Yesterday sure seemed like a breakdown below the trend line, but there wasn't much follow-through to the downside today. The next two days could be very telling for the intermediate-term.
Expect news out of Fannie Mae (FNM) and Freddie Mac (FRE), both of which broke down to new lows today. Perhaps news out of these two mortgage giants could serve as the catalyst for the next intermediate-term move in stocks.
You can read more about the recent set-up courtesy of the bullish percent, and other indicators, by clicking here.
We thought it might be a good time to check-up on the indicator today, after the two day move higher in the broader market.
The BPNYA is moving to near the midpoint of its range, near 50%. This means that the market is sort of at its half-way point, between bearish and bullish extremes. The market isn't overbought, as measured by the bullish percent, which means it could continue to rally.
The Bull Case:
From the bullish perspective, the pattern of higher lows is still intact. This pattern will remain intact as long as the S&P 500 ($SPX), for example, stays above 1250. Resistance is clearly at the 1290 level in the SPX.
You can observe similar patterns of higher lows and horizontal resistance levels across other major market averages.
The Bear Case:
A strong case can be made that a bear flag (or bearish wedge) is forming in the SPX and that stocks are about to breakdown into their next leg lower within the bear market. The bear case will gain credence if the SPX breaks its pattern of higher lows by falling below 1250.
Watch the FXI, which is the iShares China 25 exchange traded funds. The FXI is one of the better and easier ways to trade China.
The FXI is on the verge of breaking down from a bear flag. A close below $43 would do it.
DELL formed a wide base of support earlier in the year at $19. The stock has since rallied from support and consolidated around $22 to $24. The pattern over the last seven months is a cup and handle.
DELL could easily breakout and trend higher if the broader market stabilizes. A close above $25 would signal a breakout from the cup and handle.
Acorda Therapeutics (ACOR) is a stock within the group that's worth watching. ACOR is plowing its way higher after a big gap up move in early June. Moves like these can follow-through for months. Look for ACOR to continue pushing higher, following its most recent breakout from a bull flag.
The question is: In which direction will FSLR break?
Clearly FSLR is the best of the best among solar plays. And the solar play has a real, long-term growth story behind it. But, at the end of the day, solar is a substitute for fossil fuels such as crude oil. And if crude oil prices fall, the trade-off to solar just isn't as appealing.
It could be an interesting couple of months for FSLR if crude oil continues to crash.
IBM is a little overbought in the short-term and probably not at the best point for new entries. It's a gift in the low $120's. Look for new entries on a pullback because it's a $150 stock if the Dow stabilizes or rebounds.
Part of the move in the transports is due to the drop in oil. But part of the move may be due to the expectation of an improving economy. Imagine that.
Take a look at Norfolk Southern (NSC). It's tapping a new 52 week high today after breaking out from a bull flag.
I was on a flight over the weekend. Went to Vegas. The airport was packed and so were the planes.
Capacity has been cut and many of the carriers are running full planes. These steps, combined with falling energy prices, could lead to a continued advance among some of the best airlines.
One name I'm focusing on is Hawaiian Airlines (HA). It's a small, regional carrier based in...guess where...Hawaii.
HA is trading up to a 52-week high today. A 52-week high!
Check it out.
We're in the middle of a recession, house prices are plummeting, no one can get a loan, the government is nationalizing Fannie "Oops" Mae (FNM) and Freddie "Big" Mac (FRE), socialism is sweeping across America...yet TRLG can still sell its high-end, $200 jeans...hmmm.
Whatever works, I guess. Makes me think that something's up.
Check out the breakout from the bull flag today.
Crude broke below the my "magic number" of $136 this morning with its print at $134. (Scroll down to yesterday's post for more.) There's a strong base of support at $132 at which crude might pause for a while. But if the selling continues, crude could crack $132 and trade all the way down to $120. It won't be a straight line, mind you. But such a move would cause quite the stir in any and every equity related to energy.
I'd be selling names across the entire energy complex at this point, or at the very least defining downside risk with stop losses.
Looking at the Oil Services Holders (OIH), for example, I see immediate downside risk to $184 to $188 after this morning's breakdown from the bear flag.
I'm not surprised that the sell-off stopped at $136. That's the magic number in crude as far as I'm concerned. If $136 is broken, as defined with a print at $134, then I think the crude rally is over for the time being. That would be good for stocks!
There's only one thing to do...
Pour yourself a tall, cold one.
Central European Distribution Corporation (CEDC) can help in this endeavor. CEDC's portfolio of beverages include some of my favorites: Guinness, Corona, and Grolsch.
If you're long bank stocks, and want to forget the trade altogether, then CEDC can help with its potent Jagermeister. Trust me, you won't remember a thing.
Or, if you want to drowned your sorrows in style, I suggest sampling CEDC's Glenfiddich offerings neat or on the rocks, it's up to you.
With the end of the financial world upon us, it's no wonder that CEDC is breaking out from a bull flag and trading at a 52-week high.
The original post is here:
3 Indicators to Answer: How Low Will the Market Go?
I added the Japanese yen as a fourther indicator in a follow-up post:
The Fireworks Have Already Begun
Today, as the idea of nationalizing Fannie Mae (FNM) and Freddie Mac (FRE) becomes a reality, fear is creeping into the market.
The Volatility Index ($VIX) is spiking to near 30. The VIX might very well end the day above 30 if the selling in the broader market persists.
The VIX above 30 is one of my conditions for a sustainable rally. Look for it soon...
