Stock Market Update 01 February 2009

ECAM update for the week ending 30 Jan 2009

For the week ending 30 Jan 2009, the DJW index gained +1.71% on the week. However, for the month of January/2009 the index lost 8.51%.

This loss was typical for most of the U.S. indexes for the month of January:

S & P 500 Index: -8.57%
Dow Jones Industrial Index: -8.84%
Nasdaq Composite Index: -6.38%
Russell 2000 Small Cap Index: -11.20%

I would be remiss if I did not point out there is an old trading strategy on Wall Street that is known as the "January Barometer". It basically states that "as January goes, so goes the rest of the year".

Since January/2009 was down, it points to the year 2009 overall as being down as well. How accurate is this "barometer"? Since 1950, it has missed only 5 times for an overall successful prediction rate of 91.4%. That is pretty damn good in my books and I would suggest you would be well advised to pay close attention to those odds.

Once again I have not moved out of my USD cash position and it has been well rewarded given the declines we saw in January.

As of today there is no indication we have established any sort of medium term bottom and the trend is still down. In fact, there are technical patterns I am following (that I care to not publish at this point because they have yet to play out) that point to the POTENTIAL for a once in a lifetime market crash. I do not want to alarm subscribers but this market is that bad.

If/when those indicators come into play I will be publishing a blog strictly to do with that pattern and its implications. As of today, the pattern has yet to materialize and I am hoping like hell it does not do so. The next 2 weeks will be very interesting.

In preparation for a future blog on this subject, I ask you once again to refer to a post I made previous on the Kondratieff Winter and its possible long term consequences.

http://emiratescapitalassetmanagement.blogspot.com/2008/10/kondratieff-winter-has-arrived.html

When I wrote that blog entry I alluded to the fact I believed we may have entered a Kondratieff Winter but now I have potential technical patterns that indicate we may be there. Therefore, I once again HIGHLY suggest you read my previous writings on this matter and reacquaint yourselves with what I consider to be the predominant internet authority (via the link provided in the post) on the "K" winter and its characteristics.

Now on to the charts as of today (click all charts to enlarge):


Dow Jones World Index 6 month daily chart:



There is nothing to like about this chart short term. Price broke below the 50 day moving average Jan 13 and has been in decline since. It attempted a breakout on Jan 29 but was firmly rejected by the 50 dma. All the technical indicators I use on my daily charts are bearish.

The ONLY positive on this chart is that price resistance at 153.99 has yet to be broken. Should this happen it will confirm we are setting up to test not only the Nov/2008 lows but almost guarantees we are going well below those levels.

BEARISH.


Dow Jones World 1 box Point and Figure chart:



Sell signal generated on a price print of 165. Calculated price projection of 135.

BEARISH.


Dow Jones World Point and Figure Traditional chart:



Chart turned bearish on a price print of 164. Continues to be on a sell signal with a price projection of 132.

BEARISH.


Dow Jones World 1 year weekly chart:



A well defined price band of 153-179 is clear. Any break above/below this channel will point to the price action going forward.

There are disturbing back to back "gravestone doji: candlestick patterns evident (as indicated on the chart). These tend to be indicators of further bearish price action and, while you should not trade based strictly upon their indications, it further paints a bearish picture going forward.

The weekly picture remains BEARISH.


S&P 500 6 month daily chart:



The most remarkable feature of this chart is the return of volume to the market over the past 2 weeks. It is interesting to note the battle between the bulls and the bears during this time frame with a narrow price range of 804-866.

I equate what has transpired over the past 2 weeks to being the equivalent of 2 heavyweight boxing champions standing toe to toe in the center of the ring and letting each other have it.

While exciting to watch as a spectator, the last thing you would want is to be in the ring between the two of them! That is the way you should be looking at this market as of tonight. The fight is still a draw, but when this thing finally breaks one way or the other.........watch out. This is not going to be a draw; it is going to be a TKO.

You definitely want to be on the right side of that once it occurs but it is premature to front run the move. Placing bets either side of the outcome is foolish at this point.

BEARISH.



Bottom Line:

No changes to my positions at this point.

This market is still stuck in a range that could break either way. The technical indicators I follow are bearish and are leaning to further downside action and I am trading that way in my personal account.

Watch closely the bottom trend line on the SPX chart. A break below that trend line will take us to the previous 804.30 level. Should that level break it is "game on" for the Nov/2008 lows (which will not hold) and the start of the greatest decline since the crash of '29. We must hold our current levels.

The U.S. dollar still looks short term bullish (following its recent minor correction). I reiterate I am not a long term believer in the USD but until my charts indicate otherwise it is still in an uptrend and bullish.

The British pound has lived up to its name (it has been "pounded") but at some point I think it is going to be a screaming buy. When (not "if") the USD turns back long term bearish I am pretty certain that is where my A/B account provident fund cash will go (given we do not have access to the Yen and Swiss franc; better options in my opinion).

In any case, any changes will only be done when the charts tell me it is time.


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 90%, equities 10%)*

*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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