2010

February 10, 2010 · Posted in Weekly Posts · Comment

Well, the minute-by-minute, hour-by-hour motion of the market lately has been chaotic to say the least BUT the net result of two short covering rallies (last Friday and yesterday) is that the markets are in bear flag formations (equities and commodities) while the dollar is in a bull flag pattern. As you all should know, these types of flags usually break in the direction that their name suggests (bear flags break down, bull flags go higher). That said, there is no guarantee. All we can really say is that the pattern on the Dow, S&P, Russell, NYSE Composite, and Nasdaq all show bear flags. Goldman Sachs is in a symmetric triangle which is a continuation pattern indicating lower prices, commodities and gold are in bear flags, and the dollar is in a bull flag. Our money is on the short side but cautiously as the chaos can easily bite us.

In all then we expect the downward cycle of the market to resume soon. Could be as early as tomorrow, maybe it somehow levitates till next week. As for downside targets we believe at a minimum the S&P will get to its 200 day MA which is about 4.3% below the current price. The Russell is about the same. Those are our minimum targets. We saw a well reasoned analysis recently (yesterday) from BofA showing a target of 960 or a further 10% move down on the S&P. So somewhere between those two is the likely answer. If we break below the 960 level then we could go dramatically lower…but let’s get out of this bear flag before we worry about that.

Some things to keep in mind:

1) There is a European Union “summit” tonight. Greece will likely be a topic of discussion. The market seems to have become comfortable that a bailout will happen. That seems like an accident waiting to happen.

2) Weekly unemployment report comes out tomorrow morning at 8:30 eastern in the US.

3) Feb. 14th is the start of Chinese New Year so there will be a lack of news from Asia but also a lack of liquidity due to Asia for that week. This could be nothing or it could exacerbate moves. Along that same note, Monday is a holiday in the US (Presidents Day) so Europe will be dealing with a lack of liquidity from us as well.

4) The market seemed to take no notice today of Bernanke’s comments on how the Fed would begin withdrawing liquidity, nor of Dubai’s request for a freeze on interest payments for six months. Our sense is everyone is waiting to hear about the big European bail-out….

Below are the charts for: USD, NYSE, Gold, and GS: