I’m back from California. I missed some downside action in the stock indexes, but sometimes one needs to get away and rest the brain. The Dan Sheridan seminar was excellent. I highly recommend attending if you get a chance. His schedule is posted on the CBOE website. After the seminar I spent a few days in the People’s Republic of Santa Monica. While there I attended an art gallery opening. It actually turned into a party with a DJ and all the free wine you could drink. The featured art was a series of morphed paintings that combined the images of Lincoln and Obama, so there were facial features from each president being represented by a single portrait. I still don’t quite get the comparison. (Wasn’t Lincoln a republican?) I’m not quite sure the point of the comparison, but none of the gallery attendees/party goers seemed to notice the artwork on the walls. The party was not really about Obama, but many of the attendees were wearing Obama buttons, one woman was carrying a bag of Obama posters, there were many Obama posters in the windows of shops and homes in the area. You could tell by the types of cars in the parking lot that this was a group of people with money. I just can’t think of a reason why they would be so happy when the country that enabled their prosperity is on the brink of the quickest movement toward socialism in its history. When will buyer’s remorse set in? I think it is starting to happen just a little bit. Wall Street was a big backer of Obama. Wall Street seems to be expressing its opinion by going straight down the drain. There is no confidence that nationalization will be off the table. I know, I know, I can foresee the emails I will get reminding me that nationalization started under Bush’s watch the day the housing bubble burst and the sub-prime mess started. Comrade Paulson had much to do with that. There are obviously many to blame, and one can go back to Clinton’s appointment of Franklin Raines, or further. But there has been sweeping change in just Obama’s first few weeks. He did promise change, and we are getting it. He also promised hope, but I think the kind of change we are getting is going to result in no-hope. I don’t like to spend so much energy on politics as this blog is on market technical analysis. And I don’t want of offend readers who voted for Obama. But it is difficult to discuss the markets without discussing the political climate. There is a direct correlation between the course of stock prices and the twists and turns of the political situation. And the political situation is not good for stock prices in the long run if this socialist trend is allowed to continue. The dollar will most likely get destroyed in the process. But foreign currencies might not fare much better. I hate to sound like the doom and gloom gold bug that I am, but hard assets might be the only place to hide.
Regarding the stock indexes, there has obviously been a relentless downtrend, and the last several days have seen steep losses with an accelerating trend. Today the market bounced a bit, and the bounce was overdue. I still don’t see much in the way of capitulation that would suggest the downtrend is over. A one day bounce after several down days is not enough to turn this trend around. There were some very minor momentum divergences at this low, as there almost always are when the market is trending down. Eventually one divergence will work and will call the bottom. However, there can be a dozen that don’t work prior to the one that does work. It is really messy trying to pick bottoms and that’s why I prefer to let someone else do it, and I’ll wait until the trend changes and then trade the pullbacks in the direction of that trend. If I’m tempted to take a stab at a counter trend trade, or potential bottom pick, I at least need a clear momentum divergence, and preferably with an advance/decline divergence, or some indication of volume capitulation or volume divergence. The above chart of GE shows the extent of the downtrend of this once blue chip stock. Prices at one point today were well under $6 per shares, with a huge percentage loss accompanied by huge volume. There may have been capitulation in this stock. Prices were able to recover in the last half of the day, with price almost turning positive at one point. Some selling came back in the final minutes of trading. There was somewhat of a buying tail left on the chart for market profile people. It also looks like a hammer for candlestick people. I squeezed the bars tight to show the extent of this downtrend, so difficult to see the hammer. My momentum indicator in the middle sub-graph has turned up with a double-bottom divergence. This could indicate some movement back up to the blue trend-lines. Put options have extremely high implied volatility and seem overpriced. The GE chart looks more like a financial stock than a conglomerate. It is the financial division of GE that seems to be causing the problem. It may be overdone, as not all parts of GE are in as much trouble as this chart would suggest.