Candlesticks Galore

I think it's time to back off for a while.

This may seem to be a sudden change compared to yesterday's post. But I see a lot of reasons why, in the short term, it might be best to take profits off the table and wait it out a bit. I certainly did that today. I've got a lot back into good ol' cash. Specifically, what concerns me for bears is:

• The relatively high $VIX
  
• The abundance of very clear hammer patterns today
  
• The abundance of 'trendline touches' today (intraday lows touching suppporting lines)
  
• The lack of a new catalyst.......the Yen carry forward helped us a couple of weeks ago, and the sub-prime debacle helped us recently......but we need a new disaster du jour, and a pretty gigantic one that that.

Earlier in the day, when the Dow was down another 150 points (actually piercing below 12,000 for a while), a reader sent me this picture (which I appreciate!):


Strictly speaking, they're bison. But it's a nice thought.

In many instances, the kinds of clobbering I've been expecting have exhausted themselves, at least in some industries. Take housing, for instance. I first mentioned Meritage Homes (symbol MTH) way back on January 23, 2006 when the stock was at $58. It lost nearly half its value since that time, so clearly the head and shoulders pattern behaved as expected. But as you can see in the highlighted area near the bottom, there's a bunch of support here, and I think stocks like this have played themselves out to the downside.


That isn't to say that the drop from 12,700 to 12,000 consitutes the Giant Bear Market I've been talking about. Not at all. I'm just saying that, barring an important new catalyst, I can see the bulls taking the reigns again for a bit.

Take today's $INDU, for instance. Support at 12,000 was pierced, but there's a ton of buying interest at that level, so the bears were pushed away, and we had an intraday move of over 200 points.


The MidCap 400 ($MID) is an even clearer example. Look how perfectly it bounced off that Fib retracement level.


The $NDX also held firm. So the failure of the bears to really maul the market indicates to me that the baton was handed back to the bulls in the middle of the trading day today.


$RUT (the Russell 2000) likewise showed good Fibonacci obedience.


The S&P 500 shows the pickle that the market is in right now. It's just stuck on that major trendline. A state of equilibrium in the market stinks for traders......but we may soon find ourselves in a trading range based on this tug-of-war.


The Transports also supports the short-term strength theory. A perfect bounce off the supporting trendline.


I have no new ideas for you today. Sitting on your cash might be wise. Continental is doing pretty good on the short side; I've highlighted a target.


MER touched its trendline perfectly.


Microsoft - which I don't really trade, but it's important to follow - also touched the trendline......to the penny. Although this trendline was broken, I made an exception since it seems to be important to monitoring the stock.


I also got out of SHLD today, at a profit. Same reason - - trendline bounce.


So Monday's post had me talking about how boring the market was. And Tuesday was fireworks. Now we're back to boring. I really think, unless something totally shocking happens, we'll be marking time as the $VIX winds its way back down to the lower double digits. In the meantime, enjoy Flunky the Clown from the late 80s....