Weekend Analysis for Fri November 21st 2008

The Sp lost critical support yesterday at 775. This was the 2002 bear market low level that really needed to hold. Today the bulls were able to recapture this level after trading lower earlier in the day. The questions you may be asking is was the rally today the save the bulls have been looking for? Is the market now safe with regards to long term investing once again? That we can now buy at bargain prices we will never see again? In my view I don't think we have come close to seeing our ultimate lows. I don't think stocks are at bargain prices here. This market will go lower, probably much lower over time but today we did save 775 Sp and the compressed level of oversold is the reason. We could have stayed oversold once we lost 775 but the oscillators were very oversold for sure. Stochastic's on the daily charts near 0. Rsi readings near 20 on those daily's as well. The oversold kicked in and we were somewhat fearful of that and thus the reason we refused to go short on the break of 775. too close to support and too oversold. We needed to see something along the lines of a rally that like today that would allow us to eventually go in short. So is that time now? I don't think so. We're still very oversold, even with today's rally. The hammers are strong as well and this combination should allow for further upside before we start to fall again. More upside is best before shorting.

The key is knowing where to begin shorting again. There are some very clear levels above that should give us good clues. The best place to start is at price resistance along with moving average resistance. Let's take a peek at those levels. The Sp and Nas are my two favorite indexes to watch with regards to key levels of support or resistance. The Sp has that key price resistance now at 850, the last triangle breakdown level, followed by the 20 day exponential moving average at 884 and falling daily. It's not at all unreasonable to think we should get up to at least 850 if not the 20 day ema. A lot will depend of course on how those oscillators work along side price appreciation. If they are harmonious then we can expect a move at least to the declining 20's if not eventually the declining 50 day exponential moving average. The market may also be tradable for that move up, as long as we don't gap up too much on Monday. Even if we do, the 15 and 30 minute charts are already getting overbought and thus they would provide a pullback to get in. The question is whether it's worth chasing this rally or just waiting to short. It may provide a play or two upward but we'll see.

When a market has a nice rally off the bottom it is very easy to get caught up in the euphoria of that move. It brings needed relief to everyone who is getting annihilated. We all know people like that unfortunately. Let everyone exhale. At the same time, let things unwind for new entry points in to shorts. try to keep this rally in  proper context as it unfolds. Nothing goes straight down. We all know bounces have to take place, even in the very worst bear, which we're clearly in. If we do go long or whether you go long on your own, please don't overdo your stay. Taking profits quickly will be essential. This market has no feelings or emotions. It has been a silent killer. Don't let it get to you in a big way. Take what you can from it and move on. Maybe it can go higher than 884 but even if it does, who cares. Take those dollars off sooner than later.

This bear isn't going to hit the old 2002 lows and then simply start a new bull. I caution you against this type of thinking. Don't feel owed a new bull. It doesn't owe you and isn't coming. Things are deflating around the globe at a very rapid pace. Unemployment is sky rocketing higher. We haven't come close to seeing the worst of it. I could go on and on about why this bear isn't over and why we're not going to see a new bull any time soon. You all get the picture by now. I want all of you to not get overly emotional about things as we continue higher next week. Keep perspective about what's going on around the world. Please don/'t get in to the market bottoms long before the worst is over. We're not even close to the worst. We're only beginning to learn about how bad things are getting. Look, I know anything is possible and some day we'll get a rally greater than the one we may see now but it's imperative to understand the magnitude of what's taking place here. The great deflationary story is under way and is not going away any time soon. It's a long road ahead so please try to stay properly cautious when things are moving upward at times like they should a bit now. It won't take to get hurt even though you've missed so much of this bear. If you get too bullish too soon, the market will make you feel pretty awful quite fast.

I mentioned earlier that 850 and 884 were the next two big resistance levels on the Sp. For the Nas, those levels are 1400 and 1554. Quite a spread and it's very important that the Nas break above 1400 to have any chance at a move to the declining 20 day exponential moving average. Nothing is a guarantee but the market, with its save at the old bear market lows and with it still being very oversold, seems likely to continue higher in the very short term. This bear market has been very unique for sure and anything is possible so if we do play a bit on the long side, it'll be justthat. A bit and we suggest you don't do more than that on your either. If we move nicely higher you'll make some cash. If it fails, at least you won't have too much exposure. The next best opportunity, once this rally ends, will be shorting. We can get a little more aggressive when that opportunity presents itself.

Have a great weekend. Enjoy life.

Peace

Jack