Courtesy of Phil’s Stock World
Big test today!
The Dow failed to retake the upside of our band in multiple attempts yesterday but the NYSE held the critical 6,900 line which is our first real breakdown level to be tested. As I said to Members in yesterday’s Morning Alert, if the NYSE blows it the next critical line is Russell 575 and the Russell is, in fact, our weakest index already as they have blown their 5% level (off the top) of 589 (our watch level from Monday’s Post) and now must retake 600 before we can call them turning up.
None of our cover plays triggered but they are still valid and we’ll be watching our trigger points this morning. We did place a bullish vertical bet on the Dow, just in case, as the bullish verticals don’t suffer too much damage on a dip and we are still a bit bearish, even as we do test our 5% lines. The 5% rule (drop from the top) levels for this pullback are Dow 9,600, S&P 1,045, Nasdaq 2,066, NYSE 6,840 and Russell 589. Keep in mind that these are about 66% retraces off the last run from the 50 dma in early October and blowing those levels is a Fibonacci failure as well.
As I mentioned in Monday’s post (aptly titled “Is Momentum Shifting?“), 595 on the Russell WAS the 50 dma already so be afraid, be VERY AFRAID, if they can’t recover as the Russell is our “canary in the coal mine” for the markets (as I warned last week). Sorry to get all technical today but we only had our fundamental argument going for us for the past month so it is kind of exciting to see the technicals finally come together to prove us right!
As noted on Trader Mike’s S&P Chart above, we are aproaching an oversold level, due to the sharp drop to the 5% move and we already have our bounce targets set for Members and we have our upside cover plays lined up so we can take a quick profit and then get the hell out if we fail to break through our bounce zone. Watching that stochastic indicator and how fast it moves from oversold to overbought will give us a good clue as to how real a move us is.
The movement was all down in Asia as the Nikkei blew 10,200 and finally stopped falling at 10,050 with a weak bounce to 10,075 into the close, down 1.4%. 10,075 is right about 2.5% off the top of the Nikkei at 10,350 so we are right on track with the Nikkei so far and a bounce test at 10,130 is the next expected move (and notice that’s the gap down after lunch). The Hang Seng finished down another 408 points (1.8%) at the low of the day and yesterday was down 1.8% so we can assume that’s the magic number for the Chinese trade-bots to kick in and hold each day. This is, of course, great for our FXP play! We have 700 more points to go before testing the Hang Seng’s 50 dma at 21,000 while the Shanghai held it’s ground after yesterday’s 2.7% drop.
Shippers dragged down the Asian markets this morning as people finally noticed that all those trade reports actually indicated that nobody is actually shipping anything. We thought this was a given as we got bored pointing it out 2 months ago but it seems to be surprising everyone else.
Mitsui O.S.K. Lines dropped 2.2% and Kawasaki Kisen Kaisha slid 4.5% in Tokyo. STX Pan Ocean plunged 7.4% and Daewoo Shipbuilding lost 3.9% in Seoul, China Cosco Holdings gave up 3.8% in Hong Kong and Neptune Orient Lines fell 3.5% in Singapore trading. Although Chinese shares ended higher, trading volumes were thin on concerns that Friday’s launch of ChiNext, the new Nasdaq-style board, would have a negative impact on liquidity. “I expect tens of billions of funds to channel into ChiNext. Many of these investors have higher risk appetite and make frequent trades. Their departure may have a sizable impact on the main board’s trade volume,” said Haitong Securities analyst Zhang Qi.
EU markets are trading off about 1.5% as of 8:30. SAP surprisingly lowered their outlook. ”While we are seeing signs of stabilization in the general environment, the market remains difficult. Third quarter software and software-related service revenues came in lower than we expected mainly because of a particularly challenging environment in the emerging markets and Japan,” CFO Werner Brandt said. Risk appetite in the major asset markets has been unwound for the last three trading sessions, and, with selling compounded by the biggest monthly drop in U.S. household confidence since Dec. ‘08, “we wonder if what is underway is the start of a more broad-based market reversal, or merely a temporary phase of profit-taking after a three-month rally,” said Kenneth Broux, market economist at Lloyds Banking Group.
