Major Indices: “Looking UGLY, Billy Ray!”
By Barry Ritholtz - June 29th, 2010, 12:13PM
Ron Griess of The Chart Store recently mentioned to me that “one of the most bullish patterns around was a failed Head & Shoulders.”
Those comments are appropriate this morning, as we may soon find out if those H&S’s on the major stock indexes fail or manifest themselves as bearish signals.
Nasdaq, S&P, Dow Jones charts below.
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Nasdaq Daily 2008-10
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S&P500 Daily 2008-10
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Dow Jones Daily 2008-10
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June 29th, 2010 at 12:25 pm
OT, but I’ve noticed something interesting, and for those trading, maybe helpful (of course, if I’m right, I want a commission, if wrong, DYODD, sucker. There’s also a really good chance that I may have stumbled on what everybody else already knew).
That said: money exiting stocks — where does it go? Where it can only go: dollars. Dollar gets stronger due to demand. But the money can’t stay in dollars for long (even in an uptrend, the dollar as a store of wealth is a dicey proposition at best, what with being fiat scrip, and all), so where does it go? Y’all tell me (I think I already know).
June 29th, 2010 at 12:30 pm
Beside the obvious treasuries, bonds, gold, etc. If you believe we are in a deflationary cycle as David Rosenberg and many other credible names do, dollars look pretty good.
June 29th, 2010 at 12:39 pm
Can you suggest that Ron compile incidences of “failed H&S” patterns? Love the work, and appreciate it greatly.
June 29th, 2010 at 12:49 pm
@Marcus Aurelius:
Your question is already fallacious. The exactly same amount of money that is “exiting” stocks is “entering” stocks. You equally could ask where is latter coming from? Where there is a seller there is always a buyer. It’s such a widely spread fallacious thinking to imagine the markets as containers into which money was filled when prices were rising or from which money was drained when prices were falling. It’s just nonsense. There is no flow of money into stocks or out of stocks, or from one asset class into another one. The flow of money happens between the owners of the assets, reversed to the flow of assets, but not between the assets.
June 29th, 2010 at 12:50 pm
failing head and shoulders is a bullish pattern?
June 29th, 2010 at 12:53 pm
I’ll go bearish. [One of my regular reads noted sometime ago the Consumer Confidence Index tracks the DOW. The number out today was bad and indeed the DOW had pulled back over the past month. I don't see what's going to bounce the DOW higher near-term which I therefore take the next Consumer Confidence Index to be below 50.] Just hope things don’t get bearish enough for The Big Picture to post the Bruce Willis “Welcome to the party, pal!!!” scene from “Die Hard”.
June 29th, 2010 at 1:01 pm
Marcus – I did a post on this a while back:
http://efficientish.blogspot.com/2010/06/when-stocks-go-down-what-goes-up.html
In summary – if the market is down you want to be in dollars (UUP)
June 29th, 2010 at 1:04 pm
Chief Tomahawk, what if treasury yields are predicting imminent cut in US interest rates (one week out at most), would that give us a near term bounce?
June 29th, 2010 at 1:06 pm
“FEELING ugly, Louis!”
June 29th, 2010 at 1:10 pm
Gosh, I sure hope Cognos got short in time.
June 29th, 2010 at 1:10 pm
Lebowski, isn’t the Fed already at the “zero bound”? If so, there’s no more room to cut, unless they go the Swedish ‘experimental’ route and cut to below zero (and truly punish savers…)
June 29th, 2010 at 1:11 pm
The Powers That Be will certainly mount a major effort to support the necklines as we enter into the next quarter …
… or else they will throw in the towel and sell everything into oblivion …
QE-to-the infinite-power! Bernanke coming to bat! But will he bunt to save the greenback?
June 29th, 2010 at 1:12 pm
Still think Fannie and Freddie were just like any other poorly run bank?
What’s a trillion between friends?
June 29th, 2010 at 1:29 pm
This seems too easy, and I am cautious regarding any prolonged downturn. We have not yet seen the blame-the-short-sellers mantra, the constraints on ways to profit from declines, etc. If we were to see a major decline at this point, I think that the fun-loving trading-for-the-grocery-money banksters would be pretty seriously damaged (unless they have been quietly buying CDS against the stock markets), and nobody in power is at all inclined to allow THAT to happen.
Ben still has a few tricks up his sleeve (although Timmy is prolly whimpering in the corner). He has been creative and surprising thus far, so I’m eager to see the next rabbit that he pulls from his hat.
Remember, this is far from a fair and open market, there are deadfalls and snares everywhere. Bear season may be about to open.
June 29th, 2010 at 1:41 pm
CT-
don’t have to go swiss yet….
http://www.bankrate.com/rates/interest-rates/prime-rate.aspx
my HS economics teacher used to quote Keynes… you can’t push on a string….. and then jump up and down and scream no debt, no debt, no debt….which was apparently the advice of his grandfather….
a quarter point isn’t much but it could provide the near term bounce you are not suspecting….or ben speaks about moderating economy and its all fine….or obama says we got a great jobs report for you this week, a really really good show….
June 29th, 2010 at 1:51 pm
Lebowski, Swiss? It was the Swedes who cut to less than zero.
Just finished reading one of my favorite sites, http://www.Itulip.com. It was not cheery on the near future.
June 29th, 2010 at 2:06 pm
300 point gain around the corner.
June 29th, 2010 at 2:11 pm
CT, we should get a room. :) nibbling on some july atm calls in emerging market ishares for inevitable “near future” rip from IMF bailout 2 package (bloomberg) or next round of wrong yuan! your thesis is there is no near term bounce, i suggest put some of your speculative short money cash to work and by some short term protection.
June 29th, 2010 at 2:16 pm
Bought some SDS last week, sold today when S&P failed to break 1040 for a decent profit. With tomorrow being quarter end, I figure traders will be hell bent to finish on a high for their 2Q reports. Will look to rinse and repeat after the next bounce.
June 29th, 2010 at 2:32 pm
Leb., I’m largely in cash with some gold, fyi.
I see TSLA has gone on quite a ride on it’s first day of trading.
June 29th, 2010 at 2:39 pm
From the Dallas Fed:
Texas factory activity declined slightly in June, according to business executives responding to the Texas Manufacturing Outlook Survey. The production index, a key indicator of state manufacturing conditions, fell from 21 in May to –2 in June, abruptly ending a seven-month streak of positive readings.
All remaining indexes for factory activity also fell in June, and many turned negative. The new orders index fell from 16 to –8 as 78 percent of respondents reported that their June orders were either flat or down from May. The shipments index fell from 15 to –9, suggesting shipments contracted in June after three consecutive months of growth.
The general business activity index turned negative also, with 82 percent of respondents noting that June activity worsened or was unchanged from the prior month. The company outlook index fell from 20 to –3, as only 18 percent of manufacturers said their outlook had improved over the previous month, compared with nearly a third in May.
June 29th, 2010 at 2:48 pm
Too much at stake for Nobama. The administration/Congress/crooked Fed, will do everything they can to negate this head and shoulders. (see July 13 2009)
June 29th, 2010 at 2:49 pm
This all has grim political implications IMO.
June 29th, 2010 at 2:52 pm
a sub 1040 close not out of the question
June 29th, 2010 at 3:05 pm
“This all has grim political implications IMO.”
Just wait …
June 29th, 2010 at 3:06 pm
The 200 day MA will officially roll over if we close below 1042.73
June 29th, 2010 at 3:07 pm
Just imagine if the trading bots were to lose all of their redundant power supplies at about 3:30 pm …
June 29th, 2010 at 3:09 pm
the PPT is about to go balls in so if you want to make some quick coin get yourself in now.
June 29th, 2010 at 3:18 pm
it really comes down to the shorts- if they cash out- then 1040 is safe-
if they hold on- then 1040 gets taken out
June 29th, 2010 at 3:22 pm
Ahab.
Or possibly, the shorts already covered this AM and there is a gap below 1040.
June 29th, 2010 at 3:23 pm
The fundamentals support the hypothesis. That being said, various computers that are programmed by believers in very special technical levels (or possibly secretive influences with the deepest pockets) might want to argue a bit. But, as my favorite prognostication device announces “the future is certain.” Overall, we will see down before we see up. Reality is asserting its ugly head, again. The swamp is being drained.
June 29th, 2010 at 3:47 pm
Yikes.
June 29th, 2010 at 3:58 pm
how is BP up 2%, flight to safety? LOL!!!
June 29th, 2010 at 4:03 pm
@Mannwich — oh ye of little faith.
June 29th, 2010 at 4:06 pm
What does it mean when the NASDAQ falls below the neckline, and the Dow and S&P both hold the line?
Rotating out of AAPL into BP or BAC? Is tech dead (or at least comatose)?
June 29th, 2010 at 4:07 pm
Exactly, constantnormal. Nothing has been fixed, therefore, nothing has changed.
June 29th, 2010 at 4:09 pm
Epic stick-save by the Fed’s trading desk. Sorry folks, but in an un-manipulated market SPY wouldn’t rise on 15 million shares in the last ten minutes. Especially with a huge red candle showing on the daily and the market down 3%.
Whenever these shenanigans stop – then – we may finally get a REAL recovery. Only prolonging the inevitable. (at least until mid-terms)
June 29th, 2010 at 4:10 pm
make that 25 million above…
June 29th, 2010 at 4:15 pm
crunched Says:
June 29th, 2010 at 4:09 pm
Epic stick-save by the Fed’s trading desk. Sorry folks, but in an un-manipulated market SPY wouldn’t rise on 15 million shares in the last ten minutes. Especially with a huge red candle showing on the daily and the market down 3%.
reply:
——–
No, Uncle Stupid put sure money down on a good thing. He just saved the world. Everybody fell for it. Actually, we have a battle royale. The printing press vs gravity. In the Thunderdome. Who will leave?
June 29th, 2010 at 4:28 pm
crunched makes a good observation-
1040 appears to be quite the battle line-
my guess is it can’t weather another attack- 5th time’s a charm
June 29th, 2010 at 4:36 pm
Tomorrow then?
Same bat-time, same bat-channel?
June 29th, 2010 at 4:37 pm
call me ahab Says:
June 29th, 2010 at 4:28 pm
1040 appears to be quite the battle line-
reply:
———-
Perhaps, but how do you stop someone from proclaiming that 1037 is the next very special technical level. All it takes is a headline on an influential web site or a famous investor who says so. Add a little computer driven money and we have a “market that is holding”, implying a firm economy that will supply earnings and rainbows. And maybe new money for fees for cash under management. Plus, Uncle Stupid can claim success for another day since the markets are really the economy.
June 29th, 2010 at 4:44 pm
More Potemkim Stress Tests. This time in Europe. Same result. Yawn.
http://www.nakedcapitalism.com/2010/06/deutsche-bank-commerzbank-rumored-to-pass-meaningless-stress-test.html
June 29th, 2010 at 4:45 pm
What? What’s that? Do you mean to tell me that all these lines on charts and arcane vocabulary are not instruments of science, with rigorous rules that Must Be Obeyed???
June 29th, 2010 at 4:49 pm
constantnormal Says:
June 29th, 2010 at 4:45 pm
What? What’s that? Do you mean to tell me that all these lines on charts and arcane vocabulary are not instruments of science, with rigorous rules that Must Be Obeyed???
reply:
———-
Think of HFT (or whatever) on days like today as spray tans, botox and puffy lip injections for the markets, only less permanent and a little more grotesque.
June 29th, 2010 at 4:51 pm
dh-
interesting take- I am not a technician by any means- but 1040 appears to be the do or die level-
from what all the technicians have been saying- after 1040 there is no resistance until sub 900-
ZH has a post up right now about this very thing
June 29th, 2010 at 4:57 pm
constant-
the way I see it- the algorithms reflect peoples perceptions and are programmed accordingly-
so if 1040 is perceived as a resistance level- then buy signals kick in- if its breached- then sell signals kick in-
is it all nonsense- proabably- because people are bringing about a self fulfilling prophecy
June 29th, 2010 at 4:58 pm
and gold quietly made a new all-time high today in Canadian dollars (ok, my chart only goes back to 1974, so maybe not “all-time” high but “at least 36-year high”).
June 29th, 2010 at 5:11 pm
Oh yes, remember, if you buy at a very special technical level such as 1040, you are buying for the long term. So say the sales pundits. (Jesus, it’s held for 4 fricken times) I suppose they said the same thing a couple of months ago before it dropped to 1040 and the sales pundits will say the same thing at 900. Eventually, one will claim their seer skills provided a good call and offer an inflection point as their proof, just ignore the premature booboos.
June 29th, 2010 at 5:42 pm
rootless cosmopolitan Says:
June 29th, 2010 at 12:49 pm
@Marcus Aurelius:
That said: money exiting stocks — where does it go?
Your question is already fallacious.
___________
So, how do prices change? How does the overall value of the market change?
June 29th, 2010 at 5:52 pm
It would be different if resistance levels were expressed in -ish terms. 1040-ish. But on the other hand, it reminds me of learning to play blackjack at a casino. When I first started playing my neighbors and the dealer would help me out. After a little while you learn the basic rules and most people follow them in a cargo-culty/ritualistic sort of way. Break the “rules” and somebody at the table gets pissed because you “took” his/her card. The ultimate question is whether the “system” improves the odds of winning, but the manic, red-faced Asian guy sitting next to me isn’t telling.
http://www.youtube.com/watch?v=hbYYzP8MDvw
June 29th, 2010 at 5:53 pm
It would be different if resistance levels were expressed in -ish terms. 1040-ish. But on the other hand, it reminds me of learning to play bl@ckjack at a cas1no. When I first started playing my neighbors and the dealer would help me out. After a little while you learn the basic rules and most people follow them in a cargo-culty/ritualistic sort of way. Break the “rules” and somebody at the table gets pissed because you “took” his/her card. The ultimate question is whether the “system” improves the odds of winning, but the manic, red-faced Asian guy sitting next to me isn’t telling.
http://www.youtube.com/watch?v=hbYYzP8MDvw
June 29th, 2010 at 6:27 pm
With all due respect to the erudition and experience of all those commenting here, this is a BIG PICTURE site and you are getting lost in the details. Yes, they are significant details but their ups or downs merely muddle the actual picture. I could cheer Tesla (TSLA) as the next big thing that could save your bacon but it would not help in analyzing the indexes.
While it is true that people are fleeing to cash (and bonds) in droves, I don’t believe they are doing it to chase yield. The thought is more like asset preservation. Unfortunately, that too is in jeopardy. Why? Because we have the absolutely worst allocators of investment capital (GS et al) with the maximum amount of leverage. You may have $1,000,000 in bonds but GS has access to 30 or 40 TIMES that much to malinvest. This lopsided arrangement fully supported by our bought and paid for congress guarantees a weak or negative national economic recovery. The value of your dollars is severely compromised by this speculation. Our morons at the fed are playing Zimbabwe with our dollars. We see deflation because our jobs are gone but, believe me, this is temporary and illusory. When (not if) Bernake’s fun and games get out of hand, we will see 1970′s inflation on steroids. That’s the big picture. We have about six months.
If you want to preserve your assets and save your ass, you must be fully invested in an asset class which will NOT depreciate in ANY currency because ALL the currencies are fiat currencies. Measuring worth in dollars is a fool’s game. While every asset known to man can vary in its’ intrinsic worth, the one with the best track record is gold. It cuts across all the political bullshit and funny money policies from thieving bankers.
I am NOT advocating selling everything and buying gold . I AM advocating using gold as a METRIC to measure actual worth. Granted, it’s not simple. Having some physical gold is part of it but what I’m trying to communicate here is that we cannot continue to look at our currency as a measure of worth when some asshole can use 30 or 40 times as much as we have to play with without a single day of work and then have the government backstop him with our taxes when he malinvests.
If we all had 30X leverage with zero interst loans, we would have a level playing field. The boom in creativity and production would catapult us out of this depression into fantastic prosperity. But as long as we support our culture of elite inbred corruption, we have no future even if we measure worth in pork bellies.
June 29th, 2010 at 6:40 pm
Napped this afternoon, feeling secure with my long treasuries. Abby J. Cohen says there’s going to by a 15% rally shortly and that’s good enough for me :)
I do think we could see a relief rally of some sort soon. Combination of short covering (assuming people are still alloweed to short) and intervention by the powers that be.
No expert here, but I do have the recollection that part of the banks’ capital requirements can be met from market capitalization. Don’t mind correction if I’m wrong on this. If so, a significant decline in the bankster’s share prices could expose them for the bankrupts they truly are. And, this is unthinkable to some who have the power of the press, printing that is. This article tends to make the same point in describing why Wells/Wachovia haven’t been criminally prosecuted for financing Mexican drug cartels.
http://www.bloomberg.com/news/2010-06-29/banks-financing-mexico-s-drug-cartels-admitted-in-wells-fargo-s-u-s-deal.html
In any case, think there will be a “organized support” to hold up share prices. As in the 1929 crash, it will likely be overwhelmed at some point.
June 29th, 2010 at 6:42 pm
@Marcus Aurelius:
It changes due to different eagerness to sell or buy assets at a given price, which causes a disequilibrium. The trade settles then at the price where the amount of money, for which the asset is bought (that “enters” the market) equals the amount of money that can be realized (and “exits” the market) by selling the asset, i.e., where the (always only temporary) equilibrium is being restored. Asset and money change owners, but the amount of money in the system, i.e. held by someone, after the transaction is exactly the same as before the transaction, whether prices are rising or falling.
June 29th, 2010 at 6:51 pm
AGG – Why use gold as a metric and not copper? Or pork bellies? Or cans of tomato soup?
June 29th, 2010 at 9:28 pm
@AGG:
Just look at the high volatility of the gold price relative to any currency for the last 40 years and that already disproves what you say. Gold changes its price like any other commodity. There is nothing mythical about gold, no intrinsic secret, in which the solution for the internal systemic contradictions of capitalism could be found, different to what some seem to believe.
June 29th, 2010 at 9:33 pm
AGG
I think it is a little too late for gold, fantastic amounts of money have been leaked into the world economy with no sense of worth since the seventies and I don’t believe gold would take a giant leap ($30 000/once) to cover debts.
Even respectable papers such as the London Times have questioned the amount left at Fort Knox, so I wouldn’t bet on a return to the gold standard anytime soon, sounds like a hoax to me.
I do like your level playing field, it would certainly be a better example of democracy.
As for catapulting us out of depression, I don’t know, 30 years or more of nonsense will take a long time to correct, industrially, financially and mentally.
If I am to believe Pritchard from the Telegraph, Bernanke is ready to let loose up to $5 trillion to avoid deflation, badly allocated, badly managed, made to make Americans suffer more and longer.
The faster this system collapses, the better we will be.
Barroso, the president of the European commission has already expressed concern about the future of democracy in Spain, Portugal and Greece and frequent articles in the french press are mentioning “we are in 1788″, I don’t know if you’re familiar with 1789, but it wasn’t a pretty sight.
Anyway, Obama and Bernanke said recently that the economy was strengthening, that’s good news, I don’t what they mean though and the same to Geithner and Obama at the G20 who preach no austerity and stimulus meanwhile States are cutting into their budgets and stimulus money goes to bankers. Strange days.
July 9th, 2010 at 10:25 am
time to put another headline post in barry, perhaps “feeling good….. louis!”