Wednesday, January 16, 2008

Something for Everyone

Top Line: The stock market as measured by the NASDAQ Comp index traded in a fairly wide range on Wednesday but managed to escape much damage. In fact, the foundation is now in place for a counter trend rally, if you can believe that after the INTC news on Tuesday. Since the market failed to make any progress on the downside on Wednesday after a perfect setup, we are going to go back to our thought that a bounce to the 13,000 level is in order. Then, after that, we will get our move down to the 11,000 area (more about that after we see a rally).

The stock market is difficult to read on a good day but when it wants to go down and so many want it to stay up there are crosscurrents that move it in unlikely directions. Over night last night the futures were significantly lower with the NASDAQ 100 futures down about 30 points at our last look before we put yesterday's post up. In the morning, the futures were down until we heard the news from JP Morgan.

Before the market opened, JPM declared that they had stayed in the black for the quarter and this brought a smile to the bulls as they started buying up the financials, with JPM in the lead. JPM ended the day up more than 5% along with several other financial stocks performing very well??? This group includes the housing sector which was strong on Wednesday.

This was going on even as the tech world was getting hammered (except for most semiconductors) with GOOG ending the day down over 3% to a 3 month low and INTC down over 12% to close under 20. INTC was nearly 28 in early December. Our opinion would be that INTC got off easy and should have been sold more, time will show this may happen. We have had a $12 target on this stock for a long time.

As all of this was going on, a rally in the dollar came in as gold and oil suffered setbacks. With oil down, the transports were doing pretty well today and have done better than the industrials over the past few days. This has created a bullish setup for the Dow industrials helping us to move the bullish scenario up a notch--remember this is counter trend and iffy to trade.

And, bonds did ok in the early going but ended down on the day. Bonds are getting pretty expensive and may take a rest if stocks manage to go up over the next few days. We do think bonds (US Treasury variety, TLT for example) will do fairly well this year even with a little setback here.

We sometimes see strong trends being interupted for options expiration week which this is and Wednesday is the typical turn day. We think there is ample opportunity for us on the downside during 2008, so we remain patient. It's not like we haven't had a solidly down January so far. We just think the next move will take us out of this oversold condition and allow us to drop once again.

Targets are now measured in bear market terms since we are probably not going to revisit the highs any time soon. We go back to our Elliott wave estimates both for the corrective move up now and then the next large move down. We should be correcting the move from 13,750 to this week's lows maybe today's 12,400. That's a 1350 point drop giving us an initial target of about half way or 675 points back up to just over 13,000. The Elliott wave estimates are about 40% (38.2%) or 60% (61.8%) or about 525 to 825 points up between 12,925 and 13,225 or our estimates of 13,000 to 13,200 which we have talked about for several days now.

After that, Elliott would say that we should have another move down that would be more than the 1350 point drop that we saw in the first run down. This proportion is not ever really knowable but at a minimum would be 160% of the first wave, or over 2100 points. That would take us down to about our 11,000 that we mentioned yesterday. Nothing seems to go perfect to plan but at least this is a roadmap we are going to be watching.

Reading Material:

Article on The Education of Ben Bernanke from the NY Times

FSI: 91.79 (a new low in this new index)

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