Thursday, August 16, 2007

Technical Thursdays: Any Port in a Storm

"There is nothing, in my judgment, that we should be doing in terms of guaranteeing market participants against losses or in terms of restraining risk taking."

Henry Paulson
article by David Wessell, Wall Street Journal, August 16, 2007

In its darkest hours as the market discipline exacts its pound of flesh from non-bank lenders and other high risk, leveraged players, certain technical indicators are flashing an interesting short term buying opportunity.

The above chart of the S&P 500 shows that the price decline in this second down wave of the current correction is not being matched by Momentum*. And with MACD right around oversold, a bounce in certain market segments is now highly probable. Among those market segments is none other than the beleaguered Financials (second chart), which is exhibiting the same such technical conditions as the S&P 500 yet with a surprising better MACD reading.

While this potential bounce will likely not resolve the current correction, it should help provide some relief to portfolios taking a beating and afford traders and speculators so inclined with an opportunity to scalp a trade or two. Any port in a storm.

*Note: this is an important non-confirmation which could be swamped in very short order should selling pressure intensify dramatically in the next few days producing a lower low in Momentum thereby confirming the decline, Nevertheless, given the rapidly rising fear factor plus the fact that the longer term moving averages have not turned bearish (see blog entry August 2, 2007), the odds favor the signal holding up. It should be noted, however, that while the Financials may be signalling a bounce, their moving average indicator has turned decidedly negative as price is below both moving averages, the 50 day crossed the 200 day, and both moving averages are pointing south. Beyond its bounce potential, definitely not a pretty picture.

To view a larger version of the above charts, simply click on the image.

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