Friday Fades Away Another Week

Pre-market futures are down sharply on the news that C is exchanging a bucket load of stock for "preferred" equity. Translated the government is basically loaning C about 25b dollars in a way that will scare people into thinking the government is actually buying 40% of C for 25b dollars. C is down 35% - 50% pre-market on the news of the government bailout/intervention/? Other Banks are down sharply as well.....

In other pre-market news, DELL is up 1.7% after earnings.....see, there was a little good news. Also, KSS is down 5.2% after earnings, and GPS is down 4.4% after earnings.....

Even more pre-market news, preliminary fourth quarter GDP declined 6.2%, which is the largest one quarter contraction since 1982.....

Oh yeah, and North Korea wants to launch a missile.....which comes a couple days after Iran "leaked" the information that they have enough Uranium to build a nuke.....What a coincidence that both those countries are rattling their bombs this week when America's government is so tied up with it's own economic crisis.....

Soooooo, the market is set to open below Monday's lows and continue on down.....The Dow (as of this typing) is looking at about a 7,050 open, and the SPX is set to open at about 740. Now, much could fluctuate between this moment and the open. I would imagine the government has it's all-star lineup set to go, speech in hand, to try to stem the implosion. The Plunge Prevention Program is probably going to be in full force today, and unfortunately, I speculate that what will be said will be wrapped in a pretty bow with beautiful paper, but will be questionable on the inside.

I warned yesterday that the market was probably headed back to the lows, and on VC last night I speculated the Dow had a chance to reach 6,900, perhaps even today. Doesn't sound so far fetched now does it?

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

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

The Dow has a good probability of piercing through the 7,000 level. The media will be prepared or preparing their "shocking" headlines before the market even opens. Government leaders probably prepared their "speeches" last night. And the contrarian Bulls probably prepared their game plan last week.

I explained an if-then scenario for today on VC last night, even though none of this information was out yet this morning. I will explain it again here. If the Dow reaches in to the 6,900's, then the media will unleash a torrent of "shock and awe" headlines (because that's what they do, sell shock). The amateur traders and retail traders will all load up on shorts and puts because they are always "reacting" to the news. Then the "savvy" (or so they imagine themselves) Bulls will load up their buy orders on the "hysteria" in order to buy when the "crowd frenzy" is reaching its climax. And the government will validate the Contrarian Bull's opinion by stepping to the microphone and saying all kinds of things intended to Prevent the Plunge.

I don't know how deep the move will go today, no one can predict the depth of human emotion in the middle of a "crisis." But I would guess that the moment a "6" goes in front of the Dow at the Big Board, the world will get shivers running up and down its spine and the news will go wild. The initial shock that pulses through the market (and the world) will probably take the Dow (and the market) further down for a while before it finally turns around. I don't know what the exact number will be, but it will be a wild, wild ride in the mean time.....

Today will be a very newsy, very intense, and very sharp day. The best case scenario is a gap down, a quick, sharp jab in to the 6,900's, a huge "value buy" from the Contrarian Bulls, and a climactic turnaround in the markets. I hope for that scenario because it would be the one that would most likely hold up the markets and get a nice counter move going back in to the 8,000 area on the Dow, and take us away from the ugly cliff of doom. I don't think the market will start a new, long term bullish run after said climax, but at least it could start a decent intermediate term uptrend for a month or two.

For now, it looks like a very bearish morning, followed by, well.....

I just checked the pre-market futures and the 7,050 Dow and 740 SPX opens are still on the table.....

WE SHALL SEE.....

7:35 am MT: Intra-day Update: The market gapped down sharply as the futures indicated. The first wiggle is happening right now. Some time in the next little while, especially if the market can wiggle back for about 15m - 30m, then I expect another sharp leg down. After the sharp leg down, and if it takes the Dow (market) in to the 6,000's somewhere, then I expect the probability of the if-then scenarios I wrote about.

7:38 am MT: Intra-day Update: No more wiggle, the leg down just hit.

7:41 am MT: Intra-day Update: The next leg down is happening right now. Playing puts is challenging because you basically have to hop on board a speeding train. If the train keeps speeding, take only small positions because of the "oversold" intra-day risk. Any counter moves in the next hour are also put buying opportunities, but also the same story, watch your intra-day oversold risk a bit unless you get a nice clean signal. The best case scenario for a put will be a nice Bear Flag on the 10m or 15m charts, but remember, you might not ride the put for more than a few hours.

7:43 am MT: Intra-day Update: Here is the beginning of the first wiggle. We'll see if it leads to a little counter move, and an intra-day Bear Flag.

7:46 am MT: Intra-day Update: The counter move is building a bit, watch for the 7,100 area on the Dow and the 740 - 742 area on the SPX for potential put opportunities on a rollover if this forms well.

I'm going to stop typing for a while and watch all of this. I've laid out scenarios the best I can for you today. Keep a sharp eye on the price action this morning, this is already a volatile day.

12:55 pm MT: Intra-day Update: The price action today is the worst case scenario for the Bulls. If the market had just blown this whole thing out in a big climax we might have seen a bounce. But to push back into the gap and then just ooze along the gap puts the whole last hour at risk. The problem with the price construction is that if we finish the day near the lows, then there is a good probability the market continues to fade early next week rather than build off a bounce.

I hope I'm wrong, I like puts as much as the next trader, but I don't want the market to go completely in the toilet to satisfy my desire for making money on the way down.....

With the current intra-day price construction, the last hour is at risk for a fade into the weekend. We shall see.....

1:10 pm MT: Intra-day Update: The next three 5m candles after I typed the last entry were all down, and the 60m candle has rolled over on the gap, just as I speculated. I hope this can come back before the close, but I think the market is carrying too much "uncertainty" fear heading into the weekend. So 45m to go, 45m to keep things from going ugly and heading into next week with a greater probability of more selling.....

1:18 pm MT: Intra-day Update: Add a fourth big red 5m candle to the list.....

1:49 pm MT: Intra-day Update: Looks like a Hot Potato close, some Shorts look like they just covered right after some Longs look like they just dumped. This could be one of those crunch and chop closes where everyone tosses the hot potato back and forth.

1:57 pm MT: Intra-day Update: The hot potato just got tossed the other way.....

2:00 pm MT: Market Wrap: Unfortunately I was correct, the market was at risk for a last hour fade, which dropped price action on the major indices to near the lows of the day. It also leaves the Dow vulnerable to a drop into the 6,900's on Monday (the Dow was only 34 points away from having a 6 in front of it today).

If you look at the chart of the DIA, you will see that last Friday's gap and price action was almost identical to today's gap and price action. The market is still in a sour, shaky mood, and now Monday carries more selling risk than it would have if this had all blown off today. The last thing I want to see is a continued, systematic bleed out on the markets. But that's exactly what's happening, with no fundamental end in sight, and because of today's price action, no technical end in sight, at least for early next week.

Another week, another fade. Another day, another financial sector scare. And the worst part of it all right now is the lack of leadership.....Hopefully that corrects soon.....It had better correct soon.....