Is There A Bailout For Earnings?

Another day, another trillion dollars, ho hum......I guess the government still believes in the Money Fairy in the land of Magic Money Trees. At some point, you would think that most people would get that the money has to come from somewhere, but I guess it doesn't matter until it actually becomes a problem.....kind of like the Real Estate wreck.....and the Financial wreck.....and the Energy crisis.....and the Tech wreck......

Well, anyway, back to the business at hand.....

Yesterday the market finally confirmed a bounce.....and today it's down sharply pre-market.....If ever anyone wondered why I usually don't hold a full position overnight in these conditions.....

QCOM is the main earnings culprit. The company reported earnings and is down 6.5% pre-market. The rest of the major earnings are mixed (LLY, MO, CL, MMM, and F). The SPY took another leg down pre-market when the Durable Orders and Weekly Jobless Claims numbers came in worse than expected.

Yesterday, the Fed said nothing, and did nothing, which was expected. In addition, the Fed also stated that it continues to purchase large quantities of agency debt and mortgage-backed securities in order to prop up the housing market, lower the mortgage rates, and stabilize the banks.....Isn't it great to be a bank.....it doesn't matter how incompetent, greedy, or corrupt a bank may operate and yet the money keeps right on flowing in.....a trillion here, a trillion there.....and the triple awesome bonus is that the Fed can purposely target the mortgage rate, and the banks can freeze the pass-through, run up the mortgage rate when the market is actually running down, and take even more advantage of the bailout. What a life.....isn't it great to be a bank.....And it's even cooler to be a government leader because that's where all that amazing free money comes from.....they just keep throwing it around and all they have to do is go back to the Magic Money Tree and collect more big bushels of the stuff.....What a life.....isn't it great to be a politician.....

7:35 am MT: Early Update: Well, the market gapped back down to the low of yesterday while I was rambling-on above.

7:40 am MT: Early Update: The market confirmed a bounce yesterday with a gap. It's important for the gap to hold in order for the upswing to keep chugging along. A drop below 82 on the DIA (8,200 on the Dow) and it's back to the chop and slop.

Here is an updated chart of the DIA so you can see the gap from yesterday and again today:
(click on image to enlarge)


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

This kind of price action is challenging for a trader, but those of you who have been following me saw me make and take profits on some short-swings yesterday and stand clear to see what might happen today. Well, today is happening down, so I'll watch for the next signal.....either a failure of the gap and support levels, or a bounce back.

It actually wouldn't surprise me if the Dow held the mid-point of the long candle from yesterday and bounced, so this is playable, but I am keeping a tight leash on things today. The selling this morning was deeper than I would have liked for a solid, momentum-driven upswing. The Bulls can still shake this off and take a run at 8,500 by tomorrow, but there is certainly a lot more trepidation today than yesterday. This is really a day to day market, even when it appears that we are in the midst of an upswing.

8:20 am MT: I am going to comment on some risk management for a moment here because I know a lot of you can't always catch everything I say in the webinars.

Market conditions are constantly changing, even from one week to the next. That's the nature of the market. It's extremely important that you, as a speculator, are able to adapt your trading strategy and your risk management to the anticipated current condition. Notice I said anticipated, because none of us ever know what will actually happen until it does actually happen. For the past several months, since things got really violent in the market, I have not bought a full position on the first order, and the vast majority of the time I have not held a full position overnight. Another thing that I have not done for months and months is take full positions on end-of-day entries. If I decide to do anything end of day, it MUST be in solid market conditions, otherwise the risks are simply too great. If I miss the boat on something early to mid day, I usually sit it out until the next day (or at least only take a 10% - 20% sized position, at most, if it's incredibly compelling). Making adjustments to risk management and trading strategies is a more "fluid" application than most traders think. Think of your strategy and risk management as more of a zone, just like support and resistance, and then realize that you will adjust entry and exit techniques, position size, and duration all the time within that zone to account for what you think the current market conditions are, including day to day.

Today, as I mentioned above with the word "trepidation" means that I will adjust even from yesterday. For those of you watching VC yesterday, you could see that I was "paper" trading 3-4 stocks (it ended up being 4 new trades: NUE, IBM, GILD, and DIA). I even mentioned the amount as satisfactory for a stronger day in a choppy overall market. Now, with the new day, I'm dropping back down to 1-2 stocks at most, and that's only if I see a good signal. In addition, I'm already in the mode of catching about a 15m swing (perhaps a 30m or 60m if things really start to shore up intra-day). And finally, I will take about a 1/2 to 2/3 position size from yesterday. So today's market action (greater uncertainty over yesterday's nice move) automatically dials me back to less positions, smaller positions, and shorter positions. See how that works? Always be ready to adapt within your "strategy zone" on any given day. It's actually not that mentally hard at all if you think of your strategy (and accompanying risk management) as a rule zone rather than a rule absolute. Rules should have upper and lower boundaries that you never go beyond, but they can also operate in a zone, and in fact, often operate much better in a zone than as a mechanically precise application. Think of it like driving on the freeway. Our speed limit is 65mph, but if it's snowing then drivers will dial it back to 45mph - 50mph. And if the weather is clear and nice, then running back up to 65mph is entirely appropriate. If every driver on the freeway was absolutely determined and unbending about applying the speed limit rule to it's exactness there would be a lot of wrecks in the snow and fog.....

12:10 pm MT: Intra-day Update: The confirmed market bounce from yesterday is over. It goes in the books as a One-day Wonder. That doesn't mean that the market can't reacquire the upswing, it just means that it will probably happen after a 1-2 day period of consolidation at the very least. The market (SPX) is at a critical area intra-day for whether or not a possible bounce-back can happen in a shorter period of time (1-2 days instead of a drop all the way back to the 800 - 810 area). If the developing Hammer on the 60m charts can hold, and the SPX can hold and push back a bit today, then perhaps an upswing can reacquire itself in 1-2 days. A drop to a lower low on the 60m charts and we are probably headed for a longer period of consolidation before the market decides what to do next - especially with the weekend coming.

Here is an updated 60m chart of the SPX:
(click on image to enlarge)

A bounce back intra-day from here would probably lead to a lower high on the 60's, but it would also open the door for an intermediate term period consolidation on the 60's, which has a better chance of reacquiring the bounce on the daily charts then if the market doesn't hold here..... For the short swing traders, which means me, I would only play a likely confirmed bounce into the close today (and as usual, I would not hold a full position overnight). I would even be ready for puts on a lower high tomorrow. But I will keep every "paper" trade in context of the 60m charts for the next couple of days on this particular formation. It's about knowing when to focus on a certain time frame, and the 60's are my focus for what happens on the daily charts. It will change to some other time frame later, but right now it's the 60's. We shall see.....

12:34 pm MT: Intra-day Update: The 60m Hammer held. This at least gives the Bulls a little bit of a fighting chance into the close.

Here is an updated 60m chart of the SPX:
(click on image to enlarge)

The SPX might bounce back a bit intra-day now. Perhaps a move to the 860 area or so is possible. If that happens, it will be important that the Bulls keep the SPX from making a new low into the close. If the Hammer fails, then the market may be headed to the 840 area and the chance of a 1-2 day "reacquiring" is probably gone. We'll see happens next.....

1:40 pm MT: Intra-day Update: The 60m Hammer failed, so this is headed towards a deeper consolidation on the daily charts. Any weak rallies tomorrow may be opportunities to buy puts. Calls are off the table completely until the Bulls reacquire themselves.