So.....we are about to get a short-term bounce in the markets. The catalyst for the bounce in the capitalist financial system is a socialist takeover of the financial system.....hmmm.....this goes right back to what I said last week. Any bounce we get short-term will not be on improving fundamentals or a pro-capitalistic government decision, it will be mainly because of the short term oversold price action. Traders are looking for an excuse right now, and even a bad excuse will do.....
Obviously I don't think this is the beginning of a new secular Bull Market that will propel us forward the next 27 years into financial bliss. However, I do speculate that the market will "settle" in this area and attempt to bounce short term. The low on Friday could even be an intermediate term low, or long term low.....but any trend we are about to experience has to be taken in the context of the socialization of the financial system, which isn't exactly the kind of catalyst that creates powerful, long-term Bull markets.
This is what I think.....I think fund managers are going to have a real love/hate relationship with the news today (and this week). I think that fund managers are desperate for a positive move in the markets, but I think that even the more inexperienced fund managers are starting to realize that the economy will only get on track if the government either makes competent pro-capitalistic decisions, or it gets out of the way.....and neither scenario seems likely.....So the market will probably bounce today.....and the Fundies really, really, really want a bounce so very, very badly.....therefore, we bounce.....
Here is a chart of the SPX:
(click on image to enlarge)
(click on image to enlarge)
Here is a chart of the SPY:
(click on image to enlarge)
(click on image to enlarge)
You can see the Hammer on the SPX doesn't account for the gap down on Friday, which means that it hasn't synched up with the SPY very well. That leaves me to speculate that the market will either settle a bit before bouncing, or the bounce will be short term only because we haven't seen a climactic type of blowoff day, or a dramatic reversal day. The Prophet chart of the SPY has a couple of price goobers, but the gap is still good data.
The SPX will probably hold and build off the Hammer today (or tomorrow) and attempt to go back and re-test the 805 area. The 740 - 755 area is an important support area, and traders will probably hold the area for now - if for no other reason than because they think it's "supposed" to hold, and not necessarily because the market is so "cheap." Remember, I've talked about a macro-economic paradigm shift (which Bill Gross at Pimco talked at length about). That means the way the market is valuing "cheap" has changed under the new government, which some traders are only just beginning to realize.
Nevertheless, I speculate that the market will hold and bounce on these areas, with a short term bounce, and then after that.....we shall see.....
9:00 am MT: Intra-day Update: And there you have it.....the market is "settling" before a potential bounce.....I wasn't really strong on the Bottle-Rocket Bounce, rather I thought we would settle and turn. The market is "settling" in a potential support "area" right now, we'll see if we get the turn later today or tomorrow.....
10:10 am MT: Intra-day Update: The market is at a critical short-term tipping point. If it doesn't hold the current levels then it could be more like Wednesday before we get any possible short-term bounce. The fade today is another indication that even the most inexperienced fund managers are not buying the rash of "announcements" like the 40% stake in C, or the Bailout Czar that was just appointed. I don't want any unduly strong political comments on the blog, however, it's also important for you too stay informed and in tune with the mood of the market as you make your trading decisions.
10:55 am MT: Intra-day Update: The market just faded through support.....my speculation is this - don't look for this to confirm a bounce today.....
morning Dwight.
ReplyDeleteHope you had an interesting JUry session. Thanks for a great start to the week!
Good trading all.
Francis
Thanks Dwight,
ReplyDeleteLast week I made a little, lost nothing, and enjoyed a sense of calm cool clarity while navigating the market with you.
Here's a good one from Margaret Thatcher when Great Britain's economy went into the tank; "To cure the British disease with Socialism is like trying to cure leukemia with leeches." With your guidance and quotes from the "Iron Lady" all is well!
God Bless!
Belinda
Belinda: It is interesting to watch the market reaction to the "socialization" of the banks. I really speculate that our continued fade since the passage of the Stimulus Bill is because of concerns over the decay of capitalism. The follow-up "announcements" have done nothing to ease fund managers concerns over the direction of the American Economic System.
ReplyDeleteAs I stated on the main page, I want to remain apolitical with the comments, but I also don't want to walk around with a blindfold on. I'm trying to find semi-delicate ways to state that traders are really getting concerned over government decisions, especially in the past 2 weeks.
Thanks Dwight; are you still seeing a settling for today and bounce later or tomorrow?
ReplyDeleteFrancis
Dwight,
ReplyDeleteThanks for the updates. Still happily sitting on D and WHR puts (1 each took too much off to early).
I have been going through a whole bunch of stocks looking for calls and puts.
For calls, I am finding lots of stocks that look like they could turn up at any moment but have not yet. Like you said the market fundamentals are not there and the technical move has not occured.
For puts, I only find things that look really over sold. So, I hesitate to enter. I have found a few stocks that are at resistance like:
FCX HP WMT WFMI.
What do you think?
Thanks
Don
Don: This is exactly why I have been thumping the table for NOT cherry picking calls yet. The market continues to fade. The latest ram down through support (as I type) is an opportunity to start scaling out a little more of the puts, probably sometime in the next 30m or so. But I would leave a little there still (puts).
ReplyDeleteDwight,
ReplyDeleteCould this day be termed loose and wild? It certainly has seemed so!
Laurie: No, not loose and wild, just more fading away. Another gap, another fade to new lows off the gap.
ReplyDeleteThe market may still hold this general area or zone, but over the weekend I was actually looking for more like a Descent Block or Three River Bottom type of pattern rather than a Bottle Rocket off a Hammer. I wasn't sold on the Hammer/Bottle Rocket scenario that others were looking for because of the SPY/SPX discrepancy that I pointed out pre-market. However, I still speculate this general "area" will hold in some sort of a Descent Block or Three River Bottom variant. As always, we shall see.....
Dwight,
ReplyDeleteThanks for the continuous updates and the forest for the trees perspective.
When is it time to look at going stronger into puts? Are we there now in that we are seeing support breaks?
I made money today!
Thanks
Don
Don: The market is too far along with the current downswing to get aggressive with new put positions. There may be intra-day setups for puts tomorrow (for intra-day swings), but don't look to buy puts and ride them for 3-4 days, things are getting pretty crispy to the downside.
ReplyDelete