Bernanke To Senate: "We're Screwed"

Yesterday was an orderly, moderate volume pullback. Today was anything but that. I don't know what the catalyst was, but Bernanke's testimony in front of the Senate didn't help, with the spectre of bank failures looming, and the admonition that the Fed may be unable to stop the carnage to come.

1350 seemed to provide support during the early trading, but collapsed in the afternoon, and it looked like 1330 might go down, too, but a late surge got us back. 1316 is the February low, if that doesn't hold then we are probably going to retest the January lows.



Another factor in today's selloff might have been the pathetic performance of the President during his press conference yesterday. Thank God we have less than a year left, if we can survive it.

The Nasdaq slightly undercut the low close of this year. The Price bar is covering the volume, but it was much higher than yesterday, giving another distribution day.

The bottom callers in the financials are going to look pretty stupid soon. We came within a hair of testing the low close for the year. For those who bought these because they were "cheap", they might get a whole lot cheaper.


The VIX had a rocket shot today, but is still well below panic levels, which could mean that a) we could reverse sharply next week and start another rally, or b) we haven't seen anything yet when it comes to selling.



I would comment on the President's press conference, but I'll let Kieth Olberman do it for me.

Clearstation was down all day, so I am flying blind looking for breakouts. I picked 2 from IBD's website and 2 that I was watching today.

JRJC

This came of the IBD "Up in volume" screen from Yahoo finance. It is a former leader that seems to be reversing a downtrend. It reported earnings yesterday and broke through both the 50dma and 200dma on very high volume.

ESL

This reported earnings and broke out of a trading range. I would be a bit worried about the overhead resistance at 53, and that gap is looming, although the 200dma may provide support here.

WDC

IBD had a breakout buy point of 31.80 on this, and it passed it late last week and made a high of 34.80. It has now pulled back and is below 31.80 again, giving another chance at buying, however, the pullback was pretty severe and on high volume, so this one should be treated extremely carefully.

GHM

I posted this after the big drop in late January after they reported earnings. I thought the selloff was a bit overdone and I expected it to bounce back. It did, but hit some stiff resistance around 35, but broke through it after bouncing off the 200dma. It will now have to deal with the 50dma.

Light Volume Pullback

Today we started down after touching the 50dma yesterday. On the positive sign, volume was relatively low. This is likely going to be a small pullback before another attempt up, unless we start getting distribution, so watch volume carefully. 1370 is now support again, although 1350 is going to be a magnet again.

The Nasdaq was relatively stronger, due mainly to dead cat bounces in AAPL and GOOG. Again, volume is relatively low.

The Russell 2000 made two attempts to get throug the 50dma and failed, and is now pul;ling back. It needs to stop somewhere around 690 and make a higher high soon, or this rally is in danger of failing.

Energy is the strong sector now, with a really nice move u from the bottom, but it looks a bit extended and volume is declining.

Agriiculture also looks like it needs a pullback here. The first support is at 41, but I think a pullback to 39 is very likely.

BEXP

Yet another energy stock breaking out on high volume.

LNN

One of the leading stocks in the Agriculture sector, it is bot heavily traded, but formed an almost perfect base here.

ECA

A poorly formed base, but the right side is very nice and there is a lot of accumulation. Volume and relative strength have both been increasing.

BRKR

A double bottome base that slightly exceeds the 35% correction threshold that IBD likes for bases. Other than that, this is quite good, and had you bought it at the proper buy point (10.84), you could have made a ton of money today. If you bought today's breakout, you lost.

Bernanke Gets Schooled Again

I am not an options trader, but if I were buying puts on the DIA, I would start on any spikes above 127.50, which we got today. There may be more chances tomorrow, as the 50dma is now providing some support here.

The run in the Transports might be over here. Rumors of mergers in the airlines seem to be falling through, and the descending 200dma is justy overhead.

The SPX came close today. I'm looking to test it tomorrow to see if we bounce off it. I am not expecting a restest of the Jamuary low (yet), just a pullback here, unless we get some serious distribution (I'll be monitoring IBD for distribution days and will let you know).

The Nasdaq finally broke it's wedge today and is well below the 50dma, which means it might have better strength than the other indexes in the next couple of days.

The dollar has broken all support yet again. And we can't figure out why oil is so expensive.



Scratch that. Ron Paul has it figured out.

CEDC

This is the base of the day. Notice the beautiful 2 week consolidation right along the 50dma, the increasing CMF, and the breakout in relative strength despite the price being about 4 points off the high.

NFLX

A big breakout on high volume. The base is deep and flawed, but accumulation has been good.

NBL

The problem with deep bases is that buy the time they break out, they are running out of steam. Relative strength here is high, but both price action and CMF are slowing down A better buy point might have been when it broke through the 50dam.

CPL

Tried to break out to a new high, but retreated to just below resistance. Notice the relative strength, breaking out to a new high when the down trend line was broken. Also notice the increase in CMF. This is a very nice chart.

Stagflation, We Sure Missed Ya'

I guess the obvious level of resistance here is the 50dma, which leads me to believe that we may go through it and test 1400 before dropping again. 1350 is now a fading memory, but we may be seeing it again soon. Volume is picking up a bit, though, and IBD has us back at a confirmed rally, for what it is worth.

The Nasdaq is lagging but still made a nice move, and volume picked up here as well. This despite the problems GOOG is having.

The Russell 2000 tested it's 50dma, even breaking through it briefly before pulling back. We will likely test it again tomorrow.

The VIX is heading for a test of the 200dma, where it seems to have very strong support. Everything is pointing to a reversal in the next few days.

XLF looks to be finding a bottom here, at least temporarily, but it too bounced off the 50dma.

CRZO

Another energy stock breaking out. This is a flawed double bottom base, and as such, it's proper buy point was above 51.14 (it gapped past that about 2 weeks ago). However, today would have been a nice buy as it passed 57.38, volume was less than yesterday, but still well above average.

ECOL

A bit of a sloppy base here, but the relative strength line is good, CMF is not. It broke out to a new high today on higher than normal volume, but sold off pretty sharply.

CREE

One of the stronger of the semiconductors, it di break out on higher than average volume, but it's relative strength line did not. It remains to be seen if that will be a negative or not.

AGU

I noticed a few agriculture stocks moving up in the morning, them pulling back sharply in the afternoon. AGU attempted a breakout, then sold off pretty severely. Volume was not excessively high, though.

No Bailout Yet

I am a big believer in learning to read charts (and I am by no means an expert at it yet), but when a pattern becomes so obvious that even the anchors at CNBC can see it, then it is very likely to do the unexpected. Such as it is with the wedge we have been dealing with for a while now. We had another big late ABK rally, this time on news that Standard & Poors reaffirmed it's AAA rating (we still haven't had confirmation of the "bailout", but we have another day for that).
Here is my favorite quote in the Yahoo finance story :

Chris Johnson, president of Johnson Research Group, said the market continues to look for any sign that financial stocks will make it through the credit crisis. Experts believe keeping bond insurers whole will spare greater losses for major global banks and brokerages.

"Even the smallest bit of positive news and the market takes off," he said. "Investors get excited if they sense a bottom in the financials because they've been the Achilles' heel of this market."

The amount of wishfull thinking going on is simply stunning. Today was not particularly bullish considering the surge we had last friday, with the SPX hitting stiff resistance at 1350. It wasn't until the news came out that we broke through, now finding resistance at 1370. Watch the declining 50dma, that will become an issue soon.

The Nasdaq again was relatively weak. The NDX still has an unbroken wedge, but as I mention, when everyone sees it, it doesn't mean much anymore.

The Russell 2000 made a very nice move today, but needs to establish a hogher high here, and the 50dma is right in the way now.

The Banking index BKX got a big shot in the arm, taking ovet the 50dma, which could become support now. MACD is about to cross, so we may have hit a short term bottom here.

The Yield on the 10 year treasury is going back up after a brief pullback, going once again through the 50dma with gusto. Next target is 40, then after that a run at 42-43 could have bad consequences for equities and will be a disaster for the mortgage market.

ME

Broke out Friday on high volume, and followed through today. This is well past it's buy point, but may pull back, giving another oppoertunity.

APA

This formed a deep base but came out of it pretty quickly. Relative strength reached a new high last week, but volume has been declining.

STLD

A short and flawed double bottom base. Ideally you would like to see the second bottom undercut the first. This would have been a good buy as it passed 60. It is now reaching new highs on declining volume, not a good sign. This may accomodate us with a pullback.

CENX

A much loner base than STLD and better formed. The proper buy point here was when it passed 60 on high volume (arrow) Notice also that the relative strnegth line was reaching a new high at the time. It is probably extended here, but may give another chance to buy with a pullback.

How To Make Lots Of Money

Step 1: Take Charlie Gasparino of CNBC out to lunch.

Step 2: Tell Charlie you have it "from good sources" that ABK is going to get a bailout.

Step 3: Buy ABK just before Charlie goes on the air with the "news" (notice the volume imcrease just before ABK takes off).

Step 4: Sell before the close so you are not stuck with it when everyone finds out the "news" is bogus.

Step 5: Enjoy your profits!

IBD100

DRYS is number one on this weeks IBD 100, and even IBD mentioned how ugly this chart is. The correction it went through was way too deep, and it is forming a v shaped base. This has bounced up quite a bit since hitting bottom, but it has a lot of overhead resistance. This is not like ly to be a leader in a new rally.


MTL was last week's big gainer, and it has a beautiful chart. Support and resistance levels are well defined, and although the base isn't particularly well formed, it is shallow and shows accumulation. The only problems here are 1) reaching new highs on declining volume, and 2) price is approaching 200% of the 200dma.

CNBC Induced Head Fake

It pays to monitor the news duing the trading day. I noticed the jump in the SPX almost immediately and clicked on my Dow Jones streaming news to catch this headline:

Ambac rescue could could be announced Monday or Tuesday - Source: CNBC

Now I took a look at the source and said "Oh, that's a load of crap", but quickly checked the quote for ABK, and sure enough it was starting to run. I managed to get a piece of it, with what little cash I had in my account, not much, but about enough to pay for the trip to Disneyland my daughter and I have planned for Sunday (by the way, there won't be a post this Sunday).

I made damn sure I was out before the close (sale went through at 3:58 est). I will be shocked if there actually is a bailout next week. Looking at the daily chart, we see that we were falling below the triangle that, as I pointed out yesterday, even the folks at CNBC saw. I expected a lot of people jumping into short positions, which is why I didn't. I knew something was going to reverse the first move, and CNBC accomodated. We headed right for 1350, and went past it. I'll be ready to go short after we bounce off the 50dma.

I wonder what will happen if this turns out to be crap, and someone just made this up to get the shorts covering? Oh, wait. this has happened several times before and nothing was done then. What was I thinking?

XLF was in real danger today, in the process of breaking a key support level and cementing itself into a nasty downtrend with a real possibility of threatening the January lows. ABK gave it a reprieve, and now it may test the 50dma.

The Russell and Nasdaq also reversed, but did not benefit quite as much. The late rally was mostly financials. At least on the Russell they prevented a close below 690, and we could get a pop up early Monday.