Neckline broken?

Nope, don't think so. Too many people watching.

There, how was that for fluff-free?

Follow-up - but it will.

Where was I?

Monday, I wrote my column on bank stocks and how they still look plenty sick. On the message boards, a reader wanted to know where I was 3 months and 30% ago.

See Getting Technical,  Is Trouble Brewing for Financial Stocks, April 19. It came out just two trading days from the peak in the sector.  Hopefully, you will be able to see it in front of the pay site.
 

The canaries are dead

Canary in the coalmine update from one of last week's columns.


Chipotle Mexican Grill- cooked

Apple - pared

SanDisk - Even a fundamental analyst can see what happened here.

Baidu - no bids

In short, the stocks I said to watch as the last holdouts have cracked. This is a sick market.

Where's my fixed income?

Sorry, fixed income investors. At least yields will bottom out at zero (unless you are a T-bill in 2008).

30-year under 4%
10-year under 3%
2-year dipped under 0.60% briefly this morning.

Cumulative Volume

Today's column once again focuses on on-balance volume, also known as cumulative volume. This is basically a volume accumulator that adds the day's volume if the market closed up and subtracts it if the market closed down.

Joe Granville is credited with the study but it has been tweaked many ways in the decades since its been out. Weighted cumulative volume multiplies volume by price change and then adds/subtracts from the total. The version of money flow I used to use in the 80s takes that down to the tick level.

I loved money flow but I am sure it suffers from the same problems as all tick based indicators. Moot point since the Tradecenter database disappeared years ago.

Anyway, the point I made, this time for banks, was that volume is greater as these stocks are sold and that is bearish. Think of it as supply and demand where supply is kicking booty. (Do you think Blackbeard was thinking derriere that when he hunted for booty?)

The story was one more reason why volume matters again. This time, I applied it to the banks but overall I can see that it is indeed back in the game.

Joke of the day

As told by Chris Carolan from an unnamed source:

I heard an analyst recently describe the dollar versus other fiat currencies as "the best-looking horse in the glue factory."

 

Foundation for the Study of Cycles prediction

The latest marketing piece from the "Foundation" had this graph. They actually have been pretty good with this stuff but I do have a problem with the late July rally being of that magnitude.

Anyway, the red line is their prediction and the black like is reality. Perhaps we get a false breakdown of the head-and-shoulders? We'll see.

Hunchback formation

Well, its really just a head-and-shoulders with a shrunken right hump, er, shoulder. Weak markets cannot form a proper right shoulder.

This daily close only view makes that clearer. Don't forget that this is only a "potential" head-and-shoulders. Only a break below the neckline makes it a real one.

Barron's website changes

Dear readers,

Many of you found me though my column on Barron's Online. One of you told me yesterday that my column is no longer free and I asked the powers that be what gives?

Apparently, the era of giveaways is coming to an end and the site is shifting back to what it used to be - a subscription site with content worth your money. I happen to agree with the call although I am not looking forward to the drop in eyeballs.

Given the price - 79 bucks for the whole year - I'd say it is worth it. And no, I do not get a cut of subscriptions. Even better, I'll bet most of you pay for the print edition each Saturday already and for you the step up price is only 50 bucks more to get both.

OK, sales pitch over and mystery solved.

Tuesday's action

I was away most of the day celebrating my daughter's birthday but here is one observation - the trend is down.

Monday's reversal at the 50-day average was confirmed. But as it was a problem on the way up, volume was not terribly impressive today. The only saving grace for the bears was that volume picked up noticeably as the sell off progressed.

Warning

I wrote in Quick Takes Pro yesterday that the JNK junk bond ETF scored a death cross as the 50-day average dropped under the 200-day average. A customer challenged my saying that there was no such cross on Stockcharts.com and it was not even close.

Hmmm, I thought. Well, not hmmm but this could be a problem. So, I downloaded eSignal's data (my charting package) and plotted it in excel. Same chart that eSignal itself plotted. Then I drew the same chart in Barchart.com and Bigcharts.com and they both agreed with eSignal.

How many people use Stockcharts? Rhetorical question. The answer is plenty. Are they trading off this discrepancy? Trust nothing and if you can afford it, buy two systems.

Stockcharts, if you are reading this I used to do this sort of chart checking for a living for Tradecenter and then Knight-Ridder Financial (their buyer).

More the more things change

I had a quickie email discussion with a colleague who was worried that we are seeing February redux and needed to be more bullish in his portfolio. His note to me was written at 1pm when the Dow was still up 70 points.

Today's trading was a colossal failure with reversals at 50-day averages all over the place.  Unless we get about a 10% rally tomorrow, the NYSE composite will get its death cross.

In February, the VIX was rising. This month, the VIX was falling.
In February, the dollar confirmed a breakout. Today, the dollar scored a massive bullish reversal at support to end a correction.

If the head/shoulders pattern was real, this might have been the right shoulder's peak but I won't get that micro.

The more things change.....

View this MSNBC report and shake your head at how little we learn from history.

http://www.wimp.com/oilspills/

Listen at least to 4 minutes in but you will not want to stop. 

BAC/Merrill launches discount brokerage

I blogged a few times last year that retail stock trading had jumped the shark - meaning it has gone into stupid territory to mark the beginning of its end. Here is the link to the last one http://quicktakespro.blogspot.com/2009/11/this-is-why-market-will-eventually.html.

Now that Merrill Lynch is getting into the discount brokerage game - as existing players languish and just as the report comes out that retail volume is down 30% this month. Once again, Merrill is late to the game. Didn;t they close their commodities trading unit in 2001 - just before the CRB index took off?

A great contrarian indicator in any market.

World Cup

From my favourite market jokester, Alex Spiroglou in London:

After sixteen games, it has become clear that that the countries with less debt as a % of GDP are more likely to win World Cup games.

In Europe, Greece lost, Spain lost, Italy tied Paraguay, Portugal tied the Ivory Coast, and Ireland missed the cut. Winners include Germany, Switzerland, and the Netherlands.

In Asia, South Korea and Japan won; North Korea loses.

In Latin America, Brazil wins and Mexico ties. Moody"s upgraded Chile to AA3 from A1 citing the country"s favorable debt profile, and promptly beats Honduras.

Using debt and projected deficits as the measuring stick, an England/US tie makes perfect sense.

(or both lose and gold goes up - mk)

Volume

Today's column is about volume and how it matters again. I put a line in there about how the stimulus is not getting the love it got last year, meaning that people are really starting to push back against more. Remember in 2008 when Vlad the Impaler, I mean Treasury Secretary Paulson, was crying that we needed to bail the banks out NOW or the whole system would collapse? We all stood by because it was so outrageous he had to be right.

Do you think that would have a ghost of a chance of passing today? Fuhgeddaboutit. We would not tolerate that now. And that says something about sentiment. No longer do we as a nation, or world, for that matter, think that throwing gobs of cash at the problem is the real answer.

Would you buy stocks if the liquidity pump may dry up? Only if trading volume got a lot beefier with the return of the public.

Steve Miller, CMT

I did not know 70s blues rocker Steve Miller was a Nostradamus-like economic forecaster for the 2010s. Lyrics from "Space Cowboy." Spooky!  I hope the final surprise is good, not evil.

And the same old story with a new set of words
About the good and the bad and the poor
And the times keep on changin'
So I'm keepin' on top
Of every fat cat who walks through my door

(Chorus)

I was born on this rock
And I've been travelin' through space
Since the moment I first realized
What all you fast talkin' cats would do if you could
You know, I'm ready for the final surprise

Funky day

We were taught that stocks and bonds should move together. Ditto dollar and commodities, only inversely. Then stocks and bonds flipped. Then it was the euro that moved opposite stocks. And now its bonds down, stocks up, gold up and dollar down. Did a butterfly just flap its wings?

Basically, everything that moved with or against each other thing did something different. Was it BP testifying before the gods, er, congress? Manufacturing data? It certainly was not housing data.

The real question, unless you are an academic wonk, and I mean that with love, is what the Hades to we do about it all?

I refer back to my column where I laid out the head-and-shoulders patter in progress. The S&P 500 right should is supposed to be at 1150 and if true we are in no-man's land between support and resistance. It is a loser bet since risk/reward is poor for both bulls and bears alike.

How about this? Since an awful lot of people have seen or are about to see the head-and-shoulders we can assume it won't work as expected. Again, what do we do? How about preserving capital?

Have you seen the pending death cross in the NYSE composite? Barring say back to back 400-Dow point up days, the math says it will cross next week.

Enjoy it while you still can.

Flight to safety - still

Stocks may have caught a bid over the past few sessions, bonds may have stalled, ditto gold and the euro finally found some love so the flight to safety is toast, right? After all, consumer confidence was up and this morning we heard that Euro problems won't bring down global growth.

Wrong! 3-month T-bill yields have been dropping like a stone over the same span. Yeah, retail sales was bad and yeah, or should I say duh! Greek debt was downgraded to junk but the spin-meisters a spinning faster than a latex clad fattie in the gym (save your P.C. flames).

Something is wrong in the stock market and bonds know it. Who are you going to believe anyway? Analysts or the markets?

Stock prices will be lower by summer's end than they are now. Its just a matter of how high the cliff will be.

Dueling Econ Reports

The market tanked on retail sales this morning and came roaring back (sort of) on consumer confidence. It seems to me to be the classic battle between what people say and what people do. I'll go with what they do, especially because it has to do with their money.

For all you Gregory House, MD fans, this is the good fictional doctor's exact philosophy. He could care less what the patient says. Only test results matter. Retail sales matters and it was lousy.

Oh, and has anyone notice that three-month T-Bill yields have been plunging this week. The flight to safety is not over.

Monday follow-up to the Euro bounce

Monday's Barron's Online column was entitled Ready for a Positive Euro Surprise? and here is a chart to add to the case.

It's a typical Quick Takes Pro read showing a potential rally first to the 20-day moving average at 122 and a long-shot extension to resistance at 125. Bullish RSI divergence, falling wedge breakout and, from Monday's column, really lousy sentiment.

I am not making a trade recommendation here so do your own research. 

Ghoulish Economic Goulash

This is from Charles Payne's WStreet market commentary email describing Hungary's attempt at righting itself.

Call it Hungarian goulash, the national dish that is neither a soup nor a stew. It was created by herdsmen, and prepared in cast iron kettles above an open fire. This peasant dish did not catch on with upper levels of society until the 19th century. Yesterday, Hungary unveiled a rescue plan that can only be described as an economic goulash that is neither Freidman nor Keynes. While the edible version is prepared into a thick consistency, the economic version is inconsistent and hard to swallow. The edible version is a beef dish with onions, Hungarian paprika powder, tomatoes, and green pepper (some recipes call for potatoes and noodles). The economic version aims to cut pork and add beef, but is such a hodgepodge of ingredients that it leaves everyone hungry for more.

The Waiting

The waiting is the hardest part
Every day you see one more card
You take it on faith, you take it to the heart
The waiting is the hardest part
- Tom Petty

That's what it feels like now. We are waiting for the May retail sales report due this Friday and if it is not really good I think that will be all she wrote. Until then, we are looking for setups.


Check out this chart. Everyone seems to be talking about a ginormous head-and-shoulders pattern and that means waiting for the right shoulder rally to peak before they start shorting. What everyone sees is not worth seeing.

If the retail report is bad then you can forget about the shoulder. If it is good, then the market appeased the masses. That happens all the time, right? And selling at 1150 is a gimme.

I hope you are getting the sarcasm.

Rally?

So much for the odds that the Monday after a big decline on the jobs report results in a rally. That is exactly why we call these things probabilities and not forecasts.

So now, what happens if the retail report is not up to snuff? Snuff seems to be a very fitting word.

Euro - the BP of forex

Forget the round number of 1.2000 that the media seems to be trumpeting. The euro is now trading near its "IPO" price of 1.1812 (close on Jan 4, 1999).

Here are a few items that did not make it into the column today.


1 - The euro remains utterly friendless and barring intervention seems to have no place to go but down," said XXX, chief currency strategist for YYY  (bearish sentiment)
2 - Euro hits all-time low vs Swiss franc
3 - It cracked a one-year support vs. the British pound.

Boycot BP?

I remember not buying gas from Exxon between the Valdez oil spill and the merger with Mobil. That's a lot of years! It was my way of getting back at them for the damage they caused. Even now, I still avoid Citgo due to its connection with Senor Chavez - you know, the one who called our president el Diablo.

Here is a little something from energy guru Phil Flynn. No doubt you've seen him on Fox Business and CNBC.

"All right so you are mad a BP so why not go out and try to cut into their profits buy not buying their gasoline. Well it sounds good, but the problem is that if you want to get back at BP that is not the way to do it. The truth is BP is not in the retail gas business and the other truth is all you will hurt by boycotting them is the people that have nothing to do with the spill. A BP boycott is an exercise in futility.

People are angry and they want to lash out but a boycott won't hurt BP. The owners of BP gas stations just bought the brand name and are in many cases hard working taxpaying citizens that are basically trying to make a living in a business where profit margins are already thin and rely heavily on the sale of cold drinks, coffee and hot dogs. They too are the victims of BP's errors and are probably even angrier at BP than you are.

Boycotting BP branded service stations to get back at and hurt BP will have about the same impact on BP as if you decided to boycott Dunkin Donuts or McDonalds."

If Grandma had wheels...

If grandma had wheels she'd be a bicycle.

Uh, yes, perhaps.

I was on a conference call with a fund manager this morning and don; get me wrong, he knows his stuff in his core area. But when he said this you could see the steam coming from my ears.

"If it were not for the market noise, stocks would be doing better."

Uh, yes, that's the point. Market noise is the market. Market trends are the market. Market patterns are the market.

How about saying something more useful like, "Our fundamental view does not match the market's view?"

Now, we can make the decision who to believe, you or the market.

Debbie Downer

For my third post of the day, I have to apologize to radio listeners in the Concord, NH area. I was intereviewed by Bill Kearney,Vice President Wedbush Securities, on his Financial Spectrum show (WKLX) and I left him - and the audience - on a total downer. Apparently, nobody thought the stock market was actually in a declining trend.

Halliburton

When I proposed the story for Tuesday's column, my editor grilled me on how the charts can show anything when news totally dominates. After all, if there ever were a group of stocks more on the hot seat with the gubment than Halliburton, BP and Transocean I'd like to know.

Anyway, my answer was that news does trump the technicals but that does not mean we cannot use the charts to make a little money.
He said - corn goes up in a drought until it rains. I say, true, but the coming of the rain is not a surprise and not everybody picks up on the weather forecast at the same time and in the same way. The early adopters leave clues.

So do stocks. Wasn't everything hunky dory in April 2010? Jobs coming back, companies making money, debt contagion still on that side of the pond, etc.... It was so good that sentiment was wildly bullish.....

You get where I am going. There were clues in place before the peak and there are clues even in charts of pollution spewing about to be nationalized oil companies. (OK, I exaggerated a little).

Here is a chart of Halliburton. We shorted this one in Quick Takes Pro on the technical breakdown May 6 (before the flash crash set in). Not shown is the 50-day average breaking that same day.

Since we are a daily report, we could not tell anyone to cover at the close Tuesday or at the open Wednesday. Our automatic 5% stop from the extreme low kicked in Wednesday and we exited with a cool 24% profit.

I may be down on technicals as I long for the good old days but they still work - even in news-driven stocks - as long as we understand the environment.

Fat crayons rule!

I have gas

With gasoline prices at the pump slowly falling and purveyors of "drill, baby, drill" out of favor it does seem that the time is right for natural gas.

Again? That trick never works.
- Rocket J. Squirrel *(footnote)

Well, this time the chart has something real to say.

Even though it may not go anywhere for a while, I do think it is cheap and eventually will rally. Perhaps some retirement money so you can lock it away for a few years and not worry?

* footnote - please tell me you remember Rocky and Bullwinkle

Comments on today's column

I just want to stress that I was looking for possible leaders once the energy sector stabilizes. Death crosses are about to happen - if they have not already - in many places. The OIH oil services ETF, for example, had its cross Friday.

So, I am far from advocating bottom fishing now. Insert your own unfortunate analogies/jokes here.

More on 1930s

Larry McMillan had a nice piece in MarketWatch about how the current market compares to the 1930s as well as a few other bear markets. We posted a comparison to the 1930s here last week so scroll down to see it.

Quote:
So, we have three previous time periods in which a severe bear market shook the financial system. These then gave way to strong rallies, fueled by the liquidity thrown into the system to stem the bear market. However, once those rallies ran their course, reality set in and prices drifted, grinding their way lower for three or four years. (end quote)

Two things here - first, the concept of a liquidity rally.

The second is the term "grinding their way lower." That is how real bear markets end when the market demoralizes everyone and nobody wants to own stocks.