Friday Outlook: Danger on All Sides

January 22, 2009



They have fun in parliament don’t they? Well, I couldn’t resist posting this one since it’s comical. Do you think Pelosi or Reid are this funny? No way!

Forgetting the above distraction, the casino on Wall Street is still open and business is great. The ball landed on red today instead of black. It seems bulls are poised to defend DJIA 8K with all their might. The stream of negative news became a torrent from employment and housing data to Microsoft's (MSFT) poor results.

Volume expanded on a down day while breadth was as negative today as positive yesterday.



Meanwhile, our man in Geneva chimes in with his calculations for volume and breadth.



























Long-time readers know we’ve been posting monthly charts for some time. Why? Because it’s been difficult to post weekly charts and find appropriate support and resistance areas. Another important aspect we’ve been noting is the deeply oversold conditions as reflected by the low Relative Strength Index (RSI) readings. This is interesting since historically seeing such readings on monthly charts is quite rare. The last time this occurred was in the 1974 period. Then this reading lasted for 5 months and the DJIA chart below is from our internal charts.



The previous occasions all occurred during the Depression on multiple occasions. The chart below is from the initial period and these low readings lasted nearly 8 months. Similar, but much shorter readings below 30 occurred in 1938 and again in 1942; however, the latter two only lasted one month.

Finally, we never reached these low readings at the market low in 2002 which in itself is impressive.

click to enlarge


I’m impressed by these readings and it intimidates me from further shorting at this time. While every period is different, patterns are patterns to a chartist.










































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Comments

[maelstrom:]

David Fry...that was the best. Great video and excellent charts to back up your read on the mess the markets are in. Also glad to hear someone else is going nuts trying to trade this mess, thought it was just me.

Jan 23 07:27 AM

[cma:]

Putting aside the true long-term perspective (suitable only for well funded life insurance cos. like Berkshire Hathaway), I agree with David about the longer-term perspective: it's quite risky to hold an intermediate-term short position here, based on RSI, cash levels and and longer-term sentiment measures.
Of course we should not be surprised by further near-term tests of the $SPX 750 low.

Jan 23 12:12 PM

[PDL27:]

Was that "shout-out" to "Crammer" intentionally misspelled? LOL!

Jan 23 01:09 PM

[henarl:]

Pelosi and Reid funny? ........... not unless you like like gallows humor.

Jan 23 06:13 PM