Bear Growls, Lehman Looms

Trader Talk

The major stock indexes took it on the chin once again as important support of the 50 day MAs were breached. Volume was once again heavy.

Officially, the NASDAQ fell 2.6% on 2.6 billion shares, while the Dow Industrials dropped 2.4% on NYSE volume of 7.3 billion shares. The leadership profile remains negative, with 103 stocks making new highs versus 575 stocks making new lows.

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading Indicator. We have new trades below.

The technical evidence continues to mount that the next leg of the bear market is underway. Since this one should be an Elliott Wave 3 of 3, we should expect the crash set-up pattern to unfold over the next couple of weeks. The financial sector remains the primary problem for the markets as they simply cannot attract money into their businesses to cover ever-increasing losses in their leveraged debt speculations gone wrong. No money to counter big losses means bankruptcy. Lehman appears to be the next to go, to follow on from Fannie, Freddie, and Bear Stearns.

Many more should follow, with any domino follow-through effect that accelerates providing the fundamental back-drop of a bona-fide stock market crash that the Elliott Wave count says now is in play. The volatility this year has brutal to both bulls and the bears, though we've seen nothing yet, when matched against what is fast heading our way.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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Goodbye Naked Short-Selling!

Trader Talk

The major stock indexes enjoyed a big rally today. The NASDAQ rose 3.1% on 2.5 billion shares and the Dow Industrials gained 2.5% on NYSE volume of 6.7 billion shares. The Leadership profile improved somewhat, still just 73 new 52-week highs as new lows dropped to 615, still quite negative.

The short term momentum oscillators are still negative, barely, confirming the bearish stance of the AlphaKing Trading Indicator. We have no new trades at this time.

Positive news from Wells Fargo this morning was the initial catalyst that drove the financials much higher today (on lower volume than yesterday's dip) as well as more testimony from Federal Reserve Chairman Ben Bernanke, who said Fannie Mae and Freddie Mac are well capitalized. Bear market rallies are sharp but short, and we're not convinced today's action in the market was anything to get excited about. In fact, it wouldn't surprise us if this move turns out to be just about over here.

1150 is our short term target for the S&P 500, where we plan to lighten up on our short positions, which should be followed by a larger sideways churn area. There is a slight possibility of a big drop from the 1150 area. The VXO and VIX fear indicators sank much today, and the Bulls in the AAII survey were only at 27% last week, while short interest in the NYSE was at record levels, much of it in the financials and homebuilding groups. SEC Chairman Chris Cox was on TV again talking about naked short selling, and the new enforcement policy, which may have had some effect. He explained that the rules will be enforced immediately in FNM and FRE, plus several major banks, but the SEC will not be concerned with past instances in which short-selling without borrowing shares occured. We're pleased that the SEC laid out a broader plan to later include all stocks. Short selling provides added liquidity and is not something evil. Naked short selling is illegal. Cox also said the SEC now has the tools to ferret out those spreading false rumors in order to benefit their positions, and they will use them. We applaud these long overdue changes.

Chief Trading Strategist Kevin Wilde returns from vacation next week.

For Free charts with trading signals and fundamentals ratings, visit AlphaKing