Saturday, January 17, 2009

Stock Market Update 17 Jan 2009

A routine update to ECAM as there has been no change to my positions as of today.

The bear market continues and those who bought into the recent rally thinking we had found the bottom have suffered further damage. I hope none of you did so.

First chart is the S&P 500 index chart I mentioned I was watching previous (as always, click on the charts to enlarge):

S & P 500 6 month daily chart:

I mentioned in a previous blog the key to whether the markets would find a new "true" uptrend was by monitoring the price action along with volume on the SPX.

Note my comments on the chart indicating that while the indicators had switched to bullish Nov 25, there was little volume to support the move. As such, the move was suspect and should not be trusted. That was the 1st indication that all was not well.

The price continued to rise and crossed the 50 day moving average on Dec 16. Normally this is bullish and would be confirmed by volume.....none was evident with below average volume again on that day.

The price moved up into the 918 resistance level I mentioned previous and then broke through to the upside on Fri, Jan 02. Once again note on the chart the lack of volume behind this move as well (as defined by the 50 day moving average volume line in blue on the volume chart).

In a true breakout you should see above average volume; we saw below average volume on the move over 918. However, as it was still the holiday period I thought I would wait for the next week to confirm whether this was the start of a new uptrend or not. As can be seen, the markets held above 918 for 2 days and then fell hard. The price rise was contained at the 38.2% Fibonacci level before heading back down. This is known as a "bull trap" as those who bought into that rally got their heads handed to them (along with their account balances!).

On a positive note, price on Thursday, Jan 15 fell back to re-test 818 again and bounced hard off that level. Note this bounce was on ABOVE AVERAGE VOLUME. Yesterday the price rose again on above average volume. This is potentially bullish.

What I want to see in order to buy back into the markets:

1) price rise to cross the Bollinger Band mid-point (dotted line, currently at 884.57) + the 50 day moving average (blue line; currently at 877.83) on above average volume, and

2) a price break above the 918 resistance level along with a break above the black downtrend line with above average volume.

Should this occur it would be bullish and indicate it is time to move back into the markets.

Next charts are the Dow Jones World index:

DJW 6 month daily chart:

As can be seen, price is stuck in a sideways consolidation below the descending trend line. The move above the 50 day moving average could not be maintained and a new short term downtrend has developed. All the indicators have turned short term bearish.

DJW PNF 1-box chart:

This short term point and figure chart turned bearish on a price break below 166 and has a target price objective of 135.

DJW PNF traditional:

This medium term point and figure chart turned bearish on a price print of 164 and has a price objective of 136.

DJW 4 year weekly chart:

This chart went bearish in late Dec 2007 and signaled the start of the bear market.

Price action is currently in an upward corrective phase and looks bullish for the near term. This is encouraging and once the daily charts turn around again it might be a good time to initiate some short term equity position trades in the provident fund.

Once that occurs I would expect a rise to at least the 34 week exponential moving average (currently at 206.61) before the start of the next declining leg.

Now for a few charts of the U.S. dollar:

US dollar 6 month daily chart:

I have been bullish on the USD for some time and continue to hold the majority of my holdings in USD cash.

A large price correction occurred from late Nov-mid Dec that had many proclaiming the USD was dead. Price found support at 77.69 and has been on the rise since.

Short term price turned bullish Jan 02, 2009 and looks to be strong. The 83.10 support level is important in any further pullbacks.

Looks bullish for now.

US dollar 3 year weekly chart:

This longer duration chart turned bearish in April, 2006 and correctly predicted a decline in the USD. It turned bullish in Aug, 2008 and is still bullish.

The key to note is the rapid decline from the recent top was stopped at the 61.8% Fib line at 77.26 (price low was 77.69) and has been on the rise since. This is bullish.

The short term direction is a bull market correction as indicated by the MACD cross but the MACD appears to be curling back up and would be bullish should this occur.

This chart is long term bullish but short term bearish until the MACD reverses.

US dollar PNF 1-box:

This short term chart has been doing a great job lately giving me direction in the USD in my trading account (via the 2x leveraged Rydex bullish and bearish USD funds).

It turned bearish on a price break below 86.30 and bullish on a price rise above 81.50. It is still currently bullish.

US dollar PNF traditional chart:

This chart is more of a longer term chart. It turned bearish on a price print of 83.0 and is still currently bearish. It would take a price print of 89.0 to turn this chart back to bullish.

Bottom Line:

No changes to my positions at this point.

Should the SPX break above it's resistance of 918 on above average volume it would be the first indication we have found an intermediate bottom. Should this occur I will move part of my provident fund back into equities. We are not there yet.

The U.S. dollar still looks short term bullish and appears to be correcting it's recent downtrend. I am not a long term believer in the USD but until my charts indicate otherwise it is still in an uptrend and bullish.

As of today, my "strategic" positioning in my provident fund account remain as follows:

-100% BlackRock/MLIM US Dollar Cash Fund (actual positions: USD cash 91%, equities 9%)*

*Strategic allocated percentages are as per how funds were originally allotted. Due to market fluctuations and ongoing equity monthly purchases these amounts vary several % from that posted (refer to current % holdings).

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