Monday, January 12, 2009

In quiet trading Sunday night, the futures were bound lower, presumably to a Hidden Pivot support at 866.50. There are other targetable downtrends in play, but a bid at 866.50, stop 865.75 would be the most conservative way to attempt bottom-fishing. I have included a chart that shows the ES at around 8:30 p.m., so that you can judge for yourself whether the opportunity has been compromised.It would take a robust rally to do so, since the point 'C' here is 914.75. _______ UPDATE: The futures slid past the 866.50 target, putting in a shaky low at 863.00. This corresponds to the higher 'A' in the chart, rather than the one-off 'A' that I used. If you plug in 942.75 instead of 939.75, you come up with a downside target at 863.50. This has been noted in the chat room in reference to bottom-fishing at the new target. A three-tick stop-loss would have been applicable, but I have suggested not attempting to enter the trade if you did not catch it the first time. With the financial stocks getting savaged, today's weakness has the potential to turn into an avalanche.

Friday's $24 upthrust, encouraging though it may have seemed, failed by a little more than $2 to surpass a key short-term peak at 871.40. If it had succeeded, that would have created a promising new impulse leg on the intraday charts. As it stands, and unless 871.40 is breached, the burden of proof over the near term will remain with the bulls. Specifically, a bearish, 821.10 target will remain in effect, as well as an 846.25 midpoint. A close below that last number, or a decisive move below it intraday, would raise the odds of 821.10 being reached soon. _______ UPDATE: Our target nailed the low of a $34 decline within a dime. Thereafter, the subsequent bounce of (so far) $5 would have allowed a stress-free exit on partial profit-taking, or a generous trailing stop on a single-contract position.

Even with government backing up-the-wazoo and a fat price from Morgan for Smith Barney, Citi has not looked very impressive; nor have any other financial stocks. This seems a clear warning that the strong consensus, even among reputable technicians, calling for a big stock-market rally to begin the new year should be viewed with heavy skepticism. Note in the accompanying chart how JPM closed beneath a well-defined midpoint support at 26.19, implying more weakness all the way down to 14.79. Citi is well above its corresponding midpoint support at 3.12, but that's only because of the helping hand it has been receiving from a Federal Reserve evidently determined to chop up the bank and dispose of its parts before concern re-erupts over the quality of its assets.

The 85.22 pivot shown in the chart can be bought with a stop-loss as tight as 6 cents, and you could also short near 86.11, the c-d midpoint, with a stop as wide as 20 cents. This is for experienced traders only, and you'll be on your own if either order fills. Officially, we'll try to buy two Feb 87 calls (DAVBI) if the stock comes down to touch 85.24. _______ UPDATE: The six-cent stop-loss would have worked, since the Diamonds have bounced sharply off a so-far low this morning of 85.18 -- four cents beneath the pivot target. Now, offer one of the calls to close for 3.25, making the order o-c-o (one-cancels-the-other) with a stop-loss on two contracts at 3.10. _______ FURTHER UPDATE: We scratched the trade when the Diamonds resumed their decline after rallying to 85.69. The fact that the rally lasted for only 30 minutes is evidence that still more weakness lies ahead.