(click on picture to enlarge)
This post began Wednesday night the 30th, but wasn't published until after the close Thursday the 31st.
CHART AU COURANT: Either the stock indices begin their decline within two hours of Thursday's open, or will do so after a short, sharp extension rally into the 1300-1325 level in the S&P 500 Index (SPX). The difference will soon become moot, as the decline that follows both alternatives will be "a wonder to behold", as Robert Prechter and A.J. Frost describe third wave declines, in their book The Elliott Wave Principle. Closing below 1220 will suggest the Tsunami of selling is unfolding; below 1200 guarantees it. Thereafter, 1150 becomes the immediate target, 1010-1080 becomes the intermediate target, and the 780 area becomes the final support to avoid melt down. That would translate to Dow numbers as follows: closing below 12,000 suggests Tsunami unfolding; below 11,800 guarantees it. Thereafter, 10,500 becomes the immediate target, 9,100-9,900 becomes the intermediate target, and the 7,300 area becomes the final support to avoid melt down. I'm just saying...
Bottom Line: The chart shows daily stochastics entering extreme overbought territory in the lower panel, meaning the upside is very limited from here. At the right, you can see that the green price bars touched the initial Fibonacci resistance at the 38% retracement level of the entire decline from the May peak, and turned down. Also, the lower 2 standard deviation band held prices on the downside, after having been penetrated at the declines worst, but the next penetration is likely not to hold.
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MARKETS: The media has been doing its best to "talk up" the economy, especially the housing disaster. CNBC's main talking point Thursday was that in the worst county in the worst state for housing (the county that houses Stockton, California), home sales have increased for each of the last 5 months. What they say in a quiet voice is that 8 out of 10 sales are foreclosures, and prices are not rising. How misleading and irresponsible. Who cares if the number of sales is rising if they are doing so at lower prices, due to more and more people going into foreclosure, bankruptsy, and financial collapse. Of course, most other cities and counties are NOT seeing increased sales numbers, as they aren't as far into the depression as Stockton is. THIS IS NOT A HEADLINE TO CELEBRATE. It's one to cry about.
During the final two hours of the day Thursday, Alan Greenspan told Maria Bartoromo on global television that he thinks Fannie Mae and Freddie Mac are "a major accident waiting to happen", and will need to be nationalized to fix their massive problems. Within minutes, the markets soured and fell across the board to close lower on the day. While many will blame Greenspan for turning the markets, we Elliotticians saw the wave form coming to its inevitable conclusion (detailed in the blue section above).
Crude has begun the bounce I talked about last post from the 120-122 targeted low, and Nat. Gas should follow. 130-133 is initial resistance, followed by 137-139. Crude has no business being above 144, and closing above this level would imply another high above 148. Closing under 120 now should suggest the next liquidation wave is in force, with 101-108 next support, and 86-91 unlikely to be broken for now. This time, falling crude should coincide with falling stocks, as the big boys bail on anything they have profits in to compensate for losses in others.
In addition to crude falling with stocks, expect gold (and even more violently, silver) and the euro to decline as well. Our government flooded the system in the last few years that floated all these boats higher. Now, as the liquidity flood dries up and becomes a drought, the past benefactors should simultaneously become the pariahs.
POPULAR STOCKS TO LIGHTEN UP ON OR SHORT SELL (this list is about to get very large): IBM above 130 or below 126, GE above 30 or below 27, AMGN above 55 (entered 62.08 on July 28), GS above 211 or below 170, RIMM above 130 or below 114, AMZN above 90, AAPL above 175, CSCO above 24 or below 21, INTC above 26 or below 22.
INTERESTING STOCKS TO ACCUMULATE OR BUY (if you have to in a dangerous environment. Notice how small this list is becoming! See July 23rd posting for profit taking on a lot of former trades): SBUX from 13-15 (entered at 15 on July 1) could test 23-25, MSFT from 26.5 (entered 26.5 on July 1) and will add under 18.5, EBAY under 28 (entered 24.62 on July 17) for bounce toward 38, adding in the 18-21 range, and SNDK under 18 (entered 17.55 on July 1, added 13.25 on July 22) for bounce toward 35, adding in the 10-12 range, NVDA under 13 (entered 12.78 on July 7) for bounce toward 23-25, adding into the 7-9 range, VMW under 38 (entered 37.95 on July 8) for bounce toward 55, adding into the 18-22 range SBUX under 15 (entered 14.91 on July 8) for bounce into 25, adding into the 8-10 range, and all home builders for bounce of 30-50% from their lows, but specifically, KBH under 16 (entered 15 on July 11, exited 20.89 on July 23, +39%) and will re-enter in the 15.5-17.5 area, HOV under 5 (entered 4.97 on July 7, exited 7.77 on July 23, +56%) and will re-enter 5.50-6.5, TOL under 18 (entered 16.80 on July 11, exited 21.80 on July 23, +29%) and will re-enter 18-19.5, YHOO under 20 or above 22 and adding under 13, and finally GOOG under 480 (entered 473 on July 21), adding at 393 and 293...could actually see 650 or higher while general market dives. SCHN under 67. XLF from 18-19.5, using 16.75 as initial risk level (entered 19.50 on July 28, risk level raised to 19.50 on July 30).
For what it's worth,
Ken
