Monday, September 21, 2009

Weakness Arrived As Expected

I mentioned late last week that I expected a pullback or a pause. The last 3 days, price has stalled and is now sitting on the Red Line (Blue Arrow).

I want to point out how price has broken above the trading channel of the rally off the March low (Dashed Blue Line). Moves through the top of the trading channel are often the final blow off moves before an extended consolidation. Note how I wrote consolidation and not Bear Market or Crash. The breakout above the channel in 2003 extended to a 9% rally over the next 5 weeks. Price then sat around for 9 months.

I would expect the next consolidation to last a couple months and be more of a period of rotation from former leaders into new leaders rather than a Market Top and selloff. I’ll let you know if things change, but for now there simply isn’t much that is breaking down.

Here is the 30-minute chart on SPX. The September uptrend has now broken and we appear to be in a consolidation period. I sold some stuff when price spiked more than 2.5 Standard Deviations away from the 20-day and am looking to reload as either price falls towards back into a rising 20-day.

I keep mentioning the Dollar versus the prices of Risky Assets (Stocks, Junk Bonds, Commodities). Here is a chart of the Short US Dollar ETF (UDN) versus SPX. I am a slave to this chart. The Dollar gets extended and stock prices rise, then the Dollar consolidates and pulls back into the 50-day (Blue Line) and stocks consolidate. The Dollar started a new leg lower (UDN up) in early September and SPX went vertical.

Here is the Point & Figure Chart of the US Dollar ($USD). That is a Major League downtrend! The vertical count method targets at least 67 as the next low. This is not a recommended “Target Price”, it is simply a method of counting that Charles Dow used to figure out how far momentum may carry price.

My guess is that $USD will retest and probably break below its 2008 low near 70. My operating assumption is that risky assets will continue to trend higher until the Dollar hits this level and then we get our “correction” or “Bear Market”. Until the Dollar breaks out, that is my operating assumption.

Flash Trading In Action

Here is “Flash Trading” in action and this why the SEC is voting to ban it.

“Flash Trading” is method where computers throw out series of small orders to see where limit orders are set. The goal of these machines is to trigger stops and then reverse price hard. The firms who do the trades get kickbacks from the Exchanges for the volume they do and the firms can also front run the trades and take advantage of the sudden price moves at the expense of their clients. The rumor is that Goldman is netting $100 million a day doing this crap.

I owned PALM going into this morning. I bought it at $13.83 on Friday, with a stop at $13.65
PALM opened weak this morning with the rest of the market and then had this mystery spike lower on very little volume to $13.62 and suddenly reversed back up.

I’m out 50 cents a share. I’m pissed. I got ripped off by the machines. On every position I take I have to worry about this stuff. But this is the reality of Wall Street 2009. It is simply my opinion, but the crooks run the show and we are all just monkeys fetching tips for peanuts.

End Of Day Update
PALM went nuts today. I am not happy. But this is what I have to deal with every day. The message at church this weekend was about controlling your anger. I tried real hard today to do just that. Ugh...