 CHARTWORKS
- DECEMBER 8, 2008
A Cluster of Capitulations
Technical observations of RossClark@shaw.ca
Bob Hoye
Institutional Advisors
Dec 11, 2008
Extracted from Chartworks
of Dec 8, 2008
The stock market replicated
the 1929 crash with remarkable fidelity. That is, by percentage
declines as well as by the timing of the panics and rebounds.
Our historical reviews had noted that the 1929 crash followed
the 1873 example, and that that one had, for example, had much
in common with the crash following the 1720 South Sea Bubble.
Such disasters are not limited
to stock markets, but encompass commodities, corporate bonds
and innovative credit. Massive liquidation of suddenly unsupportable
positions has virtually been completed and our Capitulation Model
provides a clinical way of determining the next opportunity.
The following important series are generating Downside Capitulations
of varying degrees. A tradable rebound well into the first quarter
has been expected, and the combination of these readings, seasonal
influences and the technical pattern for gold suggests next week
could see some significant reversals.
Crude oil has progressed further in its panic
selling to the point that we are experiencing simultaneous daily,
weekly and monthly capitulation alerts. This is the first
such instance since 1933. Such a sign of urgency in selling
suggests that an upside reversal is imminent. The XOI index continues
to exhibit bullish divergence verses crude oil. As noted on November
28th, the eventual upside reversal will likely produce enough
of an initial rally to generate a daily RSI(14) reading of 60.
This could occur by mid-January. For short term traders this
will become a selling opportunity with a chance to repurchase
on a subsequent pullback.
The CRB Index has combined
daily and weekly capitulations. Purchases here in the
DBC or GSG commodity ETF indices, risking 2% below Friday's close
could capture a good retracement rally back to the 20-week moving
averages.
Gold has completed enough days on the downside from
the November high to warrant the beginning of a seasonal rally.
Equities. Daily and weekly capitulations were
present on October 9th & 10th and prices are now breaking
out of a base. Our initial target in the S&P 500 is 1045,
with a higher target of 1090 in the first quarter of 2009. We
are entering the period where US small cap stocks are anticipated
to outperform large caps on the upside through early in January.
Considering that the large caps (S&P 500) appear to have
bottomed, the small call caps (Russell 2000) should do quite
well. Our annual report on the 'Turn of the Year' trade will
be sent out soon. The IWM and TNA provide a means of participating
in small caps.
Bonds. Daily readings on the 20 and 30-year
bonds are now into an upside exhaustion phase.
Dec 8, 2008
-Bob Hoye
Institutional Advisors
email: bobhoye@institutionaladvisors.com
website: www.institutionaladvisors.com
Hoye Archives
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