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Weekend Analysis

It seems hard to believe that this could be possible, I know

Mon, Sep 29 2008, 07:12 GMT
by Jack Steiman

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It seems hard to believe that this could be possible, I know. How in the world could a bank the magnitude of Wm go under and the market can actually go higher? I don't have the answer but I can try to come with a good guess. Wm has been collapsing in terms of its stock price for a very long time and I think the market already understood it was only a matter of time before they belly up. Add in the fact that Jpm took over and it was a relief as the folks who banked with Wm were now protected from possibly losing any of their money. In other words, the worst had long ago been baked in with regards to Wm. There's more. With Wm already considered a lost cause, the market was focusing on what could hopefully stop this horrific process from continuing. On getting the bill passed that was presented by Paulson and Bernanke. Although there are political struggles going on at this time, can they ever get along, the market feels certain they will come together and get the job done over the weekend in fear that if they don't they know the market is likely to get hammered on Monday. With things already in the toilet, and with the elections around the corner, it's not something that's likely to take place. So the market ignored the horrific and traded on hope. There's nothing wrong with hope. It's just that this hope better be realized over the weekend.

If we look underneath the markets gains today, there is a troubling sign. Yes the Dow was up nicely and the rest of the market well off its lows but if you spend a moment looking at the advance decline line you'll see that the heavy majority of stocks were lower meaning a few heavily weighted stocks were carrying the day. Not the type of internals that excites you about jumping in to join the rally. You'd have thought that with the late run up in stocks that the advance decline line was mildly positive or flat at worse. It was roughly two to one negative. Worse on the Nyse but overall two to one on the dark side and that's not what you want to see chasing upward, even if it's likely they pass the bill over the weekend. Maybe part of the bill passing rally took place in the last hour today. It seems to me that if they don't pass the bill the market will get crushed and thus it's best to stay cash for now.

On the positive side of things from a technical perspective, you couldn't find prettier candles than what we saw today. Massive hollow red on the Nas meaning a huge gap down that was bought up throughout the day. In addition, not only was the gap down bought on the Dow and Sp, they both actually went green. All of the major indexes printed very bullish daily candles today and that just can't be argued. Normally what follows these types of candles are strong continuation moves. So we have a split technical picture. Poor internals in terms of advancers to decliners but some very bullish candles. Things are so volatile it makes it virtually impossible to play. Only after the bill is actually passed will it become clear on how to trade. We need to see the market reaction in terms of price and the oscillators. That will be the big clue we're looking for.

So what do I think, you may be asking. I look at the daily charts and see things compressed on the oscillators, especially the most important of all, the Macd. Some good divergences to boot. When things are compressed and you see bad news unable to move things appreciably lower, it tells me it's quite likely we've seen the worst of things for now. I'll say it again. For now!! We may be ready to move higher overall for the next few months. I don't think we go below 1133 on the Sp again, the most recent low made. I don't think we explode. No way. I think we can slowly but gradually move our way upward for some time. The only caveat being that the bill doesn't get passed. Then all bets are off because the market will probably crash. Not probably, likely!! That's extremely unlikely. Even these knuckleheads have to see the light. I hope! I am waiting for some weakness to think about going long. We'll get that even if we get the bail out package. Any move up will have some type of move back down to back test. One step at a time here.

I am showing you 6 charts tonight of individual stocks that are in bearish patterns. These are the types of stocks that should the Government do the wrong thing over the weekend, well they could collapse. There are so many charts setting up to collapse. The Gov't. best get their act together and now or this market will shed blood as many charts are extremely vulnerable.

Enjoy the weekend. Play with a child if you can.

Published on  Mon, Sep 29 2008, 07:13 GMT

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