Exxon Engulfed

Exxon now has a bearish engulfing candle on its daily chart (click to enlarge):

Notice what happened after the last bearish engulfing pattern that it had on January 6th (blue arrows). Also notice the big jump in volume on Friday. That makes it even more bearish.

Exxon announced earnings on Friday morning, and they were received as “good”, yet we got this bearish result. I’m thinking that a large fund(s) was looking to exit Exxon and used the earnings report to engage in a bit of distribution. In fact, it looks like XOM has been under distribution for a while:

The stock was in an uptrend channel (blue lines), but the pattern has recently degraded into a descending triangle (red lines) after struggling to hold the lower blue line over the last two weeks.

The XLE also has a bearish engulfing candle on its daily chart.

Exxon is an important stock since it is so huge, and if it is beginning a sustained downtrend, that will not be good for the indicies.

Note: I don’t have a position in XOM, XLE, or any other oil stocks. But if I did, I would be short.

Friday’s Trading

Possibilities
I took profits on my shorts Thursday and went back to cash. Like George says, get the honey and get away from the bees. But I’ve probably taken profits too early again. As you may recall, when I shorted the January 6th top, I took fat profits as the SPX fell down to 900. And that was about 100 points too early. I might be making the same mistake again, so don’t read too much into my move back to cash. I’m actually just looking for a day off from trading, though I may pop up to short Friday’s close.

If you look back at the chart, you will see that the market made a small bounce on January 8th before resuming its plunge. We could see that type of pattern again.

The futures were testing 840 after hours until Amazon’s earnings were announced. Then the shorts threw in the towel and the futes started moving up.

Don’t forget that next week is the first week of February, and the first week of the month is always treacherous because that’s when the window-dressing ends and the jobs report looms. Even though the jobs report comes out on Friday, Bloomberg will publish their survey of economists on Sunday, and the market will price-in those expectations first thing Monday morning. So, you need to think about the jobs report a week in advance.

The SPX’s false breakout above the resistance around 850 may prove to be a very serious issue because it implies a breakdown out of the range may be in the cards. If you want a short position with an eight handle, you might have to get ’em while their hot. We just saw this phenomena a month ago. The SPX broke above the resistance at 911 on the first day of the year, but fell back below only three days later. That false breakout implied a break below the lower band of the trading range around 865-870, and the market wasted very little time doing so.

Candlestick Pattern
It’s not a perfect fit, but bulls can pin their hopes on SPY’s three-day pattern possibly being a bullish Upside Gap Three Methods. Also, the plunge in breadth Thursday may be some kind of one-day record. It usually takes a two-day panic to move breadth down from such a bullish extreme to such a bearish extreme. While I don’t regard this as bullish, the market just has to bounce after such a breath-taking crash in the internals, right? Right? Enough solace for the bulls…

Links in Comments
I came across the “links in comments” setting in WordPress and raised it from two to five. It’s used to filter out spam, however, I have the “new posters must be approved” setting turned on, so no spam bots are going to get through anyway.

Thursday’s Trading

Tiki Alert
On Wednesday, the TIKI closed at 18. That was the highest print in seven months. The tick count for the Russell 2000, TIKRL, closed at 1,000. That’s a new record high for the data that I have, which goes back to April. For comparison, the TIKRL printed at 776 at the rally peak on January 6th. These two indicators are flashing very overbought signals (short term).

Another Kud-blow-off?
Here is me calling Larry Kudlow a fool:

“Euphoria has officially broken out on CNBC with Kudlow screaming about “panic buying” and talking heads raving about how a giant rally is “in the air.” Fools.”

Was I being unfair? Nope. That quote is from this post on January 5th. The market topped the next morning, and then panic selling ensued. The exact opposite of what Kudlow predicted.

Guess what? Kudlow started shrieking about “panic buying” again on CNBC last night. If the Kud-Blow indicator is consistent, then the market will be peaking soon, if it hasn’t done so already.

No More Cars, Please
In case you missed it last night when I posted it in the comments, here are 13 cool pictures of cars piling up around the world.

Wednesday’s Trading

Another FOMC Rally?
If we have another one-day wonder rally like we did for the last FOMC meeting, a potential target is SPY $87.26. That is the top of the gap that was created at the open on January 14th.

Banks Saved Again
This is the CNBC story that rallied the futures Tuesday after the close. It appears that the banks will be saved yet again. Our government has been “saving” the banks for almost a year now. I reckon we are nearing the first anniversary of our lost decade. Only nine more years to go!

Goodbye Triangle

Remember the triangle that everybody was talking about back in October? (click to enlarge):

Here is what it looks like now:

Notice that the original geometry established in October is still in force. We are still near the lower line of the triangle, and haven’t been able to push above the downtrend line. We had a false breakdown in November, and a false breakout in January.

Now we are about to exit the apex of the triangle. Here is what the textbook (page 103) says about that:

“the farther out into the apex of the Triangle prices push without bursting its boundaries, the less force or power the pattern seems to have. Instead of building up more pressure, it begins to lose its efficacy after a certain stage. The best moves (up or down) seem to ensue when prices break out decisively at a point somewhere between half and three quarters of the horizontal distance from the base (left-hand end) to the apex. If prices continue to move “sideways” in narrower and narrower fluctuations from day to day after the three quarter mark is passed, they are quite apt to keep right on to the apex and beyond in a dull drift or ripple which leaves the chart analyst completely at sea. The best thing to do in such cases is go away and look for something more promising elsewhere in your chart book.”

So, there you have it. The market has accomplished nothing since October 10th, and is unlikely to accomplish much in the near future.

Vixen Fixin a Surprise for Bulls?

In case you don’t know, the Vixen is the NASDAQ version of the more famous Vix. And it just so happens that the Vixen has formed a bullish falling wedge pattern on its hourly chart since the big gap-up open on January 20th (click to enlarge):

This pattern implies that the market may be intending to take another trip back down to the bottom of the trading range in the near future.

Black Magic

Here is an example of the black magic that you can sometimes achieve with Fibonacci retracements.

Lets go back to June when the Russell 2000 small-cap index looked like it was going to the moon during a bear market rally (click to enlarge):

Now, suppose you wanted to short that crazy chart without having your eyes gouged out with a hot poker. How do you pick an entry point? One way is with a Fibonacci retracement. Using TradeStation’s fib tool, I have drawn a retracement from point A to point B. I chose point A because that was the cliff that prices dove off of. Notice that one of the magic fib levels, 161.8% (blue line) happens to match up with the peak:

And that was the exact point where the rally topped out:

Pretty amazing, right? Of course, prices could have moved up to the next fib level. Nothing is guaranteed in the stock market. But Fibonacci levels give you hints about price levels that may turn out to be important.

Tuesday’s Trading

Candlestick Pattern
The SPX’s two-day candlestick pattern is very close to a bearish shooting star. On the other hand, Tuesday was the only winning day-of-the-week in 2008. According to Scott Rothbort (subscription required), Tuesdays were up 22.79% last year, while the remaining days were responsible for dragging the market down.

FOMC
The market rallied ahead of the last FOMC meeting on December 15th, so maybe we will see traders anticipating another such rally. Perhaps all the rallying will be done before the announcement on Wednesday. Of course, the market plunged after the December rally.

Because the last meeting was the kitchen-sink meeting, what with the ZIRP and all, I can’t imagine that the FOMC has something to shock and awe the market this time. Perhaps they will announce a new program of firing quarters from howitzers installed on the roofs of every Fed bank branch. The coins raining down on cities across the country will damage cars and boost new-car sales. Picking up all of those quarters will keep the unemployed busy, etc.

Here Come the Giraffes

Here is an hourly chart of new 52-week lows on the NYSE (click to enlarge):

Since this number starts at zero each morning, the bars grow higher as a bad day for the market progresses. The pattern reminds me of a herd of giraffes, and the giraffes grow taller as the market declines. Friday’s giraffe was 133 stocks high; just a baby compared to the giraffes of 2008, so there is room to grow.

Bernanke will be giraffe hunting next week, but does he have any more rounds for his ZIRP gun?