Financial Massaging Continues

Pre-market futures are up this morning after "encouraging" comments from Bank of America's CEO Ken Lewis. Lewis said that BAC was profitable in January and February. Last night in VC I talked about the "coincidence" (wink wink) that Citigroup announced profitability in January/February on Tuesday, which led to a big up day.....then Jamie Dimon, CEO of JPM announced virtually the same thing on Wednesday, which again led to another up day in the market.....then an "accounting board" told "Congress" that it would recommend an easing in the way banks "account for bad assets" on Thursday (which, by the way, is about as opposite a policy as you can get from what most of the politicians "ran on" in order to get voted in), which led to another big up day in the market.....And then lo and behold, out of nowhere, who could have seen this news bogey coming, it's a total shock, we never wudda known?!!?.....Ken Lewis says BAC had it's most profitable two-month stretch since 2007.....

Well, those of you who were in VC last night were actually expecting this today. It wasn't a matter of if the government/banks wanted to get into the weekend with a last positive news bogey, it was a matter of when they would bogart the market, and how they were going to do it.....

The only problem with the way Lewis did this was that it was too early in the day (pre-market) and now the market is at risk for a gap and fade (Lewis just doesn't know how to play this game right, he needs to take lessons from Dimon who actually waits for the market to be open for a few hours and then gets himself on CNBC to really nail the news bogey). I suspect that if the market starts fading too much after the gap (profit-taking on the biggest four-day upswing since November) that the government/banks will roll their eyes and think "Lewis you #*%@#*, you're supposed to wait until after the market is open before you bogart it, then it runs all the way into the close you *@^##<*#@* amateur!!!"....and then we'll get some kind of "insurance" news bogey in order to close the deal. Last night in VC I talked about the four-day rhythm that I was expecting, which was Flash Bang, Flash Bang. In other words, I was looking for another candle similar to Wednesday, but just a little stronger (close to what the March 4 candle on the SPX looks like). So I was looking for a move up to 770 - 775 on the SPX (market) and then some Friday afternoon profit-taking, and then the last of the "messy pants" Shorts to cover a bit and run the close back up to around 760, which would create a positive day with a bit of an upper shadow. Now, thanks to premature news bogarting, it looks like a gap, pop, and fade, which would form a candle more similar to Wednesday's Spinning Top. I still speculate that the government/banks will try to prop things into the weekend after this whole parade of "coincidental" news Tueday-Friday, they have worked too hard to allow a big fade into the weekend, which would put a damper on their Plunge Prevention Program campaign. So I still speculate that the four-day rhythm will be Flash Bang, Flash Bang, I just think it might be a little bit more of a small body Candle because of the gap this morning (although the gap won't show on the SPX charts anyway, so it could show a larger real body on the candle - the thing is that you have to account for the gap, even if it doesn't show on the SPX - use the SPY to see how the gap forms).

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

The push this morning may go as far as the 760 - 765 area, and the high of the day (later on) might reach into the 770's, but I would be cautious for profit-taking both after the gap this morning and in the last 90m - 120m of the day. I still think the Shorts will keep things from selling off too much into the close, especially with all the "good news" coming from the banks, it will have them too concerned about being short over the weekend. So as always, we'll see what the new day brings. The price action today may not be as easy to play as yesterday, and it may be a bit more volatile than the past three days, but it may offer some opportunities, and it will at least be fun to watch the gyrations of the government and banks.....or the government banks.....or.....whatever.....

10:05 pm MT: Intra-day Update: The first stage of the type of day I was anticipating is in the books. I was looking for a gap, pop, and fade early in the day, which is exactly what we got. Now it's a matter of watching to see if we get another round of short-covering that runs the market back up again before another round of profit-taking hits.....

11:13 pm MT: Intra-day Update: The second stage of the type of day I was anticipating is running right now. The Shorts/Bargain Bulls are pushing the market back towards the highs of the day. We'll see how far stage 2 goes.....

Here is a 10m chart of the SPY showing the gap, pop, and fade in green circle highlights, and then the push back up by the Shorts/Bargain Bulls in a light blue highlight:
(click on image to enlarge)

From here, I expect some more pushing and basing, and then some profit-taking later in the day, followed by a last ditch "messy pants" short-covering into the close. The Hot Potato close will probably leave the Bang Day today (Flash Bang, Flash Bang) with a smallish real body. We shall see what happens next.....

12:17 pm MT: Intra-day Update: Here is another round of profit-taking starting inside the 2 hours to close mark. We'll see if this is a mini-round or if it pushes back towards the lows of the day. This is likely the third stage I was looking for, so we shall see.....

1:37 pm MT: Intra-day Update: This is probably a bigger round of profit-taking just getting ready to start, at least for a few minutes. We'll see if the Shorts/Bargain Bulls can hold the profit-taking from getting too large. If the market drops a little here and then pops again before the close, and basically finishes similar to where it's at now, then the Bang candle will be almost identical to what I described before the open.

2:15: pm MT: Market Wrap: This is a quick wrap. The first 2/3 of the day went exactly as I speculated, a gap, pop, and fade followed by some short-covering/bargain buying. The last 1/3 of the day was a little variant from what I was looking for, but it was close enough, and the day finished just as I speculated. Before the open I said that I would be looking for a Bang candle that was "similar to Wednesday." If you look at today's range and candle, it's very similar to Wednesday in price action. So the Flash Bang, Flash Bang that I warned was likely to play out - did play out almost exactly as outlined. The only thing slightly unusual was the last 1/3 of the day. I was expecting a bit of a hot potato in a rolling price action where the profit-takers rolled things down for 30m - 60m, and the shorts/bargain buyers rolled things back up for 30m - 60m. Instead, their activity was a little more compressed, with the downswings lasting 10m - 15m and the upswings lasting about 60m. What it tells me is that there were still enough Fundies hanging around and getting a little more intense about the end of the day/week/upswing then I would have expected. Then again, a lot of these Fundies don't know how to trade anyway, so I suppose their fixation on the last thrust of the upswing shouldn't have been all that surprising.....

The net net on the day was that price action did follow the rhythm I was looking for, a Flash Bang, Flash Bang. I speculate that early next week we will see some consolidation off this move, which really isn't all that much of a stretch to predict.....I would imagine that a lot of us are thinking the same thing about now.....