The Media and the pundits have grabbed onto this one boys and gurls. The proverbial acorn that hit Chicken Little on the head has appeared and ...... OMG, THE SKY IS FALLING!!!!! OMG~ The Dow is down a phenomenal 89 points! How will we recover from this humongous loss? This is a disaster!!
Really? REALLY? REALLY?!?!? The Dow drops 89 points and suddenly we're running for the hills? Suddenly global market disasters will occur? What surprises me is not the normal media pundits grabbing onto this little item to garner much needed attention (remember insecure people always need attention). But I am disappointed in normally sane market guru's like Peter Worden who have grabbed this ball and are running with it. Come on, 89 points and we're all a-twitter?
Will the world stop rotating on it's axis? Will the sun go dark? Will the market tank? Will Wal-Mart stop paying a dividend? Will Verizon stop generating a cell tower signal? Will McDonald's stop flipping burgers? Perhaps in an unknown alternative universe. But we're big boys now. We think. We analyze. We play in a marketplace filled with risk on a daily basis. We have stops in place. (We do have stops in place don't we?) We know how to go..... say it with me ........short!!!
Let's let saner heads prevail and actually look at the charts. I'll use the DIA as I always do and throw up the SPY for shits and grins. Oh, and let's not forget to look at the fear laden VIX! First, the DIA. Note the trendlines drawn and it is easy to see that we were a wee bit overbought. This needed a correction to continue the uptrend. We learned this when we studied "Trends 101". It's basic charting! I hope you did not learn it in the course I skipped called "I Lost My Pants as I wasn't Paying Attention to the Trend 101"? Remember, The Trend is Your Friend. Investing 101. Let's look closer at the DIA, keeping in mind that this applies to the SPY also.
1. Price was hitting the top ascending tendline over and over, wanting/needing a correction.
2. Price is ABOVE the 20 EMA and the 50 SMA, two major moving averages.
3. This little drop has not violated the 20 EMA, the 50 SMA, or the bottom of the ascending channel.
4. And while it's old news the "Golden Cross" happened when I gave a buy signal the beginning of January (A long term signal generated by the 50 SMA crossing the 200 SMA)
5. Volume was up Friday but falls well within normal trading levels of late. No need to get our panties in a wad here.
6. The DIA formed a bullish Hammer candlestick. (For a description of the hammer candlestick click here)
7. Looking back on previous moments in the last year, when Greece did not agree to harsh terms, this little downside blip is nothing compared to past drops measured in the hundreds of points.
8. I still believe that a Greece default is essentially priced in the market already. Yes, I could be wrong, it has, believe it or not, happened before.
The VIX. A few pundits (Peter Worden included) have mentioned this in their commentary. Lions and Tigers and Bears, Oh MY! So lets' giver her a look. After finally making it under the hallowed 20 level it has indeed "popped". It rose to the resistance of the 50 SMA and valiantly retreated, ending the day at 20.79 Whoop de doodles!! We are still 25% below the 25 dollar level many consider problematic and well below the 200 SMA at 26 and the 500 SMA at 23.26. So please, let's put Henny Penny, AKA Chicken Little, back in his pen and hope another acorn doesn't fall on his head. Nuff Said!
So what's all the hoop-la about? As a famous wordsmith once wrote "Much Ado About Nothing~" Yes, we too could take the position of many, looking at a very, very microscopic view and proclaim the sky is falling. But in my world calmer heads prevail. The uptrend is intact. The long term trend is intact. And as I have repeatedly said, it is my belief that Greece will default and it's baked in the pie.
Greece. Let's talk about Greece for a moment. A default is a given. Private bondholders have already agreed to lose as much as 50% of the value of their bonds to avoid losing it all. Imagine having one arm chained to a wall, a clock timer ticking away, a ravenous caged lion, and a hacksaw just within your reach. Soon the lion will be released to tear into you as his dinner. The clock ticks as you consider the only two possibilities. You try everything you can imagine. You scream. You plead with the lion. You try over and over to remove your arm from the chains without success. At each turn you realize the only escape is to hack off your arm. But the thought alone is so agonizing you cannot take action on this solution. So you try other endless alternatives again. You beg, you plead. You pull trying to release your arm. That's Greece folks. And only one of two things can occur. Either they will accept the bailout, cut off their arm with the hacksaw and have an orderly default, or refuse and be eaten by the lion, having a disorderly default. Either way, it's a default.
Here's the charts with annotations for your enjoyment or lack thereof. I'm sure you will be shocked at the amazing conclusion I have reached when you look at the trends below~
CURRENT MARKET TRENDS
Short Term (Daily Chart) – UP
Medium Term (3 day chart) – UP
Long Term (Weekly Chart) – UP
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