Historic Week Ends...Beginning of the End?

DJIA - 128.00, -1.49% SP500 - 10.70, -1.18% NASDAQ Comp. + 4.39, +0.27% Russell 2000 + 23.28, +4.66% Exchange NYSE NASD Advancing 1,202 1,457 Declining 2,338 1,583 Oil $77.70 -$8.89 Gold $859.00 -$27.50 $SOX 246.11 -2.32 Strongest Sectors: XLF +10.30%...XLY +2.12%...XLP +0.85% Weakest Sectors: XLV -4.40%...XLE -4.09%...XLU -4.06% Sector Watch Up Trending: Sideways: Down Trending: XLP, XLF, XLY, XLV, XLI, XLE, XLU, XLB, XLK This was a historic week on Wall Street in many ways. Most investors are probably glad to see it end. Those who traded the down trend finally have a chance to count their gains and those that didn’t, get a breather from record volatility. The DJIA trading range for the week was 2,440 points. It is an unprecedented weekly trading range. This unprecedented weekly trading range was capped off with Fridays trading of 1,018 points. Just three weeks ago the Dow put in an amazing trading range of 1,023 for the entire week. These wide trading ranges are of course volatility. An explosion in the VIX (the volatility index for the SPX) from 45 on Monday to a high of 76 on Friday is also unprecedented. The question that will be on many peoples mind; does this finally mark the beginning of the end of down trend? Why would anyone consider such a seemingly absurd idea? There are several factors that experienced technicians are aware of: Since WWII the three worst bear markets came to an end at similar percentage drops…2000 to 2002 -38.7%, 1987 -41.1%, 1973 -46.5%. The 2008 bear market hit a low on Friday – 44.3%. The VIX hit an all-time high on Friday and historically when the VIX hits extreme highs the market finds a bottom and rebounds. The DJIA made a extreme move beyond the 2-standard deviation Bollinger Band on Friday, also historically a point where the markets finds buying support. Market bottoms are often made when it appears the market is finally going to come apart and there is no bottom and then out of nowhere significant buying comes in and creates a reversal. Such was the trading on Friday. Also in panic selling mode not everyone sells…only those driven by extreme fear…once fearful sellers have sold they can no longer drive the market down. Why? Because they have sold and are now in cash. Could that have happened on Friday? Markets have a tendency to fall until prices get so cheap that value type investors just can’t resist and they step in and start buying even if it is not quite the bottom. Could that have occurred on Friday? Keep in mind that even if Friday was the bottom it is very common for markets to pull back and test the lows before making sustained moves higher. Be mindful that a market bottom can only be recognized with historical hindsight, however Friday’s trading action has many of the characteristics of past bottoms. Q3 Earnings releases start in earnest this week…be mindful of this in any trading you consider. The Financial Sector, XLF, was the strongest sector on Friday…stocks to watch on Monday JPM, BAC, WFC, C, USB, BK, CME, MER, ICE, ZION Index Commentary The DJIA formed a hammer like pattern…rising 560 points from its low. The SPX also formed a hammer like pattern…rising 59 points from its low. The Nasdaq closed up just over 4 points…following 7 consecutive down days…rose 107 points from its low and finished with a large white candle with upper and lower shadows indicating the large volatility on Friday. The RUT formed a piercing line pattern…finished up 4.66% on Friday…following 7 consecutive down days…rose 54 points from its low on Friday. Stock Commentary DECK forms huge bullish engulfing pattern on over 200% above average volume…on news of strong Q3 outlook. WWW formed huge bullish engulfing pattern on 70% above average volume. AAPL had the largest impact on the Nasdaq rise on Friday…formed a bullish engulfing pattern. ORCL, BIDU, WYNN, SHLD formed piercing line patterns CTSH formed a bullish engulfing pattern HANS formed a piercing line pattern JPM formed a bullish engulfing pattern C formed a piercing line pattern XLF formed a piercing line pattern Friday’s Action Moving Up: DECK, BIDU, ZION, MER, V, RF, HANS, ESRX, KRE, CF, CLF, COH, NDAQ, KBE, GRMN, NUE, LCC, UAUA, EBAY Moving Down: GS, AEM, MA, GDX, ANR, STRA, LAMR, PNRA, MS, LDK, DRYS, SCHN, AGU, SINA, X, POT, CNX, INFY, MEE, BTU, BUCY, NIHD Intermediate Term Market Trend: Down Short Term Market Trend: Down