Market Battle Tightens Down

Pre-market futures were down strongly this morning indicating that the tightened trading range from yesterday was going to tip to the Bears and the Dow was going to roll back down to the 8,700 area. But the Personal Consumption/Spending economic reports an hour ago appear to have come in much less catastrophic than expected and the SPX futures popped back up to the zero line.

It also looks like the world-wide coordinated effort by Central Banks to cut short term lending rates is having a positive psychological effect on global markets. I don't know if I've ever seen so many other countries cut their rates so closely on the heels of the U.S. Fed cutting rates. Usually other nations wait as long as possible because they are net exporters to the U.S. and they want to keep the value of their own currency as strong as possible compared to the Dollar. The quick cuts mean the foreign economies are much more focused on staying stable right now than they are focused on exporting to America.

The net result of everything this morning is a flat SPX at the open. That means you will want to keep an eye on the NR7 (Narrowest Range in 7 days) from yesterday and see which way we go. A move outside the two-day, very short term diagonal lines means a move to the short term horizontal blue lines, and a move outside those lines leads to the next move towards the next horizontal support or resistance lines.

Here is a chart of the Dow showing the battle within the battle within the battle:
(click on image to enlarge)

As always, we shall see what happens today.....

11:40 am MT: The Dollar is up as expected. I stated last night in the webinar that the Dollar Basket Index threw a Hammer and was most likely going to bounce, which was going to consolidate Energy, Gold, and Commodity stocks. The ongoing overseas rate cuts has facilitated the Dollar bounce and Energy and Commodity related stocks are seeing a little profit-taking today.

The very short term diagonal trend lines on the Dow broke to the upside and the market immediately traveled to the blue horizontal resistance line. About 15m ago the Dow popped through that line and it's now testing the break of the blue line. This is the point we find out if traders really want to get long ahead of the weekend ahead of the election. My guess is that this is an area to be a little cautious, however, an intra-day bounce is an intra-day bounce (if we get it in the 9,350 area. We shall see if the Dow is going to bounce and head towards 9,800.....

I warned last night in the webinar that if we are hanging out in the 9,400 area in the last 30m before the close to watch your backs. We could possibly get another one of those last 10m of the day fades like last Friday that coincidentally takes us back down below the technical breakout and closes the market in the red.

So far though, the chart construction is bullish, and the 5m charts are in a Bull Flag. It's worth a look, just remain nimble between here and the close.

Bulls Make a Push Early

Pre-market futures are up sharply this morning on a combination of nothing, a lag effect from U.S. and global interest rate cuts, positive earnings, and positive economic reports. It looks like the Bulls are simply following through with their buying interest from two days ago more than anything. Third quarter GDP came out better than expected and Weekly Jobless Claims reported close to in-line. Both reports will strengthen the Bullish underbelly of the buying interest this morning. The market is set to gap up and the Dow will probably attempt to reach for the 9,300 area again.

The big ups on the pre-market futures this morning and the big rally on Monday is really, really, really starting to beg the question "who exactly keeps selling the market hard in the last 10 minutes of the day?" And "how is it that they happen to coincidentally sell the market just above resistance levels and ruin technical breakouts each time?" It may all be nothing.....but.....once is interesting, twice is a little fishy, and three times in four trading days.....well.....

As it is, it means that we all have to watch the market closely in the last 30 minutes for any potential repeats. Is this market manipulation or real selling? I don't know, but I have to be ready for the pattern to possibly repeat itself, probably until the middle of next week. So I will probably dump any call positions 30 minutes before the close no matter how strong it looks. I don't necessarily want to dump the calls like that, but I don't want to get caught in any of these "October Surprises."

Refer to the chart of the Dow I posted yesterday to see potential support and resistance areas. The Dow stocks (Mega Caps) and also the SPX (Large Caps) are the best performing indexes right now. We'll see if the market (the Dow) breaks above 9,300 and heads towards 9,800 - 10,000, or if we get more of a stalling out short term in the 9,200 - 9,300 area. I suspect that Big Money won't necessarily want to make any huge moves ahead of the elections, however, a Dow move towards 10,000 is still reasonably possible ahead of next week.

Market Pops and then Fades at Resistance

Pre-market futures are moving back and forth from slightly negative to slightly positive. The market is set to have some consolidation out of the gate this morning, which wouldn't be surprising or unhealthy. The Fed announcement is set for 2:15pm ET, so traders may push things a time or two ahead of the Fed, but the more consolidation the better. If we move too much ahead of the Fed announcement then I will be looking for profit-taking on the announcement.

In a perfect world the market consolidates ahead of the Fed, the Fed announces and the market drops a bit, and then the market rallies to new highs into the close and we continue the bounce today and tomorrow. But that's a perfect world.....In our real world we could see the market make a follow through move ahead of the Fed and then traders use the announcement to blow-off the last of the bounce from yesterday and it's all done for awhile. I will be ready for either scenario.

Although the market had a nice bounce yesterday, and my posture is Intermediate Term Neutral and Short Term Bullish, I will still be playing short swings until we go Intermediated Term Bullish.

6:00 pm MT: Market Wrap: We got the "real world" scenario number two today, which was a pop ahead of the Fed and then a fade to end the day. The scenario played out exactly as I described it above. Once again the fade happened in the last 15 minutes. The Fed cut rates 50bp, which means that Benny is continuing to settle down and not trying to be a rock star anymore, we'll see if the trend continues. The rate cut was largely psychological because the LIBOR has been coming down despite the Fed cuts, and banks have been focusing more on short term loan risk rather than the Fed target rate anyway.

The Dow hit my resistance line in the 9,300 area and faded back to end the day. Earlier in the day I had nice, profitable intra-day call swing trades on AMZN, RTN, DIA, SPY, and AAPL. Going forward, it may be that we don't see the market confirm a Triple Bottom until after the election. In fact, if I was a Big Money trader, I wouldn't want to put most of my money to work until after the election uncertainty was over with and I was confident in the policy-making of the new White House and Congress.

Here is a chart of the Dow showing the short-term resistance and support areas and the intermediate term support zone:
(click on image to enlarge)

I was the guest on Ben Watson's Volatile Market Open House today (Home Page, lower right link to Open Houses, then Archives, then the last one on the list dated today). The whole thing is about an hour. I did some market and trading analysis in the last half hour for anyone that is interested.

Market Holds Support and Bounces Huge

Pre-market news is mostly bad: GM and F got credit rating cuts, WMT is cutting store expansion plans, and WHR is cutting jobs. However, short-term money market and loan rates continue to come down, the price of gas is in a record free-fall, and European and Asian markets are up. That has pre-market futures up strongly, and back in line with where the market was prior to the last 10 minutes of the day yesterday. Any time traders diverge from the news it's a good thing, although I'm not ready to read a huge amount into the divergence because of all the uncertainty still out there.

Probably what is happening is traders are looking at valuations and asking themselves if fundamentals are strong enough to support the current "cheap" price of many stocks. The big X-factor now in traders minds will be the elections and how the newly elected White House and Congress will affect corportate taxes, capital gains taxes, government ownership of private business, and individual income taxes, all of which will affect the valuations of stocks. A "cheap" stock now could become an expensive stock later if corporate taxes go up 10% - 15%. Traders are always concerned with elections, but there has been so much financial news to process the past month, and so much uncertainty in the polls, that they are probably only now starting to really pay attention and decide how much money they want to put to work before voting starts in earnest.

On a humorous note I got a chuckle out of a headline this morning that bemoaned the lack of predictability of the Fed Funds Futures now. I have been yapping about the divergence from Benny Van Halen Bernanke and the FFF since January. And I've been really yapping about the irrelivence of the Fed Target Rate and the real lending rate for 6 weeks. It always cracks me up when the media catches on to something about 10 months after it's actually relevent.....

As for the markets today, it's the same old story, take the intra-day signals and get out. You can see what would have happened to a put by holding it overnight.....The FOMC announcement tomorrow will only add to the uncertainty (which, again, is ironic since they're supposed to embue the market with stability and predictability). I will still be looking at the clean intra-day signals. Yesterday the cleanest intra-day signal was a nice call trade on the 5m and 15m charts that I "paper" traded for a prophet. We'll see what today brings.....

After the open: The market is fading hard off the gap at the open, which means that election uncertainty and global financial uncertainty are trumping "cheap" valuations at this point. The fade looks pretty ugly, so we'll see if we get some serious chart destruction or if the market holds and comes back. I will only "paper" trade the clearest of intra-day signals if we get them.

7:30 pm MT: Market Wrap: The Bulls fought of the fade and bounced with one of the biggest one-day moves in history. Of course, historical moves seem to be the norm these days. The Dow and SPX are holding the intermediate term support level that has been forming since the middle of October. The Naz is also holding support, but Tech and Small to Mid Caps have not been performing well as Large Caps and Mega Caps. There wasn't any single catalyst, rather it looks like "cheap valuations" won out over "financial meltdown" and "election uncertainty."

Today is a confirmed bounce, and although we have to deal with the Fed announcement in the middle of the day tomorrow, I will be looking closely at my Bullish Movers list since many stocks are acting like they are in a bottoming process. Now, as always, anything can happen, but for now, it looks like the market may be good for another couple of days in the current bounce. There are always news risks hovering around like vultures these days, but I will watch the list of Bullish Movers along with the DIA and SPY for potential quick call swings.

By the way, the Dollar Basket Index is looking primed for a consolidation, which could give Energy and Commodity stocks a little short term tailwind, so keep an eye on that as well.

Here are some nice Bullish Movers today:

Energy: OXY, ESV, DO

Retail: TGT, AMZN, WMT, ROST

Financials: COF, BBT, WFC

Cyclicals&Transports: BA, UTX, CHRW, DHR, MMM

Railroads: BNI, UNP

Steel: NUE, CLF

Defense: RTN, GR

Biotechs/Healthcare: AMGN, GILD, BAX, CELG, CEPH, GENZ

Tech: AAPL

Note: REIT's and Utilities moved nicely today but the spreads on most of those stocks are too wide to trade. Also, CCL is starting to hold support.

Remember, we are still in an anything goes market, but the Bullish Movers were hard to ignore today. I especially like the movement in Retail. I won't be surprised to see consolidation ahead of the Fed, although if we get a big move in the morning, I think I will lock and walk on the bulk of any call trades - because we could then see some profit-taking on the Fed announcement. However, I won't be surprised if we rally into the close tomorrow later on, after the announcement, especially if the Fed doesn't throw out any negative surprises. The Fed Funds Futures are predicting a 50bp cut tomorrow, although the rate cut will be mostly a psychological boost and won't do a whole lot to change the LIBOR rate. As always, we shall see.....

Tipsy Day Fades At the End of the Day

The drumbeat rolls on.....Overseas markets, especially Asia, slammed down hard again, and once again the U.S. pre-market futures are down big. There continues to be all kinds of gyrations and interventions on the part of governments and central banks world-wide to stem the tide, and once again it looks like the SPX will go and test the 840 - 850 support level. The VIX is set to test historical levels again, and today looks like it will be another barn burner of a morning. It's almost weird getting used to this kind of volatility, but it's the norm these days.....

The potential Double Bottom on the SPX is now fading into a Descending Triangle. Price action is weakening as of the last 5 minutes of Friday, and again this morning. I didn't even bother with a watchlist this weekend because I will mostly be watching the SPY, DIA, and Q's for intra-day swings, and intra-day signals. I could do a lengthy write-up on interest rates, the Fed, economic reports, earnings season, and global financial conditions, all of which will come into play this week. But when there is too much information to process in a market that is living in a sub-routine of panic, there's no point in analyzing the minutia. One thing to remember in all of this madness is that you don't have to trade every single day. At the very least, inexperienced traders will want to tread lightly in the potential whipshaws. As for more experienced traders, just go with the price action intra-day, look for clear signals, be nimble, and wherever it takes us is where it takes us. We shall see.....

Early in the day the market is holding support, which is a good sign. This could be a real back and forth battle for awhile.

9:00 pm MT: Traders faded the Dow over 200 points in the last 10 minutes. The very end-of-day drop was almost identical to Friday and caused new closing lows on the year for the markets. Someone has a sell program 10 minutes before the close, which is very interesting.....

We have the Fed this week, and more earnings and economic reports, but we are now getting close enough to the elections that traders are starting to focus much harder on the polls and what that will mean for the policy going forward. So the market is trying to digest a real grundle load of information.

Panic Eases in the U.S. Markets

An overnight global market meltdown has U.S. Futures trading Limit-Down pre-market. The stock market is set for one of its biggest gaps down ever. Russia simply halted trading until next week. The Yen Carry Trade is being furiously unwound as investors world-wide stampede to safety.....

I don't like to use the term blood in the streets, but there's blood in the streets.....Maybe the VIX will actually spike above 100 today.....I speculated that if that happened it would be because of catastrophic levels of panic and selling.....The U.S. 30-Year Treasury Bond Yield dropped to its lowest levels ever, and Oil is down to the mid 60's despite the fact that OPEC announced that it will cut production.

I would like to be able to point to one single catalyst for the huge implosion overnight and this morning, but there isn't one. It looks more like someone rang the imaginary bell and that quietly started a death spiral worlwide. It's as if thousands of big-time money managers around the globe sort of mind-melded and began a super-freak all at the same time. This is the kind of day that happens when everyone sort of tunes in to the same bad frequency at the same bad time.....

This morning looks as ugly as when I watched the markets right after 9/11. It is as ugly as 1987. We may see a climactic blowoff, but the fear is so extroadinary world-wide that any huge bounce-back might not come right away. I would imagine that a lot of investors, and a lot of people will watch today's action with held breaths as they wonder if it's the end of all life as we know it. I expect tons of political and governmental type of rhetoric and "mental intervention" world-wide as "officials" attempt to soothe all the fear in the streets and restore the "confidence game" back to the financial markets.

I'm not going to even bother with support levels, but if you look at anything, you will want to look at a 10 year or 20 year chart at the minimum. We may see a huge bounce back today, but I doubt we will get it right out of the gate, and it may be that we don't get it at all today.....

You will really, really want to stay nimble today. If you do something, you will probably want to use the 5-minute and 15-minute charts for your swings, and you will probably (I can't believe I'm saying this) want to use the 1-minute charts to help time the entries and exits. If you aren't comfortable or nimble enough to do that, then either stay out today, or take smaller positions. If you see really clear setups on the 15m charts, then you could catch a swing that makes you a huge move in 30m - 90m, but look for clear signals and stay in front of your computer or pre-program your stops if you trade this today.

We are in for a very volatile day after a historically volatile month......We shall see what happens next...............

1:15 pm MT: The market made a very nice comeback late in the day, which seems to be the pattern these days. It was very, very encouraging that the Dow actually held the intermediate term lows today despite the world-wide panic and meltdown. I was watching this all day and I thought that the longer it held, the better chance there would be for another end-of-day bounce back, which we may have right now.

It will be critical for the market to hold this late-day bounce, and the Bull Flag on the 5m charts bodes well for that. We may chop a bit for the next 30 minutes, but if the market can close strong then the Bears will really be frustrated in their attempts to push the Dow and other indices through the intermediate term lows.

The "Beardicat" zone on the Dow and the SPX, incredibly, is still holding. The Naz had a huge gap down through the intermediate term lows and made new lows this morning. If the Dow and SPX can close strong, and the Naz can close above the previous three long lower shadows on October 10, 16, and 23 then the Bears will have been frustrated again. We'll see how we close the day, but this late day bounce is very encouraging, I personally would like to see it hold and close strong.

2:45 pm MT: Market Wrap: I didn't like what happened in the last 5 minutes of trading. It looks like several big institutions came in and sold just before the close in order to avoid weekend news risk. The Dow dropped about 150 points in that very end of the day trading. It was disappointing.....

On the bright side of things, the markets didn't do too badly considering the panic in the streets this morning and the futures trading lock limit down pre-market. The market is still holding the intermediate term support zone. It may be holding the zone with one less toe today, but it is still holding, and that's saying a lot considering the whole end of the world doomsday type of morning we experienced. Perhaps there is a light at the end of the tunnel. It sure doesn't hurt to have oil prices plummeting down, although it would be nice if the free-fall wasn't based on the panic over a global recession.....Still, any light that isn't an oncoming train is a good light.....and I'll take that.

Global Fears Outweigh Earnings Positives

Many companies are continuing to post slightly better than expected earnings numbers: UPS, AMGN, POT, LLY, DOW, BMY and others. However, some are beating expectations and then offering very cautious forward guidance like AMZN. The tepid outlook along with ongoing global recession fears is keeping a lid on the Bulls.

Pre-market futures are down, indicating a slightly bearish open. The market came back quite a bit off the lows at the end of the day yesterday, which is still an indication that the lower zones of the loose, wild consolidation the indexes are shaping is a support area. We may get another thrust down into those areas this morning as the battle for value continues. After yesterday's selling and then late day bounce back, I'm still only interested in playing clear signals on intra-day swings. We may sell off a bit in the morning, but I will be watching for a bounce back eventually, and then I want to see how it holds up or fades off from there. I talked about volatility increasing with the earnings reports, which it did, but the fear of financial collapse in the emerging markets has agitated that volatility considerably, so I will continue to be nimble with this market.

1:30 pm MT: The market did bounce back as I expected, it just happened right out of the gate. The we got a big fade back down as concerns over the world-wide financial crisis rose up to choke the Bulls. In the past 30 minutes the market has once again bounced in the "Beardicat Zone" in the 850 area on the SPX. So far, the wild, intermediate term bottoming area is still holding, which is a good sign for the Bulls. It's still a risky area for the Bears, but the Bulls appear to be only holding on to the zone by a hoof.....So this battle is getting more and more critical. If the Bulls don't hold the 850 zone on the SPX then we could see a drop in to the 775 area. If the Bulls can beat down the Bears the SPX could make another run at 1000.

Global Economy Steps On Earnings

This is exactly why I wait for the morning's news to play out.....Asian and European stocks beat a retreat overnight and this morning on the continuing financial crisis. The U.S. earnings have been doing fairly well, but T and BA missed expectations and Samsung withdrew its offer to buy SNDK due to "uncertain business conditions."

The sure-thing gap up on the Naz is gone as pre-market futures are down. However, just like yesterday, we could see some ups as well as downs. I'm still going to watch the narrow range support and resistances that I drew out for you yesterday. But the odds of a head-fake just went up about 20% in my opinion. In other words, we could break the range and appear to be headed towards the next support or resistance level and then crack right back into the range. I would put that possibility at about a 30% - 40% chance or so, which means I'm not going to hit a range-break trade with both fists and a foot. Now I'll hit it with one fist and a toe.....As always, we shall see what the new day brings.

Earnings Season Adds a Little Spice to the Markets

It looks like we are rolling into the second big week of Earnings Season with a flat tire. A number of Dow components and other big name companies reported last night and this morning. Watch for AXP, MMM, PFE, CAT, and DD to really push the Dow around today. In addition, TXN and SNDK are roiling the Naz pre-market, and LMT, SGP, COH, USB, and BIIB all reported. This is just the kind of volatility I was expecting today, which is why I didn't hold any calls overnight, as usual.

Pre-market futures are down, and the market is likely to gap down a bit. That doesn't mean we will finish the day in the red, but I'm shortening everything that I do today and watching for clear intra-day signals before taking positions. If the market shakes off the gap-down out of the gate during the middle of the day then it might take a shot at the resistance zones I drew for you on the weekend posting. If we start making lower highs and lower lows out of the gate then the market will probably finish the day in the red. Like I said, expect volatility today.....

6:00 pm MT: Market Wrap: The Dow dropped 231 points today and it was still a consolidation day! That's how crazy our market has been lately. The price action on the Dow and the SPX was actually the narrowest range on the markets in the past 9 days! Don't get caught up in the price drop, I'm going to lay out tomorrow for you - and what to watch.

But first things first.....Today played out in a back and forth seesaw just as I anticipated. I warned that volatility was going to increase today, but it came in the form of back and forth whipsaws and not in the form of a big price range. Earnings Stocks facilitated the Bump and Dump intra-day price action. Here is an example of the Earnings Stocks: Buying on AXP, MMM, COH, and SNDK helped repair the gap down this morning, and selling on LMT, FCX, DD, and CAT helped the Bears fade the gap and dump the market into a bearish close. Stuck in the middle of the back and forth selling were stocks like TXN.

I didn't get a chance to really have fun with the intra-day swings today because of work obligations, which can be frustrating for us all.....However, I did do something I DON'T DO 99.9% of the time and that's buy something right before earnings.....But AAPL just kept fading and fading and fading all day and I just couldn't lay off the concept that traders were killing the stock way, way too much. So I took a very small call position on some out of the money options that I would'nt lose much money on if I was wrong. Again, normally I don't do an earnings carryover trade, but I made a rare exception today.

As for the overall market, the Dow and the SPX qualify for an NR7 Day (narrow range in the past 7 days), which sets up beautifully for a short term Break and Swing to either support or resistance tomorrow. It's most likely going to be a move to resistance because of the next bit of earnings news.....

Here's what matters next: AAPL beat earnings after the close and is trading up about $12 - $13 points after-hours. YHOO beat expectations and is trading up over 5% after-hours. BRCM beat expectations and is trading up almost 9% after-hours. CREE beat expectations and is trading up over 6% after-hours. And QLGC beat expectations and is trading up almost 4% after-hours. Get the picture? The Naz is probably headed for a gap up tomorrow morning. In addition, NSC beat expectations and is trading up almost 6% after-hours. Now, we have BA, BHI, T, COP, EMC, GD, GENZ, KMB, MCD, MRK NTRS, NOC, WLP, and WB announcing earnings in the morning, so the gap up tomorrow is still hanging in the wind. But if tonight's trend continues tomorrow morning, and the futures are up pre-market, then the NR7 will probably resolve itself to the upside.

Here is a chart of the Dow showing the NR7 and the short term consolidation within the swing (inside the blue dotted lines) that may resolve itself tomorrow. A move up probably moves the market to the resistance zone and a move down probably moves the market to the support zone. Even a move to the middle of the s/r zones after a break of the dotted lines will be a nice intra-day swing:
(click on image to enlarge)


Here is a chart of the SPX showing the NR7 and the short term consolidation within the swing (inside the blue dotted lines) that may resolve itself tomorrow. A move up probably moves the market to the resistance zone and a move down probably moves the market to the support zone. Even a move to the middle of the s/r zones after a break of the dotted lines will be a nice intra-day swing:
(click on image to enlarge)


Here is a chart of the Naz showing the short term consolidation within the swing (inside the blue dotted lines) that tried to resolve itself to the downside today. A move up or gap up tomorrow morning probably moves the Naz right back to the blue resistance zone, and a break above the blue zone may clear the way for a nice move up to the 1,900 area. A drop below today's lows clears the way for a possible move down into the low 1,600's:
(click on image to enlarge)

Here are some recent Bullish Movers that I will keep an eye on if the market gaps up at the open: AXP, MMM, COH, AAPL, and NSC. I still like most everything from my previous couple of days of Bullish Movers except Retail. In addition, the Q's, SPY, and DIA will be in play tomorrow. It may be that we get a mirror image of today during tomorrow's trading. Today was a gap down with a pop back and then a fade into the close. Tomorrow could be a gap up with a little fade during the morning and a pop into the close. But again, we have to get through the morning's earnings.....As always, we shall see.....

Market Drifts Up and Closes Strong

Foreign credit markets are stabilizing a bit in Europe and Asia as money-market rates decline. The LIBOR dropped all of last week and it looks like the short end of the yield curve worldwide is starting to shore up just a little. Pre-market futures are up on the positive development in the global financial system.

Earnings news is on the light side, and there are no major economic reports this morning. So the focus will be on the modest stabilization of the world's financial markets. The market is set to gap up a little at the open. I speculate that we will get some upward drift this morning, and it looks like we are getting some of that already pre-market. Remember that corporate earnings come in a lot heavier tomorrow, so traders will gyrate a bit as they position themselves ahead of the expected volatility the next couple of days.

8:00 am MT: I nibbled on calls for ERTS, NUE, SPY, and the Q’s. I also traded in and out of AAPL calls for a small .33 cent gain in 15m, and then I nibbled back in to the same calls. The market gapped up at the open and is drifting up a little, just as I speculated it would on Friday. We’ll see where things go from here.....

8:20 am MT: The rhetoric coming out of OPEC is heating up.....The cartel is planning an “emergency” meeting to get together and discuss how awful it is that oil is dropping below $70.00 per barrel.....I guess were all supposed to forget what life was like 5 years ago when oil had a trading range between $20 - $30 per barrel. So this is really a “hurry and slash output before we cut into our massive profit margins” meeting.

2:00 pm MT: Market Wrap: I warned that today was likely going to be an upward drift or Drifter Day, and that’s exactly what we got. The market gapped up at the open, popped a bit, came back and tested the gap, and then drifted slightly upward all day long. Now, I know that it was a 413 point day on the Dow, but relative to the price action from the past two weeks, today was a nice upward drifter of a day.

I sold all the calls by the end of the day for nice gains. I wasn’t trying to set any records today, but I wanted to be exposed to some stuff so I would be in position to take advantage of the bullish drift. Volatility compressed quite a bit, so my biggest gainers were only 7% profits on NUE and ERTS intra-day. Normally those would have been a little bigger but the VIX put in a mini Double Top as the market put in a mini Double Bottom, and volatility compressed a lot today.

The major indexes are headed towards the resistance zones that I drew out for you on the charts yesterday. Most of the stock charts I posted yesterday also moved up.

Here is an additional set of interesting Bullish Movers from today (including stocks from the Watchlist yesterday):

Steel: CLF, NUE

Coal: BTU, WLT

Chemicals: PX

Tech: NIHD, ERTS

Defense: GR, RTN

Energy: PXP, UPL, OXY, CAM, RRC, DVN, RIG, DO

Remember that we get hit with a lot more earnings tomorrow, so the market will be in “processing” mode in the morning. That means we will probably have more gyrating tomorrow morning than we did today. The charts are saying the market wants to go up again tomorrow, but we’ll see what the earnings news does to all that.....

Watchlist Weekend

Market Posture:

The overall market, including the three major indeces (Dow, SPX, and Naz) are long term bearish, intermediate term bearish, and short term bullish to neutral. The indexes may be in the process of working through an intermediate term bottom. I would put the statistical probability at about 65% that this area on the markets is an intermediate term bottom. You can see from the candlestick charts on the Dow, SPX, and Naz that it appears that the bulls want to hold the lows from the past several weeks. It may be that the market puts in a mini Double Bottom in this area. I included line charts on all three indexes to show the semi fragile nature of that Double Bottom, however, it's still holding up for now.

Tomorrow is light on earnings and economic reports, so outside of a bad news bogey I'm not looking for an extreme move. I'm speculating on a possible Drifter Day where the markets drift up a bit and tighten the daily range a bit. For that reason I'm looking at a list of potential bullish movers tomorrow, whether it's the index ETF's or the stock watchlist below.

First the major index charts.....

Here is a chart of the Dow:
(click on image to enlarge)


Here is a line chart of the Dow:
(click on image to enlarge)


Here is a chart of the SPX:
(click on image to enlarge)


Here is a line chart of the SPX:
(click on image to enlarge)


Here is a chart of the Naz:
(click on image to enlarge)


Here is a line chart of the Naz:
(click on image to enlarge)

Here is a list of potential bullish movers tomorrow. I have a broader list than this, with a few more sectors, but I'm more focused on these charts than any others for tomorrow.

Here is a chart of NIHD:
(click on image to enlarge)


Here is a chart of ERTS:
(click on image to enlarge)


Here is a chart of AAPL (two notes: the first is that there is a data error on the chart - AAPL's low on Friday was 97.00 and not 86.00, the second is that earnings are on Tuesday):
(click on image to enlarge)


Here is a chart of BNI:
(click on image to enlarge)


Here is a chart of BTU:
(click on image to enlarge)


Here is a chart of NUE:
(click on image to enlarge)


Here is a chart of TGT:
(click on image to enlarge)


Here is a chart of GR:
(click on image to enlarge)

I'm looking for volatility to increase again on Tuesday as the earnings reports come flooding back in to the market. We are also inching closer to election season. We will probably need to see positive earnings on Monday evening and Tuesday morning for the Double Bottom to hold up and carry through. For tomorrow, I speculate the best case scenario for the Bulls is a run back up to the resistance zones I indicated on the charts. As always, we shall see.....

Options Expiration Puts Market on the Defensive Early

All the news is relatively good from last night and this morning except the housing numbers. GOOG and IBM beat earnings expectations yesterday after the close and are set to gap up. SLB beat expectations this morning. The LIBOR continues to fall, which is loosening up Bank lending on the short end of the yield curve. The only major bad news was Housing Starts and Building Permits both missed expectations by quite a bit.

The pre-market futures are down more than I would expect (I was actually looking for the futures to be up pre market). I speculate that the volatility is due to the amount of options positions that are set to expire today. The historic dump in the markets probably has way more traders and market makers out of position on huge options positions. So there is likely going to be a lot of gyrating today as big traders get themselves out of bad option related liabilities. I would also speculate that there will be huge rollouts to November going on as well. It could be a wild ride in the options world for many traders today.

I will watch this for a call buying opportunity as a carryover from the Hammer patterns on many stocks and the overall market yesterday. It may not materialize, but I will keep an eye out. I want to see the market shore up this morning and reach for new intra-day highs in the middle of the day as a carry through on the bounce from yesterday. As always, we shall see.....

Market Hammers Out a Bounce

Earnings Season continues to roll along with more big name companies reporting. Many companies are reporting in-line or slightly better than expected earnings. Wall Street is most concerned with forward guidance, and so far, in general, the earnings outlook for many companies has not been ugly. The fact that earnings have not been catastrophic has not stopped traders from being nervous about the Financial sector mess, and the assumption is that eventually the mess will slow the economy enough that earnings in January will start to reflect the general slowing conditions.

The LIBOR, or rate that Banks charge for short term loans has come down for the fourth straight day pre-market. The huge spike in the price of short term money was bound to eventually settle down, which is good news for the market.

Oil has dropped all the way into the way into the $74 area, which is tremendously good news for the economy despite that fact that we got here on a recession instead of an increase in supply. The big drop won't last in the long run unless the U.S. increases supply, however, the drop in the price of gas will probably increase discretionary spending, decrease travel costs, and drop the rate of inflation - which was indicated with a better than expected CPI this morning.

Pre-market futures were trading down until the better than expected CPI report came out, and also (and especially) the Weekly Jobless Claims report came out better than expected. Any steadying of the employment situation, along with a drop in gas prices, is a welcome sign for bulls.

Yesterday I wrote that short term support on the market (SPX) was the 960 - 965 area and that if the market dropped through 940 then we would potentially see a round trip back to 900. Well, the market dropped through 940 and within a couple of hours we dropped all the way to 907.....As you can see, the 900 area is the next support, and a breach of that area could drop the SPX to 850. It looks like the market will pause and bounce a little this morning, but keep an eye on the 907 area, if we drop below that then we are most likely headed down to 900, and then the critical battle will be on between the bulls and the bears.

Earnings Season Rolls Into Town

Earnings Season is officially in full swing. INTC and KO beat expectations and are trading up. Big Financials are putting some softness into the market as traders sell JPM and WFC after earnings. So once again, Financials are no help to the bulls.

The pre-market futures dropped sharply after the Retail Sales report came in worse than expected. The PPI report came out pretty much in line with expectations. There shouldn't be ANYTHING in the big economic reports that is surprising to ANYBODY on this planet AND most of the known universe (Retail Sales and PPI are two of the top seven reports). However, traders actually acted a little surprised this morning.....

I speculate that we will stay in consolidation this morning. Keep an eye on the 15m charts on the SPX. Until the consolidation channel (on that time frame) from yesterday and this morning resolves itself (either up or down) then don't expect much real movement. An intra-day swing trader can play around on the swings in the channel, but don't get too carried away as we head full bore into the heart of earnings season.

Support on the SPX (short term) is the 960 - 965 area. If the market drops through 940 then we could see a round trip back to 900, and possibly the mid 800's. I want to see an orderly consolidation (which we are getting so far) to raise the probability that the 960 area holds and we take another leg up in the current bounce.

Add a Gap, Pop, and Fade to Your Morning

The White House and the Treasury outlined the spending targets for $250b of the $700b Bailout Bill. Specifically, the government is going to buy banks.....The idea is to restore confidence to the financial system, which has always been one giant confidence game since the government lowered reserve levels and went off the gold standard in the 70's. The good news is that the stock market is responding bullishly once again, after the record setting day yesterday. The bad news is that socializing banks is another step in the wrong direction for capitalism. The best case scenario is that the government divests itself of all private assets over the next ten years (including, and especially FNM and FRE). We shall see.....

I speculate that we will get another gap and pop this morning. But unlike yesterday, I'm looking for a fade during the morning sometime followed by a mid-day consolidation. Then the key will be how we close. I suspect that we will finish the day in the green, but not nearly as big as yesterday. As always, we shall see how price action really plays out.....

Short Term Bounce Forming as Earnings Season Starts

It looks like price action held up just enough in the final hour of Friday to give the market a tailwind this morning. The news will report that it's the global intervention of central banks and governments continuing to pump liquidity into the financial system and the U.S. Fed providing liquidity into the short term funding markets, but the bounce this morning started forming on Friday afternoon.

I wanted price action in the final 15m of Friday to hold up just a little better in order to raise the odds of an intermediate term bottom, but it didn't, so it's still a toss of the coin to me as to whether or not we have the beginnings of an intermediate term bottoming process. However, I do think we have about a 60% chance that it started a short term bounce, which could last until we start getting heavy with earnings. Speaking of which, we will start getting some earnings today and tomorrow, with the peak volatility in earnings coming on Wednesday and especially Thursday morning. So I expect a snap back today, but I'm still taking this day to day.

Starting to Smell Like a Blowoff

I don't know if we get the blowoff day today, but the futures are indicating a huge gap down in the markets this morning, which might lead to a sharp enough, catastrophic enough dump during the day for a potential blowoff.

GE posted in-line earnings, but the market is only focused on the collapse of the Asian markets overnight. And of course Asia dumped because of the U.S. markets.....so the global meltdown continues.....

It could be that the Dow drops to numbers beginning with a 7 today, we shall see.....However this shakes out today, I would really like to see the markets hold the line fairly soon, otherwise I don't like to even think about the consequences.....

Another day, another wild ride, so strap on your seat belts again.....

Mr. Toad's Wild Ride Continues

The ban on short-selling financial stocks has been officially lifted. Expect some back and forth gyrations this morning. There is a lot of news, but it's mostly the usual stuff - LIBOR, Jobs, Earnings, Retail, and Financial operations like merger talks and raising cash. I'm not going to get into any of it other than to say it's a lot of the same type of news we've been hearing, which means the market is probably going to do what it's going to do today - regardless of the news.

I speculate we will get some bouncing today left over from yesterday's potential Spinning Bottom type of price action. I also expect some selling fits here and there as some Hedgies play around with shorting Financial stocks. I'm not looking for a lot of shorting, however, because the bloom is off that rose, the market has slammed down so much that many traders probably consider shorting a higher risk trade right here. We didn't get a blowoff climax yesterday, which means that we are still succeptable to another big down day, but that might not happen this morning simply because we hit a short term peak in volatility yesterday. I really wanted the blowoff yesterday to take some of the volatility risk out of the market, but it didn't happen. That doesn't mean that yesterday can't be a short-term bottom, it just means I need to see a confirmed bounce before I think the volatility eases up a bit. Therefore, I'm still treating every directional trade as an intra-day swing.

Blowoff is a Comin'

The Fed, along with Central Banks around the globe cut target interest rates in a massive coordinated effort to boost confidence. Now, those of you following me know that there is the theoretical rate and then there is reality, what interest rate the Banks will really lend commercial paper (short term loans) as set by the LIBOR. The Fed cut interest rates by 50bp and the LIBOR actually WENT UP! Is there anything else I need to say to confirm what I have been stating here all along......talk about firing blanks! The Ted spread, which is the difference between what Banks pay for three-month loans (3m LIBOR) and the three-month T-bill is up 44bp to 4.00% as reported on Briefing. The LIBOR, the Swap Spread Rate, and the Ted Spread are all ways of looking at the same thing, the real cost of short term loans is extremely high, and Banks are pretty much ignoring the Fed's (and other Worldwide Central Banks) target rates.

Earnings Season is starting with a whimper as AA missed.....Also, same store sales are coming in worse than expected (except for WMT, which is where bargain hunters always go in a bearish environment).

Yesterday I warned that we are getting close to a blow-off day, and that we are at risk for that day to begin with a sell-off into the 950 area on the SPX. Well, we hit 974 on the SPX on the gap down at the open just now, and the market is trying to bounce. I don't know what the precise number will be, but I do know that analysts are typically wrong, right at the bottom.....Which brings me to little, loud Jimmy Cramer, who told the world this morning to GET OUT OF THE STOCK MARKET AND STAY OUT FOR THE NEXT FIVE YEARS! Now, where was his advice to get out 10 months ago? It's like telling the passengers to jump of the Titanic after its hit the bottom of the ocean! It's just a little late in the coming.....I won't say what I really want to say about the competence of that statement by Jimmy, but I will say that it's actually GOOD NEWS! The more fools (ok, I said it) that tell people to jump off the Titanic AFTER it has sunk the better. Analysts are almost ALWAYS WRONG. Jimmy was a good trader once upon a time, but he has become a fool, especially this past year.

I am watching to see if we get a big Hammer after a blow-off move to signal the short-term, and maybe even intermediat-term change in the markets. We need to see a big comeback on huge volume before I believe that it's over for now, that the selling is done for the near-term. I'm not going to get too fancy with any trades unless I see some clean setups, but until then, I'll assume the status quo, which is an historically volatile market.....

LIBOR, Labor, and Earnings Oh My

Pre-market futures are a little soft this morning as the LIBOR on overnight loans is up and BAC warned that earnings will be down (what a surprise.....). We are getting through the tail end of Earnings Warning Season as AA starts the first of the major Earnings Season announcements tonight. However, we won't get heavy earnings until next week. Traders continue to be focused on the Financial markets and the cash crunch, and the Labor markets and the jobs bleed.

Today will probably be a bit of a settling down day from yesterday's wild ride. It will be important for the market to hold up today and try to follow through on yesterday's late day bounce - either today or tomorrow - in order to call this a short term bottom. I'm speculating that we will see the short term bounce, but as always, we shall see.....

8:00 am MT: The Fed announced that it will buy three-month commercial paper (short term loans) in order to loosen up the extremely tight conditions in the short term credit market. Commercial paper is another way of saying short term loans that financial institutions provide to each other and to many other businesses to meet current cash needs like payroll, supplies, expansion, and other near term obligations. Remember that the LIBOR is the rate that banks charge each other for these short term loans, and the tightness in that market went beyond crisis levels two weeks ago (which you can see from the spike on the chart, which I first posted several days ago):

Here is the chart of the LIBOR

Here is the chart of the Overnight Commercial Paper Rate

You can see the extreme volatility and the recent spikes in the short term lending rates from those charts. The Fed is attempting to stabilize the short end of the yield curve now…..AND THEIR NOT DOING IT BY CUTTING RATES. This is an ongoing follow-up to what I have been saying for over a week now about the irrelevance of the Fed Funds and what traders are doing with the Fed Funds Futures. The Fed knows that cutting a theoretical target is almost a complete waste of time right now. That’s why they are actually going out now and buying real paper instead of trying to fiddle with the theoretical rate (the Fed Funds Target Rate).

11:00 am MT: The market is starting to fade off too much to recover today. It will become critical for the Naz, SPX, and Dow to hold yesterday’s lows or because of the vacuum to the next levels of support.

4:00 pm MT: Market Wrap: This was a disappointing day for the healing process of the markets. The Dow is now at fairly high risk for a drop to 9,000. The SPX is at fairly high risk for a drop to 950. And the Naz is at fairly high risk for a drop to 1,500 - especially if it doesn't hold the line right here, right now. The Naz support level is the least probable of the three because it represents a steeper decline, but it's still possible. I speculate that we could see a blow-off on the SPX to 950. If we get it I will look for another intra-day Dead Cat Bounce like yesterday. Perhaps a climactic blow-off to 950 would start the process of the end of the selling.....it’s possible that we need something that dramatic or more in order for Big Money to step back into the market.

I’m not going to spend any more time on the news of the day, it’s becoming largely irrelevant. The market is going to do what it’s going to do. So here are the charts of the indexes. Look for the very real possibility of a blow-off day this week, perhaps tomorrow:

Here is the Weekly Chart of the Dow
(click on image to enlarge)


Here is the Weekly Chart of the SPX
(click on image to enlarge)


Here is the Weekly Chart of the Naz
(click on image to enlarge)

I really don't think I need to say anything else.....

Europe and Asia Feed the Crisis but Market Dead Cat Bounces

The weekend financial crisis in Europe and Asia is carrying back over to the U.S. markets this morning as the cycle feeds its own frenzy.

Watch out for a short term oversold gap and pop, it's going to be pretty tough to buy puts right out of the gate. I am looking for a little bit of a short term oversold condition this morning. I'm not bullish on the markets, but we could pop a little out of the gap.

8:15 am MT: The next support down for the Dow is the 9,750 - 9,900 area.

9:00 am MT: The market is continuing to fade off the gap and the VIX is getting too hot for this to sustain much longer. I think we will get a short-term oversold climax today. I’m looking to pick up calls on the DIA and SPY on a Dead Cat Bounce strategy, which is countertrend, but suited for days like today.

9:30 am MT: I started cherry picking calls on DIA and SPY.

9:45 am MT: I added a little more to the DIA and SPY calls.

10:00 am MT: I added a little more to the DIA and SPY calls.

12:45 pm MT: I added the last of the calls I wanted on the DIA and SPY calls.

1:40 pm – 1:55 pm MT: I scaled out of all the calls. For the SPY trade I made .85 cents or 13% return intra-day. For the DIA trade I made .43 cents or 7% intra-day. I was pretty confident with the probable dead cat bounce so I took bigger positions. I ended up adding a total of $2,560 to the “paper” money account today, so it was a nice day of trading.

3:30 pm MT: Market Wrap: Here’s the easy version of this…..the global financial crisis pushed back and forth across several continents today. That pretty much sums up the day. I was watching for a Dead Cat Bounce all day, and I traded it profitably. The Naz was the only index that actually turned (dead-catted) at a key support area, which was exactly on the 61.8% Retracement (Fibonacci Retracement) of the Bull Market. The SPX was the next closest to bouncing off a key support area as it bounced off a bottom of 1,007, which is very close to the round number of 1000. The Dow kind of bounced in space, although it did reach near a semi-round number of 9,500 before jumping back intra-day. I speculate that the Naz 61.8% retracement and the SPX 1000 were more important numbers to traders today. Any way you slice it, we were dramatically oversold short-term and the VIX was screaming at the market with a reading of 58.

I warned that we could have a 2-3 month topping out process on the VIX, so this is volley shot number one. I expect that we will get a short-term oversold bounce with a volatility compression tomorrow or the next day, but I’m still not doing anything other than what I did today – play it intra-day. I don’t want to get caught in a volatility collapse by holding a long position overnight.

There is a lot of chatter amongst traders that the Fed will cut rates dramatically at the October 29 FOMC meeting. Now think about that for a moment…..I’ve shown you the irrelevance of a rate cut because the real short term interest rate number as represented by the LIBOR and the Credit Swap Spread is totally ignoring the Fed Target Rate. Benny knows a rate cut is pointless. I’ve taught you that. Now, also think about this, the Dow dropped over 1,200 points from the end of Friday to the middle of today, or in about 9 trading hours. In addition, the world is on fire as European and Asian markets dump the big dump over the financial crisis (what planet were those traders on the past 10 months?). So if Benny was going to cut, he would have cut RIGHT NOW. Look what happened in January with the emergency 75bp inter-meeting cut. Why not now? What’s he waiting for? That’s exactly why I warned you last week that the Fed has nowhere to go with rate cuts on the short end of the yield curve. That’s exactly why I showed you those LIBOR and Credit Swap Spread charts. In fact, the Fed did exactly what it could do today - what really had a chance to affect the market. They attempted to improve liquidity by doubling the outstanding Term Auction Facilities balances to $900b. The TAF’s targets liquidity by allowing depository institutions to borrow from the Fed using the same collateral that is accepted at the discount window. So the Fed is trying to provide financial institutions with CASH, which is far more important right now than a short term rate cut.

The two bits of good news from today were that the market bounced sharply off the lows and that oil dropped down into the $87 area. The market may even bounce a little more off the short term oversold condition as I wrote above. However, don’t lose sight of the fact that the macro, global financial picture is still squishy, and that we are still in Earnings Warning Season, then we get Earnings Season, then we get the Fed, then we get the Elections, and we get various Economic Reports throughout all that period of time. We may bounce short term, but I haven’t seen the huge, blow-off climax followed by the huge, even bigger bounce yet. In other words, I haven’t seen the signal that this is done yet. I keep warning about this, but don’t lose sight of the fact that we probably won’t get a one and done on the VIX. I still speculate it will be a 2-3 month process, even if we find a market bottom in October…..which means I’m in short swing mode for the foreseeable future. It’s plenty profitable, as I demonstrated today, it just means understanding what to do in these type of market conditions.

Here is a chart of the Naz showing the Dead Cat Bounce off the 61.8% Fibonacci Retracement today:
(click on image to enlarge)

Here is an intra-day 5m chart of the DIA showing the entry points for one of the "paper" trades I did today. The entry points are in green highlight circles and the exit area is in the blue rectangle. You can check the time stamps on the "paper" trades in my Papermoney account on the Wednesday VC for a more precise look:
(click on image to enlarge)


Here is the same DIA chart on a 15m time frame so you can see the swing a little better:
(click on image to enlarge)

I showed the DIA chart above because I wanted to demonstrate visually the type of trade I mean when I say intra-day swing. It's the only kind of directional trade I am willing to go heavier with right now. Everything else is nibbling.

Market Update

The financial crisis is now hitting Asia and Europe with the same ferocity as it did the U.S. There have been several bank mergers (collapses) in Europe over the weekend. In addition, one major Asain-related Hedge Fund went under, and a major Real Estate Holding company is getting bailed out. Central Banks and similar organizations around the globe are coming in and bailing out troubled financial institutions all over the world. In a word, it's a mess.

The major indexes are seeing some ugly chart damage, but there's still room to drop. Unfortunately, the big U.S. government bailout was filled with so much pork and special interest that came to light in the past week, that when Big Money started to realize the potential negative long-term ramifications of the bill, it created a degree of uncertainty in the market. If you take the bailout package and list all the short-term positives and then stack that side by side with the long-term negatives, the net result could actually be somewhat bearish for capitalism. Another way to look at this is that the bill could have made a bullish impact of about 8-10 on the Richter scale, but instead it now may only be about a 2-3, and could possibly even become a slight negative short-term.

All you have to do is see how Big Money reacted to the news of the passage of the bill in the House of Representatives on Friday to get a feel for what Smart Money thinks. The Dow had a reversal of almost 450 points to the downside on Friday after the news announcement.

The greatest irony in all of this, and the biggest revelation of ongoing political incompetence, is the fact that one of the very reasons the bailout was rushed to Capital Hill in the first place was to save the Financial Markets along with the Financial System. We heard all kinds of end-of-the-world outcries from political representatives about the necessity of the bailout to save the markets and save the system. If the bailout didn't happen, the political intelligentsia was predicting the end of all life as we know it. So the bailout happens and the market dumps 450 points! The very thing the intervention was designed for was to prevent a collapse, and as soon as the bailout passed, the market dumped. I don't know how you get any more clarity on just how much incompetence with have in Congress than that.....

Even though the markets have another level they could drop to, and even though we have too much incompetence from our political leadership, I'm still optimistic about our country and our markets. America and its people are resilient, hard-working, innovative, and capable. I think we will pull through this eventually, but I also think we are in for more volatility in the next 1-2 months. I said that I anticipated a topping out process on the $VIX to last 2-3 months, and that plays right into the rest of the year. We have earnings warning season next week, followed by earnings season. We have more economic data in the next two months to sort through. We have the Fed at the end of the month, and we have the election rhetoric and then the elections in the next month or so. That doesn't even include the continued unwinding of the mess in the worldwide financial system. I will stand by my forecast of a 2-3 month topping pattern in the $VIX instead of a quick spike and a new bull market next week.

As for trading, I will keep taking it one day at a time. I'm keeping my directional trades to short swings, and I won't hold full positions overnight, unless it's a clear setup on the stock and the market. I will post some stocks to watch in the next few days, but I'm more focused on quick swing trades on the DIA, SPY, QQQQ, and IWM as much as anything right now.

Bailout Vote Keeps Market on Hold

The Employment Report was not good, but probably priced in yesterday after the Weekly Jobless Claims number. Nonfarm payrolls fell 159k in September, although the Unemployment Rate held steady at 6.1%.

WFC is merging with WB in a stock-for-stock deal without FDIC assistance. Well.....how about that? If there was a Financial Institution that wasn't going to go running to the government for help, I would have expected it to be WFC.....good for them! And good for WB to get the deal done without the greedy stubbornness of company's like LEH and WM. The deal is valued at $7.00 per WB share. It looks like capitalism still has a tiny heartbeat left after all.....now to see if the gigantic pork barrel spending project - I mean bailout - will get passed today in the House.

Speaking of the bailout, pre-market futures are holding steady, and even a little positive despite the Nonfarm payroll number, probably because of what I just re-capped: Traders are watching the bailout, the WFC/WB merger, and the fact that traders probably priced in some of the bad Jobs Data yesterday.

As long as the Dow can't get above 10,650 I will maintain a bearish stance, and the possibility for another fade later in the day. But if the Dow starts pushing through the short term resistance (10,600 - 10,650) and clears 10,700 then I won't look for a fade, but rather another wacky back to back down - up crash that seems to be the norm the past several weeks.....

Market Fades Away

The SEC extended the ban on short selling of Financial stocks to October 17. The ban was due to be lifted today. This was what I speculated would happen when I heard the original ban end-date.

The LIBOR (London Inter-Bank Offer Rate), which is the world-wide benchmark interest rate for short term loans that banks offer, is steadily dropping, which means that banks are starting to be more willing to make overnight and short term business loans (which is obviously good for the world economy).

The Senate passed its revised version of the $700b bailout plan by a vote of almost 3-1, now it goes to the House for a vote.

MOS missed earnings and it looks like Chemical/Agricultural stocks in general are going to be under pressure today.

Weekly Jobless Claims came in worse than expected, which will probably bring some volatility to the markets today because the Employment Report is due tomorrow, and traders will now wonder if it will miss expectations.....Pre-market futures are down about the same amount as yesterday morning.

I speculate that we will see similar price action today as we had yesterday. It looks like we'll get the same type of gap down at the open, but then we may see some wiggle and bouncing back. Energy and Commodity stocks may see some selling today while Financial stocks may actually hold up. So another volatile day in paradise, and another day of playing short swings or intra-day swings on any directional trades. Just like yesterday (I finished with a $304 profit on the day), I will not be looking to make a big splash.

12:45 pm MT: The market gapped down and kept right on fading. The Naz is at a critical point right now trying to hold Monday's lows. Traders are just not in the mood these days. The Naz had a breakdown through the mini, two-day Pennant. The Dow and SPX are rolling down from a form of a Hanging Man.

We are getting close to another tipping point. If the indexes give up much more ground then the market is probably headed for another 1-2 day leg down. However, remember how incredibly newsy we are right now, so I won't hold full positions overnight on directional trades.

1:00 pm MT: The selling is very broad based today. Here are some of the worst hit sectors (pretty much in order of worst first): Chemicals, Railroads, Energy, Manufacturing/Machinery, Coal, and Steel. There are other areas as well like Tech, Insurance, and even Gold (ABX is an Island Reversal today for example). So the market is actually more bearish than it appears at first glance (which was plenty bearish). I'm not looking for this to come back in the next couple of days, especially during earnings warning season. Traders are shrugging of the potential bailout and dumping stocks today. They are probably positioning themselves for what they believe will be a bad Employment Report tomorrow, or a continuation of bad economic data and earnings misses over the next several weeks.

9:30 pm MT: Quick Market Wrap: Remember to keep an eye on the Employment Report that comes out pre-market tomorrow, and the bailout vote in the House, which looks like it will be set for tomorrow.

Also, here is a brief on what I talked about on vc tonight: The willingness of financial institutions to offer short term loans can be measured by the interest rate those institutions charge for the loans. The higher the rate the tighter the liquidity. You can measure those rates with the LIBOR (mentioned above) and the Swap Spread (on Interest Rate Swaps above the corresponding U.S. Treasury rate). I will write up a bit about this when I have more time, but suffice it to say that these two charts approximately measure the willingness of financial institutions to make short term loans. You can see by the HUGE spike in the charts recently that the willingness has pretty much gone out the window. Click on the name to get the chart:

LIBOR Rate

Swap Spread

Until these rates settle back down, then business activity is going to slow because of the higher rates and issues with getting short term loans.

Revised Bailout or Rearranging the Deck Chairs?

Market futures are down a little after yesterday's big jump after the day be fore's big dump.....Traders are supposedly focusing on the probability of an economic recession, but I don't think a full blown recession is out there yet, at least not based on the data. However, traders are speculating that the ISM Index due 30m after the open today, and the Employment Report due on Friday, will show numbers that cause the market to sell down a bit. These are the two biggest economic reports of the month, so the market will actually take a brief break from the political gyrations in Washington and focus on the current economy.

The market will probably push back and forth a bit this morning on the ISM, depending on the number. But traders will eventually look towards the ramifications of a bailout for more clues on where the economy may be headed in the next few months. If the ISM is a decent number in the 49-50 area then traders will probably have a somewhat muted reaction, which means that jobs and the Employment Report will take center stage along with the bailout. We will probably still see some newsy conditions the rest of the week, so keep taking this day to day.

7:40 am MT: I nibbled on some SPY and DIA puts on the gap down and break of the Bear Flag on the 120m charts.

7:55 am MT: I added to the puts on the gap test just ahead of the ISM.

8:15 am MT: I sold both puts for a 7% gain in about 30m. I’m just diddling around right now, but it was a quick $332 gain in a few minutes. The ISM number was a fairly nasty 43.5, which is well below the 49.5 estimate. Traders will have to wring through all the data with a protractor and some surgical gloves, so I’ll sit back and let them gyrate the market for a little while before the next trade.

8:25 am MT: I nibbled back in on the SPY puts on the next Bear Flag on the 5m charts.

8:40 am MT: Price action started slowing down, so I sold the puts for a small .15 cent gain, which is basically breakeven on normal spreads. I really am just diddling around and keeping myself sharp. I think the market is conflicted over bad economic numbers and a potential recession on the one hand and a huge government bailout on the other hand.

WFC is really hanging tough right now, so I may nibble on some calls over there.

9:00 am MT: I just can’t get the pricing on the spread I want for WFC, so it’s a no go. The market is probably going to go a little tighter today. It had every chance to sell off after the poor ISM, but traders blew it off and are holding the line for now.

3:30 pm MT: Market Wrap: We did indeed finish with a tighter day as I suspected. The market was a little nervous over GE’s financial services division, but GE is raising capital through offerings and through Warren Buffet, so GE is of the torture rack for now. Traders are watching to see how the Senate’s revised bailout vote goes tonight. Personally I’m wondering how much of the socialist language was stripped out of the bailout bill.

The market pretty much ignored the terrible ISM number today. The yapping heads made a HUGE deal out of the bad ISM number because it meets their agenda of fear and insecurity. By contrast, it looks like professional traders are treating the ISM as near-term slowdown in manufacturing but not necessarily a recession of the broader economy. So Big Money didn’t sell the ISM even though Big Media made it all the rage today.

Oil sold off a bit today after the Weekly Inventory Report showed a bigger than expected build in inventory levels. As usual, a drop in the price of oil is a positive for discretionary spending and the economy (as long as we don’t get huge inventory builds because of an imploding economy). Traders will be focused on the Employment numbers tomorrow and especially Friday. They will also be very focused on the bailout gyrations. In addition, we are in Earnings Warning Season, then we get Earnings Season, then we get Political Season, so there’s plenty of potential volatility in the works for the next several months. I'm not expecting a strong trend to develop in the next few months (but as always, I'm open-minded). Rather, I speculate that will we see more quick, sharp short term moves followed by some choppiness until the next move (similar to much of the price action from the Summer). I expect the VIX will probably have a 3-4 month peaking out period in the 4th Quarter, similar to 1998 and 2002. That means I will probably be playing short swings (1-3 day swings) and intra-day swings for much of the rest of 2008. Hey, why would we want 2008 to change now?.....We’ve only got one quarter left, we might as well finish it out the way we started.....