Market Rollover Consolidates Mid-Day

Pre-market futures are down on a negative earnings warning from WMT, which bodes poorly for retail since WMT is the best positioned retail company during recessions and drawdowns in consumer spending. After this news, I speculate that Retail will probably not be a boost to the Bulls during this upcoming earnings season. Yesterday INTC set the tone for a negative outlook in Tech. Remember, I commented in VC last week that Retail and Semiconductors within Tech were the next best leadership for the upswing after Energy, Coal, and Commodity stocks. So traders are mulling over the very real possibility that Retail and Tech may not be bullish leaders during earnings season, which means the Bulls are getting just a little nervous despite their desperately hopeful, glass is 10% full, any lack of bad news is good news outlook.....

Weekly Jobless Claims came in better than expected, but the worse than expected ADP report yesterday is probably going to keep traders nervous about the big Jobs Report tomorrow. I've warned before about the unreliable connection between the ADP Employment Report and the big Jobs Report, but evidently the ADP folks have recently revamped their survey methodology to drastically reduce the variance between their report and the government report. In the first 11 months of 2008 the ADP numbers missed the government numbers by an average of 154k. But in December they got the variance all the way down to 20k. I don't know if the methodology will hold or not, but that would mean the ADP report is predicting a loss of close to 700k jobs in the government report tomorrow, which is much larger than the expected loss of 500k jobs.

The bottom line is that earnings and employment trends continue to be the worry of the market. Traders will be focusing on the layoff announcements during the earnings reports more than they have in a long time. The market is probably going to hear all kinds of news about mergers, acquisitions, layoffs, and uncertainty in forward guidance this earnings season.

Speaking of acquisitions, SWIM is being acquired by TD Ameritrade.....

Back to the market.....many of you saw me play puts on SPY, DIA, and XLE yesterday. I locked in partial gains of 12% - 17% and kept part of the positions for a possible further move today, which it looks like we are going to get. I also commented in VC about multiple other opportunities for puts. If the market has a full move today, then we could see a drop on SPY (as a market proxy) down to 88, but I think 89 is a more conservative initial target. Either way, the market (SPY) has a good probability of cracking down through 90.

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

The formal stop on puts would be a move above 92.50, but I really don't want to see the market get above 90.75. My first target is the 88 - 89 area, and if the market gets through 88, then the next target is the 85.50 - 86 area.

Remember, their is a very real desperation on the part of Fund Managers to have a good start to 2009. So they will look at any absence of bad news as good news, and they will look at any bad news that isn't dramatically beyond catastrophic as good news. So it's very important to watch the charts and go with the consensus, regardless of the logic behind the move.

7:45 am MT: Intra-day Update: The first little intra-day battle is going on right at 90, just as I speculated from yesterday during VC. You can see that this morning is a continuation gap on the 15m charts of the SPY (yesterday was the breakaway gap on the 15m charts). So the gap needs to hold in order for the morning to get some more selling. If the gap closes, then we could get some consolidation for half the day before the next move. I want to see a drop below 90 right now for a nice early continuation of the rollover. I still speculate that we will have a move down to 89 today, but as always, we shall see.....

7:55 am MT: Intra-day Update: SPY just punched through 90, so off we go.....

12:45 pm MT: Intra-day Update: The market has stayed fairly range-bound today. I spoke about the concept that traders would only take this rollover so far and then they would just sit and hang out and hope for a less than end-of-the-world Jobs Report. Yesterday I thought it was going to be 90 on SPY, this morning I thought is was going to be 89, so I guess it's only fitting that it ended up being in the middle at 89.67. The market is in a Rectangle on the 15m charts, but the desperately bullish Bulls are trying to make a little bit of a push right now. I keep emphasizing the importance of realizing that the Bulls are in mortal anguish to keep the market afloat in the first part of 2009.

Here is an updated 15m chart of SPY:
(click on image to enlarge)

If the Rectangle breaks to the downside, then we might see the 89 target I was speculating on this morning. If the Rectangle breaks to the upside then the Bulls will throw a mini-party and then start hoping (desperately) for a less than catastrophic Employment Report tomorrow. This will be entertaining to watch if nothing else.....

12:57 pm MT: The Bulls keep trying to get through resistance on the 15m Rectangle I just posted, but they can't close the deal. They only have 3 more minutes. This is always hilarious for me to watch because it's all just a goofy emotional game on the part of so many traders. Now they're down to 2 minutes and they still haven't done it.....I won't be surprised if some Fundy comes along and pushes the market through the intra-day resistance. Alright, now we're down to 1 minute.....

1:00 pm MT: Here we go now, I thought some Fundy would come along and try to push it through on the next 15m candle, although I think the push will probably be weak and fail. I'm not a buyer of anything right now, there's too much risk ahead of the Jobs Report, but like I said, it's always entertaining for me to watch the FuFu's get all frantic at some little price point intra-day. I've had enough of this for now, I'll watch and see if the Bears manage to take us back down to the low end of the range into the close.....