Bulls Bounce the Market on Huge Volume

The market went slip sliding away yesterday deep into the intermediate term support zone for a fourth time. Last night the Big Chips, INTC and AMAT warned on earnings and took the Naz futures down with them. Everybody is warning these days. Yesterday BBY said this is the worst drop in consumer spending ever, which exacerbated the selling into the close. Today, WMT is issuing downside guidance.

Pre-market futures have settled down a bit from lower levels earlier, but the Naz is still set to open down on the Chips. The easing up may be due to the fact that the Dow and SPX are very close to the bottom of the intermediate term support zone. This is an area to be very cautious with puts. The ideal scenario would be for a "settling day" where the Bulls settle down in a narrow range bar in the 8,200 - 8,300 area and then the market turns tomorrow. Now, I made over 2k "paper" trading puts on the DIA and SPY yesterday, so I can handle the selling, but eventually we all want the market to hold up and not completely implode. A move back above 8,500 would be a warning sign that the Dow may be turning around. A drop below 8,125 and we are probably headed towards the 7,900 - 8,000 area, which I would rather not see, but I can still trade profitably.

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


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

I'm not looking for a huge ramp up out of the gates this morning. In fact, if we wiggle up a bit and lose some steam, the Dow could still roll over and test the 8,150 - 8,200 area. I would be willing to take puts on a clear intra-day rollover, but any move above 8,500 and all bets are off for puts. There may be one more set of put trades on an intra-day swing this morning, but keep a sharp eye out on the support zones. The action on the Naz will probably be more volatile and whippy than on the Dow and SPX. If the last two days were days to keep things nimble, it's even more important to do so today. I've had some nice puts for the past two days, and there may be one more opportunity, but I will be watching things pretty close today. I really don't want to see a break of support, but if that happens then that would represent another put opportunity.

As always, we shall see.....

9:30 am MT: We got the wiggle out of the gate and then the fade back down to the 8,200 area just as I suspected. Then it did it again.....

This is pretty much it, the market needs to draw the line in this area and build a base. If the Dow can at least close with a Doji like it is now, then that raises the chance for a bounce by quite a bit. On the intra-day charts, watch to see if the Bullish Engulfing on the 30m charts holds, we got a Hammer off the same lows. Like I said, this is it. If the market can't build something off the Bullish Engulfing/Hammer on the 30's then it's probably headed down towards 8,000.....

Don't even bother looking for a turnaround on the daily charts until we at least see a bottoming pattern on the 30m or 60m charts.

9:45 am MT: I can tell that traders are tense and swaying at these levels, they want to know if it will hold or not. This is an intra-day tipping point and it's coming to the balance of a hair. Traders don't want the possibility of new closing lows on the year. They probably don't have the stomach for another capitulation day. But what they want doesn't matter. What is - is what is, and trading is about trading what is.

We shall see what happens next.....

1:15 pm MT: The Dow did break below 8,200 and immediately dropped (in about 20 minutes) to the 8,000 area (7,967) as I suspected. I could really see the tension in the price action and that's why I warned in the 9:45 am post. The good news is that the second challenge of the 7,900 area on the Dow was met with solid buying (our volume levels are tracking above average today). The Dow shot off to the 8,500 area, which is my bullish tipping point, (and of course immediately reversed a little).

This is the next battle zone. The Bulls need to hold the Spinning Bottom candlestick at the very least today. If the Dow closes in the 8,500 area then we will get a Hammer or variation of a Hammer. So far, so good for the end of the day and for the bullish intervention today. If we close near or slightly above 8,500 then it makes a confirmation of a bounce much easier to read tomorrow. All we would need to see is a decent move above the 8,550 - 8,575 area tomorrow.

The price action at the end of the day is a good building block, now to see if it holds.....

1:25 pm MT: The Dow blew off the Shooting Star on the 15m charts at 8,500 like it wasn't even there. That's another good sign, which bodes well for a finish in the green today. These low to high moves on the Dow of 200 points in 15m are crazy, but that's our market right now.

1:45 pm MT: The Dow has taken a monster jump all the way past 8,750. The daily candle looks like it will finish with a Hammer/Engulfing combo. The Beardicat Zone has held again. It's really a valuation zone for the Bulls. Down in the 7,900 - 8,000 area on the Dow and the 850 area on the SPX the valuations must be just too cheap to ignore for the Bulls. So the Beardicat Zone is really describing the "Cheap Valuations Zone." If the Dow closes above 8,700 then today is it's own confirmation for the bounce.

1:55 pm MT: The Dow is blowing past an almost pure Bearish Marubozu candle from yesterday. The probability of making a run to 9,000 tomorrow is about 80%. The probability of making a run to the 9,160 resistance over the next 2-3 trading days is about 70% - 75%, and the probability of swing up to 9,600 - 9,800 over the next week is about 65%.

3:45 pm MT: Market Wrap: The SPX is probably going to be easier to read on this next upswing. In my experience, based on the charts and reading the market conditions, the SPX has about a 75% probability of swinging up to 950 over the next couple of trading days. In addition, the SPX has about a 65% chance of swinging up to the 1,000 - 1,010 area. There is a minor support at 893, so a move below 890 could open the way to a drop to 875.

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

Here is what I see coming tomorrow, and it looks like a good opportunity: Remeber that today the market shook off bad news from the "3 E's", which are earnings, employment, and election. The earnings outlooks and therefore the consumer/business spending outlooks from BBY, WMT, INTC, and AMT dropped the market pretty hard yesterday and this morning. In addition, the Weekly Jobless Claims came in at 516k, which was much worse than expected and a seven-year high. The bad news from the past several days piled on top of trader's concerns over the election results and took the SPX to a new multi-year low. However, the Bulls probably took a look at the P/E ratio of the SPX sitting in the 11 point area and figured that the cheap fundamental valuations were just too compelling - no matter that the economic conditions are so squishy. At some point a Big Money Trader is going to look at a stock like GE trading at $15 and figure that the value is just too cheap to pass up. Now, it doesn't mean that things can't implode in the future, but the Big Money Traders decided that today was just too compelling to not take a shot.

Here is the potential setup for tomorrow, and it's based on the trend in Retailers recently: KSS and JWN announced earnings after the close and both are trading down 4% and 6% respectively. Tomorrow morning we get more Retail earnings from ANF and JCP, and I expect more of the same. The trend in Retailers recently (BBY, WMT) has been to chatter about the huge drop in consumer spending and really cast some gloom and end-of-the world type of stuff over the markets. It looks like KSS and JWN are giving us another dose, and it wouldn't surprise me to see ANF and JCP gives us another dose in the morning. That should put the pre-market futures down a little, and perhaps lead to a little intra-day consolidation of the huge end-of-day swing we got today. The best case scenario is a drop into the 8,700 area on the Dow and the 895 -900 area on the SPX before the market ramps up again and possibly takes a shot at 8,950 - 9,100 on the Dow and 930 - 935 on the SPX intra-day. We got Three Soldiers on the Dow and SPX on the 60m charts and it would be nice to see a consolidation off that pattern in the morning. The Retailers may just give us that consolidation. I will look at cherry picking "paper" calls early in the morning.

Remember, anything can happen, but I can see the possibilities forming up for tomorrow. What we don't want to see is a drop below 8,500 on the Dow and a drop below 875 on the SPX. Both indexes will be relevent tomorrow, so I will keep an eye on both.

As always, we shall see what the new day brings.....