Hot Shots: A Gravestone for Bulls?
October 8, 2008
By day’s end, Wednesday marked another sour session for directional bulls, while scoring yet another game winner for volatility bulls. In fact, losses of 2.50% in the likes of the market barometer S&P500 ($SPX) are but a fraction of the underlying tale with many intraday tails telling an even more powerful story.
As for the S&P500, record-setting implieds, fresh lows below all (well most) supports known to most bulls of the past several years and intraday five minute candles needing nearly 1.50% price risk per the average true reading—are a much better gauge of what’s driving investors. And personally, I think that action has a name that just might be called “capitulation.”
Sure, it’s a scary grizzly bear of a market. And truthfully, the credit market scandal (and crisis) is more than frightening and considered the real deal by this corner. That’s coming from a guy known not to bite into Wall Street’s latest and greatest reason for being overly bullish or bearish. In saying that and realizing only an option or a stock price of zero can deliver real protective value in a very, very mad money market—let’s take a look at a couple reasons for being more optimistic in the days, weeks and months ahead.
Figure 1: S&P500 ($SPX) Daily Extreme
I’m not one to believe in market lore such as Yom Kippur marking the time to buy equities to the day or even the week for that matter. However, looking above at the S&P500’s ($SPX) gravestone doji, I can’t help but take more than a passing interest that a rally beyond the intraday variety, could be at hand.
The gravestone doji candle pattern is notorious for marking tops within uptrends. But in a downtrend the bearish implications are much less secure. In fact, when the situation marks a third session of price closes outside an ever-widening Bollinger Band on very heavy volume, easily touted supports like SPX1000 cracked and the RSI 14 hitting its first oversold condition since July; I suspect CNBC could soon be saying, “Folks, we’ve got a rally!” with some actual importance.
Figure 2: KBR Weekly (KBR) Weekly
Do I know bottoms? Sometimes, but in a mad money market donning the horns for the likes of Google (GOOG) or the China 25 ETF (FXI) has been a trying affair for all but the daytrader. Those two names happen to be worthy of “Post Its” being worn by this corner, courtesy of last week’s HOTSHOTs analysis. “Doink!”
That being said, if you’re more inclined to tune into the boob tube and the gospel of our Mad Money host with the most….well, he knows bottoms too! And within the last week, one company that’s found Jimmy digging deep and has this corner’s less-sponsored approval—is KBR Inc (KBR).
The late 2006 Halliburton (HAL) technical services spin-off recently hit all-time lows of 13.50 back on September 29. A couple of inside candles later followed by the proverbial “Buy, Buy, Buy!” seal of approval on October 2 found shares jumping as high as 17.69 before the latest few sessions of loose consolidation work that’s taken the shape of a small double bottom.
Above we’re looking at the grander weekly view which shows the slight daily double carving out a two-bar Doji Harami and which happens to be a known reversal pattern tracked by many traders. In conjunction with an oversold weekly RSI and sponsorship from the Mad Money, KBR looks like one to keep on the radar. And if down the road Jimmy finds himself saying, “I gotcha in KBR at 15.25!” traders taking the risk can always send their thanks to more sincere pastures.
Figure 3: Alleghany Tech (ATI) Monthly
Jimmy actually had folks back in Alleghany during 2006 and into 2007 when it was his Stock of the Year—for which, “kudos” has already been granted. In the here and now and a much leaner and meaner Street, the thought of “There’s always a bull market somewhere” comes to mind as not being applicable to ATI.
Over the past year and one-half, shares of ATI have shed in excess of 80% of their prior glories. In the process, the long journey out of favor and sponsorship status has the stock revisiting prior highs set back in 2000 before ATI first took flight. That being said, unless ATI is headed for zero, something that sure seems a distinct possibility these days, the sharp correction is looking attractive as an oversold bottoming candidate.
Looking above to the monthly, point D represents a 100% two-step pattern completion using the wave extension tool on ProfitSource. Also “mooving” as it relates to appreciating ATI as a bottoming candidate, the set up is occurring as the monthly RSI 14 strikes an oversold reading, while shares have traveled along the lower and extremely wide Bollinger for the last four to five months. All told, the expectation isn’t for ATI to be the recipient of any 2009 Stock of Year designations. However, playable lows worthy of taking out the highs of at least one candle do seem reasonable—and ultimately, very profitable should that occur in a less-mad money future.
Chris Tyler
Staff Writer & Options Strategist
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The information offered here is based upon Christopher Tyler’s observations and strictly intended for educational purposes only, the use of which is the responsibility of the individual.
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