Weekend Analysis for Fri June 6th 2008 
Fri June 6th 2008
Both Sides frustrated...
by Jack Steiman
| S | M | T | W | T | F | S | | 1 | 2 | 3 | 4 | 5 |
6 | 7 |
| 8 | 9 | 10 | 11 | 12 | 13 |
14 |
| 15 | 16 | 17 | 18 | 19 |
20 | 21 |
| 22 | 23 | 24 | 25 | 26 |
27 | 28 |
| 29 | 30 | |
Let's spend time going over everything here. I'll discuss oil and the parabolic process that seems to have begun and I'll also be discussing many of the charts we have for you this weekend so you can see how the market is setting up on many different indexes. In the end, you'll see why neither side, bull nor bear, is getting much satisfaction from this market, whether it's stocks or even oil.
Let's start with oil. I have included a chart of the USO which was up huge today. The first thing you need to pay attention to is the volume. It was the highest in history as was the actual dollar gain in the commodity itself. The volume is becoming capitulatory which is a sign of an all in scenario. In addition, although it now has gap support, it is putting in a massive negative divergence on the move higher. Absolutely huge to say the least. When you add in negative divergences along with too much volume, it tells you there is big potential trouble with the move up down the road and not too far down the road at that. Nothing is guaranteed in this game as you know but it a huge red flag you should pay attention to. Now with oil up $11 today, it is clear a frothy parabolic move is ensuing. The real question is, how high does it go? No one knows but you'll know it came and went when oil has a big volume reversal day after shooting up early on. When that occurs, the oil game is over. it may have to go to $180 first. Who knows. Also, and this I can NOT understand, oil had its best day ever and the OIH was very red. Talk about a disconnect and a possible investigation. Imagine owning the Oih. You come home from work and you see oil up 11$. You say I made the big hit. You see it's red. Despair. Like the title of tonight's letter says, both sides frustrated in this market overall. And it's not just from oil.
We also have a chart of the $bkx which shows you how the banking sector broke down out of a triangle. It flagged out but has now begun the next leg lower. The fact that it couldn't get back through the triangle breakdown and has taken a new leg lower bodes very poorly for the financial's and tells us we haven't seen the worst of the news out of this sector as of yet. It's a no brainer to stay away from this sector as it has led down from day one of this Move off the top that started in October. However, the fact that it has begun yet another leg down tells us all that there's more bad news to come from the likely culprits based on price behavior such as WB, C and WM to name just a few. Don't forget Leh in that group. It may need to be bought out just like Bsc did. The financial's, especially the banks, continue to erode both in price and fundamentals. Best to avoid and wait for the appropriate volume reversal down the road before taking on a greater interest in owning any of those stocks.
There is a chart of the Qid daily included tonight. The Qid mirrors the Ndx. If you're long the Qid, you want the market to go lower. It's an inverse etf. It's good when the Ndx is bad. It's at the bottom of its channel with positive divergences now and with stochastic's at or near oversold. It is suggesting it wants higher in the near term and if that plays out it means the Ndx will be printing lower prices. It has three to four points further upside if it breaks out of that wedge which correlates to roughly 75-100 Nas points. Not a pretty picture. 38.90 is the breakout to watch for. A close only of course. Intra day is meaningless. With the Qid oversold and having positive divergences at the bottom, it's best to stay mostly cash and get yourself a short or two on any bounce up from oversold 60 minute time frames. We're somewhat oversold on those 60's so best to wait fro that bounce. We'll put out a few shorts if appropriate on that bounce.
Another chart to study is the Mid caps which got to the top of its base. It's natural when that occurs for it pull back if healthy and create a base from which to trade from in order to unwind those overbought oscillators and in this case, work off negative divergences at the top. The base held easily and the selling began today but did so with great intensity. More than the bulls would have liked for sure. Pulling back in a healthy fashion is expected but not like we saw today. You can see how huge the base is thus there's plenty of down side action left if things are to get more serious in the weeks ahead. Don't try and figure out that moment until the next divergence appears, which I will let you know of course.
Finally, the Sp closed below massive support at 1365 and the Nas lost its massive support at 2516. Captured one day and lost the next. Bearish action since the sticks printed today were engulfers. Yesterday's gains completely wiped out and let's double down on it for good measure. The bears meant business today and ruined a lot of positive technical's from the past few weeks. You can't fight the message sent today. A real sell signal which must be obeyed. Strength must be shorted. Not saying to be aggressive but some short side action on a bounce is a must here. Please do nothing aggressive on the long side for now. Not the time to be playing hero.
The internals did a complete 180 today as the advance decline line was horrific. New 52 week lows are now back over new highs on the Nas. That didn't last very klong now did it. Volume almost exactly matched yesterday's move when the market rocked higher by 200 points on the Dow. A lot of good wiped out in just one days worth of action.
I'll close by saying that over the past many months the action has been of the whipsaw variety. Lots of head fakes up ad down with neither side getting much satisfaction. It has been difficult day after day. Today did a lot of technical damage and now the bears appear to be in full control. Fdx got to the breakout and got crushed. The banks continue to break down. Oil is out of control. Leaders didn't lead and many are starting to break. Please go very slow here. In times like these, capital preservation is essential. We are a safety first service. Never get inappropriately long or short until a true signal is flashed. Tough times. Let's get through them together without too much if any damage.
Enjoy life and play with some kids if you can.
Peace
Jack
Former columnist for TheStreet.com, Jack Steiman is renowned for calling major shifts in the market, including the market top in October 2007.
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