Rebel Traders – Analysis Without The Hype

Friday’s close left us with a topping doji pattern which is still sitting underneath two important resistance levels.

Full wrap up video later today.

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SPX Chart

As discussed in last nights video update:

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Daily Chart:

SPX Daily Chart

Hourly Chart:

SPX Hourly Chart

Current analysis of the S&P 500 (cash) index.

At this moment the market is being held back by the down sloping trend line (1). That resistance level today is at 923.

Next resistance levels of particular importance are the mid peak (from July 1, shown with red horizontal dotted line). That level is 930. And the next is the long channel (blue lines) which today that resistance level is 939-940.

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SPX Chart

This chart is the S&P 500 (SPX) Cash Index

The chart shows short term resistance and support levels.

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S&P 500 Chart (SPX)

The key word for today is “broken wedges“.

The long watched ascending wedge patterns have finally broken to the downside as those patterns predict. Next we watch for a closing print ‘below’ the wedge and then watch for any ‘re test’ of the bottom wedge line.

Right now the break of the ascending wedges which have been so prevalent on so many charts is significant.

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S&P 500 SPX Daily Chart

S&P 500 E-mini Futures - Hourly Chart

Dow Industrial Average - Daily Chart

Pre market futures have dropped for a second consecutive night. S&P 500 futures currently down 1.8%

Looking for a pullback in the financial sector (XLF) at the open on news that Citigroup and Bank of America needs more money.

Today’s schedule:

Little time this morning for extended commentary.

The market opened this morning with a gap down across all major indices from Friday’s close. At this time weakness prevails in man market breadth indicators.

The following charts are for the S&P 500 (cash index SPX)

First off I want to welcome you to the newly designed RebelTraders site. I hope you find it pleasing and I welcome any suggestions or comments. Remember that you can always find our email addresses in the ‘About Us’ page.

I want to go over some charts tonight. The S&P 500 and Gold (GLD). First we’ll cover the S&P 500.

(S&P 500 – Multi Year Chart)

On the multi year chart of the S&P 500 index I have drawn the primary trend lines. On this chart it is clear that the bull trend that was in place over the last four years has been ‘broken’.

 (S&P 500 – Daily Chart)

The daily chart shows the significant resistance levels which is identified by the bearish trend lines (the two downward sloping lines), and price level resistance shown by the blue rectangle.

 

 (S&P 500 – 60 minute chart)

Attempting to gauge how far the current counter trend rally will go, or how long it will last is extremely difficult at this time. The geopolitical events currently unfolding will have an impact on the markets and every bit of news will either be a boost upwards or a new weight applied on top of the market and turn it back down once again.

All geopolitical events aside, the economy continues to weaken further and it remains our view that this continued decline is not priced into the markets yet. While it is true that the market is the greatest discount mechanism and always trades on future expectations we feel that the market is short sighted at this time.

On to Gold. There is a substantial debate in the media and other circles about oil and gold. It is an interesting human trait that reveals itself whenever there is a market direction change, even a short one. Those who would say oil was going to $200 and provided all of the reasons why suddenly change their mind and follow the mainstream euphoria. And they suddenly change their reasons of why it will now go lower. Instead of sticking with their original thesis they flip flop to be “in favor with the majority hope”. Everyone hopes that crude oil will continue to go down (well, except OPEC) and analysts change their long term views to be inline with the newly fueled (no pun intended) excitement.

Same happens with Gold. I have been trading Gold (GLD) in two different portfolios. One a short term swing trade, and the other is a longer term account. Over the past few days an interesting pattern has emerged and has kept me in my GLD position. I am still holding GLD on the long side and I do anticipate adding to that position.

  

 

Over the coming days I will fine tune our new web site. Bear with me as ‘tweaks’ are applied.

Good night to all and see you in the morning…

The following charts are that of the S&P 500 Index. Each chart highlights a different perspective in time and method of analysis.

Today’s movements in the market was very erratic, confusion in the market was quite evident. Strong selling volume right after the opening bell with a quick short covering rally that only took 10 minutes to get underway. That took the S&P back up to where the market opened by around 11:00am. From there we saw a steady flow of selling which took us down to new intra day lows around 12:30pm. That is where the ‘confusion factor’ really picked up in intensity. The remainder of the day it became a battle of those who are betting that the Federal Reserve will cure all ailments and we have only one direction to go, up. And then there were those who kept selling right alongside those who were trying to rally the market upwards.

Insanity in the market is prevalent everywhere one looks, and I have to say this "thank goodness I have access to the Bloomberg Financial channel", for CNBC has become so lame in their coverage of events that it is sickening. Their floor walkers continue to transverse the aisles of the NYSE talking about how "resilient" the market is, or that "the bottom is in". They are feeding the hunger of those retail traders / investors just waiting for someone to tell them it is time to start buying. I assure you that the smart money managers in the world do NOT listen to what is said on CNBC. CNBC is solely geared to the retail money and it is retail money that has yet to completely acknowledge the gravity of the situation at hand.

I said that people are expecting the Federal Reserve to cure all ailments. The situation with Bear Stearns over the weekend was a surgical removal of a cancerous tumor by Dr. Ben Bernanke and his trusty nurse Hank Paulson Ratchet (for our foreign readers, definition of what nurse ratchet means). Lets make sure we make an important distinction here, when we refer to the ‘financial system’ we are talking about the backbone of our economy which is the exchange of money from one bank to another, the flow of credit, etc. When we refer to ‘the markets’ we are discussing the stock market and the trading of equities. We all know by now that the health of the economy and in turn the financial system has been deteriorating. The US financial system has cancer and it is spreading. Bear Stearns’ implosion represented a large cancerous tumor that was about to explode and spread sepsis throughout the entire financial system unless it was surgically removed right away. Banks and other financial institutions are growing tumors within the entire system, threatening the life of the financial system. The US Government has been trying to cure the cancer by treating the symptoms and not the disease. The constant rate cutting by the Federal Reserve makes the market feel all warm and cozy for a short time before the pain starts up again, and then it wants even more. All the while the cancer that has been working its way through the body of the financial system has been growing.

Bear Stearns was a cancerous tumor that was about to spread a life killing toxin throughout the system and it had to be removed. So with the help of the the JP Morgan surgical center, Dr. Bernanke and his nurse Hank Paulson Ratchet, performed a swift removal of the tumor before it could infect the rest of the body any further. Instead of practicing preventative medicine from the beginning of this crisis the Dr.s have only been doing pain control and the occasional tumor removal in order to sustain life, albeit on life support that it is.

What happened to Bear Stearns should have never had to happen, if only the Government had been responsive to this situation early on instead of constantly saying that everything was fine with the economy it would have never gotten this far and this bad. Eight thousand employees of Bear Stearns are now going to be unemployed because of the inactions by the Government. Don’t get me wrong here, Bear Stearns deserves plenty of credit for their own demise as well as they needed to tell the truth of their condition. They have been hiding behind level 3 assets for so long that when JP Morgan went into Bear Stearns HQ over the weekend to do the due diligence they found the situation so bad that they felt the company was only worth $2.00 per share. Two bucks! Do you see the gravity of this? A company that had been telling the world they had good cash flow, healthy liquidity, and so on was now worth only $240 million dollars when it was discovered just how much toxic paper they were keeping hidden in the closets. If every financial institution (bank, brokerage, investment house, hedge fund, etc) were to bring their level 3 assets out of the basement and put a value on them at current market rates then the earning of the those companies would nose dive instantly. These financial institutions are playing a shell game with what they are leveraged to and to what extent!

The only reason Bear Stearns got in trouble was that they could not contain the losses and they had to call the Doctor. Instead of revealing to the public (and they were a public company) what their problems were, they lied to their shareholders and the general public. And then secretly went to Bernanke for help. All the while screwing the average share holder of the stock.

Now what happens? How many operating room ‘tumor removals’ will Dr. Ben and Nurse Hank Paulson Ratchet be able to keep doing in the name of keeping the financial system on life support? The housing market and home values will not be cured by rate cuts, consumer spending will not be cured by rate cuts, and the $600 check being mailed out to everyone shortly will be used for paying debt and not used to buy the latest iPod. The average American is hurting badly, the cost of living has increased materially over the past 18 months. More rate cuts may ease the pain in the financial system, but it will increase the pain on the average American. No matter what they do at this point it seems as if the Doctors have a terminally ill patient and it is only a ‘pain management’ issue at this point.

Tomorrow the markets will find out how big of a morphine injection the Doctor will be giving. Ahhh, the euphoria of morphine… but when it wears off we are still in a recession and in a bear market.

We remain short the Dow Jones Industrials (our entry was 12750). We are holding this short position unless our stop loss (break even) closes the trade. We are still in a bear market until proven otherwise.

Charts:

(S&P 500 Technical analysis – Daily Chart)

(Nasdaq technical analysis – weekly chart)

(Financial sector ETF technical analysis – daily chart)

The Dow closed at 11893 and all indices closed below their January lows.  It was definitely a “ride the waves” day of trading, but the selling outweighed the buying.  I didn’t even see a substantial amount of short covering at the close.  We have a lot to look at this evening, and we need to analyze all of the Fed moves today.  Check back later tonight and over the weekend for a more complete analysis of the market, economy, and our trades.  I hope all of our readers had a great day!

Lets go over the S&P 500 Large Cap Index chart. The chart shown below is a daily chart and I want to go over where we are currently.

• From the high in October 2007 to the low last week the S&P reached 19.3% decline from that high in October. As of the close on Friday we are currently down 11.4% from that high in October.
• The RSI peaked in October 2007 along with the highs in the price levels. Since that time the RSI has weakened further and currently has approached resistance.
• The price level has reached a very significant resistance level which is identified by the blue rectangle on the chart. The fact that the RSI is at resistance at the same time the price is at resistance tells us that we are likely to see either a sharp pullback soon or at the very minimum some consolidation around these current price levels.
• The long term view of the index, and of the markets in general remains bearish. In order for there to be some restored confidence in the markets we need to see the S&P reach 1510. At this time we don’t see this happening any time soon.

There has been much in the press lately that has said once Ben Bernanke cuts interest rates the bull market would return and the markets would reach new highs soon. We don’t see that scenario playing out at this time, there are still too many economic indicators and company earnings that tell us that we still have more downward moves to come.

It has been said that a bear market occurs when an index reaches a loss of 20% or greater. But other technical indicators along with the intense nature of the selling we have seen tells us that a bear market is already here. Now the question is how long will it last and just how severe will it get.

My view, taking into account the economy, credit crisis, housing crisis, the losses by major financial institutions, and the remaining uncertainty of the global economy as a whole is that this will be a substantial bear market. Every effort is being made by the FOMC and the Government to stimulate the economy. But the damage is too severe to be turned around quickly. Recessions take time to correct, they don’t improve overnight.

The President has made it a point to say repeatedly that the "fundamentals of the economy are strong". In actuality the fundamentals of our economy are in a dire situation and are still deteriorating.