Friday, October 24, 2008

Major Market Indices

The S&P500 tracking stock aka the Spiders, ticker SPY (chart above) has clearly broken out of the pennant formation and in the direction of the trend preceding it. The pennant looks to be worth $27 pts at its widest point. If we use $91 as the break level we can subtract the width $27 and come up with a target of $64 on the SPY. Crazy? Maybe but don't be so sure.

Remember my Deutsche Bank (ticker DB) target of $44 took some heat from many. Just in case you were wondering DB broke $40 today. So you could say a $64 target on the SPY's might be on the high side. You cannot underestimate the profit erosion that needs to be priced in to earnings for this recession. I truly wish it weren't so.

The Dow tracking stock aka the diamonds, ticker DIA (chart above) paints an eerily similar picture to the S&P. The pennant or triangle if you prefer, is worth $25 at its widest point and if we use the $86 level as the breakout to the downside and subtract that $25 we come up with a target on the DIA of $61.

The Quad Q's the tracking stock of the Naz (chart above) shows a different picture. Recently I posited that the Naz could have formed a double bottom. A readers email, thx for the note T.L, asked if this made me bullish. As my notes that day clearly indicated;

'The Naz could be forming a double bottom here but given the other 2 major indices it could be very suspect.'

We now have an either or scenario developing here on the Naz. As my notes on the chart (above) indicate we have either a falling wedge, which is bullish, developing, or a descending triangle which is bearish.

The Russell 2K tracking stock, ticker IWM, (chart above) looks very similar to the Dow and S&P. The pennant on the IWM looks to be worth $16pts. If we use $50.5 as the break level we can subtract $16 and come up with a target of $34.50 for the IWM.

Is the hard trade right now to be long or short?

Personally all is see and hear is bottoms being called. Remember what I have said about this before, the bottom will occur when all stop calling for it. You could also add to that sentence that when all the bottom callers have been completely and utterly discredited.

Some are claiming the markets are severely, extremely, overwhelmingly oversold. That this is irrational, that this makes no sense. To this I say, no doubt. The problem is markets can remain oversold and overbought for very long periods of time, they can irrational, and non-sensical far longer than any of us can remain solvent, decimating speculators in the process.

Many are of the want to jump all in here, and while this could be just the perfect contrarian thing to do I would counsel otherwise. I urge you to ditch all your oscillators, your MACD, stochastics, etc, and any other measures of extremes in sentiment for they have led many a speculator to his financial grave. Besides, the margin clerk could care less.

Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 2 units of Ultrashort S&P ticker SDS @ $90.60 stops $101.88/$95.94
Long 1 unit Japanese Yen ticker FXY at $97.15 stop at $101.68
Short 1 unit ticker CRM @ $56.05 stop at $34.31

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