Stocks up, Crude down ... what's going on here???

What we witnessed today was a massive short covering rally in the equity markets. You've heard us say this before, bears make the best bulls, and that's exactly what happend in the equity markets today.

The scramble to cover short positions in financial equities signaled an unwinding of the oil/equity spread.

Traders covered short equities and in turn liquidate long positions in crude exiting what had been a dream trade.

It is very seldom you see the market participants so heavily stacked one way for so long. Long crude - short financials. What's causing all this volatility? I am going to point to the SEC's removal of the "Up Tick Rule". To get a better understanding of the importance of this rule watch this short video.

However, one day does not make a market, or a trend.

Also fueling the equity fire, was Donald Kohn of the Fed, hinting that the FED may cut interest rates again. Do you remember what happened last time the Fed cut rates? The market rallied for a couple of days and then promptly tanked.

The message here is be careful what you wish for.

Here's how I see it.

Equity Indexes = wide trading range

DOW: resistance 14,000 support 12,750
________________________

Crude Oil = wide trading range

Crude resistance 99.00 support 90.00

Thursday and Friday should make for interesting trading. Look for continued volatility and markets that are skittish at best.

As always remain diversified and disciplined.

Adam Hewison

Good Wednesday Morning everyone!
I pray everyone had an enjoyable Thanksgiving...
and BLACK FRIDAY! Do you agree with the term
"Cyber Monday"? I heard a figure like 65% of the
workforce will be losing productivity this past Monday.
I for one was NOT one of them!

Here's your sixth lesson in "The Secrets Of
Professional Floor Traders" mini email course.

Lesson 6 - "Point-and-Figure Charts"
presented by Adam Hewison
================================================================

This particular technique has been around for over one
hundred years. So you might say it has stood the test
of time. I first saw it used on the floor of The Chicago
Mercantile Exchange by some very successful traders.
Since then I have seen very few other traders using it
despite the fact that it is amazingly accurate.

This is a true gem of a lesson and not to be missed.

Because this lesson contains charts, it has been posted
here.

Point-and-Figure Charts

P.S. Look out for the next lesson - "The RSI Indicator"
This is a powerful indicator that is heavily watched
by the pros.

From The Chart Room
Google's Muddy Retreat
Adam Hewison, INO.com 11.27.07, 3:00 PM ET

Google, the darling of the tech stocks, endured a nasty price fall earlier this month. And despite a week of apparent recovery, traders remain bearish about its near-term prognosis. Expectations are for the stock to stay in a wide trading range instead of resuming its bull run to new highs.

On Nov. 8, Google had its sharpest one-day point move for the year, dropping more than $37--a 5% loss for the day. In addition to ending what had been an amazing bull run for Google, the move triggered a key indicator, the Daily Moving Average Convergence Divergence line (MACD), to turn negative the next day for the first time since Aug. 23.

While several other indicators continue to predict a strong uptrend for Google, traders often pay close attention to the MACD to identify the beginning of trend reversals for stocks that have been in a long bull or bear run. The reversal of this indicator, coupled with the current Fibonacci retracements--also relevant to Google, as they are generally used to understand stocks that achieve new highs followed closely by a steep fall--signify that we likely won't see Google rebounding anytime soon.

As you can see in the chart above, the Daily MACD reversal on Nov. 9 was the first indication that the stock was in trouble.

This lagging indicator uses moving averages to alert traders to both the momentum and direction of a trend. For stocks in a strong trend, the indicator can be understood by a crossover system: When one line crosses the other, it signifies a change in trend.

Until the red line re-crosses the green line, we can expect to see relatively flat movement in the price of the stock, confirming that Google posted a top at $747.24 on Nov. 7.

The end of Google's impressive run and the development of a new top are confirmed by the Fibonacci retracement numbers, which show a resistance level for the stock at $697.55.

The horizontal lines that make up the Fibonacci retracements signal support and resistance levels. They are calculated based on percentages of motion between the most recent high and low--the three most commonly used being 62% (or specifically 61.8%), 50% and 38% (or specifically 38.2%).

When a stock reaches a new high and then falls to a support level, it typically retraces some portion of its upward trajectory until it faces resistance at one of the Fibonacci retracements.

In the case of Google, with a high established at $747.24 and a low put in place at $616.02, the following retracements are derived: 38% equals $665.32, 50% equals $681.93 and finally, 62% equals $697.55.

Yesterday's price reversal near the upper Fibonacci retracement level illustrates the resistances Google will face before it continues its climb to the top, set at $747.24.

In the short term, look for traders to proceed with caution when it comes to Google. We expect that Google will have to do a great deal more backing and filling south of the upper band (62%) of the Fibonacci levels. We would avoid trying to pick a bottom and would only consider going long Google when the Moving Average Convergence Divergence turns positive.

Adam Hewison is president of INO.com. More of Hewison's charts and analysis are available at MarketClub and Ino.com.

---

Forbes is a registered trademark of Forbes

Forget the pain at the pump ...

Here's how I see it this Tuesday morning.

The pain in the market should not be hurting you if you have been reading this blog and using our "Trade Triangle" technology.

As a matter of fact if you have been following our approach to trading with our "Trade Triangles" you should have had an excellent year like Milt in Virginia.

---

"When I started using the MarketClub, I checked out your signals versus the signals I generate for a few weeks. I used mine to verify yours… now I use yours to verify mine and the profits have been astounding!"
Milt Fall, Virginia

Thanks Milt. I am glad that our "Trade Triangle" technology is working well for you.

P.S. If you are not yet using our "Trade Triangles" you can check them out here risk free.

---

We have thousands of investors like Milt, who use MarketClub successfully everyday to make important investment decisions. Are you one of them? If not, find out how MarketClub can help you safely navigate the iceberg laden investment waters.

Now it's time to zip back in blog time and revisit perhaps the most important SEC rule change in my entire investment lifetime. It's called the "UP TICK RULE" watch the video here and see why the SEC abolished it to the detriment on every stock investor.

I believe that this rule change along with the growth of hedge funds have all contributed to the markets downturn. There are of course other contributing factors for the economy which have all added to declining stock prices, like record high oil prices, the sub-prime disaster and all the CDO and SIVs that are imploding.

Is the economy going to get better anytime soon? Not in my opinion. See what I predicted on Bloomberg TV on September 13th when I indicated that spiraling raw material prices and a falling dollar would present a bleak picture for the U.S. economy and stocks.

Now more than ever ... be prepared and be disciplined in your trading.

Adam Hewison