Gavel/Meade | Brookfield, CT

At 11:05 a.m., following a plunge of 223 points by the DJIA and sudden reversal to up 60, I received the following email:

To which I responded, “Lower oil???? Otherwise, no idea and it is too early in the day.”

As Pharaoh said in the Charlton Heston version of The Ten Commandments, “...So let it be written, so let it be done...” Now before I receive some nasty emails, please don’t misunderstand what I am saying. I am not Pharaoh. Actually, it feels more like I have been in “bondage” to some of the ridiculous decisions, arguments and statements from “D.C.,” corporate America, the financial community, hedge funds, etc., all leading to a lack of confidence on the part of Wall Street traders and investors. What I am saying is don’t get too worked up about what the futures are showing before the market opens. Also, given the lack of follow through and until we actually see some follow through higher, don’t get too worked up about intraday and one day reversals. Please keep the trend in perspective! In any event, after the first reversal, the DJIA recorded a number of intraday swings, finally ending down 445 points. The NASDAQ recorded a number of similar swings and fell 70 points. It was interesting to see how once the DJIA and SPX violated their immediate support levels, both made a bee-line for their 2003 – 2002 lows.

On the NYSE, volume expanded to 2.20 billion shares. There were 2783 net declining issues. Once again, lousy intraday advance – decline readings, even when the DJIA was trading higher, was an excellent intraday guidepost, for those who could use it. There were 1894 new 52-week lows. The Oversold–Overbought Oscillator closed at minus 13.9. The stock market has yet to respond to five consecutive days of “oversold” readings – not good.

Conclusion

Yes, I see that the SPX (752.44) violated its low from 2002 and closed at its lowest level since 1997 –having erased, for the “buy-hold and forget about it” indexed account, more than a decade of gains! However, at this point, the SPX is the only major stock market index to have done such.

Therefore, I want to see how the SPX closes on a weekly basis and even possibly, a monthly basis, before passing judgment. Consequently, between today and possibly month-end, as Chief Investment Strategist Jeff Saut said yesterday, “it’s kiss and tell time” for the SPX, in my opinion.

In the meantime, the DJIA (7552.29) is sitting between 20 and 354 points above its intraday support lows of 7532 to 7198 from 2003-2002. I’ll say it again, “it’s kiss and tell time” for the DJIA as well.

As a side note, something that I hope to expand on when and if the stock market stabilizes (“yeah right”) and gives me a chance, is Crude Oil.

The following chart of Crude Oil shows a support line at $50 and also a price peak (support) from late 1990 and a “pullback point” (support) from 2004, in the $41 to $40 area. In the meantime, if I can help you, please let me know.

Thursday Morning 11/20

“The Essence of Investment Management is the Management of Risks, not the Management of Returns.”

While we can't eliminate risk in the equity markets, we can manage it. I think the following table, which depicts the percentage gain that is necessary to get back even, after a certain percentage loss, confirms Mr. Graham’s statement.

“After precipitous declines this autumn, Wall Street had spent the past week testing its yearly lows by dipping sharply, only to rebound late in the day. The testing and retesting prompted some optimist to hope that the market had finally found a foothold. But Wednesday’s drop proved them wrong.” (N.Y. Times, Nov. 20).

In other words, following last Thursday’s (11/13/08) short-term bullish “retest and reversal,” I was wrong in thinking that the major market indices had established a short-term floor and transitioned from “down” to “lateral.” Within the context of intermediate-term downtrends, the short-term trend has changed back again to down, from neutral. As mentioned Tuesday, the failure to follow through to the upside, following last Thursdays tape action proved to be the key guidepost. With the exception of NASDAQ, which was “negative” prior to yesterday’s action, now ALL of the short-term “good will” from last Thursday’s tape action should be thrown out the door!

Relative to yesterday, I think margin selling, the anticipation of redemptions by hedge funds, mutual fund liquidations (“give me my cash and give it now”), another move above resistance by the Volatility Index (VIX) [some may argue that the VIX is a coincidental indicator, not a leading one (repealing of the uptick rule has played a big part in the current extreme market volatility)], and option expiration, were all contributing factors to yesterday’s sell-off. The DJIA fell 427 points. The NASDAQ lost almost 97 points. On the NYSE, volume expanded to 1.62 billion shares, less than the 10/10/08 reading. Declining volume beat advancing volume by a ratio of 57-to-1 ratio, much higher than anything I have seen. There were 2806 net declining issues, more than the net figure on 10/10/08. There were 1139, or 35%, new 52 week lows, less than what was recorded on 10/10/08. The Oversold–Overbought Oscillator ended at minus 11.9.

As you can see, some of the internal readings yesterday were more pressure laden than on 10/10/08 and some were less. In light of the fact that the DJIA was the lone index not to breakdown, I would call yesterday “negative” and say that the odds favor more downside price action. I was asked if the DJIA would rebound before or after a test of support (7882). I don’t know.

Conclusion

While continuing to manage stock specific risk, which is one reason why over the better part of the past two years I have continually pointed out “bad charts,” I would not be liquidating positions across the board. Instead, I would consider using any stabilization or bounce to buy some inverse market Exchange Traded Funds (ETF’s) to hedge long stock or mutual fund positions, attempting to have some insurance, just in case...

Wednesday Morning 11/19

Having recently attended a regional training session and upon request from some attendees, here are the Bull-Bear advisory sentiment readings. These figures are derived from investment newsletter writers and are produced by Investors Intelligence:

“Some new nervousness trimmed the BULLS to 30.9%, from 31.9% last week. That ends four weeks of increasing optimism that started with just 22.2% bulls. That was an almost 20-year low reading. The BEARS were also lower at 43.6%, down from 46.1% the previous week and 54.4% in mid-October. That was the highest number since the end of 1994. With lower bulls and bears, it was no surprise to see the advisors classified as correction move up to 25.5%, from 22.0%.”

Good news or at least a sigh of relief came from one of the weaker areas of the stock market (Technology) early yesterday, when HPQ ($31.83/Strong Buy) provided some guidance. Futures were sharply lower (DJIA futures were down 170) prior to the news, but turned up quickly after the release. Consistent with this, the DJIA was up over 200 point’s pre-noon. Also consistent with the increase in volatility over the past 12 to 15 months, the DJIA then dropped over 370 points and with approximately 70 minutes of trading left, was down 168 points. At the bell, the DJIA was up 151 points. The NASDAQ gained one point. Signs of internal weakness persisted throughout the entire day, as the small and midcap indices were weak, and closed lower.

On the NYSE, volume expanded to 1.57 billion shares. There were 846 net declining issues and 673 new 52-week lows. The Oversold–Overbought Oscillator ended at minus 10.9. The “internals” were terrible yesterday and I didnt like it when a market doesnt respond to a consistent string of oversold readings. Consistent with this, as Dorsey-Wright recently stated, “All stocks are worthy of review at this point to make sure you have a point at which you are going to take action if things go wrong. This may be a new sell signal in a stock or it may be a violation of recent lows or the October lows. The point is that you want to have an exit strategy in place in case the market or your stocks move through your stops.” Let me know if I can help!

While there are some specific exceptions within the sector, one of the weak areas of the stock market, based upon its relative strength price trend, is Technology.

Consistent with this, my short-term opinion of NASDAQ (1483.27) is “negative.” Support at 1428 is, what I would call, “tentative.”

Tuesday Morning 11/18

With declines by various stock market indices of between 1.15% to 2.5% and between 1% to 6% by various sector proxies, Wall Street participants experienced another session in which selling pressure stretched pretty much across the entire spectrum yesterday. At the bell, the DJIA fell almost 224 points and the NASDAQ declined almost 35 points.

On the NYSE, volume contracted to 1.30 billion shares. There were 1624 net declining issues and 342 new 52-week lows. The Oversold–Overbought Oscillator closed at minus 8.7. The fundamental culprits for yesterday’s tape action were another round of disconcerting economic news, nothing of substance from the G20 meeting and further haggling over what to do with the “Motor City.” Technically, within the context of an intermediate-term down trend and short-term neutral trend, the inability to follow through from last Thursday’s “test of support (by the DJIA) and ‘reversal’” is not good.

This is causing short-term oriented participants, including this writer, to question last Thursday’s staying power. I am not giving up on last Thursday’s action yet, but I am starting to question it.

The problem is that over the past five weeks we have already seen a number of “selling climax reversals,” defined by heavy price losses early in the day, big intraday swings, heavy volume, high VIX readings, etc./large one-day gains, YET there has been no topside follow through. We need to get some upside follow through, starting, like now! If we don’t, last week’s lows will get tested again.

Besides being fully cognizant of the most recent underlying lows (support), before I can get real excited about the upside, I think we need to focus on resistance points. A move above resistance would signal that upside momentum is improving.

Key Levels and my short-term opinion for the S&P 500 (850.75): Currently “neutral, but waning...” and “optimistic” above resistance at 1008. Even a move over 952 would bring a smile, but “negative” on a close under 839 / 818.

Monday Morning 11/17

After watching the DJIA record a range of 1195 points last week, capped off by Thursday’s intraday range of 911 points and Friday’s swing from down 363, to up 17 (this was registered with 35 minutes of trading left), to back down 366 points; is it any wonder my waist line is about the only thing “holding its own?” Thankfully the closing bell rang Friday and with it, the DJIA was down 338 points and the NASDAQ lost almost 80 points. The beating was worse in the small and midcap complex as those proxies fell between 5.33% and just over 7%. The REIT Index fell more than 11%, setting a new closing and relative 52-week price low.

On the NYSE, volume contracted to 1.43 billion shares. There were 1895 net declining issues and 132 new 52-week lows. The Oversold-Overbought Oscillator ended at minus 6.5 and is now officially in “oversold” territory. After Thursday’s “reversal,” while I found Friday’s price action very disappointing, the “internals” were in-line. I also want to mention that this is expiration week. Therefore, a) after today I will not be looking at the P-C ratio, as it tends to get skewed and b) this could lend itself to additional volatility during the week!

Conclusion

As a result of all the volatility last week and the continuing stream of negative news bytes, in addition to the lengthy, more detailed report from early Friday afternoon, following is a six month chart of the DJIA.

Besides important support and resistance levels, the chart shows the current neutral trading range pattern (nothing more than a short-term trading range pattern, but when it comes to some stability, a step in the right direction) that has developed over the past five weeks.

Key Levels and my short-term opinion for the DJIA: Currently “neutral”, “optimistic” above 9654, and “negative” on a close under 7882, which is accompanied be selling pressure that is greater than what was recorded on 10/10/08.

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Weekly Technical Commentary by Art Huprich

Friday Morning 11/21

Conclusion

Thursday Morning 11/20

Conclusion

Wednesday Morning 11/19

Tuesday Morning 11/18

Monday Morning 11/17

Conclusion