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

Still a Bear Market

Trader Talk

The major stock indexes enjoyed a partial rebound of yesterday's mega losses, though volume was a tad light for such gains.

Officially, the NASDAQ advanced 5.0% on 2.4 billion shares, while the Dow Industrials rose 4.7% on NYSE volume of 6.1 billion shares. The leadership profile remains very negative, with 23 stocks making new highs versus 604 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 bulls stepped up to the plate today to prevent a follow-through to yesterday's misery, temporarily delaying any crash run of the quick type. Hopes are rising that the red ink yesterday will move Congress toward a YES vote on the bailout package. We continue to believe that such a focus on the bailout misses the point of a stock market in trouble due to fast-approaching recession. Thus any and all rally attempts going forward should soon fail. Indeed, yesterday's collapse landed in five waves, while today's partial recovery in three. That's classic bear market action that should lead to continuation of lower lows and lower highs. The stock indexes closed at a point where further gains are going to be difficult to come by. A retest of the 2002 bear lows remains our downside target for this leg of the bear.

Kevin Wilde, Chief Trading Strategist AlphaKing.com.

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

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

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 the lower volume on the Friday surge non-confirming the 2%+ set-up advance delivered on Thursday. Still, the bulls have a shot at turning this very important confirming indicator positive if they can engineer a 2%+ high volume follow-through advance sometime next week. The leadership profile did turn positive on Friday, with 443 stocks making new 52 week highs versus 283 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 33.6, continuing the up-spike in fear. The primary Elliott wave count suggests the wave 3 of 3 meltdown run remains underway, with the current rally pop 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:

What can we say about the action this week other than to say "WOW!" The big question is what does all the violent ups and downs mean? Let's split the answer to that question into two parts, with the first looking at how stock market bottoms are formed (AKA the bull case,) with the second part focusing on what we're seeing now in relation to how bear markets usually unfold as bull hopes meet reality of imploding fundamentals (AKA the bear case.)

Bull case: Bears end after a capitulation that causes a huge spike up in fear as measured by the VIX as everything gets way oversold in a clear show of panic, followed by a vicious rebound, all following prolonged cash-infusion actions from the FED. Clearly all of those landed this week. The number of stocks making new highs have also eclipsed the number of stocks making new lows. So the bottom is in? Perhaps, perhaps not.

Bear case: The AK indicator remains negative, as does the 4% rule, and the accumulation profile (due to the lack of volume on Friday's big advance.) Breakdown/pullback are the hallmarks of bear market, with both often landing in vicious camp, which we clearly saw this week. Thus the technicals overall say the bull push has so far failed to deliver what is needed to turn a bear into a bull. The internal wave count suggested the NASDAQ was due a big recovery bounce before the next leg of the bear lands for real, and we certainly saw that Thursday and Friday. Is the repeat of the RTC bailout plan a game-changer? Maybe - at least in the short term - but probably not longer term. If the investment world loses a couple of trillion dollars, and the US government buys back some of that busted debt, does that mean the now very scared investment world sitting on the edge of catastrophe will go back to business as usual once the debt problem has been shifted from under Peter's cup to under Paul's? Or will the investment companies who have experienced the horror that 30 times leverage can deliver take that money simply to get rid of the busted crap so their balance sheets are more like 15 times leveraged? If so, the investment world is still not healed despite today's promises of massive cash infusions, as no one will be lending money to anyone in large amounts even after the busted debt has been taken off the balance sheet. Thus government money simply goes into the financial black-hole of disappearing money, and Wall Street is still closed for business, and still in need of huge inflows, as 15 times leverage is still a HUGE problem. Indeed, the current action from the FED and Treasury ensures that the investment banks have to put a price on all this busted debt, which means they can no longer hide behind their lies of how things really are. Which means the government has put a date to the day of reckoning where we get to see who has enough money to survive and who doesn't.

Our take: We simply cannot believe Wall Street, businesses, consumers, or investors, are going to take on debt like they have in the past to party-on like its 1999, nor for the US government to print money to drop from helicopters to fill consumers wallets. Thus the system should remain wounded, and the over-leveraged weak still on their way to bankruptcy. Worse, the economy is not even in recession yet. Wait until losses start to pile up from side of the equation. Wait until consumers loses their jobs as unemployment rises. There are only two ways out of this mess: put money in real people's wallets so that they can buy houses, and cars, and everything else - AKA reignite the party - or else let prices collapse as the weak get taken out so the rest of us can buy good assets cheap to go on to be winners on the rebound. The deleveraging process will ensure Wall Street remains wounded, and the fast-approaching recession will ensure that things get even darker going forward.

In short, we've seen nothing yet, and capital preservation remains the key.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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

Stock Market in Crash Position

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 bearish leadership profile, with Friday's close yielding 61 stocks making new 52 week highs versus 367 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 29.3, showing yet another up-spike in fear. The primary Elliott wave count suggests the wave 3 of 3 meltdown run has begun. Waves 3s are the territory of stock market crashes 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:

The technical action this week was flat-out horrible. The fundamental news was equally horrid, with Lehman Brothers and AIG both looking like they better get some hard cash soon or else face a bankruptcy filing. Hurricane Ike looks like a summer shower compared to this financial tsunami. The FED meet on Tuesday, but what can they do that they haven't already done or tried? There's not much to add this ghastly set-up, except to reiterate our belief that preservation of capital is an absolute must at this critical, treacherous, juncture.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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

Jury Out on Bull / Bear Battle

Trader Talk

The major stock indexes traded back and forth the unchanged level today, with a mixed close run on higher volume. Officially, the NASDAQ fell 0.7% on 2.2 billion shares, while the Dow Industrials rose 0.1% on NYSE volume of 5.1 billion shares. The leadership profile remains negative, with 100 stocks making new highs versus 218 stocks making new lows.

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

The technical set-up remains the same, with both the S&P500 and Dow Industrials challenging and bouncing off their 50 day moving averages today. The bull/bear battle to dictate the trend for the remainder of the year is held hostage to the current back and forth along those MAs. Commodities continue to collapse, and we reiterate our warning from earlier in the year that these cyclically sensitive groups should be avoided at all cost on the long side. If the bear returns from here all stocks should collapse, including commodity stocks. If the bull continues to run then money should move out of the lagging commodity stocks and into sure growth prospects such as pharmaceutical type of stocks. We do believe the bears will see a big win before the year is out, though we continue to see one more blast-off rally to the 200 day MAs before the end comes for real.

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

Weekly Trend and Trade Review

Trader Talk

The short term momentum oscillators remain positive, non-confirming the bearish stance of the AlphaKing Trading indicator. The accumulation/distribution profile remains negative, with a failure of high volume to confirm Friday's advance as a follow-through day that would have triggered a buy signal for this very important confirming indicator. The leadership also remains negative, with Friday's close yielding 130 stocks making new 52 week highs versus 222 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 21.9, moving back into the complacency camp, and remains contrarian bearish. The primary Elliott wave count continues to suggest a wave 2 counter-trend advance within a bear market continues to unfold. If so, the wave 3 melt-down run should start in the non-too-distant future as wave 2 completes.

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 stock market advance this week confirms the Elliott Wave 2 counter-trend topping move is not yet complete, though may be very close to doing so. The NASDAQ advance, in particular, looks about done, as all waves appear in place. The Dow Industrials and S&P500 closed smack on their 50 day MAs, and whether they too break out and launch to the upside to mimic what happened to the NASDAQ, or if they stall here and the slide resumes, should be answered early next week. The lack of volume on the rally continues to argue that we are experiencing nothing more than a bear market trap for the bulls.

Our trend following indicators may also get caught up in this fool-the-most-people move, but as trend followers we will gladly trade in line with our indicators. That means holding shorts if the stock indexes begin to slide early next week, or move to the long side of the market on any failure to reverse as a buy signal is triggered. If such a buy signal turns out to be the real thing, then we'll happily make money being proven wrong in our thinking that we remain in a bear market. If such a buy signal proves us correct that the bear is alive and well - by triggering a sell signal soon after the buy - then we'll gladly reverse our positions and accept such volatility has part of the process of making money over the long term using a research proven trend following approach.

The goal is to make a solid return when the trend delivers on a new trading signal, while keeping losses small on failed signals, rather than being proven right all the time. No one, no investment system, can do the latter with any degree of success, and trend following is the next best alternate to having a time machine that can give us tomorrow's hindsight today. The average annual rate of return for the AK Trading Indicator - using the NASDAQ Index to gauge results - is 15% long only (unleveraged,) 30% (leveraged,) and 19.7% long/short (unleveraged,) 35.2% leveraged (from 1973 through the end of 2007.) The average trade is close to 17% on wins, versus 3% on failed signals (unleverged,) 34% on wins versus 6% losses (leveraged.) Thus results since the June 24th sell signal are very much in line with expectations.

We will not act before our indicators tell us to, as there have been many times in history where a new trend change signal was close to being signaled yet the signal never happened, as one aspect of the AK Trading Indicator we like is its ability to only limit signal changes to those that likely matter the most. Annual trading results of all our portfolios are shown in the archives of our Updates between 12/24/2007 and 1/2/2008.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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

Don't Fight the Tape, the Trend

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 bearish leadership, with Friday's close yielding 67 stocks making new 52 week highs versus 167 stocks making new 52 week lows.

The 4% rule remains positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 24.3, and remains contrarian bearish. The primary Elliott wave count continues to suggest a wave 3 melt-down run remains underway, with the current wave count wave (i) of wave (iii) of Wave 3, and an out-right crash in the wave (iii) of 3 should land in the non-too-distant future as the wave (ii) counter-trend push exhausts itself the middle part of next week.

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 stock market trend in bear markets is one of breakdown to new lows through major support followed by partial recovery bounces back into that broken support, which leads to another breakdown to new lows, with this downward stair-step pattern of lower lows and lower highs maintained until complacent bulls are forced into a capitulation panic that leads to a real or near-real crash. A VIX spike to 40 and above is the indicator that suggests such a final capitulation has landed, as does a completed Elliott Wave Cycle. The action this week suggests the bounce off the July 15 low has stalled at such resistance of broken prior support, and the next down-leg underway. Since the sell-off into the July lows has the look of an Elliott Wave 1, and the rebound thus wave 2, what should land next is the meat of the bear, which should lead to a retest of the 2002 bear lows. The summer rally appears to have stalled, and now August is here, we are fast moving into the very tricky months of September and October, when the stock markets crashing lows are often logged.

The economic news continues to suggest we are headed toward - or in - a recession, and now the commodity related stocks and futures are in full retreat, the financial markets have to deal with imploding bubbles all over the place, with leveraged debt players going belly-up in multiple industries. We are trend followers who would like nothing more than to be buying big here, and writing cheery stories about how things look so great, but that is not the message the financial markets are giving us. When the technicals turn bullish we will turn bullish. Sorry if this is not what you want to hear, but our mission is to keep you on the right side of the trend and to help make you money over time, rather than to entertain or tell you what you want to hear. Capital preservation remains key to the next few tricky months, which have the potential to deliver some very large red ink losses to those who stubbornly continue to fight the trend.

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