February 12th, 2009

Index and Stock (FCX) Reversal Patterns Are Building

The riders on that roller coaster to the right is exactly how I felt watching today’s market. Of course, we all have probably heard that, according to CNBC, the Obama Administration announced

“it’s hammering out a program to subsidize mortgages in a new front to fight the credit crisis, sources familiar with the plan told Reuters Thursday, firing financial markets.”

It’s the “firing financial markets” that I want to focus on. At about 2:45, I wrote on Twitter “Will 3:00 hour be recovery or implosion? For those who buy at bottom of range now’s the time to jump in; rest of us can only tremble.” A few minutes later I wrote: “We might as well not turn computer on until 3:00 – that’s when everything happens and lays ground work for next day. Buyers came in.”

The rest is history because the S&P went from being down 3.1% to slightly above break even in less than an hour (remember the days, long ago, we considered full-year returns not much more than today’s intra-day move as a smidge below average). I give much more importance to today’s move than the average you’ll hear from the “talking heads” because the down leg came so close to breaking below support.

The technicals for an upside move are actually getting stronger day by day. Each day like today brings us closer to the time when we can jump in with both feet and pick up some of those bargains we see all around us. The market appears to be approaching a critical point of convergence:

  • The Index rests on a support trendline extending from 2002 Tech Bubble Crash Bottom
  • Potential reversal in the form of a symmetrical triangle (hopefully, a wish since it could also evolved into a descending triangle)
  • The 60-day MA is flattening and probably will soon cross above the 90-day MA
  • The Index has touched or crossed above the 60-day moving average 3 times recently and may again soon
  • If a cross over the 60-day is successful, a cross of the 90-day may come soon after
  • The On-Balance-Volume Indicator has generated a favorable divergence as the OBV moved up while the Index moved down

Take a look at the chart:

Confirming this rather positive view of the market are all nice basing patterns I’m beginning to find in many stocks today. Freeport McMoran (FCX) is one of many examples I could have picked (for full disclosure, I own the stock):

Notice the similarities between FCX and the S&P 500 Index above. The stock appears to be forming an ascending triangle which is clearly a reversal pattern. The stock’s 60-day moving averages is also close to crossing above its 90-day moving average. The price has already crossed above both those moving averages. However, if the market turns negative, this pattern may fail and morph into a double-bottom (or some other pattern).

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