SPX (weekly/daily/60/)
Very bearish here too, but perhaps nearing the end of the down cycle, though frankly, the 1100 level has me focused. SPX is already under the 50 and the 200-dma; every bullish turn on the daily stochastics is met with a lower high - definitely no strength. A close under 1100 would likely set the next level of support at 1080 before we see a bullish reversal.
Thus there in all three lies the dilemma. Stochastics nearing oversold as the candles approach support vs. still bearish charts. Which way from here? In this period of earnings with bad news already taking its toll on traders (as though a failed recovery is a surprise), one little piece of good news (made up or real) could give us a tradable rally as long as our expectations have already been reduced to "low" over the past two weeks of anticipation. We may be able to take a breath following the blue skin tone as we've held our breath and crossed our collective fingers over the past two weeks that the "recovery" was real. It isn't, but now we know that. And that sets the stage for a "the market already now anticipates the bad news" rally.
We'll see, but I'll be looking at support and a stochastic reversal to go long, but will stick to shorts on an SPX break and close under 1100.
INTC reports tomorrow after the bell and is likely to deliver bad news with their usual positive spin that things will be better next quarter. Right - when pigs fly, but other barnyard animals (sheep) will eat it up anyway. MSFT reports on Thursday. Plenty of others in between. Watch for volumes to remain low and news to move markets. With volatility this low, buying cheap straddles on high profile earnings reporters might the ticket to profits.
See you at the bell