In my October 10th post When The Momos Go Parabolic I argued that the end of the Bull was in sight because a few select momentum names were accelerating upwards. This meant that the broader indices were posting gains on fewer and fewer participants. Market breadth was weakening. The four ‘momo’ horsemen were of course, GOOG, RIMM, BIDU and AAPL. The charts above are of the carnage that followed. Some of these names are now approaching levels where a counter trend rally becomes more and more probable.
I said ‘COUNTER TREND RALLY’. They will bounce. Nothing more. The bounce will be quick and significant. This will alleviate some serious short term oversold pressure and will occur as shorts cover and some longs look for bargains.
The entire global economy is on the verge of sliding into a recession and the US is leading the way. Non-farm payrolls came in negative yesterday. The BLS (Births/Death Model) was changed and that resulted in some significant revisions, but that does not change the fact that job creation can only decelerate right now.
U.S. Economy: Payrolls Fall for First Time Since 2003 (Update3): “The U.S. unexpectedly lost jobs for the first time in more than four years, increasing the odds the economy will fall into a recession and making it likely the Federal Reserve will cut interest rates another half point next month.
Payrolls fell by 17,000 in January after an 82,000 gain in December that was larger than initially reported, the Labor Department said today in Washington. None of the 80 economists surveyed by Bloomberg News predicted a decline.
Employment is one of the indicators, along with wages, production and sales, that help determine the start of economic contractions. The decline poses a further threat to consumer spending, which accounts for 70 percent of the economy, after households were already hurt by falling home and stock values.”
In my November 10th post When The Momos Lead The Way Down, I wrote the following: “The damage is swift and savage. Intraday the Nasdaq 100 was down over 4% and all the big momo names were down close to or in excess of 10%. When the big momo names lead the way down the Bull is probably dead for good.”
In my November 19th post Dow Theory Hints of Bear Market, I wrote: “Dow Theory is flashing some serious warning signs here. In Dow Theory, the Dow Transportation average must confirm the highs or lows in the Dow Industrial average. This is now occurring. In fact, the Dow Transportation average is currently leading the charge lower and has now broken through the August panic lows.”
It is often difficult to put all the different pieces of information together, but that is the nature of trading. If you haven’t seen these already, sit down before you take a close look: Really Scary Fed Charts, Why Bernanke Will Furiously Cut.
So, now the market is bouncing… and bounce it must. The bounce too was predictable. both from a fundamental and technical perspective. Fundamentally, you had to assume that the powers that be would do SOMETHING. ANYTHING. They can’t tolerate ‘lock limit down’ on the futures after a big slide the week before. They can’t have such terrible economic news go unanswered. It is political suicide. Especially in an election year. So you had to assume they’d start acting. And so there was the stimulus package, the emergency cut and the planned cut. Still pending are the monoline bailouts. THAT will mark the end of the counter trend rally.
From a technical perspective, indices the world over were ‘rinsed’. Stops were blown out and capitulation took place. You can see that from the charts. Look for massive red candles on massive volume. Prices hit deeply oversold levels around long run support. I argued the point in my January 23rd post Charts for the Big Bounce. Things got off to a good start (Securing the Bounce: Microsoft Beats, More Fuel For the Bounce: Microsoft, Ambac) and then things became critical very quickly (Monday: Bounce or Die, Bearish Engulfing). If the S&P can clear 1400, look for a move to the 1430 area. This will likely mark the end of the bounce. Then markets will turn and head once more for the depths of hell.
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