Weekend Analysis for Fri October 17th 2008

Last night I said "rally time". We wake up this morning to some nasty futures, down over 200 points. Some rally. They futures improve some but we open down over 150 points and watch it run to down over 200 points. It approached 250 when the market started to reverse ever so slowly but surely. By late morning we were green and just after lunch the rally was on. The market was rocking. The Dow shot up nearly 300 points which was nearly 600 points off the lows. It looked good. With the top of the triangle at 9400 it sure looked as if that's where this market was going. We got to 9280 and the bears said no way are we allowing the bulls even the taste of touching the top of this current triangle and the selling was under way. Pulled the rug right out from underneath us. I have this chart in tonight newsletter for your viewing. This is why we had held the two positions. With the rally on and with the nature of this triangle being at least to touch the trend lines as you can clearly see both up and down, it seemed a no brainer that it would at the very least hit the top. Not to be and thus the bad ending to today's action. Keep in mind that the triangle is same thing as a bear flag and that the normal next move would be to follow through and break down over time. With the top of the triangle at 9400 and the bottom at 8600 it may take time to make the move. Yes, it could be up and we will always respect both sides but it's likely to be a break down over time. With the range being 800 points it could take time to make that move and thus we may see a lot of whipsaw in this triangle for some time just so both sides can be frustrated for a while, especially the bulls. The next big move in this market comes when we close either above 9400 or below 8600. Please keep those numbers in your head. In between it's all noise. Meaningless noise with the market probably swinging all over the place and all of it just to frustrate the masses. It'll feel good at times for the bulls, much as it did today when we rallied. It'll feel great for the bears such as it did this morning when we gapped down hard and headed towards 8600. Lots of head fakes and more nauseating action in this, the worst bear of our life times and i think we have a ways to go before it's over.

Two stocks that had good earnings reports also had bad candle sticks today, making the outlook for the market that much more ominous. Goog and Ibm both gapped up big but found on balance sellers once the gap up took place. What you want to see is a clear black stick meaning it gapped up and found additional buyers all day. Black candles after a move up usually but not always means lower prices are ahead for those issues, whether it be an Etf or any normal regular stock. If good earnings stocks start to head south it doesn't exactly bode well for the rest of the market. Gap ups followed by black or even red candles is more the norm these days. Few if any stocks or indexes gap up and keep going for very long. Willing sellers no matter who you are. One way you'll know the trend is changing over time is when gap ups follow through and gap downs get bought. We aren't there now. No one would argue about that.

Warren Buffet said he is now buying stocks and normally that would bring out the bulls in full force and drive the bears back down but this is no ordinary market. Even with that news today the market couldn't hold on to its gains. Blasphemy!!! The market ignoring Warren Buffet? You bet!! And in spades. No one, no matter who it is, no matter what action is taken, seems to be able to take this market away from its intended goal which is to bring everyone to their knees, more so than it already has. it seems unsatisfied. To say this market doesn't care about who does what is the under statement of the century in this once in a century market.

With the market sitting in this bear flag, and should it break down, the measurement is not pretty. Well down in the 7000's seems very possible. It of course entirely possible that this flag will break up and out. Anything is possible. Anyone who wants relief is praying for that outcome. We can all appreciate that. However, I have to say the odds favor a breakdown out of this triangle and if it does, you most definitely want to be short or cash. Longs will not work nor feel good after too much time. Please be prepared to act if we close below 8600. Do what feels right to you but keep in mind what is very possible if we lose 8600 on a closing basis.

Not much to add here folks. This has been a very trying and difficult market. Being mostly cash has worked. It has kept everyone, overall, out of trouble for the past year plus. Doing the best we can under the worst conditions I've ever lived through and my gut says we haven't seen the worst of it yet. I wish just one person on Cnbc or Bloomberg would say the worst isn't over. Almost as if its the birth right for all of us to have a new bull market just emerge. Not going to happen. No new bull any time soon although there will be a period of some months when we do go appreciably higher when we finally bottom here. In the mean time, continue to watch that triangle for the break up or down. 9400 to 8600. My guess is break down over time. Let's hope I'm dead wrong!!! It'd be nice to get some good news for a change.

Have a fun weekend and play with a child if you get the chance.

Peace

Jack