CSCO Continues the Rollover

Pre-market futures are down sharply, especially on the Naz, due to earnings news from CSCO. The big tech company announced the first revenue decline in 5 years and is trading down over .80 cents pre-market. TM also announced disappointing earnings. Both CSCO and TM were companies that were outperforming in their industries, so the earnings announcements are bringing some selling in the markets. Traders should get used to the idea that the recessionary conditions will eventually reach through to most companies to one extent or another, but for now they're acting a little surprised.

The selling this morning follows through on the rollover from yesterday's post election-day selling. The Dow will probably reach down into the 9,000 area on the first initial thrust this morning. At that point I will watch for a little wiggle. So we may get a gap, run, and pop. If we do, then I will probably be viewing any wiggle back or intra-day upswing as another put buying opportunity. Any wiggle early in the day is a put buying opportunity to me. If the wiggle comes right out of the gate, and we don't go much above the gap or the 1/3 point of yesterday's candle on the Dow before rolling over intra-day, then I will view that as a supreme put buying opportunity. I will be selling most of the puts that I entered yesterday into the gap this morning and then getting ready to re-load if the opportunity presents itself.

The down swing that confirmed yesterday could have legs for another 1-2 days, especially if the Employment Report tomorrow morning comes out worse than expected. However, I won't be surprised if traders are pricing in "catastrophic" numbers both yesterday and today. This whole rollover appears to be driven partly by employment trends, partly by earnings, and partly by election results, or the 3 E's as I like to call them, which should not to be confused with the 3 Amigos who had a singing bush to guide them through perilous times.....

As always, we shall see.....

11:30 am MT: The market decided on door number 2 that I described above as a "supreme put buying opportunity." The market wiggled right out of the gate and the DIA went right to the other side of the gap before throwing a Doji on the 5m charts. It was a beautiful thing. There was a second nice opportunity for puts on the next Bear Flag on the 5m charts about 30m later.

Right now I am watching the Dow in the 8,700 area at the mid-point of the long candle on October 28. At this point I can see the possibility of a counter move back to test the 8,900 - 9,000 area intra-day. It's possible that we get all the way to 8,600, which is the far end of the 8,600 - 8,800 support zone, but you would want to be very nimble right here if you were trying to squeeze out what was potentially the last dollar in the DIA on this current intra-day downswing.

This is the next test of the intermediate term bottoming process. The price action is suggesting just what I posted above: the market is pricing in "catastrophic" for the Employment Report tomorrow, traders are also concerned about the recessionary conditions catching up to even the strongest of companies (CSCO), and the market is concerned about what the election results will mean to the capital markets next year. Time will tell what policies are proposed, and whether they are pro-capitalism or anti-capitalism. I talked about the most important of the policies in the first quarter next year in the Open House Spotlight (the last 10 minutes), which is the Energy Policy of the new government. Other policies will be important as well, but the one that will have the biggest impact right away is dealing with the potential for rising energy prices if the market takes a bullish leg up next year. If we get a bullish turnaround in the economy, but energy prices rise too quickly on worldwide demand and a lack of sufficient supply, then the rise in energy prices (inflation) will put a cap on the bullish economy. That has the potential for moving us towards the dreaded "s" word, stagflation, where the economy contracts but inflation rises on supply constraints.

As for the Employment Report tomorrow morning, we will need to see a pretty big miss at this point to further implode the market, because we are pricing in a pretty bad report right now.....

12:00 pm MT: Just a quick follow-up to the above post. The market is trying to bounce just as a wrote about 30m ago. Watch for a test in the 8,900 area. We may undershoot or overshoot, but this could be the counter move on the 60m charts. We shall see.....