Financials Bounce the Market

Citigroup announced a profit for the first two months of 2009.....which has the Shorts on the run this morning. Just the short-covering alone today will probably give the market a short term technical bounce.

That is the news.....Citigroup was profitable.....

Now, whether or not C is actually stabilizing, and whether or not the profits are real doesn't matter. What matters is that the Shorts will knee-jerk into covering, and a technical bounce could form starting today. The news might even be enough to pull some Bargain Basement Bulls into the market. So I won't be surprised by a higher volume confirmed bounce type of signal today. For now, it looks like the SPX Fibonacci retracement will hold rather than the lower Dow Fibonacci retracement. The macro fundamentals haven't changed, but just the thought of stability will probably be enough to bottle-rocket the market short term, perhaps for several days or even a few weeks. This market is crispy fried enough right now that a technical bounce just needed a spark in the brush, which it may have gotten this morning.

The key, as has been the norm recently, is how the market handles the first fade period. Traders need to hold the gap or the market is at risk for another Chop Day.

Here is a current chart of the SPX (7:40 am MT):
(click on image to enlarge)

You can see that the 695-700 area is the first test point intra-day. The market gapped and popped to the first resistance zone almost immediately out of the gate. A break above the 700 area clears the way for the technical bounce, but the market has to treat the gap with dignity or all bets get shakey. I would really prefer that traders hold the 685 area at worst on any type of early morning wiggle, and holding 690 would be even better. A drop below 685 really reduces the momentum of the news this morning, which doesn't kill the bounce, but takes a lot of the fun out of it.....a drop below 672 would kill the bounce.

7:50 am MT: Intra-day Update: This is the first wiggle test moment. Both price (SPX 700) and time (first wave is done) are lining up for a little pullback here. And that's what I want to see in order for a technical bounce to take hold, just a little pullback, not a big gap and fade like we have had so often recently.

Here is the 5m chart of the SPX showing the first potential intra-day wiggle point:
(click on image to enlarge)

The Shorts are really getting twitchy, because they just thrust the market a little more into the low 700's. This is actually a good sign, it means that the Shorts could potentially be a support to any intra-day pullbacks. Twitchy, freaked out Shorts always help the Bulls in the short-term. They may not do anything for the long run, but they should create more probability for a technical bounce today, especially if they can stay twitchy through the morning and mid-day.

8:00 am MT: Intra-day Update: The last twitch for the first wave is over, here is the first intra-day pullback, we'll see how it goes.....

8:53 am MT: Intra-day Update: The market pulled back ever so briefly before ramping again. The Shorts continue to be twitchy like a frog in a blender. This second thrust doesn't mean the market will make another huge run, it probably means that the Shorts will continue to cover on any pullbacks for the morning. At this point, I would like to see 695-700 hold on any deep pullbacks, and my drop dead line is 686. I speculate that we won't see any really deep pullbacks for a little while though, at least not until the Shorts exhaust themselves and have to run and grab some more Pepto. After the Shorts exhaust themselves, then it will be time to see if the Bulls will step in and support the market on their turn, which will get the Shorts all riled up again and give the market a chance for a strong close.

8:58 am MT: Intra-day Update: There's the pullback off the exhaust thrust. The market is likely to consolidate this area for a bit, perhaps in a Rectangle or Channel.

Here is a 5m chart of the SPX showing the start of a little consolidation:
(click on image to enlarge)

We'll see if the upper zones of the move this morning will hold and the market can build a bit of a momentum day into the close.

9:22 am MT: Intra-day Update: Looks like a Rectangle so far, which is what I speculated earlier.

Here is a 5m chart of the SPX:
(click on image to enlarge)

If the SPX (market) falls out of the bottom of the zone, I want to see it hold the 695-700 area in order for the market have a better chance at a strong day.

9:29 am MT: Intra-day Update: The SPX just broke out above the top side of the Rectangle, but I speculate that this is the Shorts freaking out again and the market could come back in to the consolidation.

9:40 am MT: Intra-day Update: The market did come back into the consolidation, so the bump was just some Shorts freneticism as I speculated. So the same thing goes as before, the market is consolidating a bit intra-day, and we'll see how it goes.

10:55 am MT: Intra-day Update: That was a nice breakout of the Rectangle an hour ago, which really increases the probability that today finishes as a technical bounce. This is turning into a momentum day, which means it's less likely to drop back below 700.

11:14 am MT: Intra-day Update: This looks like the third leg up on the 15m charts, we'll see if the market is starting to get a little tired or if it reaches for a higher high. The 725 area would be the furthest I would speculate the market is able to reach today, whether now or later in the day.

11:58 am MT: Intra-day Update: The third leg on the 15's is done. I mentioned in the comments to take some profits on a test back to the highs of the day, which is playing out right now. Taking some profits on the test a few minutes ago was the right thing to do.

12:05 pm MT: Intra-day Update: I think the market is going to form the rest of a Rounding Top on the 5m or 10m charts in the next hour, but I think that a collapse down the right side will just be a head fake. I think it will hold after a jab down attempt, which will cause the Shorts to get a little messy in the pants and bump things back into the close. We'll see how it goes from here, but so far, it looks like the technical bounce is still safe.

12:15 pm MT: Intra-day Update: It looks like a big part of the move today is in Financials and Energy, with some Tech behind those two areas. This is just the kind of speculative buying and short covering that you would expect in an oversold market that hasn't really changed fundamentally. Now it's a matter of seeing if there will be a couple more opportunities over the next several days - if the bounce will continue through the rest of the week.

12:32 pm MT: Intra-day Update: A lower high on the 5m charts of the SPX right now would add more probability to the Rounding concept I speculated about a few minutes ago. However, I still think any jab down will hold and not sell off into the close, but as always, we shall see.....

4:50 pm MT: Market Wrap: This is a quick wrap: It looks like the Rounding Top scenario played out just as I speculated earlier. The 5m candle at 12:45 pm MT was the jab down that looked like the confirmation of a Rounding Pattern - which I speculated would come right back. As per the speculation, the jab down was a head fake and the market shot right back up, and as per the speculation, the Shorts got messy pants over the price action and the market ran up right into the close. So the day played out as outlined. Today was a technical bounce that may lead to another couple of days of an upswing.