XLF Descending Triangle

The XLF has been declining for three weeks, and its hourly chart now has a bearish descending triangle pattern (click to enlarge):

The red lines outline the triangle.

The light blue lines show the “Three Fan Line Rule” and indicate that the XLF is probably rolling over – a typical way for a bear-market rally to end. Today’s rally served to put a third fan line on many charts, and you will also see many descending triangles too.

Tuesday’s Trading

Reindeer 6, Bears 0
The talking heads on CNBC today were all upset that there was no Santa Claus rally. But in fact, the S&P 500’s Santa Clause rally now amounts to 6 points. The SPX closed at 863 on December 23rd, so that is the starting point.

The bears are “getting the antler” from the reindeer right now, but the technicals look very shaky to me. If the market holds up through the end of the year, I think it will only be because the big funds are painting the tape. So, don’t go getting all bullish. The market will likely flop right over first thing in 2009.

Monday’s Trading

Month End Markup
Can the big funds keep the market levitated for three more days while the Israelis are bombing Gaza? With incredibly light volume and the SEC looking the other way, I’m guessing that they can.

Now We Know Why the UAW Wouldn’t Take a Pay Cut
They have a ritzy country club to maintain! Black Lake should be opened to the tax-paying public until Detroit is off the public dole.

The USA’s Demise
A couple of weeks ago, I linked to a story about the Russian Professor who is predicting the breakup of the USA. Now the Wall Street Journal has done a story on him.

In Other News…
…it looks like General George S. Patton was killed by American and Russian assassins instead of dying in a car crash at the end of World War Two.

Thursday Stock-Market Discussion

“What’s Happening Today Has Not Happened Before”
Here is the last paragraph of this version of the December Dismal Optimist:

“My own view is that for the near term further deleveraging and deflation will prevail globally. Yes the markets look ahead and they are currently rallying from an oversold condition. But the markets may not fully appreciate how bad things can get. What’s happening today has not happened before, at least not on this scale. On anything but a trading basis, I think it’s too early to buy stocks or real estate or art despite the apparent values that now exist.”

Right now, there’s way too much faith in government bailouts, stimulus plans, and monetary policies. If our public serpents are so smart, why did they get us into this mess in the first place? Which brings us to a real-life example of how a government stimulus program fell comically short of its goal:

Barack the Blunder?
Once “Barack the Builder” is sworn in and “creates” 3 million jobs, the world will be saved, right? Maybe not according to a foxbusiness.com story. Here is an excerpt:

“In 1986, the Government Accountability Office [GAO] studied the Emergency Jobs Creation Act of 1983, which budgeted $9 billion (about $20 billion in current spending, adjusted for inflation) on 77 federal programs to bring down unemployment in the 1981-82 recession—the unemployment rate hit 10.7% during that economic downturn. The GAO found that the legislation ended up creating just 34,000 jobs, mainly because it was too late.”

The news of the Obama stimulus plans may stimulate the stock market temporarily, but the actual economy? Don’t hold your breath.

Santa Trading

Dividend Holiday for Banks?
Will Santa be shot down by talk of a “dividend holiday” for banks? I don’t know where this meme got started, but it popped up on Tuesday. I can see Obama ordering TARP-recipient banks to stop paying dividends. That’s some good red meat for his constituents, but obviously can’t be good for the XLF.

Cramer Turns Bearish
Cramer turned bearish on his “Mad Money” TV show Tuesday night – after the market had been falling for a week. Nice timing Cramer. By contrast, here’s me sounding the alarm, and shorting the market, an eyelash away from the exact top on the 16th.

SPY Plunge Target
If the statistically-reliable Santa Claus Rally doesn’t happen this year, and the Contrary Cramer signal fails, and the big funds have run out of money to run-up their stocks for month-end window dressing, then we need to have a downside target for the market.

Aside from various support levels, SPY left behind a large gap on the morning of November 24th. The top of that gap is at $81.17, which seems like a long ways away in our newly un-volatile market, but you should have it on your charts anyway.

Of course, many stocks have the exact same gap. In fact, Apple made the trip on Monday and bounced off of the top of its gap. So, watching how Apple handles the gap may give us clues as to how the rest of the market will.

If the double-top on SPY’s hourly chart completes, it will take SPY down to fill the gap. So, that’s a pretty good place to expect a substantial bounce before the market continues lower.

The market was very excited on the morning of November 24th. It was ecstatic over the Citigroup bailout. Now it is having second thoughts: “Should I have really been so excited? Did the bailout really solve the economy? Maybe I should make a trip back down to do some more thorough price discovery….”

I don’t think that gap will be filled until early January, but you can tell the market is thinking about it right now.

Tuesday’s Trading

Turnaround Tuesday
The technical setup is a bit odd today. For example, the put/call ratio is leaning very bullish, but SPY’s 60-minute stochastic is oversold and turning up. Will this be one of those rare times where the masses of call-buyers get in just in time for a rally?

There are still six trading days left in the month, so it may still be early, but being short at the end of October and November was not the best strategy. I expect that the SEC will once again look the other way as the big funds illegally gun their stocks higher. With the market down four days in a row, there may be enough short interest built up to fuel another month-end “miracle”. I will likely be staying in cash and looking for another “New Month Massacre” setup.

Monday’s Trading

On Friday afternoon, SPY dipped down to fill the opening gap-up from December 16th. However, the Q’s only partially filled the gap, and that is a mildly bullish condition for the Q’s which have been stronger than SPY recently.

The XLE may be on a mission down to fill the large gap-up left from December 8th. Also, notice the double-top pattern on its hourly chart with peaks on the 11th and 17th. A lot of other charts have that double top too.