I’ve been away from my computer for a week and a half. Since the last post on this blog the stock indexes took out what was setting up as a triple bottom, within the context of an existing downtrend. Possible reversal patterns fail more often than they succeed, which is why I prefer to wait for the trend to actually change, and then trade the pullbacks in the new trend. The yellow line on the price bars shows the three pushes down with the third push showing price rejection as it pierced the yellows line (at the time suggesting a test of the double bottom) and then reversing upward to close sharply higher on the day and closing at the top of the candle, but still under the declining moving averages. Price tried again to test that support four days later, with a successful but less enthusiastic test. The next day prices headed down and took out support, with prices following through the next day. There was no follow-through after that second day and prices are now back up to the longer term moving average. The trend is still down and now momentum is back in the overbought zone.
On the bullish side it appears the area of price rejection is still intact, since a clear break of support was unable to establish another impulse move down. Notice that the break occurred with momentum already in the oversold zone. There are also some notable divergences using various longer term oscillators. I’ve been burned too many times picking bottoms using oscillator divergences, so I now only look at them out of curiosity, although the few that do work out make it very compelling to try once more to pick bottoms.
On the negative side is the volume pattern. You can see volume increasing on the declines, as I noted with the red line in the bottom volume sub-graph. You can see how the volume dried up on the price rallies, as shown via the cyan lines. It is understandable that the volume today would be light being the day before Thanksgiving, however volume had also been decling over the previous four sessions as well. It still seems that sentiment is too negative, and there seems to be some real bargains in good stocks that got pulled down with bad stocks.
I’ve been in New York for over a week. I saw little sign of the much advertised most depressed economy since the depression. I attended several plays that were all sold out. I ate in expensive restaurants and every one was packed. Fifth Avenue was as crowded as ever with well dressed people. There was a wine bar in the Time Warner building off Columbus Circle where you could get tastes of wine, exactly four ounces and computer dispensed, and most shots were well over $25, with some well over $100 (four once shot, not a bottle), and the place was packed. The art galleries were full. I have no idea if people were buying or just looking. There was no sense of despair that I could detect, at least not in the way the main stream media presents wants you to believe. I know the problems are real, but I don’t think conditions are nearly as bad as they were under Carter, and certainly no where near as bad as in the 1930’s, as we were constantly told during the election.
The media bias is so blatant as every down day in the market gets blamed on Bush and eight years of failed policies, even though the markets made new highs during much of that time as well as unemployment mostly low, and that despite terrorist attacts, an inherited recession, and natural disasters. On days the market goes up the Messiah Obama gets the credit, and he’s not president yet, he’s just picking his cabinet. It is interesting how the economy and market tanked just in time to knock McCain out, even though one of the first dominos to fall was the franny mac mess started by democrats and efforts to regulate blocked by reid/pelosi/barny frank/etc.
I suspect much of this downtrend was also caused by the fear of adding Obama V1.0 to that mix of characters. V1.0 would have been a government left of whoopee. Obama campained far left to get the nomination with the aid of the likes of move-on and much of the media. The Obama V2.0 was revealed after the nomination as a bit more moderate. Now after winning the election we have Obama V3.0, which seems to be much closer to the center. Instead of hope and change and all that talk of something new and different, we have more of the same. Much more of the same old people. Where are the new faces? It seem Obama V3.0 has changed his mind on most of his policy ideas from before election night. That would be a good thing for the markets and the country. If he is serious about moderating his extremely liberal views then that would be good for the markets going forward. The more he talks, the more it looks like four more years of Bush. I think his need to be popular, especially since he is only the second black president, Clinton was the first, will overtake what he really has in his heart, which is to create a socialist society. I think only the extreme left wing would welcome that, and the masses of the country would soon have buyer’s remorse, and hopefully the damage could be undone in the next election, or in the mid-term election. Clinton threw out his ideals in favor of being popular. Hopefully Obama will do the same. The future of the markets rests on which version of Obama will prevail. Will there be a Version 4.0. I will accept Version 3.0, since I don’t have a choice, as long as I don’t have to take the mark of the beast.