This Week's Outlook

Hi DirtyHarry,

It looks like you used StockCharts for those views. I was wondering.. how did you embed them in your post, and if you're a paying member of StockCharts (like I am), how did you craft the view you posted?

BTW, IWM was the only chart that broke 50 day resistance. The rest of the major indexes held for the week. I agree that the market will probably go north for a few days, but I think it might break much sooner than the 5th (possibly the 4th in anticipation of the unemployment numbers).

Regarding my statement being the 5th, that is just an estimation and you may be right. If you look at early May, early July, and mid October, you will notice that each time the index price fills the "pocket" created by the intersection of the longer term trend with the intermediate trend. There's no law that says it will fill it a fourth time, however market psychology suggests it will.

To market up a graph in StockCharts, use the hyperlink "Annotate" beneath the chart. This actually is a pop up window so make sure your pop-up blocker will allow for it. There are various tools that you'll figure out within about 2 - 3 minutes of playing around. After you're done with it, there is an "Upload" button in the upper right that saves the file to a favorites list within stockcharts.com. Sometimes this feature is a little sloppy.... you'll probably see what I mean... but it does work.

After that, I go back in to non-annotated mode and view the graph. Right mouse click and save the graph (I usually save it to the desktop to make it super easy to find for the next step). Open a free account at photobucket.com and upload the picture there. Once it's there, photobucket.com will provide you with various forms of linking. To post here, use one called "HTML Code". I also provide the "Direct Link" because you can see a larger version of the graph by clicking it.

It may sound like a lot but once you get the hang of it those steps fly by rather quickly. The majority of the time is spent on the drawing and analysis (as it should be). One more tip: The "Extra Bars" feature down below is nice. It is what adds extra space at the end of the chart so you can draw beyond today's date. You can see that I used that feature above in the graph as the month of November and part of December are displaying.

SpiderBird,
He're how to upload an image.
http://help.mark​etguru.com/2009/05​/adding-images-to-​opinion-posts.html
Sean.

Goodstuff DH - portfolio porn. Excellent.

a 50% Fib retrace of this whole upmove gets you to the mid range of that down channel around 900 (my own call was 850-870, since withdrawn due to blood loss.)

But with a probable dollar bounce in what has been a significant down move, it should be the harbinger of the correction to come.

DH Are you calling for support @ 1025 or do you see breaking further to 995 then 980.

Any input on your Nov. 5 call would be helpful. Don't worry about egg on your face.

It happens to the best of us. Your candor is always appreciated.

BC You are meaning to say you see the dollar higher from here or do you think the bounce is done?

Perhaps the dollar will firm at a higher level but not appreciably higher from this point?

What's your view?

Any thought on Friday?

MP - I'm really just following the chart on this one. I'm not calling for a support level here. If I had to guess, the next Fib line is at 1000. This line offered resistance in Oct/Nov '08, and again in August '09. Still, I see that as a rather weak support line now. I think there may be a pause there, and then it will break and maybe head down to 925. As I mentioned, this may or may not crash. It could just be an orderly decline over a few months.

I'm trying not to read into the chart more than it's offering. The strongest single argument that I believe this particular chart offers is that there is heavy resistence overhead in the very near term. The November 5th date was selected because it appears to be the convergence point of many different technical/cyclical indicators, and nothing more. If you follow the cycle lines (the green vertical lines), the market seems to make hard reversals at APPROXIMATELY these times. It's not always dead on, but often, it is. I didn't draw the lines going backwards in time prior to the March 9 bottom, but I have before, and generally they hold true. Meaning, they seem to mark reversal points in the market.

The November 5th (or thereabout) line suggests the market will reverse from whatever direction it's heading at the time immediately preceding that date. So here we are, a few days before, and we've had a stiff decline with many technical indicators flashing into oversold territory. Seems ripe to me that the market would then rally into November 5, hit right into maximum resistance (both interim and long term), and then on the cycle date, flip direction and head down.

CIT was BK today, yet the market rose. Nine banks failed on Friday alone, pushing us over 100 for the year. The fundamentals, generally, are terrible. If they were great, I and we broke long term resistance, I would think it would be a massive bull run to old market highs. But realistically we are following the 1929-1932 game plan. Crash...followed by recovery (like now), followed by a massive, painful dump over a period of time that left stocks 90% off their highs. I doubt we will get to those low levels only due to government printing presses working overtime, but the pain could still be excessive. Many Elliot Wave people claim this is the start of Wave 3 (I believe), which is the big DUMP wave.... and they say this is the wave that will take the market below March 9 lows. I don't know about any of that. All I know is I think the market is overvalued and fundamentals are very weak.

Should the market rise to the 1070-1086 level, I will position myself to be very heavily short in real money.

Not much to update, but here it is anyway:

Link:

http://i573.pho​tobucket.com/albu​ms/ss175/kenadle​r71/SP500Nov2.png

MP - I think the probability of a temporary intervention by Brazil and China to slow the rate of decline is very high. Second, there is perceptibly more "good news" of late particularly toward the Q2 2010 forecast that the discussion of raising rates may be perceived as more than just idle talk. There could be other "flight to safety" events, but I'd discount those. Foreign intervention and the possibility of a change in the discount rate by the Fed are my big two. These should cause the dollar shorts to cover and that will pop the dollar. And that's really all I'm looking for, a short covering rally to 79-80.75 on the dollar index. or 23.80+/-.25 on the UUP I've posted the correlation of the IWM bp/UUP bp movements and it's 4.7/1. So a 2-3% move up in the dollar, just as a short covering will mean a 9.5-13.1% correction. But that's all it'll be, a pop in an otherwise bear trend for the buck. Nouriel Roubini has written about it a lot lately (or perhaps I've seen the same article in 4-5 different places. Though not as pessimistic, I'm kind of in his camp with regard to a dollar rally and a drop in commodities - again temporary, it just sets up a better entry point.

Sean/Dirty Harry -
Thanks for your help. :)

- Spiderbird

I believe with the $500B of option ARM resets in residential housing, and the entire commercial real estate sector at risk, the Fed must keep rates low as long as they possibly can. Raising rates in 2010 could cause further devastation to the real estate market. Now, maybe they SHOULD raise rates and just the the prices fall, but realistically I can't see them doing that.

Thanks DH and BC for your thoughts. I'm just testing my investment thesis given this latest pullback. Are you looking at the action today as an indication that the downward pressure is subsiding?

The MACD on the S&P seems to be improving and todays volume seems to be green on my chart.

My near term downside is 1022. I'm looking at a lot of really great companies that got slammed after beating on both earnings are revenues so I want to be greedy but not early:)

Call me crazy....

After today, I believe the downside is subsiding and there could be some opportunity to the upside. I am cautiously bullish in the very short term, but still think if we hit into the 1070-1086 region not only is it time to sell the long positions, but actually time to go short.

The MACD histogram on SPX had positive motion today, which I often use as a key indicator to go long. We also did NOT make a new low today (over yesterday).....but we didn't make a new high either (over yesterday). Making a new high today would have been much more bullish even if we closed below the high of yesterday.

My original call on this thread was that the market would rise this week, and so far that's what is happening. I did expect the market to rise even more than it has, however. With the big purchase of BNI and a 5% decline of the index in 2 weeks, this might be the moment to go long and grab some upside. I would just do so with the greatest caution....and should the market climb 3%+ I wouldn't stick around anymore on the long side.

If tomorrow opens below today's lows, I wouldn't enter long until we see some kind of resolution over the next 2 or 3 days. My major reversal cycle line hits around November 5, but sometimes the reversal occurs a couple days earlier or later. Perhaps that cycle line is suggesting that the reversal we have will in fact be to the UP side instead of the down side as I originally suspected. The jury is still out on what the dollar will do in the near term though, and that could certainly play a big role.

MP - yes, indeed. early is as big a risk as any other, as my recent performance will attest.

Fast money traders should lock in today's profits and expect market to digest gains tomorrow..I would be more inclined to be a buyer on Friday afternoon..here is why.
1) The remaining wildcard - the unemplyment report on Friday. If the number is much worse or even 10% ...although should not be a shocker..will make for some ugly headlines and CNBC/Bloomberg and other media hysterics..
BUT-
1) Most earnings results are now pretty much out, withc CSCO coming after the bell..at least 80% of the most important bellweather stocks have reported..so no real Q3 earnings/poor guidance shock, and they have not really moved the market recently..
2) FOMC is now behind us - with no real drama..except for bond owners
3)Tomorrow we will get the retail sales data...and it will be mixed in my opinion, but will provide some insight into the Holiday sales....I think people started shopping early this year (In October) responding to early and aggressive promotions...and as inventory gets sold earlier (all retailers reigned in inv this year), the late shoppers will likely be forced to pay full prices...eiether way I think it will be at least an OK Xmas....
4) After Friday, I think we will continue to trade based on the direction of the Dollar, technicals, and sentiment.....and with less impact from economic headlines..so buy Friday's weakness after the UE#..if the weakness doesnt happen, buy anyway...


The only thing that gives me a pause is that Dirty Harry is now turning bullish...I am joking of coarse DH...in any case...we are still in this damn trading range..1025-1100 roughly speaking...

DH: I can't believe we agree on something:) I'll be watching your upper limit very closely.

I'm pretty much an optimist, but this latest correction seems to be dragging on a bit long for my taste.

I'm already preparing my macro short strategy. Kass may be wrong this time. But maybe not. His rationale and words of caution cannot be overlooked. It was Kass that called the turn to the upside as much as anyone else.

Major sideline money has been directed to gold ala India and others. So, there is reason for caution. Then again, the market has a way of moving higher against such a backdrop. This environment is one that can whipsaw one almost on a daily basis.

I've had too many positions that beat on earnings and revenues substantially only to get slammed in the following session. Risk, but no reward pushes my buttons big time....

MP - its all about the expectations as usual. The beat and raise stocks dont move if they have already moved ahead of the results...There are exceptions of coarse...But in this tape, I think quality companies that got oversold during 'beta trashing' days like we had over the past few weeks, is your best bet...As a general backdrop, use SPX 1025-1100 as a guage for more aggressive entry/exit

I said on Nov 1: "The short term rally may start tomorrow and carry on until Thursday or Friday."

So far, it's happening. The only amendment I'd make here is that it may continue into next week. I'm not as concerned about time as I am market levels. If we break 1080 I'm going to be looking for the market to show signs of losing steam, and then will take short positions.

Market will back and fill, but with the remaining wild card now behind us (UE #)...and market is holding up OK, even after a 200 pt gain yesterday...this should tell you something. Frankly, I was fully prepared to buy a pullback today, after the headline #, but it didnt transpire thus far. I will be patient here...still a few hours left in a day to get some profit taking in.

I also think that the market in all likelyhood will move above 1080. I think 1100 to 1125 by Thanksgiving...I just see no real Negative catalyst in a near term...so the market might selloff a bit, subject to you normal profit taking with buyers likely to enter after every decent selloff. The wall of worry is still there and the FED will likely behave, at least through the end of the year.

Funny, re-reading some of the posts above...DH is getting more bullish for the first time in a long time, am I right? MP, on the other hand, are you turning a bit more negative?

Despite the horrendous unemployment, its tough argue that we are witnessing some type of recovery. As I pointed out many times in the past, the productivity gains, stimulus spending, and a bit more investor confidence, all helped to get us back on track. Since then my points have been echoed by many coporate executives. Even the retail sales yesterday were not bad at all...so consumers are shopping again.
Things did get better, on the margin. Slow and long recovery ahead. As long as expectations stay in line, the market will be fine...back to normal volatilty and rangebound trading.

Maven - just to be clear - I was bullish for this week (correctly), and maybe somewhat into next week as we move towards long-term resistance. Overall I'm expecting a major decline.

DH - when do you think the maket will decline and what does 'major' mean? Do you think we SPX go back below 900? Back to March lows?

Maven: I'm slightly negative. Today my short term indicators turned positive and I'm hopeful for follow through next week.

I'm pretty much in agreement with you on your S&P chart targets. Also think your assessment regarding employment recovery is realistic.

My slight negativity stems from a perceived difficulty of outperforming from here over the next 12 months. Things generally are coming to a fair value and/or overvalue condition. This makes accuracy more critical when taking positions. My feeling is that the easy money has been made and the work involved to make money from here is going to get harder.

Pockets of undervalue exist but the turn around time for those stocks might lead to slow appreciation. The exception might be health care and selected biotech near term.

Hopefully I won't end up as a contrary indicator on this site:)

Thanks to all you guys for great input.

For whatever it's worth:
I am expecting a major decline in the future as well, so I fall into DH's camp. I acknowledge the positive indicators we've been seeing that have shown signs of recovery, and I have been trading to the upside for most of the time since March 9. What I see though, is that the economy is largely being propped up by flimsy supports that are about to give way at any time. This economy is fragile right now. With unemployment as high as it is (17% not 10.2%, if you want to do apples-to-apples comparisons), and still rising steadily, the next round of foreclosures and more housing downside is around the corner.

If we were to raise interest rates in the shorter term, it would be disastrous. Foreclosures would take off, housing would plummet again. Bernanke knows this, so rates will be zero for some time to come. I'm guessing though at least MOST of 2010, but probably into 2011.

In the meantime, the U.S. will continue to print money left and right, and fuel major declines in the dollar. The U.S. government is quickly approaching the point of no return where we will be so totally buried in debt that we will never be able to balance the budget again so it will be a runaway problem. A few people think we've already reached this point. The longer it goes on, the deeper the hole is that we are digging for ourselves, and the harder it will be to climb out. No one wants to believe this though, so they just 'tune' it out, just like they tuned out the people calling for the correction of tech stocks in the late 90's and the correction in housing a few years ago. People will believe what they want to believe until it smacks them right in the face and they can't ignore it anymore. But by that time, it's always too late.

The falling dollar will continue to help our economy in the short term by increasing exports, but our industrial capacity is a lot lower than it used to be. We rely a lot on imports and those are just going to get a lot more expensive with every passing month. Foreigners will be pulling money out of our economy in droves. Coupled with the likely scenario that unemployment will stay high for a while, it's not a very good scenario to think about.

I really don't know when this will happen. It could take months, possibly quarters. I really don't know. But I don't see how we will get ourselves out of the mess we created for ourselves.

When I say major decline I mean we are going to see AT LEAST a 50% retracement from the market highs to the market lows. This means around SPX 840. We probably pause at 870, hit 840, and then I actually think we may visit as low as 750.

This is not something that I expect to happen the way it did about a year ago. It will probably be spread out over many months, but it doesn't have to be. It could happen in "crash format" but I think the more likely case will be an orderly progression down with even some short term buying opportunities along the way.

I know that Elliot Wave people say that the big wave 3 down must break the 666 bottom of March 9. I don't know about that..... because I think there is a good chance that we do NOT break the bottom due to government intervention - specifically inflation / printing of money. The indicies may drop to 750, but nominally they may be making new lows if inflation is rampant enough.

In the short term I expect the dollar to rise because it is oversold. When it does, the markets should begin their decent and the precious metals should also temporarily decline. If/when this happens, it is my belief this will be the LAST real chance to enter the metals at a reasonable price. Maybe gold at around $900 and silver closer to $15. That's it. If you see that happen, jump in and buy some PHYSICAL. I prefer silver for a whole host of reasons that I can't go into right now (go to seekingalpha.com and look up 'silver' if you want to know why).

In order for a real bottom to be put in, we need stocks to be seriously cheap. Here's the S&P P/E ratio now:

http://www.multpl.com/

The dividend yield is around 2.25% and the P/E about 19. We need to see this close to 6% to know stocks are cheap with a P/E closer to 8 for stocks to be a good buy. As we saw today, the government is finally reporting unemployment at over 10%, and U6 (a more broad description of unemployment) at over 17%. Shadowstats.com reports real unemployment at closer to 22% which means we are finally approaching unemployment levels experienced in the Great Depression. Unemployment increasing will continue throughout most of 2010, actually bringing us to said levels.

If we even follow the path of the markets from 1931 to 1932 halfway, we are in for at least a 45% correction from these levels. This is why I warn people to be careful here and not be lulled into a false sense that the economy is back on track and there are green shoots.

PS: Three people I know got laid off this week. One of them was a computer programmer in the health care industry - so even that industry is shrinking as people are unable to afford their PPO costs.

Further chart update:

I originally called for a reversal around Nov 5 which was a mistake. The mistake, however, was not in the chart. The mistake was that I didn't blow up the chart enough to SEE the date, and I incorrectly guessed about what the date should be (silly mistake, but doesn't change anything). I was really predicting Nov 5 to Nov 10. Now that a coconut fell on my head and knocked some sense into me, I blew up the chart and I can see that the real date should be around Nov 9th or 10th. That's the convergence point of two major resistance lines, and a 50% Fib line.

If we even APPROACH that pocket and break 1080 I'm probably going to pull an all-in SHORT in real money using OTM SPY puts. Keep in mind that:

1) If the market turns around and doesn't hit that pocket, it could still meander for awhile and hit long term resistance in the next week or so, and then decline

2)If that market does hit that pocket, it could break through. Unlikely scenario given the high unemployment, overvaluation, and large run-up since the March 9 bottom. If this were to actually happen though.....and it wasn't a false break out.... the result could be a massive rally that would end in a blowoff top (sell some organs to go short at that top). I really don't think that will happen though.

Therefore I can only conclude that risk/reward is correct if we enter that zone, and I will be a heavy short.

Here is the original graph, updated, followed by a ZOOMED graph so you can see that convergence is Nov 9 -10th.

http://i573.pho​tobucket.com/albu​ms/ss175/kenadle​r71/SP500Nov6.png




http://i573.photo​bucket.com/albums/​ss175/kenadler71/S​P500Nov6blowup.png

Long term resistance has been violated. Not by much, but enough to warrant caution. Most likely this is a false break out, but we will only know over the course of at least a couple more days.

Another update. I decided to see if I could redraw the original long term trend to see if in fact it was not violated. Hard to tell because whenever you draw a trendline that far back the slightest varience in angle can cause inaccuracy. The updated chart assume that the long term has not been violated......

http://i573.pho​tobucket.com/alb​ums/ss175/kenadl​er71/scNov10.png