NFTRH

The Bearish Case

By Gary Tanashian

Biiwii.blogspot.com

February 24, 2009

Excerpted from the February 21 edition of Notes From the Rabbit Hole

In light of the Dow Theory bearish confirmation now taking place, we are strongly compelled to take the side of caution. As you may remember, NFTRH shimmied over to a cautious stance as soon as our daily EMA 20 and SMA 50 moving averages were violated, but below is a look at something more ominous; the Dow and Trannies both making new lows.

There was heavy volume in the Dow yesterday but I will let braver people than me claim it was savvy buyers forming that little hammer-like candle. In the interest of safety and capital preservation, I am going to assume it was elephants trying to sneak out in none too discreet fashion, until proven otherwise by negating the breakdown.

The elephants do not like what is happening in Washington one little bit and markets are set up to get the next plunge underway sooner, rather than later. At this point however, I would like to remind you of the Dow downside target post from the blog yesterday

http://biiwii.blogspot.com/2009/02/dow-downside-targets.html. The monthly chart still shows the Dow is at support. Bears take note and use caution.

Adding to the bearish case are the structures of the CBOE Put/Call ratio’s 20 day exponential moving average and the VIX looking for all the world like it wants to break out to the upside from a falling wedge.

Note that the CPC is still nowhere near a bullish buy signal for a sustainable rally.

Here is the sneaky VIX. Is anybody watching?

This is a very scary time and the composition of, and actions by the US government make it all the more scary. Fear will no doubt lead to opportunity for traders and investors who nail the timing, but in a terrible bear market, you let the bull prove itself or you buy the ‘no brainer’ opportunities like the potential Dow 5,000’s (per the downside targets blog post) in tandem with an extreme EMA 20 on the CPC and a spiking VIX.

Any rally that generates from non-extremes is more likely to be a set up for an excellent shorting opportunity than for bullish profits.

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