The Doji occurs when the stock opens and closes at the same level.
It is an indication of major indecision in investment sentiment.
It is important that we interpret the Doji in the context of the market.
The Doji is a single candlestick pattern and is extremely powerful in foretelling a reversal.
There are many variations of the Doji- The Doji Star, The Long Legged or High Wave Doji, The Gravestone Doji and The Dragonfly Doji. Each has a slightly different story to tell.
The primary message that the Doji sends is that there is a "Tug Of War" going on between the bulls and the bears.
When found at the top of a trend, it may be prudent to sell if you are long the market.
Dojis at the bottom of the trend although very significant require more confirmation for a reversal.
Dojis found in a sideways channel are not very significant
The market will not always reverse immediately after a Doji, but many times the reversal will occur very shortly thereafter.
Dojis specifically and Candlesticks in general are extremely powerful when used in conjunction with other technical indicators that confirm resistance and support.
We don’t mean to rain on the stockmarket parade (we’re enjoying it, too), but we’ll confess to being astonished by it.
We understand that the world’s governments are pumping money into their economies. We understand that that money has to go somewhere. We understand that, right now, that somewhere is often stocks.
We also recognize that the stock market is "forward looking," meaning that stock investors couldn’t care less about 10% unemployment and other depressing facts about the economy. As far as stocks are concerned, as long as the situation is improving, it doesn’t matter how bad the present is.
But we’re looking forward, too, and here’s what we’re seeing:
The housing market, a huge engine of the U.S. economy via both direct spending and the wealth effect, is rolling over and heading for a double-dip. This despite the fact that the government is still spending money hand over foot to keep house prices propped up.
In a week or so, the Fed is supposed to begin withdrawing some of this housing subsidy by winding up its mortgage-buying program. The Fed may or may not actually do this, but if it does, this move could further depress the housing market. And that, in turn, could put more pressure on strapped consumers who can no longer borrow from home-equity lines to fund current spending, no longer feel rich, don’t have much borrowing capacity, and, often, no longer have jobs. (And consumers still account for more than 70% of spending in the economy).
A falling housing market will also likely lead to more underwater homeowners, more "shadow" inventory, more foreclosures, more pressure on house prices, and, possibly, more bank write-offs. The more banks are worried about future write-offs, the less likely they are to lend, and bank lending has already fallen off a cliff.
So, basically, we think the apparent double-dip in the housing market is a big deal, and we’re surprised that the market is whistling Dixie in the face of it.
If stocks were cheap, we wouldn’t worry about it. We would…
The mutual funds, and those who give them their money to invest, look to be about ‘all in’ with regard to US equities.
As I recall, the bond funds have decent cash levels, and the piling into short term Treasuries at negative interest rates is certainly a phenomenon.
The hypocrisy and venality of the US financial sector knows no bounds, and they seem to have bought off the guardians of he public trust. The US government desperately needs to sustain confidence and the aura of recovery. They do not need a falling stock market to say the least. And yet, they have to continue funding record levels of debt issuance every month.
A lot of demand for funds, and many of the players close to flat busted.
Marc Faber appeared on Bloomberg today to talk stocks and currencies. Not surprisingly, he’s negative on US equities, and though he thinks the euro could rebound in the short-term (because it’s so oversold) he says there’s nothing good about the currency and that it could fall a lot further.
This week’s technical outlook comes courtesy of Decision Point:
While the S&P 500 had managed to squeeze slightly above the ascending wedge that has contained the index for several months, this week it dropped back below the support and it is currently challenging the bottom of the wedge. The wedge has not resolved decisively in either direction, and it is possible that there will be no clear resolution. By that I mean the wedge is so narrow that the price index could continue to drift higher, lower, or sideways to where it will have exited the wedge without a clear resolution. If so, we will ignore the wedge and look for something else to provide some clarity.
I am still of the opinion that we will see some kind of downside correction because of the abundance of negative divergences to be found on our indicator charts. The first is the gradually contracting volume seen on the chart below.
The next chart shows the three indicators of our OBV (On-Balance Volume) suite with divergences clearly marked.
Finally, we have the new highs and new lows chart. Again, you can see the negative divergence over the contraction of new highs; however, this chart gives us reason to believe that the internal problems may not be too serious. Note that there have been virtually no new lows for many months, and, without an expansion of new lows, all the negative divergences we are seeing probably have no long-term significance. For example, note that the contraction of new highs at the end of 2007 was accompanied by a considerable expansion of new lows that gave warning of much greater than normal weakness.
Bottom Line: The abundance of negative divergences keeps waving the caution flag for a correction; however, the complete lack of new lows indicates that we are only witnessing cyclical weakness during an ongoing bull market, not a major top.
While Americans were celebrating their Thanksgiving Day holiday, the rest of the world gobbled 40 points from the December SP 500 futures.
Bears are doing high fives and the serial top callers are rolling.
Let’s see if the correction will continue after the pilfering pilgrims are back on their prop desks.
Then again, maybe the Reverend Lloyd is just bringing in the sheaves. Why waste a crisis?
Up the trend, then down again. Trend is the trend, until it is not.
This *could* be the November selloff that was expected. Le Prop is on the short side to an acceptable degree. It could be a short ride, and so not taking it heavily short until we break this trend.
Until that point we either buy weakness and sell strength within the trends, or sit on our hands and do nothing.
Why is gold selling off, isn’t it supposed to rise in times of crisis? Well, it did, and quite impressively, in the past week or so, in anticipation of this major failure in the world of paper finance. And now there is selling on the news.
Those who look for a one to one linear correlation between action and reaction will be sadly disappointed and confused, because that is not how the game is played by the banks. They trade in information, in dark pools and private whispers, and the dollars are the means of keeping score.
This is why timing buys and sells is so difficult, especially in hotly speculative markets like the US equity market, just for an example, because the game you are allowed to see on the table is not necessarily the one that is really being played. So better to play the long trends, where the short term does not matter.
But all is not lost. We still have a feeling that the word has gone out from Timmy to Lloyd that the puppies will not buy their puppy chow if the markets are gloomy, and this is why we are in a flat to rising trend in stocks.
Keep in mind that there is always an up and down movement within the trends, especially those whose action is artificial. We are nearing the downstroke on the charts on the overnight trade, which catches most small…
Stocks have jumped 65% from the March lows. They have also blasted past fair value, which is about 900 on the S&P 500 on a cyclically-adjusted price-earnings ratio (see professor Robert Shiller’s chart below). So, unless it’s different this time, they’re now more than 20% overvalued.
(Jeremy Grantham puts fair value at 880 on the S&P 500. That seems a bit precise. Let’s call it 900).
Of course, today’s overvaluation doesn’t tell you much about what stocks will do next week, next year, or even the next 5-10 years. As the chart above shows, before the 2007 market crash, stocks were overvalued for the better part of 20 years--and observing that didn’t help you make money. On the contrary, it usually got you fired.
What today’s valuation does suggest is that stocks are priced to return a bit less than average over the next decade, perhaps 3%-4% real per year (inflation adjusted), as compared to the 6%-7% average.
Today’s valuations also suggest that stocks may have gotten way ahead of themselves, especially in light of the structural problems that will continue to bog down the economy.
As the chart above illustrates, every one of the prior mega-busts in the past century has been followed by a "trough" in which the cyclically adjusted PE ratio hit the high single-digits. We didn’t quite make it there in March (the P/E bottomed around 12X), although we did get close.
This, combined with what is likely to be a decade of deleveraging, consumer retrenchment, and sluggish growth as we work off our debt binge, suggests that we still yet might hit that single-digit low before we take off on another secular bull market, again. This could be achieved either through another market crash, or a prolonged period of backing and filling as earnings growth gradually reduces the long-term PE ratio (this is what happened in the 1970s).
On the other hand, it is possible that that enormous stimulus and zero interest rates over the past two years will produce that "v-shaped" recovery. At this point, given the extent of the recent rally, it would presumably have to be one heck of a "V" to send stocks soaring from here. But the last eight months have already made
In separate speeches, Janet Yellen, president of the Federal Reserve Bank of San Francisco, and Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, warned that rising unemployment could crimp consumers, restraining the recovery. Consumer spending accounts for about 70 percent of economic activity.
That’s because there is no real economic recovery at all.
So why is the stock market up so much?
More than happy to show ‘ya.
Two charts should suffice:
That is an overlaid chart (as close as I can easily get them to register) on the dollar and The S&P 500 from the March lows to today.
Notice the near-perfect inverse correlation. The Dollar goes up, the market goes down. The Dollar goes down, the market goes up.
Now today, literally minute-by-minute:
Same correlation – near-perfect.
Folks, you don’t have to engage in any sort of "conspiratorial" thinking on this whatsoever. You only need examine the facts.
The rally in the market has exactly nothing to do with the economy and the outlook for it. It is tied to one and only one thing – the decline in the dollar.
A WEAKER, EVEN COLLAPSING, DOLLAR IS NOT COMMENSURATE WITH OR INDICATIVE OF A STRONGER ECONOMY.
You’re free to believe in any thesis you’d like with regards to economic recovery. But a strong economy is correlated with a stronger currency – that is, the underlying strength of America, along with her ability to support her currency via current and future production, which translates into the ability to raise tax revenues and thus cover debt.
Since March The Federal Reserve and Federal Government have in fact promulgated and prosecuted policies that do the exact opposite. The stock market has responded not to forward…
Here is a longer term chart of the SP 500 showing the decline with the unfolding financial crisis, and the rally from the first major market bottom in equities. The rally has been a nearly perfect 50 percent retracement.
Here is the same view of the SP 500 but deflated by the Euro. This puts the rally into a slightly different perspective, which is not nearly so dramatic, about a 38.2% retracement which is a decent bounce.
Again the same chart of the SP 500, this time deflated by gold. The rally is stripped of the monetary inflation supplied by the Fed, and appears to more accurately reflect the ‘jobless recovery.’
As we said yesterday, all the cool, bearish folks are dollar bulls now. Elliot Wave analyst Robert Prechter, who yesterday described the crash of 2008 as a "warm up," was on Tech Ticker explaining his belief that the dollar will surge.
TechTicker: Ever the contrarian, Prechter cited the heavy bearish sentiment on the dollar when he made similar predictions here in August. Since then, the Dollar Index has made new lows but the dollar has shown intermittent signs of life; in addition, Nouriel Roubini, Martin Wolf and others have made similar forecasts about the potential for a dollar rally.
In the accompanying clip, Prechter also makes the seemingly counterintuitive argument that the dollar will rally because there’s so much debt, rather than being doomed because of it. If the economy turns sour again in 2010, as he predicts, Prechter says the dollar will benefit as more dollar-denominated IOUs get called by creditors seeking to shore up their own balance sheets, as was the case in 2008.
Until Nov. 11, EWI is allowing free downloads of their latest market analysis and forecasts, including Robert Prechter’s latest Elliott Wave Theorist and Steve Hochberg’s and Pete Kendall’s latest Elliott Wave Financial Forecast. Download your free reports here.
Improvement in first time unemployment claims is slowing. Actual, not seasonally manipulated data, including an adjustment for the usual weekly upward revision, shows that the year to year rate of change is on the cusp of a possible upside breakout, which would be good news for stock market bears if it happens.
Initial Unemployment Claims Chart- Click to enlarge
Here’s why it’s mind blowing. I’ve plotted it below on an inverse scale with the S&P 500 overlaid.
Unemployemt Claims and Stock Prices - Click to enlarge
Major US Markets including (NYSEARCA:DIA), (NYSEARCA:SPY), (NASDAQ:QQQ), and (NYSEARCA:IWM) dropped over 3% each on Italian bond fears and an increased worry that Europe will not be able to bail out its 4th largest economy. Furthermore, the iShares MCSI Italy Fund (NYSEARCA:EWI) wiped out over 9% today, further illustrating the dire situation in Italy and the European Union: ...
The second economic disappointment of the day comes from the Dallas Fed, which dropped from -2.0 to -11.4 on expectations of -9.0- this was the 4th consecutive negative print month. The report was, in a word, horrible, with just 2 of the 15 constituent indices posting an increase, and the bulk solidly in the red, led by Unfilled and New Orders which dropped 16.8 and 11.2, respectively: not good for economic growth. On the employment side there was nothing good either, with both employment and hours worked declining by -...
Bloomberg reports that Diana Containerships (NASDAQ: DCIX) files to offer stock up to $172.5M. Diana Containerships says that Diana shipping will also buy $20M of stock.
Top 5 RisersStockRatingAnalysisVLOSTRONGBUYAn increasingly positive growth rate of past earnings, along with improving expectations for long term growth, make Valero a good prospect for high returns.KROSTRONGBUYKronos Worldwide has been gaining recognition from analysts as a good canditate for achieving higher than expected earnings along with higher overall projected valuation.SFIBUYiStar is one of the top candidates projected to achieve both higher than previously projected earnings in the short run and a higher earnings growth rate in the long run.AMATSTRONGBUYApplied Materials has been...
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February is now past, and the Biotech Porfolio is loaded with winners and a miss (PLX). MRK is down a bit, but I expect that trade to recover, and one could be more agressive and double down on it, or play another round at the Jan13 $30 options for roughly the same price. Below is the summary, and note the grey boxes are ones that did not fill. I am still a fan of BMRN, and like DEPO as well. Now let's look at a few others.
Table 1. PSW Biotech Plays Since January 2011
 
Our newest play is Momenta Pharmaceuticals (MNTA), who is pursuing a three-part business model which includes complex generic equivalents in partnership with the Sandoz division of Novartis, proprietary compounds, and follow-on- biologics (FOB). It seems that this company is tied up in competition/litigation wit...
Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW. She manages the Favorites backup site
(