US - Market Direction 01 (May 08 - Jul 08)

[kennynah]

ok....there's been some discussion on Short Ratios in this thread... this is my take on, say NYSE Short Interest Ratios...

I could be well wrong, but this is a ratio that is released once a week....tues or thurs...

it is a consolidated amount of Short Open Interests / Average Daily Volume

my understanding of SIR is that it is a contrarian indicator....as MM said..it is now ~15, at a all time high (if i dont recall wrongly). since most people will get the market direction wrong, a very high or low SIR is usually taken as a trend reversal indicator... ie...very High NYSE SIR = too many sellers on the same side of the selling fence, so, market screws them and does a rally....killing them in the process... and conversely, when the SIR is very LOW, too many are on the buying side, and again, they are usually wrong...mkt drops a gazillion ton of bricks on the bulls...

now, this is where interpretation is key....afterall, numbers are dead...and useless until we form an opinion on them...

with due respect to MM....

my view of NYSE high SIR is actually a sign of further weakness to the market becos, this accumulation of high and higher NYSE SIR started when the market started trending downwards in Jan 2008.... ie, my interpretation is this...

when the SIR is getting HIGHER on a downtrending market, it is actually signalling me to go along and short the market.

((now, when one think about it....in a different angle, one can be more convinced.... rethink it this way, when the SIR is becoming LOWER in a downtrending market, most people will see this as a signal to BUY... so why then should one not see a HIGHER SIR on a downtrending market to be a sell?

the reason, is FEAR..... since the SIR is so HIGH now, most people will assume, it has to turn around...like VIX.... did you know that VIX was considered HIGH at ~ 16 - 18 in year 2005?

therefore, target level change....like VIX and like NYSE SIR....))

BUT,

when the SIR is getting HIGHER on a uptrending market/stock, such as POTASH (this baby rose 300% in 6 months), then it is signalling me to BUY as this is a potential meltup !!!

so, using SIR alone without a correlation to the market trend, is only 1 part of a signal equation...

like i said...i mean no disrespect to anyone...i share what i understand and we productively spar this topic...for the betterment of all....

salute !!!

[millionairemind]

K, what you mentioned about taking the NYSE short interest ratio with the BIG picture of the market is correct....

This correction started on May22. Since then, instead of coming down, the NYSE SIR actually moved up... that is not typical and hence an issue that deserves more thinking and pondering from my end..

It is currently still at 15, even after last night's bloodletting....

The other indicators I looked at to see when mkt can turn around for a sustainable technical rebound are the Public/NYSE Specialist short sales and the VIX.

Y? Because the PUBLIC IS ALMOST ALWAYS WRONG AT MAJOR TURNING POINTS (I am oso one of the public )

The current P/NYSE Specialist short sales no. is 13.73... The peak in the past 5 years was 21 on Jan 18 2008, which was achieved when there was massive fear in the market... we know the mkt turned around for a strong technical rebound within 3 days of achieving that high.

Anyway, all these are just numbers. Each one of us will have to interpret it and use it for our own investing/trading strategy.

All these are just secondary indicators... the most important IMO is WHAT THE MARKET ACTUALLY DOES... NOT WHAT ANYONE THINKS IT IS DOING.. ... it is the final judge..

Only Nasdaq has not undercut its recent low and hence technically, the rally attempt by Nasdaq is still intact. Comatosed DOW, sissy S&P and useless NYSE have all gone to the ducks... lets see how long b4 it is taken out.

Cheers everyone...

Be careful out there... the market is always out to get each of one us to part with our hard earned returns and money...

Like my friend Learn2Win keeps reminding me, everyone thinks the market is a gold mine but ended up contributing to the pot of gold instead... be careful.

[winston]

Coming Week: Don't Count on the Fedby Nat Worden

Stocks will limp into the next week at levels not seen since the Bear Stearns debacle, with no hope of a boost from the Federal Reserve.

Oil and other commodity prices rallied again last week while credit conditions worsened on Wall Street and the dollar weakened further.

The Fed, which will release its June decision on interest rates Wednesday, will almost certainly hold steady, leaving investors to parse through its policy statements for any sign of what will come next.

"Our view is that the pressures on the Fed are going to get worse over the next few months," says Lehman Brothers economist Ethan Harris. "They're going to face headline inflation of about 5% with the release of the August CPI, but simultaneously, they'll see a continued string of weak labor market reports with a rising unemployment rate, so those two pieces of data are going to offset each other and leave the Fed with its hands tied."

Crude oil futures bubbled up again Friday to close near $135 a barrel while stocks tanked. The Dow Jones Industrial Average lost 3.8% over the week and fell back below the 12,000 mark to finish up at its lowest close since March 10. The S&P 500 shed 3% to hits its lowest close since March 28, and the Nasdaq Composite dropped 2%.

The latest spike in crude came after The New York Times reported Friday that Israel has performed a military exercise in potential preparation for a bombing of Iran's nuclear facilities. The market's reaction was a stark demonstration of the sensitivities that exist on Wall Street to geopolitical shocks as it grapples with a relentless financial crisis.

"We may start to see some market actors begin to acknowledge that oil is at its peak and may start trending downward," says Ziemba. "Rising global demand for commodities underpins the bull markets in commodities, but oil and other markets have gone too far. At some point, there will be a more sustained pullback."

Merrill has been singled out for its counterparty risk exposure to bond insurance giants MBIA (MBI - Cramer's Take - Stockpickr) and Ambac (ABK - Cramer's Take - Stockpickr), which were both downgraded as expected last week by Moody's. Without triple-A credit ratings from the major ratings agencies, the bond insurers don't have a business model, and their shareholders could be stripped by insurance regulators to protect policy holders. Shares of MBIA lost 9% last week, while Ambac dropped 8%.

Meanwhile, credit downgrades for the bond insurers were accompanied by a rash of downgrades for the securities they guaranteed, reflecting a broad deterioration of credit conditions in the bond markets. At the same time, Moody's and Standard & Poor's signaled likely credit downgrades for major U.S. automakers General Motors (GM - Cramer's Take - Stockpickr), Ford (F - Cramer's Take - Stockpickr) and Chrysler, reflecting a cultural shift toward fuel efficiency in the U.S. and the "dire state" of the auto-financing market.

Ford announced that it's delaying the release of its new F-150 pickup truck amid production cutbacks, and it sees sales weakening into 2009. Its shares lost 8% last week, while GM shares were down 16% to their lowest levels since 1982.

The market action paints a dark picture for the U.S. economy, and the outlook, as it weighs on American consumers, is likely to show up in the Conference Board's release of its consumer confidence index in June. Economists expect it to slip to 57 from 57.2 -- its lowest reading in 16 years.

The Fed will announce its decision not to change its short-term interest rate target on Wednesday afternoon, and beforehand, the government is expected to report before the opening bell that orders for durable goods were flat in May after dipping 0.5% in April. Later, investors will receive May's tally of new-home sales from the Commerce Department, and they'll also see a report on crude oil inventory levels, which could roil the energy markets.

Wednesday is also a big earnings day, with reports expected from Monsanto (MON - Cramer's Take - Stockpickr), Nike (NKE - Cramer's Take - Stockpickr) and Research In Motion (RIMM - Cramer's Take - Stockpickr).

On Thursday, investors will be greeted with the government's final report on first-quarter GDP growth, which was previously estimated to be 0.9%. That figure is expected to stay positive at around 1%, although there's still a crowd out there that believes a recession began early this year when job growth turned negative and will ultimately show up in the numbers.

Later, the National Association of Realtors will report its existing-home sales tally for May, and most economists expect to see further deterioration in the housing market.

Friday will see earnings from KB Home (KBH - Cramer's Take - Stockpickr), and the government is expected to report that personal incomes rose 0.4% in May, up from 0.2% in April, while personal spending was up 0.7%, up from 0.2%. The PCE core inflation rate for May is expected at 0.2%, which would give the Fed more support to argue that inflation is contained and rates should be left where they are.

Despite all the economy's problems, Frank O'Connor of Zecco Trading is still holding out hope.

"We'll avert recession, but barely," says O'Connor. "This is all part of a bottoming-out process."
RealMoney Barometer Poll

Ziemba notes the Saudis already have added a half-million barrels a day to global supplies in recent weeks, and they may add more. Meanwhile, demand for gasoline in the U.S. and Europe is waning as consumers adjust to higher prices; China is lowering its gasoline subsidies. Also, she says the Fed has played a role in pushing oil prices higher.

"The aggressive easing that we've seen from the Fed and injection of liquidity has found its way into the energy markets," says Ziemba.

Meanwhile, in the U.S. stock market, financials are getting pounded as investors factored in a fresh round of writedowns on mortgage-related securities. Lehman Brothers(LEH - Cramer's Take - Stockpickr) dropped 8% last week amid lingering questions about its ability to survive the credit crunch in the wake of Bear Stearns' collapse. Citigroup (C - Cramer's Take - Stockpickr) shed 5%, Morgan Stanley(MS - Cramer's Take - Stockpickr) lost 8% and Merrill Lynch (MER - Cramer's Take - Stockpickr) was down 6%.

[kennynah]

Oil and Financial news....these are about the 2 areas i will stay attentive at...

[Chiron]

My main fear is what if there is no capitulation, instead DOW opt to go for a long slow and steady downtrend? Which means there will be probably no strong rebound in sight.

[winston]

From UOB-Kay Hian:-

DJIA breaks upward trendline

Price action on the Dow Jones Industrial Average (DJIA) confirms our earlier price and pattern projection. We have pointed to a minimum downside target of 11,600-11,700 on the DJIA. On Friday, the DJIA declined by 200 points to close at 11,842.7. Price action suggests that the index is still within an extended wave 3 or C, so we would expect more downward pressure in the early part of the week.

Our minimum downside of 11,600-11,700 should be achieved early this week. The risk of the index declining further based on the second scenario highlighted in our 9 Jun 08 report has increased. Under the scenario, the DJIA could correct down towards 10,800-10,900.

[iam802]

just adding a chart (graphical way) to show the comment that Winston posted.

Note the level that DowJones is at. Very close to previous low in March.

Testing limits now.

[winston]

From CIMB:-

A bit more downside? It was a down week for the US equity market, with the DJIA going below 12,000 and the S&P500 losing 41.8pts or 3.1% wow to close at 1,317pts.

If the S&P500 fails to hold above the next crucial support level, i.e. its Mar 08 low of 1,257, brace for more selling pressure. The index looks set to reach a short-term bottom close to the Mar 08 low in the next 1-2 weeks. This should followed by a rebound in July.

The potential “head & shoulder” that the DJIA is tracing indicates a downside target of 11,500pts.

Next rebound will determine the shape of this correction. The coming rebound after the end of the current downtrend will determine whether we are in a major correction or a sideways correction. A rebound above the May 08 high is likely to indicate a sideways correction for the US market.

However, failure to top the May 08 highs could indicate a crash for the US market in 3Q-4Q08.

[kennynah]

23Jun08 - PreMarket Review (Part I)

In most of the earlier postings, the charts were commented for swing/pattern trades.

Even in swing/pattern trading, it is necessary for us to take a macro view of where the market is generally heading. Afterall, if the market is showing plenty of weakness, the one-day-wonder or even one-week-wonder bounces may not be sustainable if the overall market is bearish.

With this in mind, let's look at DJIA over a 2 year period.

Do you see a key support being broken last Fri, on a high volume?

However, do bear in mind, that indexes will bounce in a range...we just need to be aware that a key support broken overnight is no guarantee that it cannot be re-tested as a resistance (meaning, index move back upwards and beyond that key support)


DOW Jones Industrial Index - 2 Year Daily Chart

[kennynah]

23Jun08 - PreMarket Review (Part II)

Now, let's see a midterm view of SP500 daily chart....

For those who periodically and insanely, perhaps on the 1st and 15th of the month, light up joss sticks and burn incense papers to Fibonacci ... then this naturalist is telling us to a story here....

and, once again, i appreciate your TA views


SP500 - 3 Month Daily Chart