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January 14, 2009

Curiously Shrinking Prices

Equities certainly did not conform to the slow creep behavior I was anticipating off yesterday's spinner. We instead saw immediate weakness that just kept running. The gap down in equities this morning was not terribly concerning at the time... it could have constituted the ending move for the recent correction. The slip below SPX 850 was a bit disheartening, though not a deal-killer. But both of these points relied heavily on one important development to be flippantly dismissed: a recovery rally into the end of the day. Obviously, we didn't get one, so we do not have the luxury of being flippant.

stock index chart

The danger to us bears is that we are already witnessing the next major decline. I say 'danger' because major bear market legs give no respite to latecomers nor oversold readings, so we may not get that easy chance to push moderate shorts into aggressive ones. (If you were already aggressively short coming into today, congratulations.) Neverthless, it would seem negligent to quickly throw down on the short side and expect another crash. Choppy markets like we presently have sport more head fakes than trending ones. Case in point: the presumed breakout we saw on the first trading day of the year. Now we are staring at what looks like a nasty breakdown. Could it be another head fake?

In any case, I still expect the SPX to test the 65DMA before any run into oblivion. The occurrences are quite rare when the SPX snaps across its 65DMA without a back-test within a few sessions. Since the 65DMA is flattening out at the moment, we could be looking at SPX 890 in the near future. If and when such a back-test occurs, volume patterns should give us a strong clue as to whether the MA will be pierced or whether price will be turned away to seek new lows.

Gold continues to charm us bears. Another $12 drop worked in our favor today, and the coveted lower trend line has been cracked:

gold chart

I'm still eyeing a potential reversal in oil. There has been some absolutely monstrous volume under USO the last couple weeks:

oil chart

A small addition to my holdings today came in the form of an exploratory position in DIG. I'm a bit leery of longs at the moment, but the chart affords me a tight stop, and I kept the position size quite small.

stock chart

Apologies for yet another late post, but hey, you get what you pay for, right?!

 

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