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.

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Stock Market Selloff Continues, No Relief in Sight

Trader Talk

The major stock indexes traded lower today, with the NASDAQ dipping 1.2% on 2.1 billion shares, and the Dow Industrials slipping 0.4% on NYSE volume of 5.4 billion shares. The leadership profile continues very negative with only 77 stocks making new 52-week highs, and 1053 posting new lows.

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

Futures were up strong early this morning on news that the Fed will support Freddie Mac and Fannie Mae, which hold 50% of all U. S. mortgages, but the higher open quickly faded, as the reality of the dour situation in financial stocks set in. Big takeover news no longer buoys the market. The market is very oversold, but investors understand that it can stay oversold for a long time. We see no reason to cover our short positions now, and we'll add to them on a decent rally that meets our upside counter- trend rally targets. We may cover our shorts on a big selloff from these levels, depending on our market indicators.

Chief Trading Strategist Kevin Wilde will return from vacation next week.

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

Serious, Long, Bear Market Underway

Trader Talk

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, confirmed with a VERY bearish leadership profile, with Friday's close yielding 77 stocks making new 52 week highs versus 1211 stocks making new 52 week lows.

The 4% rule remains negative, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 29.9, showing some acceleration in fear, though well shy of anything that would signal the sell-off has suffered a capitulation needed to signal a turn positive. The primary Elliott wave count continues to suggest a wave 3 melt-down run is underway, with the current wave count wave (i) of Wave 3, though an out-right crash at this point is not out of the question.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls after a modest summer rally attempt stalls, while the Presidential cycle remains bullish for the remainder of 2008. The Benner-Fibonacci cycle will remain bullish until 2010, though this prolonged time period may include one or more cyclical bear phases. The AlphaKing combination cycle sees a bear market slump running all the way into mid-December when the next major turn-date is slated to land.

Summary:

The technical ducks all continue to confirm a major bear down-leg remains underway, with an acceleration of the selling landing this week. The 2002 lows remain the downside target for this leg of the bear. There remains zero sign yet of the heightened capitulation selling to signal a reversal to the upside is slated to land anytime soon. All major stock indexes continue the pattern of lower high and lower lows, with Friday suffering yet another high volume distribution day. The fundamentals continue to show consumers hanging on by a thread now the rebate checks have been spent, while at the same time confirming the credit bubble implosion continues to pick up steam, with Fannie Mae and Freddie Mac this week's disasters. While we can expect some volatility of trading as the FED, Treasury, and Wall Street Plunge Protection Team try to prop up the collapsing markets, the numbers of losses involved, and depth of the leveraged debt problems, are simply too large to prevent the bear market from eventually turning nasty. The stock market is severely oversold, and thus due a bounce, though there have been many times in history where this set-up continued with the downtrend that led to a real bonafide capitulation melt-down without any major bounce landing. When the technicals show some signs of a washout of the bulls, or indeed some sign of buy interest from traders and investors, we will change our stance. But so far all investment ducks point in the same direction: WAY DOWN. Be aware of, and prepared for, a genuine collapse going forward. Look to take profits on shorts on any capitulation melt-down, and look to add to short positions on any rally attempt, especially those that touch the 20 or 50 day MAs.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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