Bear Market Still Growling!

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 lack of any high volume follow-through days to confirm of any recent rally attempts. The leadership profile also remains bearish, with 49 stocks making new 52 week highs versus 344 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 71, continuing the bull market for fear. Please note the high for this sentiment gauge is a whopping 172 during the 1987 crash, so while we remain at super-high levels, the fear spike may have a lot more to run. The primary Elliott wave count suggests the wave 3 of 3 meltdown run is nearing the end of the crash phase. We believe we are currently in a wave 4 trading range with a fifth wave capitulation collapse still to come.

Traditional seasonal trends have us looking for a rebound following a capitulation collapse in the 4th quarter, 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:

There are no words to describe the trading action this week beyond WOW! Monday saw the S&P500 up 12%, and then Wednesday saw the worst one-day plunge since the 1987 crash with a 9% pummeling, to be followed by Thursday's 4% rally going into options expiration Friday. What a week. We shorted at the open Tuesday, and then again at the open today. That tell you what we think is slated to land next? Volume dried up the closer to Friday we got. The economic news was grim. Next week is all about earnings, with some really important stocks and sectors reporting each and every day next week. This sets up even more volatility than we experienced this week. Almost everyone accepts we are currently in a recession - about a year after we started on the recession drum - and the question now has moved into how bad is it going to be. Very bad, is our first impression, and one has to look no further than stock market action this year to see what that important economic forecasting indicator thinks about our economic plight going forward.

We have our plan for what comes next, and we should have a giant head's up as to when the expected plunge is nearing its end. We expect things to get worse before they get better. When our indicators say to buy we will buy with both fists and then some. But first we get to see how the financial markets handle the capitulation plunge end game.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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

Bear Market History Made!

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, confirmed with a very bearish leadership profile, with 22 stocks making new 52 week highs versus 4,340 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 86, continuing the bull market for fear. Please note the high for this sentiment gauge is a whopping 172 during the 1987 crash, so while 86 is super-high, it may have a lot more to go. The primary Elliott wave count suggests the wave 3 of 3 meltdown run is nearing the end of the crash phase.

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:

WOW! does not begin to describe the trading action this week. Triple WOW! Quadruple WOW! Maybe even 700 billion WOWs! For those who may have missed it, the stock indexes fell over 20% THIS WEEK. That fits my definition of a crash, any day of the week. And the thing is, it all seems so orderly that we fear we've seen nothing yet. Percentage-wise, the losses are on par with both the 1987 and 1929 crashes, thus we weren't kidding when we said this was a meltdown of historical proportions. And while those comparisons suggest a recovery bounce should land at this juncture, the internal wave count and general calm feel suggest there's one more scary plunge to come. One that sees the VIX fear index best levels seen in 1987. Are we talking DOW 7,000? Or 6000? Or 5000? Or worse? Yes. Maybe. Perhaps. Perhaps worse...

We have our plan for what comes next, and we should have a giant head's up as to when the plunge is nearing its end. Before then, we expect the coming days to be very tricky for most people with money in the financial markets, and, perhaps, even worse for those people who have little clue as to how the stock market really effects their daily lives. It's one thing to be scared witless while playing a potential profit opportunity that blew up, and something else much more onerous to suffer a hard squeeze of the coronaries when you aren't even sure why you're experiencing such emotion and have no money directly on the line. But fear it the average Joe and Jane will, whether they have money at risk or not.

We hope that our words - and, more importantly, our actions - have helped you weather the plunge so far to date from both a financial and emotional stand point. We have studied history. We have studied crashes. We have built a system designed to handle any situation. We are not surprised by the action this year. Just as we are not surprised by how well our portfolios have acted. You have to look no further for evidence of what we should have expected during a big bad bear market plunge, than seeing how our strategies handled the 1987 and 2000-2002 bear market plunge years. Visit the archives to see annual rates of change of all of strategies that we published around the Christmas and New Year period last year. Then compare to how our portfolios have done this year. We think it makes interesting, insightful, viewing.

Have a good weekend. Take a deep breath. This is probably going to get worse before it gets better, but, better days, and profits on longs, are rapidly coming our way. But first: the capitulation plunge end game...

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

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.

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

Weekly Trend and 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 second 2%+ high volume follow-through advance needed to confirm a new buy signal from this very important trend confirming indicator. The leadership profile remains bearish, with Friday's close yielding 98 stocks making new 52 week highs versus 236 stocks making new 52 week lows.

The 4% rule has turned positive, confirmed with bullish Federal Reserve policy. The VXO volatility indicator closed the week at 24.1, showing some lessening of fear, 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 (ii) 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.

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:

While the rally off last week's near crashing lows has been swift, the internal technical set-up appears to confirm the move nothing more than part of a counter-trend rally within an ongoing bear market. The stock indexes have so far retraced a Fibonacci 38% of points lost in the wave 1 collapse, which is the first potential stopping point for Elliott wave 2s. The 50% and 63% Fibonacci retracement levels are near the 50 day moving averages for the stock indexes, which remain the most likely stopping points for this advance. What should follow - once the wave (ii) ends for real (either here or at the 50 day MAs) - is a bona-fide melt-down run and probable crash in wave (iii) of wave 3. The current rally - which should end very modest, if it hasn't ended already - should be the last chance to exit longs and enter shorts ahead of the pending collapse. Things should move very quickly to the downside once wave (ii) has ended, so any portfolio pruning should be done sooner rather than later, as later may never happen. Capital preservation remains the key to the next few tricky months.

Kevin Wilde, Chief Trading Strategist, AlphaKing.com

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