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Anatomy Of A Market Meltdown; Potential Head & Shoulders Pattern

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

The analogy I had been using over the past few months to describe the action in the market to my members is that of a majestic skyscraper, each story beautifully built, higher and higher to the heavens. Just one problem.. they skimped on the foundation.  So, as the glorious skyscraper neared the heavens, the foundation began to crack, piece by piece by piece with each passing day.   As dignitaries and VIPs arrived to celebrate the completion of this majestic masterpiece with a ribbon cutting in Ben’s Liquidity Lounge, it tilted ever so slightly.  It was barely noticeable, but those that did, chalked it up to thin air and one too many trips to the punch bowl.

The charts never lie.  As the rally continued to soar to epic heights, the charts began to reveal the warning signs well ahead of the crash.  Granted, this has been a historic, Fed fueled, artificial rally where minor topping patterns failed again and again as the market pushed higher and higher with considerably less conviction.  That began to change in January, when institutions began to unload positions which was revealed in the heavy volume on the sell side.  I have to admit, I thought there was a very good chance of topping in February following the January plunge, but was forced to abandon the plan to get aggressively short on March 4th.

I sent the following note to members:

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The Rally Is Rolling Over, Test of 50 Day Moving Averages Likely

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

I’ll keep it brief and to the point in this shortened Memorial Day weekend edition of the weekly market review/preview.  The market appears ready to roll over with the indices possibly confirming a double top formation in the coming days.  Take a look at the Nasdaq and S&P, both of which nearly retested the May highs before selling off and taking out the 20 day moving averages (the first time the S&P has traded below the 20 dma two consecutive days since the rally began in March).  If in fact the indices take out the May lows (and it looks like they will), that would confirm a double top formation and a likely test of the 50 day moving averages (in blue).

On Wednesday night I made the following comments to my members:

“Today’s high may have marked the top…

After Monday’s big move and the way the gains were held Tuesday, I
commented to Gold members last night that a move to the 200 day
moving averages in the S&P (around 940) and Dow (around 8800) is
becoming more likely. We may not get that far.  While the market
staged a decent rally in the morning today, that rally completely
fell apart following the Fed minutes.  It may have had something to
do with the Fed waking up to reality and revising their estimates for
GDP and unemployment downward. 

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Rally Shows a 2nd Crack, S&P Has Trouble At 875 But Bulls Remains In Control

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 1

Everyone wants to know.. how long can the rally last.  It’s the same question that was being asked on the other side just one month ago.  How low can we go and for how long?  The market always seems to remain irrational longer than you think it will and that has certainly played out over the first quarter here in 2009.  To help answer these questions, I always turn to the charts to gauge areas of support/resistance as well institutional demand.  Admittedly, technical analysis has been considerably difficult in an environment of rumors, manipulation, intervention and extreme levels of fear and greed, but what it does and will always do well is provide an x-ray into the health or weakness of the market.  In general, slices through support and weakness at resistance indicates a deteriorating market while surges above resistance and at support indicate good market strength.

Market strength has certainly been on display over the past 6 weeks with 6 straight up weeks.  Strength was on display when the S&P easily moved above resistance at 750.  It was on display once again when the S&P moved quickly above resistance at 800 and again when it came back to find support at 800 and yet again when it took out the downward trend off the Oct and Jan highs around 840.  Now the S&P faces another test of its strength at 875 which is an area where it formed a double top in late January and early February.  Does the S&P have the kind of momentum now that it did back at 750 or 800? In a word – no.

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China’s Economy Still Robust, But Concerns Remain

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

china economy China’s economy remains very strong chugging along with 6.1% GDP growth in the 1st quarter, but dropped from the 6.8% growth in the 4th quarter 08.  It’s hard to believe that 6.1% is the weakest quarterly growth since quarterly numbers were tracked beginning in 1992.  It certainly indicates the staggering growth of China’s economy over the past decade. 

Credit Suisse analyst Dong Tao views the number positively, but cautioned that China isn’t out of woods as exports remain relatively weak.  Up to this point, the government’s stimulus to spur domestic demand and increasing investments in fixed assets has been been able to offset much of the weakness in exports to the US, Japan and Europe, but it will take a few more quarters to determine if they will be able to continue to do so.  Banks in China have already issued $670 billion in the 1st quarter which is more than 90% of the target for the entire year.

“The government’s rapid easing of credit and rollout of infrastructure projects has bolstered [fixed-asset investment], helping offset decreased investment by export manufacturers and property developers,” J.P. Morgan said

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This Dead Cat Has Legs, But Big Resistance Looms

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 1

Well, the much anticipated relief rally finally arrived last week with the S&P vaulting more than 13% off oversold conditions.  The rally was a bit deceptive with no real spike in fear or capitulation accompanying the move, but remember that capitulation doesn’t necessarily need to occur to mark a bottom… and that’s not to say this is “THE” bottom.  There’s certainly a tremendous amount of overhead resistance to work through and this is nothing more than a short covering, bargain hunting rally until bulls can prove themselves by breaching key downtrend lines.  I’ll keep the commentary light this week and jump right into the charts..

Everyone wants to know.. is this the bottom? How long will the rally last?  I think the charts can provide some clues to that.  Taking a look at the magnitude of the initial rallies off the October and November lows reveals that the average gain was right around 20% with the rally in October rising 19% over 6 days and the November rally producing a quick 21.5% gain in just 5 days.  If we assume that this rally will be in the neighborhood of those moves and falter after popping 20%, that runs the S&P500 right into big resistance at 800.  So, it’s quite possible we see another quick 5 – 7% in the first half of next week.  Yeah, these bear market rallies are sharp and deceptive leaving many behind.  If you missed it, don’t sweat it!  Whatever you do, don’t chase these rallies.  Be patient and wait for a digestion of this sharp move up because it will come.

Taking a look at the technicals of the S&P shows the break of the Feb/March downtrend on Wednesday, followed by another big surge on Thursday that sent the S&P back above the November lows….

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Mr Market Gives Thumbs Down to Obama’s Big Goverment Budget, Dow Likely To Test 6500

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

I have to admit I was turning a bit optimistic there in the middle of the week when the market rallied on the Bernanke testimony, indicating the government wasn’t interested in wiping out Citi shareholders (although at $1.50 that’s essentially what’s happened) and that he was optimistic of a recovery in the economy within a year or so.  Ordinarily, I wouldn’t place much importance on a move following a comment from a Fed official, but given the oversold conditions I thought maybe, just maybe this market was poised for a short covering fueled, oversold, relief rally.  Let’s just say it didn’t pan out that way. 

While Obama continues to enjoy high approval ratings from the general public, on Wall St it’s been an entirely different story.  That’s not to say this administration is responsible for the entire additional 20% plunge in the indices, but clearly the cabinet IRS gaffes, the doom and gloom rhetoric, the questionable stimulus package and the budget proposal has left Wall St clinging to a crisis of confidence and wondering if we’ll ever get out of this mess.  You have to wonder as 401K’s continue to implode, how long those lofty approval ratings will last.  On Thursday morning, with the market looking strong and still poised to potentially breakout, the budget proposal was released, immediately sending the market into a tailspin that broke key long term support levels.  I sent the following to my members on Thursday night:

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Dry Bulk Shipping Stocks Breaking Out

Posted By Tate Dwinnell |  Subscribe in a reader | Comment 0

A big move out of the dry bulk shipping stocks today with several breaking out of consolidations with heavy volume.  Excel Maritime (EXM) reclaimed support of its 50 day moving average in a big way.  The dry bulk shippers have been on a wild ride over the past year and a half, many plummeting 80 – 90%  from their peaks in late 2007.  Since late November, this group has been stabilizing along with the overall market, seeing a big wave of institutional buying back in early December, another wave of buying in early January and now the trend continues with a big surge in the past two days.

DryShips (DRYS) has been in the news of late, taking traders on a wild ride.  Last week the company was notified that it was in breach of its financial terms on a large chunk of debt and the company announced it would dump stock and cancel ship orders to preserve liquidity.  The stock plummeted more than 50% in just 3 trading days….

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More on this topic (What's this?)
Baltic Indices up for week ending 2/20/09
Opportunity in the Dry Bulk Shipping Stocks
Read more on Dry Bulk Shipping at Wikinvest

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