Stock Market Choke Points

part 5 C

by Brian Stoll, TimingStrategies.com | June 9, 2008

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At this point… with oil hitting pretty much $138 today/this week and the response by the stock market on Thur.6/5, oil up ~$5.00 and the S&P up ~20 points on that same day, “Goldilocks the global growth princess” gets all the blather… then to see oil up ~ $10.00 Fri. 6/ 6 and the S&P down ~40 points, Goldilocks looks more like “Baldilocks the transvestite prostitute”. At the risk of being redundant from our last report, look at oil priced in U$ dollars in the chart below. The dollar in this chart is inverted to demonstrate the craven destruction of its value vs. the price of oil. That said...this week’s dramatic move in oil is not as easily dismissed solely on the dollar this time. Either we are seeing a temporary spike top in oil, (maybe $140.00 -$142.50 or so) or this is an early warning sign of something very serious and ominous upon us about to occur. 

The divergence between the S&P/Dow vs. the R2K/NDX is my conundrum. Resolution higher for the S&P and Dow was my estimation for as far out as Mon./Tues. June 9th/10nth with a price target for the Dow at ~12050 and ~1350-1320 on the S&P for a short term bounce. That previous estimation is now currently suspect due again to divergence amongst other indices, but more importantly, the nature of the price structure on the S&P as it has developed this last week., Oil and the U$ Dollar are the big “its” of things presently. If oil can put in a slightly higher high on Mon/Tues say ~$140.00-$142.50 and then sell off below ~$135 or more and at the same time the stock indices on the Dow and S&P hit those numbers mentioned above, I will possibly get a short term buy signal from our Rydex EOD system that will probably require us to cover our current 40% short position by at least ½ to possibly getting long by 35%-120%. This will only be considered a very short term position switch until the S&P can close back above the 1375-1385 price level, the Dow needs to close above ~12350-12450 for any long position to be sustained. 

Longer term I am still very bearish, but due to the short term oversold conditions of particularly the Dow and the Financial/Banking sectors I am looking for a snapback rally, provided we get at least another ~1.5% -2.5% sell-off follow thru on Mon/Tues with the worst being the better scenario. The clue or tell that I am seeing that possibly implies a worst than statistically normal sell-off potential in the cards at this time are the emerging markets which are far more volatile than here in the U.S. An accelerated break down in the EEM, EWZ, FXI and EFA are threatening a regression bounce next week here in the U.S.

These items with consideration of the previous banking problems that have been temporarily shoved back into the closet again, the continuous Wall Street bailouts and etc. can on the outlier basis, create the domino effect of a October 1987 style 1-5 day panic sell-off. I do not predict, forecast or even estimate these types of scenarios as they are almost impossible to gauge unless you are on the “inside”. Conditions for an event of such magnitude have been building for decades and yet nothing in over 20 years… although true capitulation has been averted many times, someday… the printing press will be out of paper ammo or no one will want it anymore.

This is by no means a recommendation to buy, sell or make any investment whatsoever.

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© 2008 Brian Stoll
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Brian Stoll | TimingStrategies.com | Registered Investment Advisor
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