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General market theory suggests sharp sell-off’s need to be on high volume in order to culminate into a tradable bottom, ala the 10/10 and 11/20 lows. However, should the market make new lows on very little volume, as we have seen this past week, the implications can be even more bullish than the high volume lows.  There are many technical reasons for a strong rally soon. Thursday’s light volume is another one. Thus far, market participants seem to be ignoring all of these reasons because of the radicalism coming out of the White House. The daily chart of the Yen has been weak near term, but US stocks have been weaker.  Weakness in the Yen is important and necessary for stocks to rebound. A sustained break in the Yen might be the spark that lights this fire and with it, a significant bear market rally.

A lot of Elliot Wave chatter about a successful fifth wave down. Based on this cycle projection, the low of this move should be around 662.

The next chart shows the Semiconductor index at the top (scale: logarithmic), and a ratio of the SOX to the SPX is below.  What you see in the lower diagram is a relative outperformance of chip stocks to the broader market. Looking for sectors that will outperform and lead any rally requires quantifying their relative performance. It’s possible the SOX will be the group that leads over the next several years. I think in about 5 years, the financial index will look similar to the SOX, and will probably consolidate for at least that long before starting to recover.

Now let’s take a quick look at what Gann’s “magical” Square of Nine is telling us. It nailed the absolute high of the SPX at 1565 with incredible precision. From there, go around three hundred and sixty degrees and you hit 1411. Go around 7 times and you hit…655. Ninety degrees to the good and we’re at 681…right around yesterday’s close. It’s the Golden Ratio baby!

Don’t ask me how it’s calculated. I have no clue. I rely on those that religiously apply Gann analysis to their trading to do the work for me. I want to be aware of these “major” inflection points because there are many followers of Gann, Elliot Wave, Cycles, etc… But don’t ask me to interpret the above chart. It looks like a bingo card to me.

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Week of October 20th: The week when SNL signalled a market bottom.

Start accumulating positions:

Daily: logarithmic illustrating cup & handle with dominant raff regress. channels, pitchfork and multiple positive divergences in momentum and money flow. Handle taking characteristics of FLAG consolidation with volume almost totally gone. Expect volatility burst. Long stock. To add some gearing to trade: Sell some puts and buy calls.

AAPL- 123

POT- 115, 124 (SAR), 129/30, THEN to 160 (a.z.)

SDS- 94 to 85 (Fib support 107, 100)

Monday Morning:

Close out long positions, reverse position SDS, LONG SKF. HOWEVER, do not expect gap closing. More like partial retracement then rally to new highs. Looking at a 500-600 point 1 day rally. Calculate fib retrace levels on intraday. Buy size in UYG on retracement into gap.

SKF Fib support levels: 151, 137. MA convergence alpha zone $120

Long QLD a.z. = 54-61, SSO target 40-42

FIG: unwind victim!!

FITB: CALLS

NOV: forced selling done. INCREDIBLE VALUE here. OIH’s could rally 50% (again, maybe wait until Tuesday)

BIDU- High BETA bounce, GOOG could test 400

CE: German chemical co..

ISRG: re-short $270 (?)

SQNM: At 200d-EMA

CRM (should go to new a.t. High), DE &/or CAT (infrastructure plays), GS, JPM, JRCC, MS (last chance under $10?), BBT, BK, BX, WFC

MA (150 is 2/3 retracement but still gap at $75)

C back to $23

DHIL: major oppty or something wrong?

Rally to be led by commodity & financial names. Big Cap tech will also show leadership.

CLF- at major alpha zone (25-30)

FCX

Futures up 29 handles.

Recap prior week- Tough week, amazing numbers on Friday. 1000 point snap back and u were downstairs. It’s ok, you were forgiven for karma errors on Tuesday and you will have a +$75,000 week this coming week. The market is going to bounce from this low we put in, but we probably head lower later in month. This is to be an oversold rally. There will probably be new lows in this downtrend.

During the prior down leg, the TRIN was constantly hitting 4.0 to 5.0. This time, during down leg, TRIN was constantly below 1.0, around 0.35 – 0.75. Bizarre.

INDU: 9750 (a.z). 9400 (50%), 9050 (38.2%)

Dow INDU Fib projections nailed these intraday extreme swing pivots. Lower boundary of d/t channel broken. Prices should and likely will recover this lower boundary and resume longer term downtrend. At a minimum, an attempt will be made.

Trend from 1990 to 2007 Top. A 9 Sigma move which equals the ’99 high projects a downside target for the Dow of 6900 by December or 6830 in November, hitting alpha zone (see monthly chart).

Short Term Target: 10500

Intermediate Term: 11850 (alpha zone)

200m-EMA = 8917

NDX upside 1900. Swing position in 2x Q’s.

OEX has tested 2002 low. Could bounce to 490-500

Oil index could have huge oversold rally. DIG, CNX, AGU, APA, EOG, EP wait until later in the week for all energy plays….

Small cap stocks put in confirmed 1 day reversal. Which ETF???

VAY: Value Line Arithmetic Index: Upside targets = 1750 then 1950

XBD: Broker/Dealer Index. 1-day reversal. Unlikely Monday’s gap will close soon. Find leaders. Could rally 50% or more in a few days.

On Friday, Marc was down $180,000 and in the last hour made a comeback of $320,000. That’s why I’m a trader. That is why I trade.

HANG SENG Target: 11,000 (c.p `14,000). Establish short china when bounce ending…a.z resistance at 20,500 & 24,000

- Barron’s discusses the bottoming process, saying ‘this could end up being one of history’s quintessential buying opportunities.’ Barron’s lists 25 picks in three categories. Big cash rich companies: XOM, MSFT, AAPL, INTC, DELL, EBAY, MOT, YHOO, ERTS, L. Smaller cash rich companies: NVDA, BRCM, NOVL, IACI, KBR, RNWK, NTE. Industrial Stocks on sale: CAT, CMI, DE HON, ITW, PCAR, TEX, UTX.
- Barron’s looks at master limited partnerships as an investment. MLP’s, which invest in sought-after assets such as oil fields and natural-gas processors look inexpensive and carry double-digit yields. Five MLP’s to look at are Enterprise Products Partners (EPD), Energy Transfer Partners (ETP) Boardwalk Pipeline Partners (BWP), Paso Pipeline (EPB), and OneOK Partners (OKS).
- Barron’s Commodity Corner says silver looks ready to rally. The ‘poor-man’s gold’ is off 46% from a mid-July high but it may take off in the wake of safe haven buying in gold as investors look for a cheap alternative.