Today is one of my favorite days, not because it’s the end of the worst week in market history, but because the end-of-day rally created so many trading opportunities for next week (yes, can you believe it?). I’m talking about trading power spikes, one of my favorite patterns. A stock exhibiting a power spike is one that displays an immediate and forceful change in sentiment from the previous day. Whatever the reason, traders instantly changed their minds on the direction of the stock…a very powerful signal indeed. It seems that the CBOE Volatility Index ($VIX) breaks historical records on a daily basis. A long-standing rule of buying fear when the VIX spikes above 30 has fallen by the wayside, as its climb has been as epic as oil's run at $150 per barrel. Batman [Paulson] & Robin [Bernanke] Batman: "It's time to get set, Robin. It's almost oda wabba simba." Robin: "It's almost what?" The response to the bailout has been pretty much in line with my expectations. The Paulson comments yesterday showed what Congress was worried about. No direction. The longer all of this takes the less confidence there is in a near term solution. The timeframe for the turnaround continues to get stretched out. This leaves me as an investor less and less confident of any impact from the move by the government short term. The long term benefits will be nice as the order is restored to the financial markets, but in the short term it makes me want to be short versus long this market.

Another interesting day we had. Not in terms of massive movement, but the anticipation that’s building up. I mentioned that this anticipation will keep us in a consolidation area and the reason is because there’s too much uncertainty to overly take one side. I expect passage in the Senate no problem. After an intraday head-and-shoulders pattern, the announcement that Buffett took a $3 billion stake in GE (NYSE: GE) caused an instantaneous spike upward. Without that news, we would probably have been in trouble today.

WE had 2 solid breakouts today: Commerce Bancshares (NSDQ: CBSH) and Epicor Software (NSDQ: EPIC). I added a third, UCBH Holdings (NSDQ: UCBH) for the future.

CBSH is probably the only highly liquid financial stocks that broke higher than its previous short-term high. That’s quite an accomplishment in this difficult environment. But here’s something better: CBSH not only made a new 52-week high, but it’s the stocks highest ever! This is one of the strongest financials to own with a solid long-term (30-year) chart.

EPIC gapped up and formed a breakaway gap. Looking at April’s gap down, EPIC also formed an island reversal. There’s a high chance that EPIC will continue higher based on the success rate of islands. Prior to the breakout, EPIC formed an ascending triangle, known for upside breakouts. Looks out for these formations in your own stocks. Make note of the 200-day MA which could provide some resistance, but otherwise, EPIC has finally started to fill it’s previous 2-point gap down.

UCBH slightly broke out today out of irregular consolidation. This bank has been strong since July and appears to move higher at this point. A break above 200-day MA is a definite buy.

Like the past 3 days, we’ve had numerous breakdowns. We actually hit 116 new lows today vs. 16 new highs…still an unsightly comparison. These stocks are to be entirely avoided, and with all future breakdowns, they are not something to be buying “cheap”, you might end up trying to catch the knife a few times. Today’s breakdowns: SLM Holding (NYSE: SLM), Verso Paper (NYSE: VSR), PHH Corp. (NYSE: PHH), Foundation Coal (NYSE: FCL), Actuant (NYSE: ATU), Crosstex Energy (NSDQ: XTXI), and Finish Line (NSDQ: FINL).

Goodness. SLM broke its 2000 (year) support. There aren’t any remaining major support levels and like the homebuilders, SLM is near the level where they were before the big bull run. Remember, we still have hit bottom before we invest in these types of stocks, and now is not the time.

VRS IPOed in May of this year, a terrible time to IPO in my opinion. Whoever got the stock at $10 has lost 80% of their investment in 5.5 months. The problem with IPOs is that there are no defined support level. These levels are critical to determine where we are and we where we will likely head. Wait this one out until higher lows are made.

PHH has broken its downtrend channel and looks like it will go lower. PHH came out early 2005 at $20, and is sitting pretty close to cutting that in half. A bottom is being hammered out and it will take many months before any long position is considered.

There are still people who are into this ‘coal crazy’ and still think we’re going to head back up. Maybe we will, but is it likely anytime soon? No. Those are the people that still have yet to sell and once this flush out occurs, a series of bottoms will form. This is a classic parabolic ‘boom-and-bus’ pattern. FCL sitting at the last major support level before it goes sub-$10. I suspect we will hit it.

 

If you need a short position for the long-term, and I mean for at least a year, then here it is. I don’t judge that by ATU’s chart below, but by the 10 year chart. ATU is in a mature stage 3. At this point, stocks make erratic and deep corrections and seem to have difficulty making higher highs. You can even consider the $29-$32 consolidation as a possible right should of a head-and-shoulders pattern. There is support at $20, but after that, the stock will freefall.

Want another long-term short? Consider XTXI. The stock IPOed in 2004, jumped to $40 and broke its uptrend earlier this year. There isn’t much credibility in support levels for IPOs that have not been previously tested. XTXI is currently at excessively oversold levels and we should see a small bounce before resuming the downtrend. Take a look at a 4-year chart and tell me if you see what I see.

You have to take a look at a 10-year chart of SPAR. It looks SPAR missed the NASDAQ boom-and-bust in 2000 but they finally got it in 2007!. The pattern is nearly identical. That tells me that SPAR won’t be going anywhere for the next several years.

XIDE was a 2004 IPO which cratered from $25 to sub-$5. The stock crawled its way back up to $20 before getting crushed again. There is major support at $5 but I think we go well below that. We haven’t hit ‘puke out’ on this stock yet. Notice the rounded top which is one of my favorite patterns and not just because of its aesthetic qualities.

A few days ago, I presented FINL as a possible short opportunity. Well, here it is. There is some support at $8.50 but I would set a target at $7. FINL had an amazing run up since the beginning of 2008. The $10 level is key because it marks 2002’s high and 2006’s bottom. We should see a nice sized bounce to the 50-day at which point if it fails, I do recommend taking a short position.

 

 

www.weeklyta.blogspot.com

“Money is the lifeblood of the economy.” This famous saying is easy enough to remember, yet how much easier is it to forget it when asset prices are pushed to unreasonable extremities. Consumers and investors alike are now being reminded of the veracity of this statement in a big way as the money panic rages on. Did you get giddy today with the rally? I’m sure you did. It was a nice strong rally, but it wasn’t enough to make up yesterday’s difference. We had to correct from an oversold level in one day. When I say oversold, I mean oversold! After yesterday’s monstrous decline, you can’t expect too many breakouts or new 52-week highs. On fact only 14 made new highs and the stocks that did jump 20-90% did so to recover about half their lost ground.

WHAT A DISASTER! The Dow dropped 777.68 points or 6.98%, the Nasdaq dropped 199.61 points or 9.14%, and the S&P 500 dropped 106.59 points or 8.79%. Today was the Dow’s largest one-day drop, EVER. Oil dropped $10.52 or 10.1% to $96.36, but not before hitting $95.04 intra-day. Wachovia’s (NYSE: WB) banking operations get bought out by Citigroup (NYSE: C) and the stock lost about $19 billion in market cap in a single day. We continue to make financial history and every day is comparable to the most recent thriller/suspense movie you’ve seen.

What amazed me the most? It was the media coming out on Sunday night peddling this fluff that they called, “the deal that had been reached”. What I don’t understand is if a deal had been reached, why did it completely breakdown? If you were watching the House vote and watched the market intraday alongside, you could see how each update on the vote count actually moved the market considerably. There was a sight delay in my opinion and I was able to short when there were only about 50 or so votes left and the “nays” were well in the lead. At that point, whatever confidence I had in the financial media completely disappeared. The House is expected to present a new proposal on Thursday at the earliest, at least that’s what the media is saying…

On September 5, I wrote an article titled, "The Rally is Over." Several people made some stupid comments (not on greenfaucet…readers here are too sophisticated and friendly). Look at this comment:

"It's amazing that by just looking at charts one can predict the future and make bold statements such as "This Rally Is Over."

I wonder if there are other forces in life which could affect iron clad chart trends, and perhaps make "This Rally Is Over" sound a bit more uncertain. Nah. Wishful thinking on my end."

Haha, whatever, I don’t have to prove anything. Never underestimate the power of technical analysis. The breakouts and breakdowns I profile daily are the biggest harbingers of a chart. They will give you clues as to where the stock will go.

Anyway, I searched for my usual breakouts and breakdowns and I found 5 breakouts, one of which was the VIX, which doesn’t really count. I was shocked with the breakouts, which I’ll talk about later in the article.

Thornburg Mortgage (NYSE: TMA) gapped up 310.71% today, the largest gainer by far. However, look how the volume didn’t support price action. I can pretty much say for a fact that TMA will drop tomorrow. The board announced a one-for-ten reverse split, which is intended to boost the stock’s value above $1. TMA is also currently in negotiations with repurchase counterparties (who helped avoid TMA’s bankruptcy) and extended its tender offer for preferred stock. It’s still a $1 stock, and I would avoid it at any cost.

Delia*s (NSDQ: DLIA) agreed to sell its CCS brand for $102 million to Foot Locker (NYSE: FL) and as a result, the stock jumped 17.2%. Not bad considering that everything else went down the toilet. How bad was it today? Out of all the industries, Alternative Fuels as a whole was the best performing sector with a 0% gain!

VeraSun Energy Corp. (NYSE: VSE) spiked 81.8% today. There was no news out, at least to the public. VSE has started to fill its gap; however, I would get the hell out of VSE if there is any size gap down at the open. Be warned: VSE may fill the gap intraday. Shorting spikers on no news is a great way to go.

Another stock that spiked on no apparent news is Raser Technologies (NYSE: RZ). Looks like a major short squeeze to me. 24% of the float is short (or was). Any gap down warrants a short at the open.

The VIX ($VIX) is the last “breakout” to profile. In my weekly technical commentary that is distributed early Monday, I wrote that the VIX was forming a high-and-tight flag and that a breakout was imminent. I had no idea it would be today. At this level, the VIX will hit the 50 level. I would also like to point out that a flag or any type of consolidation pattern was never formed on the VIX for at least the last 3 years, so I knew it was something special. People are scared, and the bull camp is getting smaller and smaller each day. Expect these fear levels to remain elevated for a while.

As for the breakdowns, I found over 300 of them. If I tried to profile all of them here, the article would be almost 700 pages long. That’s how bad of a day it was.

Here are some of the biggest losers. I declined to draw trend lines because I thought they were obvious and pointless. Many of these no longer have any support levels remaining. I warn you NOT to go long in any of the following:

 

 

 

 

Once again, NO long positions, please! I don’t care if you think that the stocks are "cheap". Trust me, they’ll get even cheaper (you might even get a 50% discount tomorrow!). If you don’t know how to short, just stay in cash. Standing aside is also considered a position.

On the top 100 largest declines for both the NYSE and the Nasdaq, all 200 of them declined by 17% or more. I highly recommend that no long positions be entered in any of them.

Today, there were 1,142 new lows hit and only 23 new highs made. The market cannot rally with these kinds of numbers being hit.

The rally has been over, and I can confirm that we officially began the third primary leg of this bear market. Don’t ignore chart patterns; they’re trying to tell you something!

Fair warning to longs: we have a lot more new lows to hit.

 
www.weeklyta.blogspot.com

The Materials Sector (NYSE: XLB) failed the 50-day MA test on Monday and headed straight down toward support at $35. The $34-35 area is critical at this stage because if the sector cannot hold this level, it has the potential to hit $30 without a problem. Previously, this level has been hit in April 2007 and January 2008.