Friday, February 20, 2009

It's Hammer Time

The Dow Theory sell signal kicked in (see Barron's Online column) and Friday the Dow was down 200 or so points intraday to close down 100 (I use round numbers when on the road as I am now). Yep, the media and pundits scared everyone with the big bad bear market and on cue they sold the next day.

But a funny thing happened on the way to oblivion - some major market indices and ETFs not only came off their worst levels but closed higher. But the Dow closed down 100! That's not good, right?

Let's go to the charts.

The Qubes (Naz ETF) closed a tad higher and sport a very arguable meeting lines pattern. Nice volume, too.


Spyders - a nice spinning top with big volume. Possible abandoned baby? Don't predict how a pattern will complete but pay attention.


The Dow itself. Oh yeah, a new low. But huge volume and could that be a hammer? Again, don't predict it will be confirmed but what it if is?

Quick Takes Pro subscribers, we'll talk about this in Monday's report. Everyone, what do you think? Again, I have no grand bullish delusions here but the evidence is interesting, no?

8 comments:

bmbull said...

I don't know...

IMO, today's reversal would have been much more convincing if 1) it had not come, yet again, on news from the White House, and 2) the A/D lines had made a turnaround into the green -- but they were still pretty gross.

VC said...

Michael,

Too much technical damage was done this week to remain bullish. We breached the critical S&P 800 level and successive moves couldn't rally above it. We haven't yet established more new lows but the trend has picked up substantially over the last two days. And the NYSE Common Stock Only 10-DMA New High/New Low (there's a mouthful) is headed south in a hurry. I'd be curious to know your thoughts on that indicator..I agree with Elder that it's the most important broad indicator of the mkt. Until that stabilizes and trends upwards, I don't see how we rally from here.


I've been an avid reader of your blog for months now and I'm concerned you've already made up your mind that the mkt will rally and you're looking for evidence to support that thought. Sure it's possible that Dow Theory is irrelevant here or that mkts can lift on light volume (end Dec/early Jan). But tech analysis is about probability and given all the evidence, it's much more likely we break thru the previous S&P lows as early as next week. Anyhow, two cents from a novice.

Quick Takes Pro said...

VC,

You are very right in saying that analysts can only look for evidence for their current opinion. I have not and indeed advised my mutual fund Tuesday to add to the short positions we already held. (And you will never see such advice in a free blog. The people paying me would fire me).

You will notice in the blog post itself that I cautioned against assuming the pattern will be confirmed.

No doubt this is a sick market. My mission this week was to point out that the indicator du jour (dow theory) is not signaling much if anything.

gingersue said...

Is the "abandoned baby" the same as a "morning star", i.e. sort of a one-day island reversal?

Quick Takes Pro said...

bmbull,

First, thanks for quoting me on your site. As for the news, it has happened in both directions over the past few weeks. But would it have been better if the market did not respond to the news at all? You get my point. It was better than nothing and that is all we can hope to get right now.

If I did not get paid to advise actions so clients would not bolt (we don't pay you to hold cash!) or if I did not get paid to produce a newsletter every day and two columns every week for Barron's Online then I would have been working on my novel until things returned to capitalism.

Quick Takes Pro said...

abandoned baby = island gap reversal

This has not completed yet

morning star - big down day, indecision day, big up day.

evening start - the reverse

bmbull said...

Michael,

Your book "Technical Analysis Plain and Simple" and your original Quick Takes newsletter were my intros to TA, so I was pleased to come across your blog recently - I only wish I had found it earlier.

I understand your position -- I've said before on my site that I'm glad that I'm not in the position of having to make stock recommendations in a market like this. Sometimes, I believe that cash is indeed the right place to be!

As far as the news is concerned, this market has bounced on 'news' numerous times before, and failed every time. Today was actually a rather weak example of such, compared to the action of days such as Feb 5 when the first 'bad bank' rumors were floated.

Too many groups have been breaking down recently. To me the action looks more like a top than a bottom -- and this would be one heck of a spot to be putting in a 'top'!

Thanks for taking the time to share your thoughts on the blog.

patrick neid said...

It's now or never!

Here's a chart I'm sure most people have seen.
http://dshort.com/charts/bears/four-bears-large.gif

As you can see it compares four famous bear markets. If you slide the current bear market over to the right it still, for the most part, overlays the 74 bear. I have always argued about the starting point of the 74 decline. Anyway you can see the pattern. If it is to continue overlaying the market has to start trading higher very soon.

My comments from last October.......

So far, despite the reports, we have been here before. October 73 to Oct 74. In fact Oct 07 -Oct 08 is getting close to a dead ringer. From the world ending to the new depression.

These two charts are offered as evidence, the first with news headlines

http://www.djindexes.com/mdsidx/downloads/1970-1979.pdf


the second a weekly

http://www.paradigmbook.com/assets/DowHistory1970to1974.jpg


If we are tracking we should be near "Nixon resigns".

I won't bore you with the trading range analysis 1966-82 vs 2000-? but in both cases we are eight years in. You can figure out the rest. What I would point out is that we rally back near the old highs within 1 1/2 years which would fit this time also as it did after the banking panic of 1907.

If I'm wrong and we blow through 700 on the spooz I'll join the panic!
October 10, 2008 6:51 AM



patrick neid said...

Here's the chart links again in a shorter form

http://tinyurl.com/48vncn


http://tinyurl.com/4nyo98

October 10, 2008 6:54 AM



patrick neid said...

One last remark if you would. I think it is very important that one of the indexes break the 2002 lows--candidate of choice the spooz. Admittedly it further complies with the 1974 bottom taking out the 1970 by 10%. It is from that panic I think we get the wash out.....


As of today, Feb 21st, I can't imagine the market having a rally similar to 1974 or 1907 with the current headline news but who would have expected Citi, BofA, Ge, WFC being on the critical list? News changes, anything is possible, especially with the trillions they are throwing around these days.