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1/9/09 - Equities, First week of January bearish

Daily and Weekly Breadth Summation index (BSI)

Last week I expected the SPX to close the week negative, but I expected the weakness to come early in the week. This week I expect to close the week lower with the most weakness late in the week. The Full Moon of Saturday and the weak close on Friday will often lead to a decline at the open Monday that reverses higher and the support levels to watch are 880 and 860. We have probably completed Minor Wave 4 and begun Wave 5 which should take us towards the November lows and lower by the 9 month and 7 month cycle lows near February 1st, with a possible deep sell-off towards Friday January 23rd for the Cardinal New Moon of January 26th.

I have done extensive back testing with each component of the Daily BSI to improve its next day performance and it was necessary to separate the most accurate next day components as another index at the top of the Daily BSI chart with its accuracy tracked with the black line. The Next Day BSI has a range of -4 to +4 or 60, 70, 80, 90% odds up or down for the next day. We can see that readings of -2 and -3 which means 70 and 80% odds of a down day next, only gave one false signal on December 5th in the last 3 months. But readings of +2 and +3 which means odds of 70 and 80% of an up day next, gave false signals on October 24th, November 5th, and November 19th and are not as reliable.

The Next Day BSI is 60% Bullish for Monday but too low to be reliable.
The Daily BSI is oversold and any further decline would probably give us a rebound.
The Weekly BSI is oversold but has yet to break out of its range like the market.

ETF Trading
I am currently long QID, DBC and SLV
I am looking to buy UDN on the next pull back
I am also long QLD and SDS for my Market Neutral system

My recent performance at predicting the direction of the SPX before the open is listed below and unless I am too cautious and skip voting, my vote for Monday is Bearish for the SPX but cautious

Firebird - Your Score: 57.1% [G100 Ranking]

(last 22 sessions: corrects=8, incorrect=6, missed over limit=0)

Live Intraday Charts

Most of the charts discussed here can be viewed intraday on my Public List at StockCharts.com

Full Moon of January 10th should be a low

Full Moons are statistically lows and we closed near the lows into this Moon suggesting a rebound on Monday, but the typical behavior is for an even lower open the day after the Moon and the parallel channel near 880 or the 850 to 860 area would be support areas to watch for a rebound.

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The Next Day BSI is 60% Bullish for Monday

I have built a composite chart of the four most accurate indicators of the next day direction of the SPX. All four indicators have accuracies that varies between 50 and 70% over any given month.

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Outlook for Monday is bearish to mixed

All three indicators are above the middle line and trending in a bearish way, but are showing signs of turning and we may get a bounce from the Full moon before we decline some more and the next support levels are near 880 and 860. See the NDX minute chart here

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Outlook for the week is bearish to mixed

The white Tick and blue Put/Call lines reached the middle line and are showing signs of turning near this Full Moon leaving us with a mixed picture and an unconfirmed bearish trend. We need to break support at 880 or 860 before the indicators cross the middle line and confirm a down trend to 820 or the November lows by the expected cycle low near the Inauguration. See the NDX 15 minute chart here

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Outlook for January is overbought and bearish

The blue Put/Call line has turned bearish from very overbought and the white Tick line may be forming a double top pattern in early January and the last two in early September and November turned out to be very bearish. See the Nasdaq hourly chart here

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Elliot Wave suggests we are completing a Minor Wave 4 top

I often use sentiment indicators like the Put/Call ratio to confirm price counts since they will only differ in the internal divisions and always match the price count at major turning points. From the October 07 high the blue Put/Call line has traced a clear 5 waves into the March 08 low to complete wave 1. The correction into the May 08 high completed wave 2, but the decline into the October 10th low only completed minor wave 3 of 3 and it appears minor wave 4 is complete or will be very shortly. The whole wave 4 correction in sentiment formed a common A-B-C-D-E with wave E dividing into a clear 5 waves back to exceed the May 08 overbought level. Wave 5 down should complete within a week or two of the 7 month cycle low of February 1st.

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Ticks are bearish but at support

Both Ticks turned bearish but are at trend support and a break below would tend to confirm that the move up from November 21st is over.

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The Put/Call ratio remains bearish

The Put/Call ratio is still bearish but showing signs of turning at a level where it has turned before in December and would break that trend if it keeps climbing.

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The Volatility in a potential descending triangle

Both the VIX and QQV have completed 5 waves down and broken out of a possible ending diagonal triangle that could mark a significant change of trend if they continue higher. See the Nasdaq QQV chart here

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The McClellans turned bearish

The McClellans oscillators turned bearish from overbought levels and will probably continue lower towards the January 14th cycle date.

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Stocks above their 50 and 200 day MA are turning bearish

The percent of stocks above their 50 and 200 day MA are turning bearish from levels last seen in late August and will likely come down quite a bit.

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Bonds

The 3 month Yield still fearful but shows signs of turning

The 3 month yield is still showing a lot of fear near 0.1% and we need to see this rise significantly above 1.0% to signal a return to more normal credit conditions and the possibility of a lasting Equities rally.

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30 year Yield reaches resistance

The 30 year Yield reached the 3.2% resistance area near the January 7th cycle date and will probably pull back possibly deeply into the January 23rd Cardinal New Moon.

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Bonds hold above strong support

Bonds held above a number of converging support lines near 133 with PPO and StochRSI also reaching natural support levels suggesting a move higher into the expected cycle high of the Cardinal New Moon of January 26th.

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Currencies

The US Dollar should resume decline soon

The US Dollar is struggling in the third move up from the December 17th low, but could reach the down trend line before turning down into the January 26th Cardinal New Moon cycle date.

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The US Dollar makes a significant top

The rally in the USD has obviously ended this wave up from the March low and will likely resume its decline soon towards the expected 6.5/13 month PI cycle low near April 2nd.

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The Yen is exhausting higher again

The Yen took off from support and is leaving gaps on the way up like on the last exhaustion moves in mid October and mid December and could extend this rally into the January 26th Cardinal New Moon cycle. This move up in the Yen is normally bearish for stocks as appetite for risk goes down with the carry trade as the Yen rallies.

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The Loonie is struggling and overbought

The Canadian Dollar is struggling with resistance and could pull back from the overbought conditions before it can break higher and reach further targets.

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Commodities

Commodities holding lows on divergences

Commodities lost 20 year support near 240-250 and made a lower low with a higher PPO and StochRSI divergence suggesting we will probably test the 20 year resistance level near 250 or more by the February 6th cycle date.

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CRB should rebound into 7 month cycle high

Commodities are very oversold after 6 months of continuous selling and will likely rebound to test the 20 year support/resistance level near 250 or even the 280 level by the next 7 month cycle high of February 6th.

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Oil in potential Head and Shoulders

Oil pulled back to support after testing the key 50 level and has left a potential inverse Head and Shoulders pattern stronger StochRSI on the right side suggesting a move higher for the expected February 6th cycle high.

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Oil near 5.5 and 11 month cycle lows

Oil is approaching the 5.5 month cycle low and will likely move up into the next cycle high of March 21st and a move back above the key 40 level would suggest it has already started.

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Oil near 5 year cycle low

Oil fell hard to the 1990 and 2000 highs near 40 for the 5 year cycle low of December 08 and has raised doubts on how high the next rally can get for the 5 year cycle high of September 2010.

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Gold is testing its 200 day MA and the 1980 high near 850

Gold continues to consolidate mostly above the 1980 high and 200 day MA near 850 and will probably continue a bit lower into the cycle date of January 23rd before it heads higher to finish Wave 1 near the February 6th cycle date.

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Gold is headed for a May 2009 high

Gold will probably complete Wave 1 by the February 6th cycle high date and should pull back into March before heading higher in a powerful and most profitable Wave 3 into May 09.

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Silver is overbought and struggling

Silver broke out with little follow through and is likely to continue testing the 10 level before heading higher for the February 6th cycle date.

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Silver has greater potential into May 09

The correction in Silver was more severe than Gold and the potential for recovery profits are greater since Silver should reach at least the 14 level and probably more by the next 14 month cycle high in late May. The COT's are also showing a configuration seen near previous lows.

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