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February 24, 2009

Corrective Moves

Well, now that's more like it. The S&P 500 bounced nearly to the point off the extension suggested by the decline off the January high. The late afternoon ramp seemed to have been spurred by comments from Berskanke that the big banks really don't need to be nationalized. The bulls jumped on this "news" to nurture ill-fated illusions that things aren't so bad, after all. Of course, they are listening to the same clown who less than a year ago did not anticipate any serious problems with the banking system.

With three days to go, the bulls are now within range of saving SPX 800 on the monthly close. Such is one hurdle. Another is capturing a daily close above 805, the major support level prior to the most recent breakdown. Keep in mind that technical analysis is an inexact practice. I'm not going to be spouting dribble about a big rally simply if the SPX manages to close at 806. In any case, here is my working roadmap at the moment:

stock index chart

It's a busy chart, but one very important aspect to heed is the potential for completing a double-loop ending pattern, a powerful technical setup described in several earlier posts. Positive resolution, statistically the most probably outcome of such patterns, projects the SPX to 1150. Failures produce even more powerful moves in the other direction. A conservative trader could simply purchase ATM straddles as we kiss the dowtrend. However, my purpose today is simply to warn bears of potential dangers. While the possibility of seeing a larger mid-term rally is remote (in my opinion), we will weigh the possibilities as the time approaches.

Precious metals finally began a countertrend move. I believe some blogger... the name fails me at the moment... postulated that metals would pull back when equities bounced. Hmmm. Anywho, that same blogger also suggested in a weekend post that gold would retrace to the mid-point consolidation of a T1 move. Here's the Sunday chart:

gold chart

So, I am pleased to have delayed further precious metals purchases and will now wait for a retracement to the downtrend line or some other convincing sign that the pull-back has completed before bulking up. Based on price the behavior during previous springtime blow-off moves... which I am still under the assumption we are experiencing... the correction could last as little as three days. Based on the corrections that have occurred during the current rally out of November, the correction could last up to nine days. So we have a reasonable timeframe in which to set expectations.

Mining shares weren't too keen on the metals pull-back:

stock chart

If we see the orderly retracement described in the chart above, I plan to add mining shares to the mix, including doubling up on my favorite, Silver Wheaton.

Oil also seems poised for a long-awaited countertrend move.

crude oil chart

One of the mantras I have pounded repeatedly here is that when a pattern suggests one direction, and price breaks the other way, the move is usually worth following because broken patterns frequently produce fairly strong moves the other way. If crude sees some follow-thru tomorrow, I'm going to dabble with some futures.

That's it for tonight. On a personal note, I will be traveling to glamorous Jacksonville, Florida later this week to visit several aunts. One aunt is a nubile 80 years old, and during the trip, I will also pay a visit to two of her aunts, one of whom became a centenarian in December. It will be a treat. Because of the schedule, tomorrow's will be my last post until the weekend.


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