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February 4, 2009

Whipsaw City

Price patterns continue to support a large drop in stock prices in the near future. Equities suffered a failed rally today, and the SPX extended its crawl along the lower triangle bound. BUT (note the capital letters) bears should heed the substantial buying-into-weakness seen on the spyders... $250M... during today's session. Will there be no end to the whipsaw psychology? It's a shame, really. Apart from that figure, I'd be getting nicely short in anticipation of a 4-5% down day.

stock index chart

Of course, a large buying-on-weakness day doesn't mean the market will shoot higher tomorrow, but it could mean that a lower triangle break will be a head fake, especially if those buyers show up two or three days in a row. Given that yesterday saw moderately strong selling-into-strength, I'm guessing confusion will continue to reign. Therefore, I'm holding my short call position which, by the way, was augmented this morning.

Another point for bulls lies in the fact that bonds don't seem to be getting any traction to Monday's rally:

treasury bond chart

In fact, Treasuries sold off in the face of a rising dollar today... rather weak. A slump in bond prices could temporarily support stocks as money flows out of bonds. Longer-term, though, higher rates will act as a detriment to high stock prices.

I will also be quite interested to see how the market opens tomorrow in light of Cisco's poor sales forecast after hours. At the moment, NDX futures are off 2%. If for any reason we open up tomorrow, it will be just another sign of underlying strength.

Precious metals bucked the buck and clawed their way higher, but gold did not reacquire lift-off status:

gold chart

If gold slips below $890, it will likely test the next trend line down. On the other hand, if it closes above $920 first... or even better, $930... we will know almost certainly that the bull is back. It's just another waiting game.

In a bout of unmitigated self-aggrandizement, I nominated my own blog for a Blogger's Choice Award in the business category. Anyone who feels this blog actually deserves a few votes can click on the link on the right side of the home page to access the voting page. I promise your fingers won't be inked.


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