Sunday, August 24, 2008

The Kiss of Death, Technically Speaking

Top Line: After the Update's week off, the market, as measured by the Dow, is just slightly lower than when we left you. As time passes, the market is getting closer and closer to the edge, hence tonight's title. More on that later.

With the last week of the month upon us, and time passing quickly, we look to the near term possibilities for the market. This time is traditionally a strong time of the month but with the market coming into a strong Down move, the complacency may just get a little jolt of reality.

To summarize last week, we would say that the market has tried to fool most of us into thinking that the worst is over when the truth is buried in the price facts that the market has previously given us. As we mentioned in the Top Line, the Dow is lower than it was the week before. And, going back two weeks, the Dow is down about 200 points. No, that's not much, but it doesn't match up with the idea of the strong up days. In addition, with some time to watch CNBC this past week, there was certainly a lot of talk about how much the market's ups and downs were mostly due to "the movement in oil prices", please.

Now, to the Kiss of Death: One (technical) interpretation of the current Dow position is something we have mentioned several times in the past. The idea is that support becomes resistance but in this case the support line is not horizontal like in most of our technical discussions. This time there is a "bullish" up trendline that has supported the rally from the July lows. Once this up trendline is broken to the downside, the market likes to try to come back up to it, pretending that the up trend is still in place, and as we mentioned trying to fool many.

The fact is that the market is now struggling to regain that trendline and it has just touched it from the underside. This touch from the underside of the up trendline is called the Kiss of Death and suggests a solid down move coming off that line. We see that the strongest wave of the down move that started last October is not in its strongest position so the Kiss may in fact be a legitimate read. Yes, it is technical but the situation does indicate a weakening in the latest up move since the middle of July. This weakening can be seen on the chart better than in the financial news...probably.

So, as we move into the new week, we will be watching to see how accurate the above analysis is. The market can do what ever it wants, but the complacency of the players as measured by the volatililty indexes does fit well. It seems that the greatest fear the players have at the moment is the fear of missing out on the next up move. Just imagine if that doesn't materialize. All of these new bulls will be very, very disappointed. The idea of the market letting them get in at "the Bottom" is pretty funny.

FSI: Tuesday 84.61, Wednesday 84.80, Thursday 85.10, Friday 85.85

VXO: Tuesday 23.22, Wednesday 21.70, Thursday 21.26, Friday 20.47 (heading up to 50)

SDS: Friday 64.52
QID: Friday 40.08

Dow Industrials: Tuesday 11,348.55, Wednesday 11,417.43, Thursday 11,430.21, Friday 11,628.06

PS We missed the question from Warren Buffet the other day, fortunately he's not related to the real Warren Buffett. But, he still needs an answer to his question. We were actually looking at ABK when we were discussing the 4 to 5 move and of course we saw it take off on Thursday morning after closing right around 4 on August 13th when we mentioned it. From there it spurted up to 6+ and recently has dropped back down to just over 5. Apparently we missed that move...oh well, it did seem to work out for those gamblers. Congrats.

Jackson meets Jeff's Day Care provider Sharon...not too sure about her.

Then there's the grin when Jason told him about his new black eye...

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