Thursday’s Trading – 10/1/09

CNBC’s policy of not reporting the Chicago PMI certainly backfired on them Wednesday morning, didn’t it? The market got quite a jolt when it surprised to the downside at 9:45am. What’s wrong with CNBC? Do they really think traders would rather listen to them yap than get the news?

In case you didn’t hear, it was Fed Head Donald Kohn’s speech that saved the market Wednesday afternoon. The Fed has exited its exit strategy. It wasn’t enough for a green close, but will it stave off a correction?

The IYT ate away some more of its September 10th gap at 68.57 that I have been talking about recently. The IYT needs to rally quick becuase the support is starting to look awfully shaky.

Wednesday’s Trading – 9/30/09

The XME has hardly rallied at all this week, and is, by far, the worst performing sector since the market’s peak on the 23rd. It is down 6.4% since then, which is almost twice as much as the second-worse XHB. The XME’s five-bar pattern on the daily chart is exactly what a bear flag should look like. A 100% completion would target the gap from September 9th down at 42.38. The SMN, the inverse ETF, would of course shoot up if the XME dropped. But we have big economic reports Wednesday morning, and if they fuel a rally, the XME might be expected to play “catch up” and outperform to the upside.

Breadth got very stretched on Monday, so a bullish take on Tuesday’s action would be that the market worked off a short-term overbought condition while only giving up a few points in the process.

Film at 11.

Tuesday’s Trading – 9/29/09

Yesterday, I mentioned the IYT’s gap at 68.57 from September 10th. Well, everything rallied on Monday, however the IYT came in second from last place among the sectors. Only the consumer staples (XLP) did worse, up 0.75%. And while the IYT was up 1.06%, it spent the last four hours of the day slowly rounding over. On Friday morning, I mentioned that we should be alert for a “slow rounding turn” pattern, and that’s what we had. And as per the textbook (page 88), it finished with a nearly vertical move Monday morning.

Oddly enough, if you look at intra-day charts from Monday of IYT, QQQQ, DIA, IWM, etc. you will see what might be a rounding top forming. It would be weird for a rounding bottom to morph right into a rounding top, but that’s what the pattern looks like so far. The market could have cascaded into the close on Monday, but the XLF and BKX were very strong and held the market up. Speaking of which, the 48.75 area is very important for the BKX. It was support in the summer and fall of 2008, cracked, and was then resistance in the winter. The banks need to punch through that level. It’s hard to have a bull market without the banks, and the BKX’s 200-day moving average has not turned up yet.

Monday’s Trading – 9/28/09

The Iranian Front
Since the futures opened up on a gap Sunday night, I don’t think that the market is worried about Iran. The futures rolled over an hour later, but that’s probably just a continuation of the sell-off. If the futes were worried about Iran, they would have made a large gap down and then kept right on going. Having said that, I still don’t like the smell of this Iran situation. President Obama knew about the new nuclear facility for a long time, and didn’t make it public until after the Iranians did. Here is Obama’s explanation:

“Mr. Obama said he had withheld making the intelligence public for months because it “is very important in these kind of high-stakes situations to make sure the intelligence is right…””

Or maybe he was “saving” it in order to get maximum impact from the news as part of a propaganda offensive to sell the war to the American people. The fact that Obama hastily began his offensive shortly after the Iranians informed the IAEA of the facility and stole his thunder makes me think that a strike on Iran was already in the works until the Iranians noticed the red laser dot on their forehead and fessed up.

IYT Gap Support
Last week, I had the 14.75 level marked on my XLF chart because that was where the September 16th gap opened. The XLF moved back-and-forth through 14.75 on Thursday and Friday, and you could just feel the support crumbling away. This week, I will be watching the IYT. It has a gap at 68.57 from September 10th, and it may be crumbling. That level is also just a few pennies above the IYT’s August peak. If the transports close the gap and move below, it will likely be bad news for the rest of the market.

Meme Propagation
On September 20th, I wrote:

“Trillions injected; zero jobs created. Kind of scary when you think about it…”

Six days later AEP wrote:

“If you look at the sheer scale of global stimulus this year, what shocks is how little has been achieved.”

Note to global intelligentsia: you are merely a human botnet which I program with memes. Resistance is futile!

More Iran Noise?

Over the past couple of years, ignoring the chatter about Iran’s nuclear program was the right course of action for traders. But maybe that is no longer the case. President Obama is making it a big deal now, and is supported by Gordon Brown and Nicolas Sarkozy (but not Dmitry Medvedev).

Another sign was the “hasty phone call after midnight” that Obama made to the Czech prime minister announcing the cancellation of the “missile shield.” Why so hasty? George Friedman thinks it was because events were in danger of spiraling out of control and Obama was desperately trying to get the Russians to go along with sanctions on Iran and head-off an Israeli strike on Iran.

(The Russians can supply all of Iran’s gasoline needs by rail, so a naval blockade of Iran’s gasoline imports could be defeated by the Russians.)

Here is Friedman’s conclusion:

“The Russians may be betting that Obama will fold. They made the same bet on John F. Kennedy. Obama reads the same reports that we do about how the Russians believe him to be weak and indecisive. And that is a formula for decisive β€” if imprudent β€” action.”

Friedman wrote that before Obama’s Iran offensive at the G20, so he predicted what Obama did, and that gives credence to his strategic assessment.