- Two Dates That Stand Out On The Charts

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Two Dates That Stand Out On The Charts

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Two Dates That Stand Out On The Charts

Monday, 08 September 2008

By Rick Pendergraft

On August 18, my article for IDE readers talked about how the government had screwed up four different markets. By announcing their directive to short sellers to keep their hands off the financial stocks, the Fed propped up the financial sector, the airlines sector, and the dollar. At the same time they killed oil…I didn’t mention it in the article, but it also hurt gold.

The date of that announcement by the Fed was on July 15. That directive expired at midnight on August 11. With the big brother not there to protect its little siblings any longer, I expected the financials to get crushed immediately.

While it didn’t quite happen like I thought it would, I want you to look at a few charts. I have taken the liberty of marking July 15 and August 11 with arrows.

Notice that the rallies in the financials, the S&P and the airlines all started on July 15. You should also note that the upside momentum for all three came to a halt on August 11.

The chart of oil that I showed in the article on August 18 showed how oil had peaked just before the July 15 SEC announcement, but the downswing really kicked in with the announcement. Notice on the chart below that oil did stabilize around August 11, but the relief from Hurricane Gustav not being as damaging as projected caused oil to break below the $110 level. I had been watching this level of support as it was the site of old support and also the site of the 200-day moving average.

Looking at the way these dates jump out on the chart caused me to re-think an answer I gave in a recent interview. I was asked how widespread I thought naked short selling was. My answer was that I thought there were lots of institutions doing it, so it was widespread from that perspective. On the other hand, I didn’t think the number of stocks being targeted by naked short sellers was all that widespread. But looking at these charts, I am starting to think the problem is greater than I originally thought.

There was an ancillary item that I gleaned from reviewing these charts. If this market can’t live without the protection of the Feds, the market and the economy are bigger trouble than I thought. I have been telling IDE readers to be cautious for about a year now, but now I am becoming even more worried about the current investing environment.

Last week I wrote that the economy would not rebound until we saw a rebound in housing and growth in the labor market. The August employment report released on Friday did little to change my view of the economy. In case you missed it, the nonfarm payrolls for August showed another 84,000 jobs were lost, making it eight straight months of job losses. We also downward revisions to the July and June numbers, bringing the total number of jobs lost so far in 2008 to over 600,000. We also saw the unemployment rate jump from 5.7 percent to 6.1 percent. This is the highest unemployment rate in five years.

The politicians and economists can argue about whether we are in a recession, but from where I sit, we are in one right now and it isn’t looking good for the immediate future.

Good luck and good trading,
Rick

P.S. To let me know what you thought of today's article, send an e-mail to: This e-mail address is being protected from spam bots, you need JavaScript enabled to view it