Did Geithner Rally Save the Indices?

Was the last second Geithner rally on Friday enough to save the indices from the abyss?  That is the question I ponder this week.  In last week’s report I discussed the developing triple bottom and the well defined support levels that had held for over a month on a few different occasions, setting up the potential for a market rally heading into a historically bullish time for the market….

But it all fell apart on Wednesday afternoon as buyers were nowhere to be found.  My notes to premium members captured my change in sentiment.

(10:34:50 AM): That relief rally fell apart in a hurry and the Nasdaq
has taken out the lows of the correction now.  I should have scaled
into a hedge up there.. still looking to add one but want to see some
sort of a bounce.

(10:35:48 AM): SPY and Q’s still have support of yesterday’s lows..
just barely.

(10:48:30 AM): All, I’m scaling into BGZ here with a small $5K
position (about 2% of port) at 95.90.

(10:49:13 AM): I may add another $5K if we can get back up to the 50

(11:05:46 AM): Added another $5K to BGZ at 96.22

(11:40:45 AM): I’m just skeptical that we can rally furiously yet
again to save this market.. how many times can we test these lows and
not finally take them out?  We’ll soon find out.  Still watching the
50dma closely on the 5 min chart.

(12:27:21 PM): I really feel like we’re going to test Dow 8000, Naz
1400 and S&P 800 at some point, possibly even today.

(1:09:17 PM): The 2002 lows are beginning to look like a reality…
Nasdaq now just about 85 points away from wiping away the gains of
the entire bull market that began in March of 03.  S&P just about 35
points away from the absolute 2002 bottom.  It truly is remarkable
any way you slice it.  Tomorrow, all eyes will likely be on Dow 7965
(nov 13th low), then on Dow 7882 (the low of the correction) as well
as S&P 800. 

The following day, the market attempted to hold it together after rallying on news that the Senate had come to an agreement on an auto bailout, but quickly failed after the House indicated it wasn’t a done deal.  The selling intensified in the last 30 minutes of trading, sending the S&P below the absolute 2002 lows to levels not seen since 1997 with very heavy volume.  Heading into Friday, it appeared that it was just a matter of time before the Dow joined the S&P and Nasdaq in taking out key long term levels of support (the 2002 low for the Dow is 7200).  Needless to say it was an ominous day of trading, but in an email to my members Thursday evening I tried to hold onto some optimism..

“At this point I have to pin hopes on the weekly charts of the
indices.  The indices can be salvaged to a degree if the S&P can
close above 800 by the end of the week (level for Dow would be 8000,
Nasdaq 1500)   If we can get a massive capitulation before the
weekend with volume heavier than we saw today, than yes the indices
can be salvaged on a technical basis but a small miracle will need to
happen.  I would be very careful on the short side, particularly if
we open down big tomorrow.  It has been far too easy on the short
side and there is a sense of arrogance and greed from those that have
been 100% short this market.”

My thinking was that with a small miracle the indices could repair the damage with a massive Friday move, keeping the trading range intact on the weekly charts.  With just 45 minutes left in the trading day Friday, that kind of move appeared impossible, but news of Obama selecting Tim Geithner as Treasury of Secretary sprung the indices off intraday support and the buying never let up into the close.  I was surprised that sellers didn’t come in at some point heading into the weekend and erase much of the surge.  I have a tough time believing that the Obama announcement is ultimately going to be “the” catalyst that marked a true bottom and despite the massive end of day move, there is considerable overhead resistance to work through.  There is enough momentum from Friday’s move to push higher but as you’ll see in my chart below it won’t be easy. 

This week I take a look at the 15 min intraday chart of the SPDR S&P 500 ETF because the charts of the indices themselves don’t allow me to see volume on an intraday basis.  There are a few important things to point out in the chart below.

– 77.68 is the absolute 2002 low and a major area of support.  The SPY closed below that level on Thursday and traded below that level for much of the day on Friday but was able to reclaim that critical level of support.  Now we need to hold above that level.

– The area around 75 proved to be an important level of support on Friday as it successfully tested and held that level several times.  That is our new breaking point.

– The massive end of day move that cleared the 50 day moving average (red line) must now deal with resistance of a 6 day downward trend line around 80, then resistance again of the Nov 13th low and Nov 20th high around 82.  If it can manage to clear through those 2 tough levels of resistance, it still faces the 200 day moving average at 84. 

– With massive distribution at the end of the day on Nov 14th, Nov 19th and Nov 20th it will be mighty difficult to clear these resistance levels.

– With MACD and stochastics both getting into overbought levels, the market most likely will digest Friday’s surge sooner rather than later.

–  There is probably enough momentum from Friday to at least retest the downtrend line at 80 and possible test the Nov 20th high around 82, but I’d be surprised if we tested 84 next week. 

– On the support side, there is significant support around 78 (50 day moving average) so that might be an area of to ease out of short positions if you are short

– If we take out Fridays lows and close below 75 this market is in a world of hurt


I personally am skeptical of that end of day Friday move and as you can see there is quite a of technical damage to repair before we can call Friday the bottom.  I really wanted to see one last bout of panic selling sending the VIX up into the 90 level before seeing this kind of buying, but that kind of action isn’t necessary for a bottom to be put in.  While the Dow reclaimed critical support above 8000 and closed a hair above the middle of the weekly range which is somewhat bullish, the S&P and Nasdaq made less than desirable weekly moves.  I do think that we are mighty close to a bottom but still believe we need to see some massive capitulation occur on either the daily or weekly charts.  We don’t have that yet.  Traders on both sides of the market are skiddish with buyers panicked about another plunge and shorts panicked about a massive short squeeze.  It leads to tremendous volatility in both directions just as we’ve seen over the past month and I would imagine that continues through this year.  It’s exactly why day trading, short term swing trading and a large cash position remain the best options right now. 

NOTE: There will be no Sunday report next weekend.  Happy Thanksgiving!

::: Model Portfolio :::

** This section will now appear as a separate report about every other Wednesday. 

The Self Investors Model Portfolio wrapped up 2006 with a gain of 27.6%, 2007 with a gain of 30.2% and is nearly 35% ahead of the S&P in a very difficult 2008.  This is a REAL portfolio with position sizing and features annualized returns of 24%.

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::: Best/Worst Performers :::

– Top 10 Performing Industries For the Week –

1. Gold: 9.85%
2. Computer Based Systems: 2.80%
3. Water Utilities 2.10%
5. Silver: .50%
6. Diversified Utilities: -.70%
7. Food Wholesale:  -.90%
8. Computer Peripherals: -1.29%
9. Auto Parts Wholesale: -1.40%
10. Processed & Packaged Goods: -1.55%

– Top 10 Worst Performing Industries For the Week –

1. Rental & Leasing Services: -32.15%
2. Long Term Care Facilities: -29.85%
3. Hospitals: -28.90%
4. Aluminum: -27.35%
5. Semis – Memory Chips: -25.85%
6. REIT – Retail: -25.75%
7. Resorts & Casinos: -23.85%
8. Nonmetallic Mineral & Mining: -23.80%
9. Residential Construction: -23.80%
10. Money Center Banks: -22.55%

– Top 5 Best Performing ETFs For the Week –

1. Market Vectors Gold Miners (GDX) 12.05% 
2. iShares Gold (IAU) 7.90%
3. SPDR Gold (GLD) 7.60% 
4. Asa Gold (ASA) 6.80%
5. PowerShares Precious Metals (DBP) 6.20%

– Worst 5 Performing ETF’s –

1. Claymore Global Solar (TAN) -28.90%
2. iShares Home Construction (ITB) -25.30%
3. PowerShares Private Equity (PSP) -25.20%
4. SPDR Financials (XLF) -24.00%
5. Market Vectors Coal (KOL) -23.50%

::: Upcoming Economic Reports (11/24/2008- 11/28/2008) :::

Monday:        Existing Home Sales
Tuesday:       GDP (prelim), Consumer Confidence
Wednesday:  Durable Orders, Initial Claims, Personal Income/Spending, Chicago PMI, New Home Sales
Thursday:      Thanksgiving
Friday:           None

::: Earnings I’m Watching This Week :::

Monday: China Finance Online (JRJC), Nuance Communications (NUAN)

Tuesday: China Sun Energy (CSUN), Netezza (NZ), Vimpel Communications (VIP)

Wednesday: Yingli Green Energy (YGE)

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