- volume was very high, higher than it has been since a similarly dramatic down day closed October, 2009;
- after beginning the new year with a series of new relative highs, the market could not follow through, and has now slumped back down to where it started the year (111.44) and the most recent breakout;
- this particular buy signal, generated in July at around 93 on is very old, up 24% at one point from the buy point and 33% from the July low;
- a significant long-term uptrend line from the July low connecting the subsequent lows was broken;
- the trailing 20 day low is now less than a point away at 110.76; tomorrow will likely see a puncture of this low - tighten your stops!!
The fundamentals, which were horrible when this rally began, are slightly less horrible; Wall Street's fear of President Obama strikes me as silly in a market crying for greater enforcement of existing regulations. It was lack of regulation, a culture of greed, excessive leverage, and creative financing that got us into this mess. Banking should be a boring business of accepting deposits and making loans and making a living off of the spread and fees. It's become something far too exotic.
That said, the financials have plenty of reason to sell off; their balance sheets look terrible and the moral hazard introduced by the "too big to fail" policies of the Treasury have only emboldened Citigroup and others. Shorting the XLF (Financial Depository Receipts) will probably work out nicely, but expect a lot of choppiness.
Other interesting plays:
VXX - Volatility ETF that rises and falls with the VIX, or implied volatility of the options market. Going long volatility helps hedge long stock positions. VXX rose to just below 30 today, up 5.4% in a single session. It remains far below its 20 day high and has lost two-thirds of its value last year as fears of the end of the world receded, but who knows what the future holds?
Shorting other markets as they generate sell signals from Germany (EWG) to Singapore (EWS) may also prove profitable in our all-too-interlinked world.
Gold (GLD) continues to behave poorly after a phenomenal rally then sell signal, then failed attempt to retake the old highs. If it passes the test of the most recent lows, it may be a good buy from here though (technically it is in a buy state, having punctured its 20 day high to the upside.
Toyota Motor (TM): As you can probably tell, I like the liquidity and ease of ETFs, but as an individual stock, the chart looks interesting. The company gapped up on heavy volume 7 sessions ago and has not filled the gap. MSN Stock Scouter (which I think is a fantastic service) rates it an 8 out of 10 for appreciation potential over the next 6 months. Will see..
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