Market Implodes Early and Comes Back Late

Pre-market futures are down sharply on the news that the U.S. Senate voted to reject a $14b bailout of American Auto-makers. In addition, MER announced that it will be slashing up to 35k jobs over the next three years, which sent additional shivers down the backs of the Financial sector.

Yesterday's late-day sell-off was precipitated by a live CNBC interview with JPM CEO Jamie Dimon in which he stated that business at JPM was horrible in November and terrible in December. The hand-wringing comments tanked the Financial sector - and with it the entire market. The follow-up comments after the close by MER along with the rejection of the auto bailout sent the market futures straight into the toilet. The timing and manner of the release of the "bad news" by JPM and MER is suspicious to say the least when I consider that the Fed is meeting next Monday and Tuesday to determine if it will cut interest rates from 1.00% down to .50% or even .25%, which is mind-boggling to me.....

As far as the auto-makers go, it appears that many traders, politicians, and people view the lack of a bailout as an end-of-the-world scenario in which all life as we know it will cease, the earth will stop spinning on it's axis, and all humanity will be flung like a giant flaming fireball into outer space. I may be one of the few people on the planet that thinks a $14b bailout is nothing compared to the trillions of dollars that have been thrown at nothing the past two months.

The market will implode this morning, auto stocks will implode, and traders, who are human beings with human emotions, will be in a state of panic, fear, and hysteria. It will be interesting to see if the "Fundamental Values" or Beardicat Zone will hold in the next couple of trading days. It would be nice to see if it will hold without government intervention, but I strongly suspect that the Fed/Treasury will make an "announcement" about many more billions of dollars that will be "allocated" to some area of something. In addition, I fully expect Benny and the Feds to fall for any ploys of the Banks to get them to reduce interest rates to almost zero, and perhaps send them a few hundred billion dollars just to soothe the pain.....

7:22 am MT: Well, that didn't take long.....It appears that the government is looking to use TARP funds for auto-makers.....That has pulled the futures back from the abyss a little.....

I don't know why - since trillions of dollars was already being thrown around like Halloween candy - government officials didn't take that route in the first place.....

I'm going to try and make some sense of all of this on the charts, but here's the motto of the day: be nimble, be quick, and watch your intra-day candlesticks.

My best guess is that the SPX is going to gap down to 850 at the open, which opens the door for a move down to 820 if traders don't like what they hear today. I speculate we may get a little wiggle back out of the gate after that news just hit about the TARP funds, but there will be a lot of residual hysteria out there anyway, so anything goes today.....

Here is a Daily chart of the SPX shortly after the open. It's wiggling just as I suspected:
(click on image to enlarge)


Here is a Daily chart of the SPY so you can see the gap:
(click on image to enlarge)


Here is a 5m chart of the SPY showing the wiggle out of the gate back to old support/new resistance:
(click on image to enlarge)

You can see that the market has broken support and is hovering just above another level of support. I suspect the selling isn't over and the SPX could visit the 840 area today, but we shall see.....

7:55 am MT: the market wiggled back early out of the gate. It appears that the auto bailout news may hit an impasse in traders minds. In other words, the news is no longer bad or good since the Senate rejected the bailout but the White House is probably going to use TARP funds to "bail them out." It may be that traders stay fixated on autos like it's actually news, but I suspect that they will start shifting back to the bad news market drivers in the Financial sector that started with JPM, continued with BAC, and may still be coming with Bank XYZ.....

I think the focus will start shifting to the latest degree of nastiness in Financials, and therefore the market. So far, traders are buying the gap this morning. I imagine that a large degree of their hysteria has now been replaced by relief. The best thing that I can say about today is, stay nimble, take only the best signals, and play the intra-day swings. I'm still in the mode of not wanting to hold a full position overnight.

12:00 pm MT: Intra-day Update: The market remains rangebound off the gap with a slight upward drift. It looks like it is trying to bounce again as I type this. If the next bounce on the 10m charts has a lower high then the SPX may leg back down into the 850's. So far, the bulls are holding the channels on the daily charts. I'll show a chart of the DIA intra-day and a chart of the Naz on the daily time frame to demonstrate the price action.

Here is a 10m chart of the DIA showing the current bounce within the rising Broadening Pattern:
(click on image to enlarge)

Here is a Daily chart of the Naz showing the channel support area:
(click on image to enlarge)

The market has had every chance to sell off today and it's not. If the Bears can't take it down in the next hour or so then the Flag pullback consolidation on the daily charts will maintain an orderly behavior that will make it possible to play calls next week on a bounce. If the market rolls over early on the current 10m chart upswing then it may sell down 15pts or so on the SPX and it will need to come back late in the day in order to maintain the Bullish integrity of the channel. Once again, it's been a strange and volatile day in the market.