Everybody draws their lines differently, but I have my NYA line begining at the July low, so it is sloping upward.

Before shorting the S&P, I want to see a high-volume crack of the uptrend line like we had on May 21st. And before that happens, we should see the XLF break down like it did on May 8th. You may be right, but I want to wait for the cracks to appear first.

Matt

RE the NYA, are we looking at the same picture? I’m drawing my flat lower line right around the 8250 level and my descending line from the May high then the June high. In any case, it’s good to be challenged by a different perspective. That’s why chart interpretation is an art form, right?

After thinking about it, I think the SPX and the volume pattern is telling a bearish near term story. I took a 22% leveraged short position against the SPX at the close. I can’t always watch the market during the day so I tend to take my positions a bit early. In any case I work with the intermediate and long term trends. If we move up to the 1340 level on the SPX in the next couple of weeks I’ll be inclined to add to the short position.

On an intermediate level we haven’t relieved enough of the oversold condition to make this a low-risk shorting opportunity. If I’m right on a near-term drop in the SPX, I suspect there is a good chance that we’ll find that it is just evolving into a somewhat more complex corrective formation. One step at a time though. First we need to break the lower trend-line on the SPX.

Anybody wanting some light weekend reading can take a look here:
http://www.ffiec.gov/nicpubweb/nicweb/Top50Form.aspx

Much more informative than a quarterly earnings statement. I think I already found something very interesting there, but I haven’t had a chance to fully check it out.

Have a good weekend,
Paul

Gerard,

Yeah, this is boring. The most excitement was watching my MBI position go against me on a 9% move (after a 20% yesterday). They have a lot of info on their website, including an intro to “Mark to Market” exposure.

http://www.mbia.com/investor/selected_exposures.html

They even point to the ABX index (the link I provide yesterday) which shows “suggests that losses will be north of 40% (referring to the $0.60 price). ” They go on to interpret that as “the index is saying that 40% of all borrowers who got these loans in 2006 will be foreclosed out, and the lenders will lose ALL THEIR MONEY.” However, this shows a basic misunderstanding of the ABX. The underlying securities are CDO tranches that will generally be worth either 0 or 100% at maturity. Some of these will be worth 0 if as few as 10% of the underlying mortgages default. So the ABX is really saying that 40% of the underlying CDOs will default, which will be caused by mortgage default rates much smaller than 40%. So either MBIA doesn’t know what they are talking about, or they are deliberately trying to mislead investors. Either way, I’m comfortable holding my position.

I would call the NYA chart a symmetrical triangle, which is a neutral pattern. It could improve into an ascending-triangle. The daily TICK has also been in a steady sideways range, so that looks neutral also, though it has lost a bit of momentum.

On the weekly chart, this bounce in the NYA looks like a bear pennant.

Matt

UNG’s downside momentum has certainly slowed, and it has bounced off of the $35-$36 area twice before, so it should be able to catch a bounce in the next couple of weeks. USO has a very similar chart: decreasing downside momentum and a pretty good support level just a few points down.

Maybe a bounce in energy will put an end to the bear-market rally in stocks.

Matt

For a head-and-shoulders pattern, you subtract the peak from the neckline to get a downside target. So, EWA peaked at about $35, and the neckline is at about $23, so you would look for another $12 down for a downside target of $11.

Maybe it won’t play out that way, but I find the chart fascinating because it is so perfectly formed over such a long period of time. It is very bad news for Australia, but also for traders who are thinking that this is just a temporary pullback in commodities.

And of course, Australia exports a lot of natural resources to China, so it speaks volumes about China too.

Matt

There are some very interesting chart formations out there:

SPX daily– The upper and lower trend lines show a well formed ascending but contracting wedge. No real loss of momentum yet, but we should trade in a narrowing range and hit resistance at the 200 day moving average now at 1357. I’m a bit skeptical that we’ll make it that far but we’ll see. A break of the lower trendline will lead to a very strong and quick decline.

NYA daily – has a well formed contracting triangle with a flat bottom and declining top. This is a bearish formation. We are approaching the apex. This chart looks much weaker than the SPX and speaks volumes about the real support in the market.

RKH is rolling over as the daily volume declines from the mid-July highs. Not good for the banking bulls.

XBD is losing momentum – less strength on this move up than the March-May push; possible non-confirmation.

XOI has lost downside momentum on the daily chart; no sign of any upside move yet. It’s hard to see much upside with commodities still in mid-flush.

OSX – Downside momentum continues

XCI – nice recent momentum but consolidating at the 850 level. Is this a pause before going higher or a non-confirmation top? Stay tuned.

It may be too early to call a top to this correction, but I think I’ll close out my 25% long position that I established July 16th. There isn’t all that much left on the upside: max 4% but probably a lot less.

Regards,