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February 25, 2009

Hacking Through Noise

So far the bounce off the November low is uninspiring. Equities began the day with a scare and then produced two violent whipsaws and a failed base-pattern breakout to keep both bulls ans bears on edge. The net result was a paltry one percent loss in the S&P 500 (paltry by recent standards) and a pile of noise to hack through. So let's get hacking.

stock index chart

stock index chart

If the market gods intend to captivate the salivating double-bottomers, they will need to produce a more forceful rally. Somehow, I don't think it will materialize. The market is certainly not coming off this low with the backdrop necessary for a sustained rally. Have a look:

stock market indicator

stock market indicator

stock market indicator

Combine the indicators with the SPX chart patterns, and we are left with a reasonable confirmation of our expectations for a labored rally up to the SPX 800-805 followed by a further decline.

As for my play, the two longs I picked up for a bounce are down to one. Microsft failed its November low on a closing basis, so I was forced to close it in deference to my planned stop. Sprint Nextel, on the other hand, is working out capitally. Volume has held up as the shares creep higher. I expect a tall candle upward in the next few days.

stock chart

Precious metals followed through on yesterday's reversal. No surprise there, though they did put up a fight in the morning. I am still looking for gold to retrace to its previous consolidation zone before considering further purchases. What concerns me is the view on silver. Any further weakness in silver could be worrisome:

silver chart

The weekly view, with five straight big weekly gains, appears to have already formed a blow-off move:

weekly silver chart

The good news is that RSI did not reach overbought levels. Also, silver is thinly traded and therefore can be a more difficult read. For now, I will continue to base trade decions on gold's chart, but I will remain on guard. You all can probably sense that I am still wary of precious metals falling into the grasp of deflationary effects one last time. I'm trading the technicals, but my mind is not at ease.

As a reminder, I will be heading out of town tomorrow, so this will be the last post until the weekend. In the meantime, I will leave you with a couple observations on other commodities:

weekly oil chart

copper chart


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