Wednesday, February 18, 2009

Gut-check time

So, we come into the day after a close 0.11 points higher than the November 20th low in the Dow.

Gut-check time. If it bounces here, is it a double-bottom?

Start with the bad news…

- We’re nowhere nearly oversold yet. It’s not even close to the levels of oversold in January. Maybe 20% of the way as oversold as last November.

- At a very macro level, the transports made a new low. If the Dow also makes a new closing low, that’s a Dow Theory sell signal.

- Ratio of Bank index to S&P has rolled over and died.

- Moving average of volume has been climbing into the decline.

The good news…

- Looking at the Dow between yesterday and November 20th, I see positive divergences in 3 of the 5 indicators (oscillators and trend indicators) I look at. Usually, I don't trade a pattern like this without at least 4 positive divergences.

- The index put/call ratio is above 1 for the first time this year. Today, it sits at 177%, which should be pretty bullish. But the moving average of the put/call ratio is still in its lowest 10% of the last 5 years.

To me, the biggie is:

- From the 13-D filings this morning, Uncle Warren pukes, blowing out franchise positions in UBS, JNJ, COP, PG at multiyear, sometimes multidecade, lows.


I try hard never to editorialize here, but this pisses me off: taking out full-page ads in major newspapers exhorting us to "Buy America" while at the same time selling his US stock holdings makes Uncle Warren a pump-and-dump scumbag. Instead of a convincing writing style and cross-posting around the internet, he used his bully pulpit and the major newspapers to accomplish the same thing. He really deserves to lose his ass for pretending to wrap himself in the flag when he was really talking his book.

So, gun to head, I’d say: tradeable Dow rally here. It probably takes out the lows mid-morning, just enough to freak everyone out. That retest has to be terrifying. I’d put some stops a little below where it trades to around 10:30-ish this morning. It should be a fairly precise thing.

I plan on putting on a little more than I really want, maybe 500 DDM, with a notion of scalping 200 intraday.

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