Ah, Friday. The best day of the week.
Here are some quick odds and ends for you headed into the weekend -- followed by an interesting research piece you won't want to miss.
***The financials appear to be reversing.
Just over 10 days ago, in a TD episode titled "Wait for a Reversal as Fed Folly Spreads," we advised waiting for the rally in the financials to peter out... thus setting up a chance to short them again.
Here's a chart of the financial SPDR (XLF:NYSE) as of Thursday's close.
Two things are noticeable here. First, XLF has failed to hold the breakout attempt above its previous ceiling. Second, XLF has failed -- yet again -- to sustain a move above the 20- and 50-day moving averages (the red and blue lines). The Philly Bank Index shows a quite similar pattern to XLF.
As Hillary Clinton now knows, failure to follow through on a rally attempt is bad mojo indeed. A quick plunge lower isn't guaranteed, of course. But nonetheless, this is a nice short setup. There will be some bearish trigger-pulling here soon.
Why is the rally failing? Perhaps because -- surprise, surprise -- the worst of the crisis is still to come.
On news of insurance giant AIG's record $7.8 billion loss, The Wall Street Journal noted, "While the credit crunch may be easing on Wall Street, it appears to be tightening elsewhere. In the past week, U.S. regional banks have reported big losses and announced plans to raise fresh capital."
So apparently there are more shoes to drop (big ugly ones, too). Gee, no one was expecting that, huh? Oh wait, that's right... we were.
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***Part II of the China discussion, coming your way next week.
Last Friday, we discussed "The Riddle that is China." As it turns out, more than a few Taipan Daily readers have spent time in China, and your experiences run the gamut.
Some of those responses will be served up next week -- the good, the bad and the ugly -- and we'll also take a closer look at "how China did it."
***Jesse Livermore quotes are coming your way, too.
In Monday's piece, "Playing the Odds Game," I made note of the best trading book ever written, Reminiscences of a Stock Operator. The book, first published in 1923 and still in print, tells the story of the great trader Jesse Livermore. The response to my offer of Livermore quotes was overwhelming, so we're working on that. Look for those quotes to be available soon.
***Behold the "New Dow Transportation Index."
Are the major market averages in a bear market? By some measures, yes; by others, no. We've certainly seen plenty of sectors and industries go their separate ways. In this 21st-century environment, it no longer makes sense to think in terms of all stocks going up or all stocks going down.
Bryan Bottarelli, of Bottarelli Research, believes that the major averages are NOT in a bear market. (The use of capital letters is his.)
Is he right? Hard to say. His conclusions are based on Dow Theory -- a market discipline that makes sense to some and leaves others cold. (As for me, I prefer to avoid rigid classifications as a matter of habit... As Albert Einstein noted, "Things should be made as simple as possible, but not simpler.")
Regardless of your opinion on Dow Theory, though, chances are you'll find Bryan's take on the "New Dow Transportation Index" interesting... and you'll want to hear about the two small-cap stocks he's recommending, both sporting 10%-plus dividends.