This is the 6th or 7th time the Fed/Treasury/SEC has come in with a bullish plan designed to get the markets rallying, just as they coincidentally sat at key support. Each plan has had less and less of an impact in propping up the markets. The markets are wise to the game and the bottom line is that there just aren’t any real buyers at this level!
The Dow
Take a look at the Dow. All this rally has been is a reversion back into key moving averages after a crash. It is classic Bear Market action. Today we in the process of testing the support line (Green Line) and then the Fed came in to save the day. Look at how this is the fourth consolidation pattern to follow a plunge in prices in 2008 (Green Lines) and notice how each rally stopped at the 50-day (Black Line) or the 200-day (Blue Line).
If you have been reading my posts for a few weeks, then you know by now that that is not bullish. In the next few days, the Dow may retest the high of Election Day, at the Black Line at about 9,700 or it may crash. It sure looks to me like if it rallies, then all it will be doing is setting up for the next plunge. I think today’s announcement was supposed to induce that rally into 9,700. The fact that buyers just didn’t show up is very ominous.
Energy (XLE)
Energy stocks have been leading the markets recently. So I want to look at what is going on with energy. It is more Bearish plunges, followed by sharp rallies into key averages, followed by plunges to even lower lows. What is worse for energy is that line at $63 is now massive resistance, and will serve to cap any future rallies for a long time.
The charts of Exxon, Chevron and Total Fina look better, but similar to the XLE. The charts of the Oil Service companies like Schlumberger look substantially worse.
Healthcare ($HCX)
You already know my feelings about Johnson & Johnson, but here is the Healthcare Index. Yikes. Do you see why the Fed stepped in today? This index broke support. The Freddie/Fannie announcement saved the day for the time being.
Utilities (XLU)
Does this remind you much of Healthcare? The Fed might have been too late on this one. It looks like it already broke. We’ll see how it acts over the next few days.
Real Estate (IYR), Financials (XLF) and Retail (XRT)
These all look the same. They are retesting the lows of late October.
So for the most part, markets and sectors are either rallying up into declining moving averages (Wedges), or they are retesting the lows of late October. Individual stocks are no different.
Wedges - Wal-Mart (WMT), 3M (MMM) and Apple (AAPL)
Retesting Lows - Microsoft (MSFT), Bank of America (BAC) and Google (GOOG)
The markets are set up to crack or rally sharply in the near term (a few percent either way over a few day period). I see so many companies failing and hitting new lows, but they are oversold and could see sharp rallies at any time.
New 52-Week Lows Today (635 in total) – Google, Goldman Sachs, Nike, Northern Trust, Boston Properties, Hormel, Lennox, Cleveland Cliffs, Abercrombie & Fitch, Gamestop, Disney, Carnival Cruise, Bed, Bath & Beyond, Autodesk, Harley Davidson, Time Warner, Conagra, Urban Outfitters, Ethan Allen, J Crew, Nokia, International Paper, Nordstrom, eBay, Echostar, Dry Ships, Yahoo, Royal Caribbean Cruises, Applied Materials, Corning, Limited, New York Times, Jones Apparel, Cheesecake Factory, Anntaylor, Xerox, Goodyear Tire, Seagate, Tyson Foods, Cooper Tire, General Motors…
New 52-Week Highs Today (4) – 99 Cent Store, US Tobacco, Eagle Test Systems
635 to 4! That is not good. But it is a typical day in a Bear Market. My concern is that the new lows are in retailers, travel/leisure, technology, real estate, consumer staples... These are key groups. You should not be seeing this in a new Bull Market.
The bottom line is that either buyers are going to show up or sellers are going to show up. Whoever shows up first will dictate the short term direction of the market. After reviewing the evidence today, I may have to keep shorting bounces.
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