Russell 2000 Fails to Confirm New High

Over these past few weeks the Marketdoc Report has been writing about the continuing weakness in the stock market. This week brought news of a possible $60 billion default by Dubai World, the state owned investment conglomerate. The markets fell not so much on the news, which came out Wednesday before Thanksgiving, but on the perceived uncertainty involving the credit markets. No one really knows yet how far reaching the effects of a default by Dubai would be. It has the potential of becoming another LTCM (potential $1 trillion exposure) or at least greater than Bear Stearns ($29 billion) depending on how much market exposure Dubai has across the rest of the world. As a side note there is still about $365 billion of unsettled debt from the Lehman bankruptcy. One thing the markets dislike is uncertainty, hence the decline.

If we look at the various indices, we see a consistent pattern of weakness developing. This week the Russell 2000 index failed to confirm a new high that the other indices had reached. This illustrates a potential follow-through of the technical weakness. The above chart shows there is still alot of room left to the downside, even without the news about Dubai. If the Russell breaks support at around 563, then we could see a retest of the July lows. Dow support is at 10,000 (S&P 500 around 1040).

Many traders were away for the Thanksgiving holiday as the markets retreated. The market hit many stops during its trading session Friday. We might continue to see volatility into next week as traders move to square positions, raise cash or lock in 2009 profits. Remember last week, many were talking about the Dow making new highs. Now the economic recovery may be in question. It is not so much about the true jeopardy of our economic recovery as it is the "fear" of a double dip recession that will drive this market. Trading opportunities abound, both on the short and long sides.

Our Marketdoc Report dated November 16th said things could get interesting. They have.

Note: The above is for information purposes only. Any decision to buy, sell, or hold a specific investment for your portfolio should be discussed with your own personal investment advisor.

Happy Thanksgiving 2009

Photo Source: Norman Rockwell archives. "Freedom from Want." As appeared in the Saturday Evening Post, March 6, 1943.


In late November, 1620 about 102 passengers from Delft Haven, Holland arrived in Massachusetts seeking new lives for themselves. These "Pilgrims" sought to escape religious oppression going on in Europe. They sailed four months, braving storm tossed seas and relying on Divine Providence for their guidance. Upon arriving at Plymouth, Massachusetts, the Pilgrims signed the "Mayflower Compact" on December 11, 1602. The Mayflower Compact is known as the first form of civil government, and the first to introduce self-government, which the settlers established after arriving in their New World.

Unprepared for their first New England winter of 1620, about one half of them died before spring. They are buried on the hill overlooking Plymouth Rock. One can still visit their graves there. The survivors reaped a bountiful harvest the next summer after being assisted by helpful members of the Wampanoag Indian tribe. The grateful Pilgrims declared a three-day feast to thank God for their harvest, starting December 16, 1621. They celebrated with about one hundred of their Indian friends. Various independent celebrations occurred in the years following.

Much of the credit for the current national Thanksgiving Day celebration is given to Mrs. Sarah Joseph Hale, the editor of "Godey's Lady's Book." She contacted President after President for over thirty years until President Abraham Lincoln responded in 1863 by setting aside the last Thursday of November to celebrate a national day of Thanksgiving. Here are some of his words:

"A Proclamation.

The year that is drawing towards its close, has been filled with the blessings of fruitful fields and healthful skies... No human counsel hath devised nor hath any mortal hand worked out these great things. They are the gracious gifts of the Most High God, who, while dealing with us in anger for our sins, hath nevertheless remembered mercy. It has seemed to me fit and proper that they should be solemnly, reverently and gratefully acknowledged as with one heart and one voice by the whole American People... as a day of Thanksgiving and Praise to our beneficent Father who dwelleth in the Heavens... and fervently implore the interposition of the Almighty Hand to heal the wounds of the nation and to restore it as soon as may be consistent with the Divine purposes to the full enjoyment of peace, harmony, tranquility and Union....

In testimony whereof, I have hereunto set my hand and caused the Seal of the United States to be affixed.

By the President: Abraham Lincoln, 1863"

This tradition was carried on yearly until 1941 when Congress declared a permanent national holiday. The Thanksgiving tradition revolves around a delicious and lavish meal, usually with Turkey as the centerpiece. A special prayer of thanks typically precedes the meal.

We celebrate Thanksgiving Day as a national day of giving thanks to our Creator God for His Divine Providence which He has shown to our beloved United States of America. Don't let the history revisionists try to tell you that God has no place in our country's history or government. Our founding fathers saw things differently. Although 2009 was extremely challenging for all of us, we still have much to be thankful for.

Happy Thanksgiving everyone. And may God continue to bless America!

IBM at Multi-Year Resistance Levels

The above chart illustrates the tremendous run which IBM has had since hitting its low last November. We can see "Big Blue" is challenging its multi-year resistance levels around 130. This is one of my favorite stocks for which I am usually always bullish. However, this is a rare instance which I have to take a bearish stand on my favorite bellweather tech stock. As you can see, some of the technicals on IBM have started a downward trending slope, or are finishing a topping formation. I consider IBM to be a very "tradable" stock in that profits can be had in either bullish or bearish positions, provided you call it correctly. This is one of those few times I am trading the short side. I expect this stock to pull back to around the 111 level.

This is only one example of several stocks and indexes which I see a similar topping formation. Overall I am still bullish on the economic recovery. Fundamentally the recovery is picking up steam. And people who bought real estate over the past year are glad they did. But I can't ignore so many technical market indicators when they are obvious like this. I am just calling it as I see it without always being able to explain the "why" part. Don't be fooled by the market "experts" who are telling you this market will now move higher after missing the call for the past eight months! Now is a good time to book solid profits for 2009 and set up some puts on many of the indexes and individual stocks which have skyrocketed over this past year. Stay tuned. This could get interesting.

Note: The above is for information purposes only. Any decision to buy, sell, or hold a specific investment for a portfolio should be discussed with your own personal investment advisor.

Dow Transports- Triple Top?

For an idea which way this market is headed, it is good to examine multiple indexes to see if any patterns are developing. Dow Theory states that the Dow Transports should confirm any new high in the other Dow Indexes for a rally to be sustainable. The various Dow Indexes may diverge for a brief period of time but they need to confirm each other eventually. As the chart shows, the Dow Transportation Index appears to be forming a Triple Top. As I look at all the indicators under the Dow Transport model, I see a negative pattern of weakness forming in all of the indicators. This is visualized by the downsloping green line which shows increasing techical weakness. I could be wrong but I see a huge level of resistance forming here. Its anyone's guess how far any pullback will go. I can only point out technicals as they start to develop. If I had to guess I would place the Transports around 3500 which is about a 12.5% correction. Regardless if you think this market will move higher or not, it is a good time to book solid profits for 2009.

This is further confirmed when I see the "experts" in the media have finally jumped on the bandwagon for this long sustained market rally. For months they kept telling everyone to "wait for the bottom." Then we were told to "wait for the pullback." Now we are hearing this market "should move higher" after it has run for the PAST EIGHT MONTHS! (Sometimes I think that just by taking a contrarian approach to the mainstream media is all that is needed to outperform in this market but I hate to oversimplify things that way. That would be too easy.)

Note: The above is for information purposes only. Any decision to buy, sell, or hold a specific investment for a portfolio should be reviewed by your own personal investment advisor.

Dow Closes Above 10,200- Target Reached

Today the Dow Jones Industrial Average posted a close above 10,200. This achieves our Marketdoc Report target of 10,200 first talked about in our July reports. The S&P is closing in on the 1101 level. The market "experts" are now telling everyone that this market "could go higher." Where were these "experts" in July when almost everyone was worried about the end of the civilized world? Now they are telling everyone this market is for real because THEY MISSED IT! The truth is they really do not understand what makes this market run.

For a better idea of how the trend will play out, sometimes it is good to look at other indexes like the NYSE Composite. This index is a more broad index of stocks. As I assess this index it is clear this index is finishing its "topping" formation. We see this topping formation in the Stochastics, Williams %R, and MACD indicators. Unless we see a significant surge upward the index will probably break down around the 7241 level. The Dow has technically broken out above its yearly high of 10,128 which is why we need to look at these other indexes to CONFIRM the breakout. The S&P needs to breakout above the 1101 level. If they do not, then we will see our pullback. Be careful as the other "experts" tell you to join the party just as it is about to end. They used to call it a "suckers rally" when technical resistance levels are breached but then quickly breakdown as the last holdouts jump in. It looks like a pretty good time to establish some puts against those stocks which were bought at bargain basement prices and have risen skyward since March. Now is a great time to lock in profits. Stay tuned to the Marketdoc Report and you, too, can learn to recognize these important patterns in the market. Take a look at our previous posts and you decide if we have called it.

Note: The above is for information purposes only. Any decision to buy, sell, or hold a specific investment for a portfolio should be reviewed by your own personal investment advisor.