Click chart to enlargeThe chart above is a chart of the Dow. The way we see it, there are three support levels. The first is at 8400, the lows of mid to late December. This support is not very strong, as it does not have much history behind it. The second, and more meaningful, support level is at 8100/8200. And of course the most significant support level is the market's November lows at approx. 7500.
We are still under the delusion that the market is in a short term uptrend, making its way toward the 100dma, and possibly even the 200dma. If we're wrong, and the market instead continues lower, then our guess is that it takes out one of the support levels by 100 points or so, and then reverses course. This concept of "taking out the stops" makes the market put in bottoms in unexpected places. When the market broke down on 11-20, few thought that a significant bottom was being put in. Most people were expecting another leg down. Instead, the market took out all of the stops that traders had strategically placed below its previous lows before rebounding strongly. Next time you place a stop loss just below support, realize that Goldman Sachs has their buy order 1/8 point below your stop. This ensures that they will buy at the low, just as you are selling.
We remain committed to our long positions. We're looking to sell QID very soon, and will add to the Ultralongs if the Dow breaks below 8000.
Has anyone noticed the weakness in C? Despite the recent rally (and bailout money), the chart hints that bankruptcy is not out of the question. Considering the government remains committed to preventing a Citibank failure, further bailouts may be in the cards. AAPL's chart continues to look very anemic. Its descending triangle continues to take shape, and our guess is that it is headed for a major leg down sometime over the next month or so.
18 comments:
What? A whole day goes by without a single comment? Here's a URL for a short movie about how the price of oil is set: http://www.wimp.com/bigdeal/
This should clear up a lot of the confusion about how the commodity markets work.
Since my last QID trade, I'm almost even. Now I'm wondering whether to keep holding it once it breaks even (which I think it will), or dump it and move on. I'm also thinking of buying SKF again. The gov is prepping us by telling us that more is still needed to save the banks. Do you think they'll play roulette again this time with the banks?
So you think C will go bankrupt and we will hold 7500? I highly doubt it. The world's biggest bank going bankrupt will take out a lot of stops (even for GS). I suggest you hold on to that QID. With dismal earnings round the corner, I can't support your optimism.
Starting a short after 5 down days seems imprudent. Likewise, technicals show oversold. I think Snot is correct on the bear market rally and - even if he is not - best to have some patience before layering into a new short. I plan to ride the rally that may start tomorrow with the expectation that I'll be layering out of the long and layering into a short when technicals show the market is overbought.
Farris, I agree, and hope very much you are right. I've gone from 50% cash to about 4% cash over the last 4 days as the market has come down. I'm hoping that in spite of earnings we see some DOW up 50 to 100 days over the next week and I'll go back to 50 or 60% cash and wait and see if it comes back down again. RXL and DIG seemed to be bouncing already today. QLD and LTL weren't.
Sorry Joe, but you may have shot your wad early there buddy. The last six days were only the start of this next down leg. The best thing I've learned from Snot is to have patience and save some dry powder (I'm 81% cash at the moment) for when the fireworks begin.
So Thank You SnotWheel & Associates!!! Couldn't have done it without you.
S&P will at the very least re-test 741 and more than likely set a new bear market low before the fat lady sings. Wouldn't be surprising to see 675, and have heard talk of 630 being "The Alamo".
When the S&P drops below 800 I'll start layering back into SSO and keep buying every 25 pts down from there, so c'mon S&P...fold like a cardtable and hit 600!!!!!
Hopefully it doesn't come to that, but another major leg down is fine by us. There's a lot of talk about individual states requiring bailouts from the federal government. Many states have been unable to curb spending enough to make ends meet, and state income tax payments are dwindling because of salary cuts and job losses. State governments are getting hit from both ends just as we are.
sbbuilder, here is an article about a large bank in your neck of the woods.
http://www.nytimes.com/2009/01/14/business/economy/14bank.html?_r=1&ref=business
My targets are
DOW 7950, SPX 792, NASDAQ 1398
Note that the SPX support is a lot lower than the support for the other two. SPX needs to fall another ~6% to reach support.
Snot
Thanks for the article reference. It's just human nature to want to save your own butt before you help someone else. I think this will serve to create a very uneven playing field. The parable of the servant who doubled his Talents and was rewarded with more comes to mind. In this case, we seem to be rewarding the servant who buried his and didn't make any money. When are we going to stop rewarding mediocrity?
I can't help but notice that the DOW chart that you posted looks like a giant descending triangle from Oct on. If you use the 100 DMA as the descending tangent, as you have shown on the chart, it doesn't look so good.
Yesterday I said I was thinking of buying some SKF. As I write this, it is up over 10%. Did I buy it yesterday after hours? Nope. Damn.
Yep, Suom, down we go. I bought too early on this cycle down. But it isn't as bad as it may appear, because my stock account is only 25% of my total portfolio, the rest being mostly in IRAs in bonds. But it is hurting today nevertheless. What do the rest of you think the bottom will be?
Wow, Citi at 4.50 today... thought those days were over! The government may just have to take them over completely to avoid showing the public just how much money is needed to keep the business going. It's hard to feel bad for them considering their questionable advertising tactics over the years (bulk mailings, spam, telemarketing, etc), are known to specifically attract the wrong clientele.
AAPL is holding at support and market is way oversold. With the new administration is around to take lead I think we will find the bottom next couple of days and will rally from here. DOW has strong support at 8000! Tested many times in the past. World is not ENDING!
I will start buying 10% of my capital in SSO and DDM now, if it falls to 750 for S&P, I will put 40% and If it falls to 650, I am all in...
I'm seeing a convergence for NLS, and it is trading at the bottom of a channel. So I bought at 1.53. Target is 1.99
AAPL has been halted in after hours pending a news announcement. It could go either way, but our feeling is that the chart has been suggesting bad news is on the way.
Steve Jobs is taking a leave of abscence until the end of June to take care of his health. Hopefully he will make a full recovery.
Cancer is death sentence and 95% will die. I hope Steve will recover and best wish for him and his family. Stock is down now...
AAPL is still the best company with 25 billion in CASH. I will wait and see...
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