Stock Charts: Next Week is a Big Week!!!

Next week is a huge week with Elections, Bernanke and QE2, and unemployment.  Those events are Tuesday, Wednesday and Friday, respectively. 

The Biggest Week of the Year is Coming!

Personally, I'm more confident the elections and Bernanke will be negatives for the market. A win for the Republicans is better than we currently have, but it means gridlock. In a strong economy gridlock is good because no one screws it up, but gridlock in this economy could be bad because nothing functional is going to get done, which is only a slight improvement over the Obama/Pelosi agenda.


Bernanke is going to do more of the same next week. Is there a magic number that Wall Street will see as working? I doubt it. It's like the 3 bears. That amount is too big or that amount is too small. Is there an amount of QE2 that's just right? Or will the 3 bears just take out on the stock market?

Next week should be entertaining to say the least.  The market has bought the rumor all the way up and the markets are over bought.  We might get sell the fact next week.  Yes, I still think the next measured move is lower.


$SPX 60 Minute:  The market is still in this uptrend but resting right on the uptrend line.   I still like one more little bounce in price and on the MACD and then failure.  Below 1,160 is bearish.

$SPX Daily:  Still looks like an ABC pattern with price being held down by the middle pitch fork line.  Price could pop and drop next week.

IBM:  Pushing higher and testing the prior uptrend line.  Maybe another push higher to the trend line while the RSI makes a divergence and then price to fail, for a bearish indicator.

JNK:  Still looks like 5 waves up from the August low.  RSI is over bought with a little H&S top.  Both MACD and RSI ripe for rolling over with a break down in price.

$VIX:  Still no decisive break in either direction. MACD is telling us it should be a break higher.

$COMPQ:  Index is testing it's prior highs and over bought.  Next week should be very interesting.

$TRAN: Testing it's prior high and the MACD is trying to turn down.

XLF:  Nothing new here, still stuck in a narrow trading area.

$USB:  It looks a little ABC so far, and if the markets are ready for some corrective behavior, we should see bonds move higher.

Readers Choice:  We have two reader questions this weekend.

Hello,

I love reading your blog and seeing all of the technical analysis that you do. Its always great to see another persons perspective on the markets and what they are doing with their money. I was curious what you think about Linn Energy (NYSE:LINE). It pays a pretty good dividend and has been doing well for the past couple months. It seems to me that companies that are involved in real assets, such as the oil and natural gas business, are doing really well right now. While the service sectors, such as financial companies, are really struggling. I was curious what your thoughts are about that.

Thanks

LINE:  On the daily chart, we see a powerful move higher, which is confirmed by the number of times the RSI was over bought while price kept going higher.  That's very bullish. 

The weekly chart shows price moving higher in an up channel. Often the fifth wave will fail at the middle channel line, which ironically is just above while the RSI on the weekly is over bought. In the past, the weekly RSI has proceeded a price correction of some kind.  If I owned this particular stock I would be tickled at the very bullish moon shot, but I would be in the process of developing my exit strategy.  Nothing goes up for ever and we are over bought on longer time frames.  I would probably use $30 as my exit price as that's the bottom uptrend line.  That decision stems from the risk management side of the trade.  While this stock could shoot up another 10-20%, that might be the end of it for some time and could easily correct that much or more. 

Note:  I'm short CVX (Chevron) and looking to add to it.  Also, COP looks like an interesting short as well.  The oil stocks could be ready for a turn.

Another Readers Choice:

Hi,

I'm a regular reader of your content and I have to say I love your measured response to market moves and how they show up on charts. Had a question for you, if you could take out the time.

I had been long Trina Solar (ticker: TSL) and sold out around $30...to me it looks like we are putting in what could be a H&S pattern on the daily chart, and there are momentum divergences on both the daily and weekly charts as well.

Being near the last high makes me think we might correct some and head down a bit. Was wondering if it is a short play from here in your estimation and what you think of the chart in general.

Thanks

TSL:  Wow, this one has all kinds of technical data and potential patterns in play.  First, the stock failed at key resistance.  At that failure, it created an ending diagonal in blue and maybe building an H&S top in green.  Bearish divergences in red on the RSI and MACD.  If you look closely at the MACD it went dead sideways in the red circle.  When the MACD goes sideways that's usually a sign of continuation.  Given all the bearish data, I think this one goes lower.  The good news is maybe it drops down to $19-20 and builds an inverse H&S.  That's my take for now.  So, the reader has the technical picture correct and yes it's a short candidate based on the technicals I use for trading.  I like the idea of scaling into it to minimize risk.

I want to thank both readers for their questions and their positive comments.

My Watch List

CVX:  I have a 1/3 short position going currently and in the money.  The stock has made a broadening wedge top.  I'll state it again, $82 is a great trigger for the short trade.  That will take us below key support and the uptrend line .  That will further turn down the RSI and MACD and pressure the lower BB.  I like it so far and itching to add to my position with a break of $82.

LZ:  Big consolidation with a strong move higher.  Stock has reversed and below the lower BB testing he uptrend line.  BBs are widening and we have solid divergences.  We could get a little bounce back to the lower BB but the chart looks bearish.

UNP:  Another consolidation followed by a big up move.  Divergences in place but stock is still at a high.  If it rolls over, it's should follow the chart on LZ

CSX:  One more consolidation pattern with a solid move higher.  The trigger is the break of the uptrend line at $60.

UTX: Here we have a wedge up into a fade trade at resistance failure.  I have a fractional short position going currently and below the blue uptrend line at $73.50 is a solid trigger for more short side follow through.  We could easily bounce higher one more time.

MMM:  Another wedge type structure and failure just above the prior peak with solid divergences.  Stock has broken down and trading below the lower BB.  Friday was an inside day and this has more legs to the down side.  We could easily get a little bounce to the or just inside the lower BB.

FLS:  One more wedge up failing at the prior peak resistance.  Stock has reversed quite hard.  Has solid divergences in place.  Trading below the 200 day MA and the lower BB.  Have to be careful of a little bounce back to the lower BB.

PFCB:  Stock has broken down from an ending diagonal and traded down to support and the uptrend line.  Below both is the trigger for the short side trade.

PNRA:  Stock has divergences and price has rolled over to the prior peak/support.  The trigger for the short side is the support line.

From My Trading Desk:  No trades on Friday. I have enough opening positions.  Waiting for follow through on a near term top for the market.

Next Week's Game Plan:  I'll be watching the big 3 events next week for market reaction and possible market rollover, and/or any further break down in the above bearish charts for additions or new trades.

Happy Trading.

J.D. Rosendahl, Rosey

The Biggest Week of the Year is Coming!

 Cramer: Next Week’s 3 ‘Big, Bad Events’

Investors should prepare for a “genuinely momentous next week,” Cramer said during Friday’s “Mad Money.”


Rather than earnings dominating the market, a few different sets of numbers will control the action: Tuesday’s midterm elections, Wednesday’s Federal Reserve announcement and Friday’s jobs report.

As of now, there’s a consensus on Wall Street that at least one, if not two, of these events will go bad, and that’ll cause a 3-percent to 10-percent correction in stocks. Here’s how the Street breaks it down:

A Republican win of either house of Congress, and the House is looking more likely than the Senate, will sink stocks for that first 3 percent. Why? Because while the victory would slow down President Obama’s agenda, which many see as anti-business, the White House could still enact regulations at the federal level. Wall Street sees any opening for Obama as a bad thing, and that will weigh on stocks.


In regards to the Fed announcement on Wednesday, we will almost definitely get news of further quantitative easing, Cramer said, it’s just a matter of how much. Whether it’s $250 billion or $2 trillion, though, and estimates are all in that range, just know that the bears will be on the attack. They’ll say that even that $2 trillion won’t be enough or that’s it is too inflationary. If that happens, the market decline jumps to 5 percent.


Expect 10 percent, Cramer said, if Friday’s unemployment number is bad, too, because the academics like Nouriel Roubini and Joseph Stiglitz will jump all over it. To them, it’s a sign of the Apocalypse. Well, at least a double-dip recession. And renowned bank analysts Meredith Whitney will chime in, saying it’s terrible for that sector as well. In this case, you get the trifecta—politics, policy and jobs—and the losses in stocks creeps into double-digit territory.

Cramer does a very nice job identifying and handicapping the big three events next week.

Personally, I'm more confident the elections and Bernanke will be negatives for the market.  A win for the Republicans is better than we currently have, but it means gridlock.  In a strong economy gridlock is good because no one screws it up, but gridlock in this economy could be bad because nothing functional is going to get done, which is only a slight improvement over the Obama/Pelosi agenda. 

Bernanke is going to do more of the same next week.  Is there a magic number that Wall Street will see as working?  I doubt it.  It's like the 3 bears.  That amount is too big or that amount is too small.  Is there an amount of QE2 that's just right? Or will the 3 bears just take out on the stock market?

The greater concern is the notion that we are closer to Japan than anyone at the Federal Reserve really wants to admit.  We have a debt lead bubble in stocks and real estate, post implosion has left banks crippled with bad investments while the country is going through wage deflation.  That sounds just like Japan to me.

If unemployment is bad, the correction coming could be larger than Cramer's projection.  While I expect little of any good news on this front, I think unemployment needs to go above 10% to create that larger sell off.

Unemployment is the key data point for me because it reflects the Main Street economy, which has done nothing in the way of gaining traction.

It seems like the latest run in the stock market has priced a lot of good news into the stock market.  The market is now over bought technically and due for some kind of corrective behavior.  The ardent bears will tell you the plunge into Elliott Wave 3 down is at hand.  I like to keep it a little more simple and functional in the thought that corrective behavior is due.

Next week should be entertaining to say the least.  Fasten your seat belt, we could experience turbulence.

Hope all is well.

J.D. Rosendahl, Rosey

Going Down the Same Road

US Fears Grow Over Catching Japan Economy Slowdown

In the annals of economic policy blunders, the one in which Hiroshi Kato played a hand in early 1997 ranks among the biggest in recent Japanese history.

Mr. Kato led a government advisory committee that concluded that the economy, which was then finally starting to rebound from the collapse of its 1980s land and stock bubbles, was healthy enough to raise the national consumption tax to 5 percent from 3 percent.

Aimed at reducing deficits, the tax increase instead quickly snuffed out the fragile recovery, pushing Japan to the brink of a financial meltdown and thrusting the nation deeper into the economic morass from which it has yet to emerge even today.

“Our sins are large,” Mr. Kato, now president of Kaetsu University in Tokyo, said ruefully. “I hope the rest of the world can learn from this mistake.”

And indeed, the lessons of Japan’s long stagnation are well known to American policy makers like the treasury secretary, Timothy F. Geithner, and the chairman of the Federal Reserve, Ben S. Bernanke, who have studied Japan’s policy missteps.

In 1999, Mr. Bernanke, then an academic, tartly criticized Japanese officials for mishandling their 1990s financial crisis, saying Japan’s plight was “self induced.” Partly because of that expertise, American policy makers have long been confident, even during the darkest days of the current financial crisis, that the United States could avoid the fate of Japan and its two lost decades.

But now, with growing signs that the United States might be a lot closer to a Japan-style slump than previously thought, that confidence is waning.


In the United States, a robust recovery remains stubbornly elusive, and Mr. Bernanke is said to be ready to take new, unconventional steps to increase the money supply in order to maintain the uncertain growth of the past year. He is also said by close associates to favor further fiscal measures to stimulate the economy.

But in the current political climate, with Republicans poised to make strong gains in the midterm elections while preaching fiscal austerity, the prospect of more federal stimulus spending seems remote, and it is unclear if monetary policy alone will be enough to restore healthy growth.

Partly as a result, some economists now predict that it could take years or even a decade for the American economy to regain the levels of employment and vigor achieved before the 2008 crisis. The growing political pressure for cuts in federal spending — along with plunging consumer confidence and companies that seem more intent on cutting costs and hoarding cash than investing in new growth — have led economists to talk of the United States’ entering a grim new era of austerity.
 
That is very close to what befell Japan two decades ago, when the seemingly invincible Asian economic juggernaut fell into a deep rut of chronically anemic demand and corrosive price declines, known as deflation, from which it has never fully recovered. The parallels are so striking, and unsettling, that economists are now taking a renewed look at Japan for insights on how the United States can avoid the deflation trap.

“There has been a political and intellectual arrogance in the United States that it won’t happen to us,” said Adam S. Posen, a senior fellow at the Peterson Institute for International Economics in Washington. “We shouldn’t be so smug. You can get there without being Japan.”

Indeed, the financial crisis that crippled Japan’s once high-flying economy appears an eerie precursor of the one that struck much of the global economy in 2008. In Japan, a huge expansion in credit created twin price bubbles in the land and stock markets that, when they burst in the late 1980s and early 1990s, left banks and other companies drowning in failed real estate investments.

Expansion in created created a bubble in land and stock leaving banks wit failed real investment!  Doesn't that sound just like America's bubble in tech. and real estate

But perhaps the most alarming part is what came next: a collapse in demand that pushed prices and ultimately wages into a self-reinforcing deflationary spiral, which made already stingy individuals and businesses even less willing to use money, because falling prices meant that cash itself gained in value.

This paragraph is key for me.  We already see wage deflation in many parts of American.  I have clients that occasionally bring back laid off employees at $15/hours and they used to pay that same person $30/hour back in the bubble days.

We are going to see a massive wave of wage deflation in the compensation levels of municipal workers whether they are laid of or not, they will eventually make a lot less.  We will see a wave of bank closures taking ght number of banks in the US from roughly 8,000 to 5,000, which will create a huge supply of banking talents and their by reducing compensation levels.  Technology will continue to replace people, thereby keeping the general supply of people elevate and depressing wage levels.

Wage deflation is a key ingredient to a deflationary cycle and we will continue to see this in the United States.  This aprt is something I doubt strongly we avoid.


Japan has remained trapped in this spiral despite the equivalent of trillions of dollars in stimulus spending, more than a decade of near-zero interest rates and even unconventional steps by the central bank similar to those now contemplated by Mr. Bernanke, like purchasing corporate and government bonds to increase the money supply.


I find the comments of a younger Bernanke interesting because it reflects an issue that no one really wants to discuss. First, Japan's plight was self induced, but so is the United State's. We wouldn't have these issues if our own government and Federal Reserve were not creating the bubbles, or taking responsibility for them. We have similarities because both governments didn't truly believe in a free market and government tinkering created deep financial imbalances in both public and private sectors that has brought us down the same road.


The other part of this that no one wants to discuss, is when and how do you take the measures to correct over spending and deficits? Even in the days of the Bill Clinton bubble economy days, we only marginally decreased the budget and for a brief time period. It was statistically insignificant. We'd have to have a bubble economy for 30 years to bring things back into equilibrium on the deficit front. Therefore, higher taxes in the U.S. have to happen just like in Japan. regardless of when, they will have a negative impact o our economy. Politicians won't do it when times are good because that will kill the golden goose and that coud ruin there political career. They struggle to raise them now because they know it could dump the US into a deep depression and again, no one wants that on their watch,

We have the most arrogance public leaders in a decade, arrogance stems ignorance and over confidence. That sounds like our leaders for sure. Adam Posen has it dead right, "You can get there without being Japan!"

 

One of the major problems is the total lack of a long term plan of responsible fiscal government and a less Federal Reserve intervention.  Yes, this will have a short term negative impact on all US citizens, but in the Long run it creates a more balanced approach

The Foreclosure Nightmare Continues It's Lunacy

Foreclosure Freeze Cuts Sales, Supply in Hardest-Hit States

U.S. home foreclosure sales are slowing in the states hardest-hit by the real estate crash as banks review their practices and delay seizures.




In Arizona, California and Nevada, foreclosure auctions on courthouse steps, known as trustee sales, are down 42 percent since Sept. 20, according to ForeclosureRadar, a real estate tracking service in Discovery Bay, California. In Florida’s Miami-Dade and Broward counties, fewer foreclosures have led to 18 percent declines this month in the number of repossessed homes listed for sale, said Ron Shuffield of Esslinger, Wooten, Maxwell Inc., a realty firm based in Coral Gables, Florida.



In a real estate market where as many as 7 million homes face foreclosure or have already been seized by lenders, according to Zillow Inc., a clog in the pipeline may delay a housing recovery, which won’t occur until home prices stop falling. That could in turn postpone a U.S. economic recovery. Distressed properties accounted for 31 percent of all U.S. home sales last month, RealtyTrac Inc. said Oct. 14.



“If what’s a hiatus turns into a moratorium, that’s quite problematic,” Stan Humphries, chief economist for Zillow, a Seattle-based real estate data provider, said in an interview. “It will delay the ultimate bottoming process in the market.”



Attorneys general in all 50 states started probes into foreclosure practices after court documents surfaced showing employees signed papers without ensuring their accuracy. Bank of America Corp., JPMorgan Chase & Co. and Ally Financial Inc. temporarily suspended some foreclosure sales or evictions, pending reviews of their procedures.



Record Seizures



Full national data reflecting the effect of the foreclosure freeze isn’t yet available. Lenders took over a record 102,134 properties last month, before most of the delays, RealtyTrac, an Irvine, California-based real estate data provider, reported.



Nevada, Arizona, Florida and California lead the nation in foreclosure rates, according to RealtyTrac. Florida is the only one of those states where courts supervise home seizures, the focus of most of the banks’ reviews.



Bank-owned properties have been pulled off the market in Florida and re-sales of foreclosed homes have stalled in the process of closing, according to Shuffield. One in 56 homes in the state received a foreclosure filing notice in the third quarter, RealtyTrac data show.



Living in Hotel


Resubmitting Affidavits




Bank of America froze 102,000 foreclosures nationwide on Oct. 8 to review its procedures, and has now started the process of preparing affidavits for resubmission to courts. Affidavits will be resubmitted over several weeks, as they are completed through their internal process, according to Dan Frahm, a spokesman for the Charlotte, North Carolina-based bank. Those cases will proceed through the foreclosure process, including re-sales, he said.



“This review remains in effect and our review is ongoing,” Frahm said. “We are committed to giving our customers confidence they are being treated fairly.”



For the Florida foreclosure-judgment hearings that are canceled this week, banks are almost a month away from rescheduling them. That’s because a hearing can be scheduled no earlier than 25 days in advance under the state’s rules for legal proceedings, said Rick Melendi, a chief deputy court administrator for the 13th Judicial Circuit in Tampa.



Faulty documentation has scared buyers away from foreclosed properties because of concerns their titles may be in question, said Erika Phelan, Roberts’s real estate agent with Buyers Broker of Florida in Orlando.



No Foreclosures’




“I just took out a buyer who said ‘no foreclosures’ to avoid the problem,” she said.



Rick Sharga, RealtyTrac’s senior vice president for marketing, said his company hasn’t seen an “appreciable” dropoff in foreclosure activity so far this month.



“It could just be that these delays will be delayed a little bit before they hit the numbers,” Sharga said yesterday in an interview on Bloomberg Television. “Or it could be that the falloff isn’t going to be nearly as big as people have been predicting.”



Before the foreclosure freeze, lenders were taking an increasing amount of time to seize homes as they complied with requirements to offer loan modifications or sought to avoid the costs of repossession. Foreclosed borrowers were an average 484 days -- about 16 months -- delinquent on their mortgage payments in September, up from an average of about 11 months in January 2009, according to Lender Processing Services Inc. of Jacksonville, Florida.



Bank of America, the largest U.S. mortgage servicer, took an average 18 months to complete foreclosures during the third quarter, Frahm said.



Off the Market



Of 103 foreclosed homes listed for sale by Michael Saunders & Co., a broker based in Sarasota, Florida, 35 were pulled off the market since the foreclosure freeze began, said Tom Heatherman, communications director for the firm. Another 23 properties assigned to the firm for pre-listing by Freddie Mac, the mortgage guarantee company under federal conservatorship, were temporarily held off the market, Heatherman said.



Fannie Mae, another mortgage guarantor under U.S. conservatorship, has also frozen foreclosure sales in cases with questionable documents, said Janis Smith, a spokeswoman for the Washington-based company.



“Transactions on such properties are on hold until the servicer can verify that the problem has been rectified,” Smith said.



Inventory Drop



Foreclosures and short sales, in which lenders agree to sales at less than the mortgage balance, made up 66 percent of transactions in Miami-Dade and Broward counties in September, said Shuffield, the president of Esslinger, Wooten Maxwell.



“The closing pace hasn’t stopped yet,” Shuffield said. “But the inventory has definitely dropped.’ ”



Western states have had a steep drop in foreclosed homes headed for resale, said Sean O’Toole, chief executive of ForeclosureRadar.



The number of trustee sales in Arizona, California and Nevada fell to 4,151 the week ending Oct. 22 from 7,142 four weeks earlier, when the first freeze was announced, O’Toole’s data show. Bank of America, Ally, and PNC Financial Services Group Inc., which also suspended some sales, were the only companies that he found to account for the decline, he said.



In Georgia, which had the seventh-highest U.S. foreclosure rate according to RealtyTrac, the moratorium killed three pending sales this month for Becky Loar, president of the Becky Loar Group LLC, a real estate firm in Snellville, Georgia. One was a cash sale, which was halted two weeks before closing. The other two were in early stages of negotiations.



“It’s a nightmare for Realtors,” she said. “If you get a contract to closing before they back out, you have a miracle.”

Insiders Dumping Stock at Record Rate

Insider Selling Volume at Highest Level Ever Tracked

The overwhelming volume of sell transactions relative to buy transactions by company insiders over the last six months in key leading sectors of the market is the worst Alan Newman, editor of the Crosscurrents newsletter, has ever seen since he began tracking the data.

The strategist looked at insider trading activity amongst the top ten companies that make up the Nasdaq such as Apple [AAPL 308.05 -0.79 (-0.26%) ], Google [GOOG 618.60 2.10 (+0.34%) ] and Amazon [AMZN 169.95 0.95 (+0.56%) ].

Then he analyzed the biggest members of the Retail HOLDRs ETF like Gap [GPS 19.68 0.32 (+1.65%) ], Target [TGT 53.14 -0.62 (-1.15%) ] and Costco [COST 63.68 -0.43 (-0.67%) ], as well as the top insiders in the semiconductor industry at companies such as Altera [ALTR 30.33 0.09 (+0.3%) ], Broadcom [BRCM 37.22 -0.29 (-0.77%) ] and Sandisk [SNDK 37.19 -0.22 (-0.59%) ].

The largest companies in three of the most important leading sectors of the market have seen their executives classified as insiders sell more than 120 million shares of stock over the last six months. Top executives at these very same companies bought just 38,000 shares over that same time period, making for an eye-popping sell to buy ratio of 3,177 to one.

The grand total for the three sectors are “as awful as we have ever seen since we began doing this exercise years ago,” said Newman, who was ahead on such trends as the dangers of high-frequency trading and ETFs before the ‘Flash Crash’. “Clearly, insiders are seeing great value only in cash. Their actions speak volumes for the veracity for the current rally.”
The insider data “is good reason for considerable caution once the price action fades,” said Simon Baker, CEO of Baker Asset Management. Still “insiders normally buy early and sell early too. Longer term -- 12 months out -- it is more of a red flag.”

Still Newman, who is also a favorite commentator of Barron’s columnist Alan Abelson, sees the insider selling as just the latest reason, along with the mortgage foreclosure mess and fully invested mutual fund managers with no fresh powder to put to work, to be cautious on the market.

“At the risk of sounding like a broken record, we expect a significant correction,” said the newsletter editor.

1)  Overwhelming sellers over buyers, at record pace:  Bearish
2)  Selling in important leading industries:  Bearish
3)  Value in cash:  Bearish

This is a leading indicator for the stock market and not a timing mechanism.  It's a bearish shadow over the market.  If executives really thought the government and QE2, 3, 4 or whatever was really the answer, they would load up on their shares.

What's comical is how often pundits on TV will tell people how poor cash is as an investment, and yet executives are moving their net worth to cash.

Who do you believe?  TV Pundits or Executives! 

Hope all is well.

J.D. Rosendahl, Rosey

Stock Charts: Another Slow Day in the Market

$SPX 60 Minutes:  Still grinding inside the channel.  Still looks like another push higher.

$SPX Daily: Stock market spins another Doji, but no technical damage on the price structure. Still looks like we could push a little higher towards 1,196-1,200. We could see price stay elevated until Bernanke’s QE2 or the election. I do think the next move is lower, but it’s still an uptrend for now.

IBM: Still in the over lapping move higher.

JNK: Still looks like 5 waves from the August low. RSI and MACD over bought, but have yet to roll over.

$VIX: Still no decision on the index yet. It’s bullish for the market as long as it’s sliding lower under the blue resistance.

$TRAN: MACD turning down, but we could easily get another push higher.

$COMPQ: Once again, a test of the prior high is the price action, nothing really new here.

XLF: Okay, this has done nothing but if I had to handicap this one, if price moves up and trades sideways like this and the MACD grinds lower, I think price eventually goes higher. As much as I think a near term top is close on the market, I read the technical’s the way they look.. We’d need to see a break down to change that view.

GLD: The metal bounced to gap resistance. I can only say I’m glad I sold my GLL yesterday. I just didn’t feel comfortable with it. So, gold has made this little consolidation, now what. It could really do anything. A gap up and onto a minor new high is not out of the question. We should know in the next couple days though.

My Watch List: today was interesting because we had some big names correct and we see some stocks with very similar patterns, which is something I look for when trading. I want to use a pattern that’s working as often as I can, so I look for stocks making the same structure, and hopefully use that for my advantage.

GG: A head and shoulders bottom pattern inside an ascending wedge. Today's gap creates an island reversal gap.  Looks bullish with today's big up move. It seems like an easy trade if so desired.  Buy it and place your stop at today's gap of $42 or the uptrend line of $41.50.  That's a 5-6% loss with lots of upside potential based on the patterns. 

OSIS: Still looks like it wants to push higher. MACD trying to turn up.  The trade looks something like buy it and pace your stop just under the consolidation to protect yourself if it reverses, and that's a stop of $34.

FLS: Here we have the fade trade as price stalled at a prior higher. The move up looks like a wedge pattern that has completed. Today’s correction looks impulsive breaking below a prior peak, the lower BB and both the 50 and 200 MA. That’s a big bearish one day move. Price is so far below the lower BB, I’d like to see an inside day tomorrow for a potential entry on the short side.

MMM: Does this not look similar to FLS? Fade Trade, over lapping wedge type structure. Hard drop below the lower BB, prior peak and the 50 day MA.  RSI and MACD support lower pricing.

UTX: Here’s another fade trade with what looks like a wedge pattern higher. Another push higher looks like it should happen soon, but the next down move should roll over the MACD, RSI and the upper BB. $73 is still a solid trigger for the short trade.

LZ: Bearish divergences on the RSI, MACD has rolled over with a strong down day. Price made a consolidation in black before another run higher. Price has only tested the up trend line. Below that and the prior peaks is far more bearish.  Initial short side trigger is $98-99.

UNP:  Similar structure to LZ.  Large consolidation and then breaking higher.  Divergences in place.  Maybe another push higher.  The short side trigger $82.5-83.

CSX: This has similarities to LZ. Consolidation before another run. Price bouncing off the up trend line. MACD has almost rolled over.  Again, maybe another push higher.  The short side trigger is $58-59.

CVX: Still looks like a wedge pattern with another push higher left to go. My only concern is the MACD drifting and not rolling over. $82 is a great initial trigger for the short side trade.

PFCB: That’s as impulsive as it gets from the top down out of an ending diagonal. Divergences in place. We have a little cluster support at the uptrend line and the 200 day MA.  The trigger is below the uptrend line with BBs widening.

From My Trading Desk: Today we did a scalp trade on both MMM and PNRA. The short on MMM was good for 3%. I closed it because it was at the uptrend line and probably 4-6 standard deviations off the MA and well outside the lower BB. I thought it would rally back some today, so I closed it.  I closed the short on PNRA because it too looked like it was going to rally back so we took a minor loss, the net on the two was a gain.

We placed a 1/2 position short on UTX.  I'm probably going to stay in the arena of stocks that have similar patterns as long as they work.  I like to beat a pattern to death if I can, and I like the way the fade trade with the wedge structure looks on the bear trade set up.

Happy Trading.

J.D. Rosendahl, Rosey

Reader's Question: Will FDIC Closures Peak in 2010?

NO, NO, and NO!  The reader responded to:  Smart People Talking Common Sense: Sheila Bair .   

Hi J.D.

Another question for ya!

Sheila Bair has been quoted as saying that bank failures will peak in 2010. Do you agree with her?

http://www.time.com/time/business/article/0,8599,1978560,00.html

Thanks!

The above link from the reader is from April 2010, and Sheila's list of problem banks has increased since then and bank balance sheets have eroded.  It would be interesting to hear if she still feels this way.

The reader is jumping the gun on one of my five predictions for 2011.  We closed 140 banks in 2009 and we are on pace to close 160-180 banks in 2010.  We have 829 banks on the FDIC's problem bank list.  Those banks made the list on data from the past.  The list doesn't include those banks just under the radar who will have new bad loans in the future pushing them onto the list soon.   So, I do think we will close more banks in 2011 based on the pipeline of bad banks.
 
If there are three reasons it won't happen, they are the following:
 
FDIC Human Resources:  Does the FDIC have the human capital to close banks at a faster rate?  It seems like they have tapped our their human resources to increase the rate of closures.  In 2009 they averaged 11-12 per month and in 2010 it has ticked up to 14ish per month.
 
Based on the 829 in the FDIC's problem list, we should be closing at least 20-25 per month or more to discharge the issue.  I would love to her Sheila Bair answer this question in her usually direct manner:  Does she have the human resources?
 
Political Reasons:  Maybe the FDIC is under orders to bring about closures slowly as to not create the view of a more significant problem and soften the perception of industry issues.  It wouldn't surprise me one bit given the spinning of facts Uncle Sam does all the time, but there's no way to prove it.
 
Bank Buyouts/Mergers:  There's a new trend coming to life.  There are many healthy banks making offers to buy poorly operating banks prior to FDIC closure.  And for good reasons.  The selling bank reduces some liabilities on executives and directors by selling versus the FDIC closing them down. 
 
In banking, there is NOTHING in the way of organic growth, so to grow your franchise is must come from acquisition.  As long as the buying bank discounts the bad loans into the purchase price, it's a great opportunity for the buying bank to increase their foot print and create greater efficiencies.
 
Mergers like this reduce the number of bank's on the FDIC's list, but it would take a lot of mergers to reduce that list substantially from 829.
 
The reader asks a great question, and that's my take on it from the Banker's chair.
 
Hope all is well.
 
J.D. Rosendahl, Rosey

Stock Charts: The Market Fails to Hold Selling Pressure

$SPX 60 Minute: Still in the up channel, and the price move down from the recent top looks ABC like not impulsive.  There's another channel going here in the blue.

$SPX Daily: All we really did today was test the lower up trend line of the sub channel. All that does is provide more significance to the up trend line if and when it's broken. Nothing bearish in today’s price action. The idea of another gap up and failure fits, and worth keeping an eye on for now, if so, should happen very soon.

IBM: Solid up day. It’s beginning to look like wave 3-4-5.  The green line would be wave 5.  That would provide the opportunity for a near term topping pattern to develop from over bought levels.  Just spit balling though.

JNK: No change on this one.

$VIX: Bearish candlestick and failure at resistance in blue. MACD supports an advance should it continue higher.

$TRAN: MACD is trying to turn down but price couldn't hold today’s selling pressure. Like the greater market, we could get one more pop and failure. That would be interesting.

$COMPQ: Again, a test of the prior higher seems like the mostly outcome near term.

XLF: Someday this thing with move out of the blue resistance area.

$USD: Hard to tell if this price action from the bottom is just an ABC pattern and one more push lower or the start of a bounce. We should know soon.  MACD says bounce!

$GOLD: Still looks like we ABC down to the cluster resistance of the 38% retracement level, lower BB, and the 50 day MA. A touch below $1,300 is my near term target.  It starts with a break of the blue line.

My Watch List

OSIS: I had this as a bearish idea, but it looks like it’s going higher out of basing pattern, which might be a wave four, and $40 could be in the near term cards as a wave 5.

GLL:  It's slightly above the down trend line.  Needs to move if it's bullish.  MACD supports that.

SRS: Here we are once again looking at SRS.  It's an easy picture from here. The trigger is right there at the first black resistance and the blue down trend line.  MACD is turning up to support that.

CVX: Still looks wedge like. But today’s decline failed to hold and we should expect another push upward. $82 is my short side trigger.

UNH:  Divergences on the RSI.  Price failure today looks bearish.  A break of the uptrend line is the trigger.

UTX: It’s the fade trade. The move up from the June low looks wedge like with wave e being over lapping on the advance. One of the things I like about UTX is that it tends to mirror the market a little. This leg up has become over lapping higher like the market. It too is still inside its channel and today’s drop did nothing to break that but merely tested that channel. Another push higher into resistance seems likely. $72-73 is my short side trigger.

CSX: A little bullish tail on the candlestick and the MACD has not rolled over. Another push high could happen, but it’s beginning to look tired up here. $58-59 is my short side trigger.

PNRA:  Right on support, below that is the green light short side trade.  Divergences and looks ready.

PFCB:  Ending diagonal break down and below the prior peak.  Looks like a go on the short side.

From My Trading Desk: Today we sold the GLL for a smallish gain. We also placed a half short on CVX. We might be a touch early and thus the fractional position.

Happy Trading.

J.D. Rosendahl, Rosey