CNBC Report by Bill McLaren – 9 March 09

CNBC SQUAWK BOX EUROPE

 FIRST LET’S LOOK AT THE S&P 500 DAILY CHART

We have had this chart up on the website for the past month.  When looking at important dates within stock groups many had hit important highs on December 9^th and therefore we though the vibration in time could be significant from that date.  So the first few days in March had 90 and 60 calendar day cycles expiring.  As I pointed out last report all last legs down in bear trends have definite period of time with 45 to 51, 60 to 64 and 90 to 99 calendar days down as that time factor.  And as we have pointed out many times a 90 day high to low or low to high is strong probability for completing movements.  So there is “TIME” for a low but qualifying the significance of this low is difficult.  I feel confident it will run at least 7 to 12 trading days and is currently up to resistance from the previous low set in February 23^rd.  That price level is very significant if the trend is to remain down. 

If this does turn down within the 7 to 12 trading day time window then a significant low and possible end to the bear trend will occur in the first week in April. That is the next series of the cycles.  If the rally can exceed 13 trading days then the last low could be very significant and the rally could run for a few months.   It should now consolidate the move up due to the resistance level with a small correction or a few days on the side.

LET’S LOOK AT THE US DOLLAR INDEX

The US dollar index moved to a new high in March and failed.  This remains in the 1/3 to 3/8 retracement of the last leg down and is very important resistance.  I thought around March 18 was a valid date for a high but that seems too soon considering this index usually needs to distribute for a month or so.  But because of the failure at the previous high (obvious resistance) it is important to look at the next rally to see if there is a possibility it can be qualified as a counter trend.  Critical support for holding the up trend is marked on the chart.   Technically there has developed a probability for a top so we’re looking for evidence of distribution and that lower high.  No signals yet just a point of interest so far.    

THE NEXT CHART IS CORN

Back in January I said the agricultural commodities had completed a counter trend rally and should resume the downtrend.  Corn and other agricultural commodities are struggling down too much now to look for a continued downward move.  You can see each time it has broken to a new low it immediately recovered indicating a struggle down.  I don’t know if a strong low is in place but there appears to be too much risk for the short side.

Watch “Opposing Forces” as the S&P500 is Testing its Low

Can a market positive and a market negative coexists at the same time?

The answer is: For a short period of time.

What you are describing when you discuss such conditions are “conflicting market conditions”. Conditions where there is a “force in one direction” being opposed by a “force from another direction”.

When the power of each of these forces is equal, there is a “standoff” where neither force has the advantage. Until one of the forces establishes the dominant position, the situation is a neutral standoff.

Let’s look at such an example today. Such a “conflicting market condition” shows up when we look at our chart of New Daily Lows on the New York Stock Exchange along with our zero-based Relative Strength for the S&P 500.

This is a fascinating chart because it shows that the S&P 500 is now at a major testing point. The S&P has recently dropped down to a level that necessitates retesting the November low. The S&P has not broken below the support, or rallied yet because …

Because … Just as this is happening, there are “conflicting market conditions” where opposing forces are offsetting each other. Each is holding the other back from a rally or from a descent down further.

Notice what is happening on this chart.

First, the New Lows peaked in October. The New Lows were then followed by a lesser rise in November while the market made a new low on the S&P. That was a positive divergence, where the market rose from there … only to fall back down to retest the S&P low again. But notice how, once again, the New Lows have a Positive divergence … and this time, the divergence is more positive than the last time. So, we have a “positive force” acting on the market.

Second, look at our Relative Strength for the S&P 500. Note that the Strength for the S&P 500 is negative. Also, note that the short term trend has been moving lower. So, here we have a “negative force” in play. (Some of you may also observe that the Relative Strength also has a positive divergence when you look at the October to February time period. However, the dominant force on the Strength is a down force because it has recently made a lower/low.)

Summing up the two, you have one positive and one negative force … a standoff as a battle of the forces fight for dominance. It isn’t until such divergent forces “clear themselves off the table”, that the stock market is able to establish a direction for the next trend. (The update of this chart can be seen every day on our paid subscriber site.)

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by Marty Chenard

Financials Wipeout

In the first chart below we highlight a ratio of the S&P 500 to the S&P 500 Bank group going back to 1940.  When the ratio is rising, the financials are getting weaker relative to the S&P 500 as a whole.  As shown, the ratio is currently as high as it has been over the entire time period, meaning the banks are as small as they’ve been relative to the overall index.  Where we go from here, nobody knows, but the financials are pretty much getting wiped off the investment map.

Below we highlight the percentage declines from peaks of various asset class busts in the last decade.  Prior to the declines that financials, oil, and homebuilders are seeing currently, the only recent comparison for the current generation of investors was the Nasdaq bust from 2000-2002.  As shown, the Nasdaq went down 78% from its March 2000 peak to its October 2002 low.  Following the bursting of the Internet bubble, many investors didn’t think they’d see a similar bust for decades.  But the current declines in financials and homebuilders have now eclipsed those of the Nasdaq, and oil has also gone down just as much. 

Oil’s decline of 77% from July 2008 to its low in December was the fastest bust of the group, while homebuilders have gone down the most and for the longest period of time.  Since July 2005, the homebuilders are down a whopping 87%!  And the S&P 500 Financial sector is down 81%, which isn’t as bad as the homebuilders, but given the fact that it didn’t go up nearly as much as the homebuilders, it’s probably worse.

Source: Bespoke Research

How to Read a Forex Chart

The forex chart is among the most essential tools in a forex trader’s arsenal. Simply put, it is a graph of a particular currency pair’s performance over a given period of time. Reading forex charts is key to a trader’s business, so it’s important to know how to read them and understand what they mean.

Every forex chart will be labeled with a currency pair: EUR/USD, USD/GBP, etc. Remember, all forex trading deals with different countries’ currency in relation to each other. The EUR/USD chart, for example, tells you how the euro and the U.S. dollar compare.

Along the bottom of the chart is the timeline – 15 minutes, an hour, a day, a week, or some other period. Going up the right-hand side are incremental amounts. For the EUR/USD chart, the amounts might be 1.2531 at the bottom, going up to 1.2561 at the top. And of course the middle of the chart shows what position the EUR/USD pair held at what time.

The forex chart is useful because it shows in clear terms how a currency pair is performing. You can see at a glance whether a currency is getting stronger or weaker, and you can act accordingly. Selecting the time frame helps you see very minor trends (in a 15-minute period, say) or more long-term ones (over the course of several days, as an example).

You can find forex charts all over the Internet, on Web sites for forex brokers, tutors, and on other forex-related sites. Those are acceptable for looking at trends now and then. But to be a serious trader, you need to have access to charts much more readily, without having to go to a Web site. Fortunately there is trading software that fills that gap by providing you forex charts. Being able to access the latest charts is key to successful trading.

With dozens of world currencies, there are far too many possible currency pairs for anyone to keep track of mentally. Forex charts show at a glance how currency pairs are performing, and good software helps you to store a selection of charts as “favorites.” You’ll want to keep an eye on the charts that represent investments you’ve already made, and it’s smart to have a few extra saved, too, so you can watch for trends in currencies you haven’t traded yet. You never know when a lucrative new opportunity is going to be revealed.

Long-term charts of the financial sector

“A look at long-term charts of the S&P 500 Financial sector is downright depressing. The first chart below dates back to 1990, and as shown, the sector closed at its lowest level since March 1995 yesterday. The sector is now down 79% from its highs in 2007. A chart of the sector all the way back to 1940 shows just how much the sector has fallen in such a short period of time.”

Source: Bespoke, January 21, 2009.