Market Rolls Down

Pre-market futures down this morning on a couple of earnings reports. When Retail Sales was announced as better than expected the futures came back a little. In addition, Weekly Jobless Claims, which is the most important number of the day, came out worse than expected. Initially the Bulls acted like it was a mini-party that the Jobs number was only slightly catastrophic (in their minds), but eventually they realized that continuing to lose over 600k jobs a week is going to have a negative effect on their "quick recovery" hopes. As a result, futures faded off again and the market is probably going to gap down at the open.

The price action on yesterday's pause was a Rectangle on the intra-day charts. The gap down at the open will take the market about half-way down the Rectangle, but not through support at 7,850 on the Dow. A drop below 7,830 or so will raise the probability for a leg down to 7,750 intra-day, and open the door for a move to 7,500 eventually.

Here is an intra-day chart of the Dow (15m chart) showing the Rectangle (blue lines):
(click on image to enlarge)

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

A move back above 8,000 on the Dow and the 15m chart Rectangle morphs into a Triple-Bottom and I'm standing back from puts. A move above 8,100 and I'm contemplating calls, even if I don't pull the trigger right away.

If the SPX drops through 820 it has a probability of fading off to 805. The Dow and SPX are not much in synch with each other right now as far as price points go, so I'm tending to favor price points on the Dow and daily chart patterns on the SPX. So the Dow numbers I wrote in the last paragraph are driving my decision more than the SPX. The problem that I have is that KO announced earnings this morning and is up 3% pre-market, which will give the Dow a bigger boost than the overall market.

My short-term bias is still to the downside, and as long as I don't go above 8,100 on the Dow and 850 on the SPX it will remain to the downside. However, a move above 8,000 on the Dow and 840 - 845 on the SPX and I'm pulling way back on puts and re-assessing for whether or not my drop dead areas hold.

Pre-market Update: I just checked the futures and they are continuing to fade off, so it looks like the gap down at the open is going to be closer to the bottom of the intra-day Rectangle. This may be the day that leads to the drop to 7,750 (minimum) on the Dow.

Therefore, I'm still looking for 7,750 (and eventually 7,500) on the Dow as the higher probability scenario, we shall see.....

12:00 pm MT: Intra-day Update: The market gapped and popped a bit this morning (after testing 7,725), which wasn't out of the ordinary for the feisty (?, hopeful?, the market is oversold?, please oh please?) Bulls. I picked off some puts right near the intra-day high test of 7,850 and have been riding them down through the mid-day. So far I'm up about 13% on the puts intra-day.

There's not much to do but let this ride. I'm willing to give the puts a chance since the Dow has entered the void between 7,850 and 7,500. I will probably lock down a little of the puts back in the 7,725 - 7,750 area (if we get there in the next little while), but I'm going to keep some of the puts to see if the ride down continues.

We may get a bullish reaction down in these areas since the market has been very reluctant to stay down in the lowest regions of the Beardicat Zone for very long - hence the profit-taking on a couple of the puts, but I'm still open to the possibility that this ride continues on down to 7,500.

12:17 pm MT: Intra-day Update: The market just bumped up a bit, so the Bulls and Shorts are not going to let this go back down to the lows of the day (if we do see the lows of the day again) until later in the day. It will be interesting to see if the Bulls toss in the towel in the last hour and the market sells into the close. If we don't get a weak close, then I don't want to hold any puts overnight. If we do get a weak close, then I am going to hold about 1/3 of my puts overnight.

12:44 pm MT: Intra-day Update: Looks like that bump was just a goofy little head-fake. The market took a nose dive right afterwards. I'm guessing it was either an amateur Fundy or a nervous Short that caused the bump. Whatever the cause, when the Dow hit 7,730 I locked in part of my put profits for a 15.5% gain (so far). It looks like 7,725 might not hold, so I will sell a little more of my puts on the next leg down. My next intra-day target is 7,675 to take a little more of my profits.

12:53 pm MT: Intra-day Update: 7,725 didn't hold, so down we go.....