Weekend Analysis for Sat July 26th 2008

Sat July 26th 2008
Why It's So Difficult..Discussing The Key Charts
by Jack Steiman

All of you by now know I deeply believe in less is more when things get incredibly difficult to read and grasp. Sometimes the markets are easy. The message is clear across the board and making decisions couldn't be easier either on the long side or on the short side. When doing technical analysis on the markets you want to get as much information as you can from as many sources as humanly possible in order to confirm your thinking. When the heavy majority of events come together it's fairly easy to make decision on what to do. Let's now go over the charts on the 60's and the daily's and see what messages are being flashed to all of us and what it seems we should be doing.

When thinking about near term trading we usually like to focus on the message of the 60 minute charts. They have not been as reliable in the bear market as they normally had been in the past. However, they are important to focus on and they are sending all kinds of mixed messages. Let's start with the Compq (Naz).It's been trading between the 50 and 200 day moving average. Those levels are at 2294/2318 respectively. The Naz closed Friday at 2310. 8 points from breaking above the 200 but only 16 points from losing the 50 day. It's getting tight as the 200 is dropping fast but the 50 day is rising fast. A break coming very shortly. The same story is true for the Ndx 100. It's trading at 1846 with the 50 day at 1829 and the 200 day at 1864. it too is getting tighter. 17 points from breaking down and 18 points from breaking out. Then we have the healthiest of them all, the small caps. The Iwm is currently trading above both its 50 and 200 day. Solid action in the future of the world stocks. We do, however, having many key sectors trading below both the 50's and 200's and in a bear flag with their Macd's pointing lower. The Ijh (mid caps), Dow Wlsh and Sp are all in this bearish 60 minute pattern. They all lost those moving averages, retested them from underneath and failed thus far. The message is the tech world is pretty decent. The small caps are solid. The rest stink. Very mixed and thus extremely difficult to grasp as far as the overall message being sent. The real message is LESS IS MORE!!!!!

Now if focus on the daily charts the message is pretty clear. All of the Macd's are in pretty good shape. All coming off the bottom with Macd crosses that are bullish. If we were playing just off the daily charts we would be very aggressive but the 60's are so bad in so many cases in makes it very difficult to know what to trust. We just got a bit more aggressive and some plays did very well. Gs has been a headache thus far but the pattern is still solid so let's see if it can recover. I have to admit that I'm tempted to get more aggressive because the daily's do look very good. Normally I'd be all over that but I have to also admit that when i see so many bear flags on the 60's with their Macd's pointing lower it scares me. That's not being overly emotional. It's called being sensible. If those 60's were confirming the daily's I'd have 10 plays or more out there. The Nas/Ndx aren't bad but the rest stink so it's tough.

The advance decline line yesterday was good. Not great but good after being terrible on Thursday. However, prior to Thursday it had been much improved. Mixed message after mixed message. It seems both sides are defending their critical support resistance levels and causing the internals to fluctuate wildly making this market that much more difficult to navigate. It seems the message is clear until we get to resistance and then the bears fly in and turn it around in a flash. They wipe out the good in a single day. Bottom line is this is about as tough a market environment as it gets. Yes, repeat after me, LESS IS MORE!!! Try to nail a few and play hit and run.

If you want to know when the bulls have made the real deal move in this market focus your attention on 11,750. That was the true breakdown. We retested it a few days ago and with the daily Macd on it looking good it seemed inevitable that we'd break through. Unfortunately, in that case, the poor 60 minute chart took over. The bulls need to clear this very tough resistance zone to feel good about the future market direction. For now we're really just trading in a channel between 10,800 on the bottom and 11,700 at the top. A 900 point channel or a 7.5% range. The way the daily charts look is that if the Dow were to plunge one more time it would clearly put in a strong positive divergence at the bottom. The other daily charts for the rest of the major indexes are set up similarly. So while many would like that positive divergence to form to feel better about things remember that they already are crossing positive off the bottom. This was the reason for the last group of plays. Clearly a reason for some bullishness.

Oil continues its plunge as the those daily's we discussed at the top suggested. This story is true for all the commodities. However, oil is now near massive support at 121.84 with its close just over 123 on Friday. Shorting it right here doesn't seem to make much sense. A bounce should probably ensue shortly. If it were to lose 121.84 convincingly first then all I can say is the bubble is deflating even faster than I would expect. There should be a bounce first. All of the commodities are set up similarly. It should be bounce time here for many as they have been crushed are got to major support. I'd simply suggest thinking about holding off on new shorts on them for a bit but of course, do what feels right to you.

So here I am waiting for a little more insight before proceeding with more plays, either long or short. Things seemingly are on the side of more favorable on the daily's and less so on the 60's. The daily's usually rule the roost but you can't be 100% sure when so many of the major 60 minute charts are in bear flags below the 50's and 200's. Nice and easy here is the best way.

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

Peace

Jack

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