I felt that I needed to do my Sunday night analysis today to get a jump on Monday. I wanted to objectively evaluate everything before I got trigger happy with the sell button. I am therefore posting my analysis today rather than on Sunday.
Our moving averages point to quite a bit of technical damage this week. Many of the major averages have broken through their 50 DMA including SPX, QQQQ and DIA. IWM is still hanging in there. I mentioned on Thursday that China was in trouble and that China’s fate had broader implications for the entire market. China is the engine driving the market and the market will not perform well without China.
I have posted my usual chart below but here is a quick summary.
The following averages have broken through their 50 DMA and appear poised to test the 200 DMA: SPX, QQQQ, PGJ, GLD, SLV and LD. The Aussie Dollar and Canadian Dollar have also broken their 50 DMAs.
FXI (state owned China) has breached its 200 DMA. FXE (EUR/USD pair) has also broken its 200 DMA.
In response, I sold out of all momentum positions (IBD 100 and 52 week high stocks). I continue to hold my secondary offering/recapitalization portfolio although I did unload Citigroup (essentially value stocks). I would have sold BAC as well but it is so close to its 200 DMA I decided to see how it tests it before selling.
| Primary Trends | 1/24/2009 |
| 50 day MA – SPX | BELOW |
| 200 day MA – SPX | Above |
| 300 day MA SPX | Above |
| 50 day MA -QQQQ | BELOW |
| 200 day MA – QQQQ | Above |
| 300 day MA -QQQQ | Above |
| 50 day MA – PGJ | BELOW |
| 200 day MA – PGJ | Above |
| 300 day MA – PGJ | Above |
| 50 day MA – IWM | Above/Even |
| 200 day MA – IWM | Above |
| 300 day MA – IWM | Above |
| 50 day MA – GLD | BELOW |
| 200 day MA – GLD | Above |
| 300 day MA – GLD | Above |
| 50 day MA – SLV | BELOW |
| 200 day MA – SLV | Above |
| 300 day MA – SLV | Above |
| 50 day MA – PTM | Above |
| 200 day MA – PTM | Above |
| 300 day MA – PTM | Above |
| 50 day MA – USO | Below |
| 200 day MA – USO | Above |
| 300 day MA – USO | Above |
| 50 day MA – UNG | Above |
| 200 day MA – UNG | Below |
| 300 day MA – UNG | Below |
| 50 day MA – SGG (Sugar) | Above |
| 200 day MA – SGG (Sugar) | Above |
| 300 day MA – SGG (Sugar) | Above |
| 50 day MA – LD (Lead) | BELOW |
| 200 day MA – LD (Lead) | Above |
| 300 day MA – LD (Lead) | Above |
| 50 day MA – NIB (Cocoa) | Above |
| 200 day MA – NIB (Cocoa) | Above |
| 300 day MA NIB (Cocoa) | Above |
| 50 day MA – JO (Coffee) | Below |
| 200 day MA – JO (Coffee) | Above |
| 300 day MA – JO (Coffee) | Above |
| 50 day MA – JJG (Grains – Corns, Soybeans, Wheat) | Below |
| 200 day MA – JJG (Grains – Corns, Soybeans, Wheat) | Below |
| 300 day MA – JJG (Grains – Corns, Soybeans, Wheat) | Below |
| 50 day MA – JJN (Nickel) | Above |
| 200 day MA – JJN (Nickel) | Above |
| 300 day MA – JJN (Nickel) | Above |
| 50 day MA – JJC (Copper) | Above |
| 200 day MA – JJC (Copper) | Above |
| 300 day MA – JJC (Copper) | Above |
| 50 day MA – BAL (Cotton) | Below |
| 200 day MA – BAL (Cotton) | Above |
| 300 day MA – BAL (Cotton) | Above |
| 50 day MA – COW (Livestock) | Above |
| 200 day MA – COW (Livestock) | Above |
| 300 day MA – COW (Livestock) | Below |
| 50 day MA – $USD | Above |
| 200 day MA – $USD | Below |
| 300 day MA – $USD | Below |
| 50 day MA -LQD | Above |
| 200 day MA – LQD | Above |
| 300 day MA – LQD | Above |
| 50 day MA – FXE | Below |
| 200 day MA – FXE | BELOW |
| 300 day MA – FXE | Above |
| 50 day MA – FXA | BELOW |
| 200 day MA – FXA | Above |
| 300 day MA – FXA | Above |
| 50 day MA – FXB | Below |
| 200 day MA – FXB | Even |
| 300 day MA – FXB | Above |
| 50 day MA – FXC | BELOW |
| 200 day MA – FXC | Above |
| 300 day MA – FXC | Above |
| 50 day MA – FXY | ABOVE |
| 200 day MA – FXY | Above |
| 300 day MA – FXY |
Above |
| 50 day MA – FXF | Below |
| 200 day MA – FXF | Above |
| 300 day MA – FXF | Above |
| 50 day MA – JNK | Above |
| 200 day MA – JNK | Above |
| 300 day MA – JNK | Above |
| 50 day MA – TLT | EVEN |
| 200 day MA – TLT | Below |
| 300 day MA – TLT | Below |
Anybody with charting software can make these kinds of observations. The question becomes whether this is a little pullback to support or whether this is the beginning of a move lower.
I think this selloff has some teeth and I think we’ll see the 200 DMAs tested on the major indexes. China is broken. FXI has already broken through its 200 DMA and is hanging onto horizontal support at $39. I think we should get a bounce before this support is broken, but expect a lower high and potentially the completion of a head and shoulders.
Other bearish factors:
1. EURUSD is broken and trading below its 200 DMA. Objectively bearish.
2. $VIX has moved above its 200 DMA for the first time since the rally started. On a relative basis, obviously the VIX has moved into a new range. On an absolute basis, a VIX around 30 makes it more dangerous to play in the market. I previously mentioned that crashes and big down days don’t generally come out of nowhere. Almost all the big selloffs occur when the market is trading below its 200 DMA and with an elevated VIX. While we haven’t reached those kinds of conditions, this spike on the VIX should be heeded.
If you parse through the major ETFs, you will also see that most of them are below their 50 DMA and many are below their 89/100 DMAs.
For the foregoing reasons, I’m not buying this selloff as a support bounce. I therefore don’t have any long ideas for next week.
While I believe it is time to be cautious and I have been selling some positions, I do not believe it is time to short stocks. This may very well just be a pullback. I can’t tell yet and there is no point in guessing.
Like I have been saying for weeks, if this is more than a small pullback, there will be plenty of time to jump on the short train.
UPDATE:
I forgot to mention that I am quite proud of Obama getting behind Paul Volcker’s plan. I wrote about this back on November 7th and again on November 17th.