MARKET COMMENT

January 22, 2009

They have fun in parliament don’t they? Well, I couldn’t resist posting this one since it’s comical. Do you think Pelosi or Reid are this funny? No way!

Forgeting the above distraction, the casino on Wall Street is still open and business is great. The ball landed on red today instead of black. It seems bulls are poised to defend DJIA 8K with all their might. The stream of negative news became a torrent from employment and housing data to MSFT’s poor results.

Volume expanded on a down day while breadth was as negative today as positive yesterday.

Meanwhile, our man in Geneva chimes in with his calculations for volume and breadth.

Long-time readers know we’ve been posting monthly charts for sometime. Why? Because it’s been difficult to post weekly charts and find appropriate support and resistance areas. Another important aspect we’ve been noting is the deeply oversold conditions as reflected by the low Relative Strength Index (RSI) readings. This is interesting since historically seeing such readings on monthly charts is quite rare. The last time this occurred was in the 1974 period. Then this reading lasted for 5 months and the DJIA chart is below from our internal charts.

The previous occasions all occurred during the Depression on multiple occasions. The chart below is from the initial period and these low readings last nearly 8 months. Similar, but much shorter readings below 30 occurred in 1938 and again in 1942; however, the latter two only lasted one month.

Finally, we never reached these low readings at the market low in 2002 which in itself is impressive.

I’m impressed by these readings and it intimidates me from further shorting at this time. While every period is different, patterns are patterns to a chartist.

This is an interesting article from MoneyWeek regarding gold. Other than the obvious pattern no one is quite sure what to make of it. Per Jesse’s Crossroads Café comes this curious tidbit regarding gold derivatives. It’s also hard to know for my puny brain what this means.

“Oddly enough, the data from the Office of the Comptroller of the Currency report on Derivates (sic) shows that only two banks, JPM and HSBC, are holding almost $124,000,000,000 in gold derivatives between them, approximately 98% of all gold derivatives in the world.

At $850 per ounce, that represents about 145,882,353 ounces of gold.

As the tides of monetary bubbles recede, curiosities are turning up on the beach every day.”

Amen to that Jesse.

There’s nothing but danger on either side of markets for investors interested in establishing even intermediate positions. It’s a day-trading extravaganza which is why the casino description remains apt.

It’s frustrating to sit here with a loaded gun without finding opportunities to make some serious money at least using our methods.

Earnings are coming to the fore and many are looking for excuses to buy off any news. Google’s earnings tonight were slightly better than expected and the stock is up a little in after hours trading. Current earnings have not been good (MSFT) despite the positive spin bulls try to ascribe to it.

The situation with financial institutions grows more painful and outrageous with each passing day. More theft cases arising from scams while the Merrill Lynch and Thain news is maddening. Then there’s the tax cheat in chief and…oh nevermind!

The monthly charts are much oversold as measured by the RSI and as pointed out these types of readings have been rare historically. It gives you pause.

At least we can laugh with the goings on in parliament, eh?

Have a good one.

Disclaimer: The ETF Digest has no positions.

Last 5 posts by David Fry

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