The Spa is Still Open but the Masseuse is Getting Tired

Pre-market futures are up strongly on the combination of Ben Bernanke's comments that the recession "will end soon" and Barclays Bank of the U.K. echoing the U.S. banks with a "we had a strong start to 2009 too" statement. The news chatter is drowning out the report of the worst contraction in the N.Y. Manufacturing Index ever as sales and inventories dropped the index to -38.2 vs. the -32.0 expected. The bad N.Y. number will put the Industrial Production/Capacity Utilization report, due out 15m before the open, at more risk for a downside surprise.

Barring a horrific Industrial Production/Capacity Utilization report, traders have definitely switched gears mentally as of the News Bogey Gauntlet started last Tuesday with Citigroup. The run of Banks/Financials news went like this: C Tuesday, JPM Wednesday, Congress Thursday, BAC Friday, Barclays and the Government Monday. As I stated in the comments for Friday, the market has gone through a "seed change" again. Traders now are viewing the banks as "innocent until proven guilty" whereas they viewed the fundamentals in banks and financials as "guilty until proven innocent" the week before. For now, traders are drinking the Banks/Government Kool-Aid.

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

There is a hard resistance right about 770, which is almost exactly where the market is set to gap this morning (again, barring a catastrophic Industrial Production/Capacity Utilizatio report). If the economic report is wonderful, then the market may overshoot to the top end of the resistance zone. Either way, watch carefully for resistance in the 770 - 780 area this morning. If the economic report comes out fairly benign, then it won't surprise me to see a gap, pop, and fade again. The Bulls may decide to hang around today because they want to see if GS can give the Financial News Gauntlet another boost tomorrow morning with their earnings report. Watch any call trades this morning because the probability is running pretty high that the market is in the last stages of this upswing, so keeps stops tight and stay nimble.

7:23 am MT: Pre-Market Update: The Industrial Production number missed -1.4% vs. -1.3% expected. The Capacity Utilization number was roughly in-line at 70.9% vs. 71.0% expected, however the 70.9% is the worst number on record, which is dousing the Bulls a little. Pre-market futures dropped a little bit on the report, but not enough to change the gap, pop, and fade I'm expecting. We may see a gap and wiggle first though, similar to Friday. Again, use the surge this morning to exit any remaining calls and then watch price action carefully to see if the upswing has another leg. I still speculate the market is coming to the tail end of this upswing.

9:05 am MT: Intra-day Update: The gap and pop are probably mostly done.....The Naz is already rolling over. Market internals are still showing the possibility of one more push on the SPX, but any leg up is probably going to gas out fairly quickly and not carry into the end of the day. The Ascending Triangle on the 5m charts of the SPX is trying to break a little to the upside, but it may not go more than one leg and then be done. We shall see.....

9:35 am MT: Intra-day Update: There's the push the internals were forecasting. The SPX hit 770 right on the nose. We'll see if this is the end of the upswing, or at least the area of the end of the upswing.

9:50 am MT: Intra-day Update: One note here about any rollover. Don't expect a sharp sell-off. The seed change in the market means that the swing could battle around a top for awhile before it consolidates. Rather than a smooth roll-down, look for some battling and fussing as the Shorts cover a bit, even on pullbacks. I may look at a few puts today, but I'm not going to be very aggressive until it looks like the market is really ready to roll back down. And even then, remember, the roll-down may stop at a higher low, so as always, stay nimble. The first stage of a topping area on the upswing may be signaled by a roll-over in the $UVOL-$DVOL, so right now is a good time to pay attention to that internal.

10:45 am MT: Intra-day Update: The UVOL-DVOL is still ramping, which is an indication of what I warned an hour ago - that the market won't just hit the spot and roll over hard. There is still too much freneticism, even in the top end of the swing, and traders continue to pour the money (volume) into stocks. It's even possible that the SPX overshoots to 780 with this type of frantic buying. So don't get aggressive with the puts just yet, I keep warning to watch the UVOL-DVOL, and that's been dead on accurate so far today.

1:15 pm MT: Intra-day Update: Did you see the 3 (Red) Crows on the UVOL-DVOL 30m ago? If you did, then you saw what I was pointing you towards all day long. The down volume just carried through again as I type this, so a Shooting Star is starting to form on the daily price chart of the SPX. Now, this topping area may still fuss around a bit because of the freneticism on the part of traders, but the market is less likely to make any new highs today.

Oh, and I did nibble on some Q's (paper) puts when I saw it form.

1:22 pm MT: Intra-day Update: Look at the down volume now, the monkey rang the bell.....

1:37 pm MT: Intra-day Update: There are lots of stocks to choose puts from, but be aware that just because there is an abundance doesn't mean you have to load up right before the close. You may only want to nibble a bit and then see if the roll-over continues tomorrow, at which point you can get some more short swing puts. Also remember the consolidation may not go all the way back down, in fact, I speculate that it may only retrace 50% of the upswing at the most.

2:20 pm MT: Market Wrap: This is a quick wrap. The SPX threw a Shooting Star right into the middle of the resistance zone I drew out for you pre-market. I locked some of my Q's puts for a nice 8.5% gain in a few hours. I'll be looking at puts again tomorrow, and just like today, I will be looking intra-day.

Don't lose sight of the fact that traders are feeling the flutters again, just like their first date long ago, they are nervous and excited about their one true love all over.....stocks look good again? It's probably the epinephrine, but hey, love is love, and the Bulls are in love again.....the best case scenario is this could turn out to be a long term marriage.....the worst case scenario is the blind date is in violation of probation.....