Weekend Analysis for Fri May 23rd 2008

What other word can be used for the action today. The market gapped down and never looked back. It made some valiant attempts to recover the gap down of ten points on the Nas but never could get the job done. The worst part about today if you're bullish was the loss of the 50 day ema on the Sp at 1383 although it's still a few points above its 50 day sma at 1371. Losing 1383 was bad enough news. The Nas also lost its up trend support level near 2450. Poor action across the board with no effort at the very end of the day by the bulls to recover these two important support levels.

 

We are now oversold no multiple time frames. The 60's are more so but now the daily charts are joining the party. Stochastic's are averaging 16 and rsi's 30 on the 60 minute charts. on the daily's the numbers are 12 and 44. 44 rsi isn't oversold but stochastic's clearly are and with the 60's so oversold you'd think some form of a bounce would occur here. It's unusual for multiple time frames to have so many oversold index charts and thus it doesn't feel right to be taking on new shorts right about here. You must always respect this type of oversold pattern even if it takes longer to start playing out than we'd like. It's about the odds and it says to relax with new shorts for now.

 

The problem with moving higher after we topped out last week was two fold. First, the markets had run up quite a bit and ran head on in to the 200 day moving averages. It's quite normal to stop there once you had such a long multi month move upward. Lastly, we have lost a lot of the massive pessimism that went along with allowing this rally to ensue. Levels of bearishness not seen ever and for very extended periods of time. The market is no longer too pessimistic although we have begun to move back in that direction over the past week with some very high readings on the put call ratio. I'll be very interested to see the new bull bear percentage when it comes out next Wednesday morning.

 

With the market losing major support on confirming internals this past week, it's time to use strength to begin shorting. Again ,you don't want to short oversold so when we bounce next week you'll want to start thinking about shorting that strength when the stochastic's move to near 50 and those rsi's get back to near 50 as well on the 60 minute charts. I'll let you all know when that time arrives and thus will send out some short alerts. It's best to be patient a bit longer and let things unwind so there's greater safety in that type of approach.

 

We need to respect the message of the market here and my apologies for not shorting for today once those inside days were seen on all the major index daily charts from yesterday. Bad move on my part. I won't make the same mistake again. Things are going to be tough for this market for a while and that's fine as it'll ramp up fear and get things to where we want them to be in terms of pessimism but it won't happen over night. We will need time and until we get to that level of bearishness we'll need to short when the odds are best for good results. The buy signal is gone and now we are on a sell signal for the near term but please try to refrain from shorting when we're so oversold.

 

Have a great weekend. I wish things were better for everyone. Enjoy your time off with family and play with some kids if you get the chance. You'll feel a lot better.

 

Peace

Jack