Market Goes Thump

Pre-market futures are down sharply without any news from the market calendar. Instead, traders are worried about the continued crunch in the European economy, along with fears of more government intervention in the banks. Speaking of government intervention, the White House determined what's working and not working in the auto industry based on their knowledge and expertise and ousted (asked to leave) GM's CEO Rick Wagoner. Oh, and Treasury Sectretary Geithner said there's only about $135b left in the "financial-stability fund" (is it just me or are there new names for everything about every other week?).

The market is set to gap down, with the SPX essentially opening right around 800. Look for a test of 790 eventually, also look for a potential "seed" change in the market today amongst fund managers, and also look for a news bogey or two from the Plunge Prevention Program. We may not get the news bogey today, but if it's a sharp down day, then we'll probably get it by tomorrow.

My sense is that news bogeys will have some effect, but if/when sellers overwhelm the googly-eyes every time they try to buy, then even the googley-eyes will figure it out and the news bogeys will have limited effect for awhile (just like late February).

The gap down this morning is a short-term breakaway gap that has the look of reversing the upswing/uptrend (chugger). I speculate that 790 won't hold this week, and that we will see 770.

I think there will still be enough googley-eyes that the market will have a little bullish Earnings Season run, especially if other fund managers just smile and go along for the ride. So I think that 750 on the SPX is the furthest target to the downside ahead of Earnings Season. If the SPX does make a round trip, I don't think that the market will test those early March lows until after Earnings Season gives it more data.

7:31 am MT: Here is a daily chart of the SPX:
(click on image to enlarge)

You can see that traders are wasting little time as they sell this market towards 790. If you didn't hop the train right out of the gate, then wait for the first counter move on the 5m charts. Remember to look for good setups intra-day after this initial thrust because it will probably be a pretty volatile day.

7:36 am MT: Here is a 2hr chart of the SPX:
(click on image to enlarge)

It's not hard to imagine a lower low on the 2hr charts (breach of 790). The next low is around 767 - 770, and then next one below that is 750. A change in trend on the 2hr charts will probably begin today. We'll see how much this does or doesn't hold up ahead of Earnings Season. But for now, puts are the flavor of the day.

9:08 am MT: The first intra-day Bear Flag came and went on the 10m charts. The second wiggle is fading as I type.

9:09 am MT: Here is a 10m chart of the SPY showing the first Bear Flag:
(click on image to enlarge)

9:12 am MT: The next signal will probably come from the 15m or 30m charts. The market could have a trend day to the downside intra-day, but there may still be more put opportunities if price can push back towards the gap around 79.80 or so. The first turn back to test the gap may be happening right now.

9:15 am MT: If the SPY (SPX) can close above 79.10 on the 10m charts right now then expect a gap test and another put opportunity. If the SPY tests back in the 79.50 - 80.00 area in the next little while, then rolls over, there will probably be another put opportunity. If you're already in puts, you might as well keep at least half of them right now and just see how far this will ride down today. This is the first intra-day support test (although it overshot - but that's not all surprising given that savvy traders were expecting the market to drop early this week).

9:21 am MT: This is the second Bear Flag forming on the 10m charts. Go back and forth between the 10m and 15m charts now for the next roll-over signal.

9:24 am MT: Here is a 15m chart of the SPY showing the second Bear Flag:
(click on image to enlarge)

This looks like a roll-over candidate as well.....

10:09 am MT: The SPY is right at the gap from March 23rd. You may want to be out of most of the first wave of puts, but keep some. Switch to the 30m charts and look for a Bear Flag as a potential 3rd entry signal for the day. Lots of momentum to the downside, but if we get a little bit larger wiggle on the day, it should come right here. A Bear Flag on the 30m charts becomes the next good entry for puts today. Don't look for more than 2-3 candles in the Bear Flag. We'll see how the next intra-day pattern forms.....

10:42 am MT: The Bear Flag is forming nicely on the SPY 30m charts. This is the first cherry pick area. If it goes as far as the low 79's, that becomes another cherry pick area.

10:45 am MT: There is a Bull Flag on the 5m charts, so the SPY (market) may pop to the upside a little more before it (potentially) rolls over later on.

10:55 am MT: Swap over to the SPY 10m charts for the potential Bull Flag. If you cherry picked a put a few minutes ago, at least you are positioned in case the market takes another leg down. If the market pops to the upside, then look for the 79.25 - 79.50 area to add another put.

11:25 am MT: The market legged down to the lows and held. Switching back to the SPX, look at the Double-Bottom on the 15m charts. If the SPX can pop through the 791-792 intra-day resistance, then it might make a run to the 795 area. If the SPX rolls over on the 15m charts in the 788 - 790 area, then the pattern morphs into a Descending Triangle and the selling probably continues below the lows of the day. This is why you cherry pick a put and at least have it there in case the selling continues. And you keep some of your powder dry in case we rally a little before rolling back over in the last 90 minutes or so. Once you have the big intra-day drop early in the day, it sometimes takes a little finessing and maneuvering to get the next good entry. That's trading for you.

11:37 am MT: A Descending Triangle it is. We'll see if the market hits new lows on the day.

12:33 pm MT: The market did hit new lows. Fund managers are in a mild state of panic trying to sell enough ahead of each other in order to report the best first quarter results as possible. The market will probably continue to chug down, and the Shorts have very little incentive to cover today or tomorrow knowing the Longs are having an end-of-quarter messy pants day.

6:30 pm MT: Market Wrap: Traders had a negative reaction to the government interventions in both Europe and America. But the news was more of a spark that lit the competitive fires of fund managers as they tried to be the first to lock profits on the big March rally. Selling volume wasn't very high, but then again, the speculative game the past several weeks was a lot of hot money anyway. So many fundies were playing hot money in, hot money out, lock and walk ahead of the end of the quarter (tomorrow), and then try to report a less than miserable quarter to their clients. That means there may be a little more selling tomorrow if enough Hot Money is worried that their quarter returns will flutter away like a wounded ostrich (I was thinking sparrow, but an ostrich is more gangly and representative of their buying and selling habits recently.....and see how restrained I was to not mention something about heads in the sand?.....).

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

Realistically, the 766 - 770 area is probably the furthest I would look tomorrow - barring a news catastrophe - although a mini-panic to end the quarter for the reasons stated above is not completely out of the question. I would speculate, though, that the most likely scenario is a drop and settling into the 766 - 770 support area. 770 is the 38.2% (1/3) retracement of the upswing/uptrend, and 766 is the previous low. And if I can see it, then about a jillion hedgies can see it as well.....

It's possible the market could test the 741 - 750 support zone, but I think that will only happen if we get a nasty Manufacturing Report (ISM) on Wednesday. It's possible the ADP Employment Report could create some pushing and shoving on Wednesday as well. The way this is lining up, barring a news bogey, is 767 - 770 tomorrow, and then if we get nasty news on Wednesday, then 741 - 750.

I will refer to these numbers and this chart tomorrow morning, especially if we don't get a "good news" bogey.