Stock Market in Crash Mode

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 23 stocks making new 52 week highs versus 1,103 stocks making new 52 week lows.
The 4% rule remains bearish, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 51.8, continuing the bull market for fear. The primary Elliott wave count suggests the wave 3 of 3 meltdown run has moved into the crash phase, with the next couple of weeks prime time in that regards.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls, 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:

Once again we start the weekly summary regarding trading action this week with what we wrote to start last weeks update, and the week before that: "WOW!"
The Treasury and FED finally got the bailout package approved on Friday, with that success failing to prevent the stock indexes plunging near 10% on the week. If $700 billion recapitalization of the banks is not enough to force the bears to capitulate or the bulls to get excited, then what is out there that can? The economic news remains grim, and that is the real story behind this week's trading action. We're in a crash run, plain and simple. This will probably be over later this month, early next, with this week's terrible action week two of a potential four week meltdown. One key item to keep an eye is the financial crises around the world. European banks are in danger of collapsing for real here - despite $600 billion cash infusion from the FED THIS WEEK! - and their central bankers and political leaders meet this weekend to discuss the crises. Our view remains that we are in a bear market of some historical proportions, with a retest of the 2002 bear market lows our target for this down-leg of the bear. The FED may pull-off a surprise rate cut, potentially coordinated with a worldwide move to cut interest rates. Do not be surprised to see sellers gleefully jump on board any and all rally attempts going forward, even one induced by a surprise rate-cut. While the VIX fear index has spiked to above 50, that contrarian sentiment gauge reached 150 back in the 1987 crash, and this is much worse than that. Thus we continue with our theme that we've seen nothing yet, and capital preservation remains job one. We will survive this, and trend followers who protect capital here should be in fine shape to pick up some super attractive assets once we hit bottom. Buy low sell high, what a concept.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

Weekly Trend & Trade Review

Trader Talk

The short term momentum oscillators remain negative, confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, with a failure of the bulls to engineer a 2%+ follow through advance to trigger a new buy from this very important confirming indicator. The leadership profile remains negative, with 20 stocks making new 20 week highs versus 484 stocks making new 52 week lows.

The 4% rule remains bearish, while Federal Reserve policy remains bullish. The VXO volatility indicator closed the week at 39.4, continuing the up-spike in fear. The primary Elliott wave count suggests the wave 3 of 3 meltdown run remains underway, with the current sideways churn part of a minor wave 2 prior to the start of the meltdown crashing wave 3 of wave 3. If so, we remain on the cusp of a stock market crash of historical proportions.

Traditional seasonal trends have us looking for a difficult third quarter for the bulls, 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:

Once again we start the weekly summary with what we wrote to start last's update: "WOW!"

The Treasury and FED propose to prevent an absolute melt-down of the financial markets with a $700 billion mega infusion of capital to Wall Street. Congress says YES. Then voters go ape on the notion of bailing out Wall Street and idiot individuals who bought more house than they could afford, with voter resistance forcing one significant portion of Congress - House Republicans - to say NO WAY. OK, but don't the democrats control Congress? Yes. Can't they just push the vote through without the House Republicans? Yes. So why the big deal? Why the stall? If it's so important - saving the financial world from doomsday, and all that - then why not go ahead and do the vote already? Perhaps they fear a revolt in the election, with the dems appearing to use a massive tax and spend program to socialize Wall Street. Not something many candidates would want to run on in 2008.

Politics aside, both the bull and bear cases we outlined last week remain intact, with the reaction post decision from Congress this weekend on the bailout package the Big Kahuna that decides where we go next. An outright crash in the non-too-distant future is well within expectations here, even if the financial markets are to do just fine going forward from a structural sense. Bear markets precede recessions, and once they have run their course those prolonged periods of falling stock prices are followed by prolonged periods of rising prices as the new bulls takes hold. What the debate is regarding the financial system collapsing - or not - refers to a deflationary collapse and economic depression. Heck, we're only at the 20% of loss level for the stock indexes from the October 2007 peak, and 30% is more the norm in cyclical bear markets. Indeed, 1973-1975 saw a 50% bear loss without a depression. And 1987 a 50% loss without even seeing a recession, let alone a depression. With 2000-2002 experiening a 80% loss for the NASDAQ without the economy flipping into recession. So further losses here can easily land even if the bailout package gets the nod from Congress and goes on to proves itself a massive success.

If we have it wrong and the bulls have it right, then our indicators will turn positive and we'll all be heralding the Paulson plan as our savior as the new bulls unfolds and we all get to party again like its 1999. So relax, and enjoy the political spectacle this weekend, and see what the nervous nellies do with the news that is sure to land between now and the open Monday.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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

Bulls get Benefit of Doubt

Trader Talk

The major stock indexes traded back and forth the unchanged level today, with the stock indexes once again experiencing super light volume.

Officially, the NASDAQ fell 0.2% on 1.5 billion shares, while the Dow Industrials rose 0.2% on NYSE volume of 3.5 billion shares. The leadership profile remains negative, with 54 stocks making new highs versus 220 stocks making new lows.

The short term momentum oscillators remain negative, non-confirming the bullish stance of the AlphaKing Trading Indicator. We have a new trade below.

The bulls are trying to hold support. The bears are trying to keep the S&P500 and Dow Industrials from a breakout above the 50 day MAs. Is the sideways churn over the past month a mini head and shoulders top that is destined to result in a collapse? Or is it a sideways triangle to consolidate the rally gains off the July 15 lows? (Triangles are usually continuation patterns, which means an upside breakout is likely to start the next leg of the rally.) Both are possible, and the battle for the stock market trend is held hostage to that decision. While the low volume and modest list of stocks making new lows tip the odds of victory with the bulls, the fast approaching September/October period has the bear's mouth watering. Tricky times, but a victory answer should land in the non-too-distant future.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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

Day 3 of Market Correction

Trader Talk

The major stock indexes fell hard once again today on on-going weakness in the housing sector, along with higher than expected inflation, doing nothing to ease trader jitters. Volume was a tad higher than yesterday.

Officially, the NASDAQ fell 1.1% on 1.8 billion shares, while the Dow Industrials dropped 1.1% on NYSE volume of 4.2 billion shares. The leadership profile remains negative, with 42 stocks making new highs versus 286 stocks making new lows.

The short term momentum oscillators remain positive, confirming the bullish stance of the AlphaKing Trading Indicator. We have no new trades at this time.

The relatively low level of stocks making new lows, along with reasonably benign volume on down-days, suggest the current stock market weakness is a normal corrective pullback within an on-going up-trend. We are getting close to levels where the buyers would be expected to step forward, and day four on one-way moves often provide great turning points. Today was day three of the recent selling pressure. The big question with entry trades on day four is whether the low lands at the open, or at the close. Both work well in testing. Our plan is to shoot for the close as being the low, and thus we'll wait till tomorrow's update to switch the unleveraged QQQQ long trade for the Index portfolio to the leveraged QQQQ long one (QLD.)

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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

New Buy Signal for Stock Market

Trader Talk

The major stock indexes fell today as more financial companies reported heavy losses and write-downs. Volume was interestingly lighter than yesterday. The leadership profile has flip-flopped back into negative territory, with 117 stocks making new highs versus 202 stocks making new lows.

Officially, the NASDAQ fell 0.4% on 2.1 billion shares, while the Dow Industrials dropped 1.2% on NYSE volume of 4.7 billion shares. The short term momentum oscillators remain positive, confirming the now BULLISH stance of the AlphaKing Trading Indicator. We have new trades below to exit all short positions, and to begin the dollar cost averaging process of entering new long picks.

The stock market has been in a bear market since October of last year. Peak losses were over the 20% range. Thus both time and price destruction commonly seen during bear markets has been within expectations this time around. The FED has been aggressive in pumping money into the financial system, while the financial markets experienced a capitulation of sorts, with record numbers of stocks making new lows, and the volatility index almost hitting the wash-out 40 level. Thus the ingredients are present for the bear market to be over, and a new bull market underway.

Fundamentals lag stock market and economic trends, so the bad news may not be telling the real story. Of course the bears could have it right, and our new buy signal quickly turn into a whipsaw sell in the non-too-distant future, but one could have written that at every positive turning point the stock market has experienced in history. The most important element when it comes to making money in the financial markets over the long term isn't whether this or that signal proves to be real versus a failed whipsaw one, rather it is about keeping losses low on the failures while letting the winners and the gains run when the new trend turns out to be the real deal. Our research shows that the AK Trading Indicator is the best there is at delivering that high gain/low loss requirement. It has spoken, and we are acting. The QQQQ long position for the Index portfolio will be changed to a leveraged long ETF on any pullback close to the 50 day MA for the NASDAQ going forward, while we will add new long positions to the other portfolios each day until we are fully invested, or our trend following indicators turn negative.

Kevin Wilde, Chief Trading Strategist AlphaKing.com

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

Lower Lows & Lower Highs

Trader Talk

The major stock indexes took it on the chin once again today, with the NASDAQ falling 2.0% on 2.0 billion shares, while the Dow Industrials dropped 2.1% on NYSE volume of 4.3 billion shares. The leadership profile remains negative, with 71 stocks making new highs versus 240 stocks making new lows.

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

The overall pattern remains solidly bearish, with the downward stair-step pattern of lower lows and lower highs remaining intact. The economic news remains grim, and can only be expected to deteriorate going forward. The Dow Industrials (chart on left below) came close to touching their 50 day moving average a couple of weeks ago, and such resistance points often provide the death sentance to bear market rallies. While one day popping rally days can be expected to pop up from time to time, we expect the red ink bloodletting to pick up steam as the weeks going forward turn into months of bear misery.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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

Stock Market Due for a Little Bounce

Trader Talk

The major stock indexes suffered a volatile whipsaw day today as sellers jumped on board positive early action, driving the stock indexes hard into the red, only to see a late-day rally attempt stem some of the lost red ink. Volume was heavy, with most stocks doing much worse than the stock indexes.

Officially, the NASDAQ fell 0.1% on 2.4 billion shares, while the Dow Industrials dropped 0.5% on NYSE volume of 5.3 billion shares. The leadership profile remains VERY negative, with 43 stocks making new highs versus 1,137 stocks making new lows.

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

The S&P500 continues to smash through the March low, with zero sign yet that the sell wave is set to end anytime soon. The MACD turning positive from this position would be one clear sign that the breakdown was a fake out before a snap-back rally would launch a new bull phase, though that indicator also continues to trend down in classic bear fashion. We are oversold, and due a bounce, though investor sentiment remains stubbornly complacent, with the VIX closing no where near the 40ish level that indicates the necessary fear is present for a bull turn to land. The VIX spikes to such levels at important bottoms as investors race to buy protection from further losses in the put option market. Such a spike happened around the March lows that lead to a two month advance, and so far such fear has yet to materialize. Which means the capitulation crash - real or fake-out - has yet to land. A bona-fide crash is not out of the question from this position.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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

March Lows Won't Hold-No Rally Soon

Trader Talk
Sellers jumped on board positive early action today, driving the major stock indexes hard into the red by the close, with volume a tad lighter than yesterday.

Officially, the NASDAQ fell 2.3% on 2.4 billion shares, while the Dow Industrials dropped 1.5% on NYSE volume of 5.3 billion shares. The leadership profile remains very negative, with 106 stocks making new highs versus 816 stocks making new lows.

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

The S&P500 continues to flirt with its March intra-day low around 1260, closing just 1.5 points above that must-hold-if-we-are-to-avoid-a-crash level. This fits the usual bear path that suggests a retest of the 2002 lows is in play. What we should see here is a hard breach of current levels that runs for a while, before a snap-back rebound to broken support lands. And from there the great bear slide would resume. So perhaps one more week of hard selling to be followed by a one to two week rally before the crash run resumes. An out-right running crash from this position is not out of the question, so do not look at any potential for a rebound rally with the view of making some profits on the long side, rather continue to be heavily invested short through-out this process, and look to add to those short positions on any rally.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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