Likes Mud, Likes Mud, This X Means The Horse Likes Mud

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Fugue For Tinhorns Guys and Dolls

So far, 3 technical signals have been dependable to keep us on the right side of a fairly volatile market. First, the inverted doji hammer candles kept us from buying on Monday, had us cover shorts on Tuesday and then allowed us to begin to look for longs. Wednesday, those candlestick patterns allowed us to ignore short setups and look for longs. (FED sure helped!)

Secondly, volume patterns were telling, particularly in the oil and gas sectors. Looking at USO or the US Oil Fund, over the course of this week, volume expanded by as much as 4 times the daily average. That typically tells us a blow off is in the works. Same thing happened with Russia or the RSX ETF. Note-Wednesday’s volume impressive in a lot of instruments!

Finally, phase changes and converging moving averages have been playing out. Just look at the indices. SPY and DIA both confirmed Warning phases only to follow up with unconfirmed returns to Bullish phases. The QQQs went into an unconfirmed Warning phase and now it’s back into an unconfirmed Bullish phase.

Perhaps the most interesting are the Russell 2000s. They have not only defied the December low volume norm, but also went from an Accumulation phase, back to Bearish, back to Accumulation. The most exciting potential development looks like the Golden Cross that will be forming with any more strength.

Therefore, as the last 2 days of the week are before us, followed by the holidays next week with the end of the year the week thereafter, maybe the statistics will play out after all. For those who missed those stats, here they are: Since 1980, the SPY has been higher in December 82% of the time when the market has been in a bullish phase. Losses are generally less than one percent. The biggest drawdown was in 1986 at 2.8%.

We are still in the Year of the Horse. As he gallops rather than bucks, I’m reminded of one of my favorite show tunes: “I got the horse right here. The name is Paul Revere. And here’s a guy that says that the weather’s clear. Can do, can do, this guy says the horse can do..”

S&P 500 (SPY) Inverted hammer doji yesterday, then an inside day on Wednesday-gotta love it! Follow the range break for sure

Russell 2000 (IWM) Back looking at 118.

Dow (DIA) Inside day as well and back to an unconfirmed bull phase

Nasdaq (QQQ) Not quite an inside day since broke the lows early on, but back to an unconfirmed bull phase

XLF (Financials) Back to an unconfirmed bull phase. 24.47 Resistance

KRE (Regional Banks) Similar chart to IWM actually

SMH (Semiconductors) 54.00 pivotal with 55.10 some overhead resistance

IYT (Transportation) Broke then rallied below then above the 50 DMA keeping the bullish phase intact

IBB (Biotechnology) Nice bounce back off the 50 DMA with resistance at 307.27

XRT (Retail) 94.00 Resistance but with an impressive comeback in a strong sector

IYR (Real Estate) Held that retracement, took out 76.00 and looks very solid

ITB (US Home Construction) 24.00 key for sure as this bounces to resistance to clear 25.06

USO (US Oil Fund) Tried but could not confirm a bottoming formation even with the green close. However, volume remains huge so keep eyes on it

OIH (Oil Services) Confirmed a 2-day bottoming formation and better now if holds 35.50

XLE (Energy) Confirmed a 2-day bottoming formation and better now if holds 77.15 with a huge volume day

XOP (Oil and Gas Exploration) Confirmed a 2-day bottoming formation and better now if holds 45.98 with a good volume day

TBT (Ultrashort Lehman 20+ Year Treasuries) After the TBTs inverted hammer doji on new lows, now could be a 2-day bottom forming. TLTs can drop to 123.80 and still keep the uptrend going

UUP (Dollar Bull) Nice comeback greenback!

EEM (Emerging Markets) Maybe the whole emerging world is bottoming