And Another Day Another Gap

That makes 23 out of the last 25 trading days.....that's not very many.....

The market gaps a little just about every day, but gaps of around .75% - 1.00% or greater on the market are more significant, and the majority of the time lead to moves in the direction of the gap. Not all gaps are breakaway or continuation gaps (which continue in the direction of the trend), some are exhaustion gaps, which reverse the trend. The only gaps that aren't significant are common gaps, and they are usually around .25% - .50% or so on the market (a little different for stocks depending on volatility). The market rarely opens exactly where it closes, but it usually opens in the relative vicinity of the close, unless of course there is news.....so an extremely gappy market is indicative of an extremely newsy market.....

To put that in perspective, the SPY (market) will gap .10 cents - .30 cents all the time, in fact, it rarely doesn't. But what it also doesnt' do is gap .50 cents - 1.00 dollar all the time. If you go back and count gaps of around .50 cents or higher, you will see 23 out of the past 25 trading days we have had somewhat significant to significant gaps. It's not just absurd, it's way beyond absurd. And it's indicative of an extremely newsy market. A market that is not only getting its share of meaningful news, but a whole bunch of "manufactured" news manipulation on top of it. You cannot have 23 gaps in 25 days without a bunch of news hokey pokey going on.

I could keep talking about this, but let me just give you give you a visual, because after all, a picture is worth a thousand words (or maybe it's been a thousand news bogeys.....).

Here is a chart of the SPY for the past month or so:
(click on image to enlarge)

I'm pretty sure that's not an actual chart of the market. I think I'm looking at a picture of the huge asteroid shower Han Solo had to fly through in the Millenium Falcon before almost being eaten by a giant space worm.....

Just like Han Solo had to stay on his toes (or handles or whatever) and be extremely nimble in order to avoid getting pulverized by a massive asteroid, we have to stay nimble in order to navigate our way through this newsy, gappy, messy, manipulated market.

The market driving news du jour is the banks again (surprise). And it's a continuation of the Geithner theme (they have capital.....no they don't.....yes they do.....no, just kidding......yes......no......yes! I'll test them and show you.....oh, wait a minute, I guess they don't......but it's my job to artificially prop up the stock market so the government doesn't look bad so just pretend they do.....).

By the way, I get the swine flu as a serious threat to turn into a global pandemic, and I already stated yesterday that my thoughts and hopes go out to all those suffering and fighting to stop the disease. But the media is trying to use this as a headline excuse over the fact that BAC and C are selling off because they will need to raise capital after the early results of the "stress" test (the capital that Geithner said they had more than they needed only last Tuesday). I'll leave it up to you to figure out why the media is saying that our U.S. markets are gapping down and selling this morning on the swine flu, and not the fact that the banks don't have enough money.....

7:36 am MT: The SPY gapped beyond yesterday's 85.50 tipping point. Eventually the breach of 85.50 will probably lead to a test of the 83.00 - 84.00 area, but not (of course) until the Googly-Eyes throw down a couple shots of kool-aid and get on their wobbly horses and push the market back up towards the gap - because their playbook tells them to buy every dip no matter what the real fundamentals are. So be patient, and wait for the clearest signals today, a nimble trader may have an opportunity this morning, but start with small feelers on the best signals rather then charging in full bore.

Here is the current 15m chart of the SPY:
(click on image to enlarge)

The 85.50 area should be resistance on the SPY, and the 83.75 - 84.00 area should be the next support. Just keep your hands close to the pilot's handles because it's another asteroid hurtling through space.....

If the market runs past 85.50, or it keeps pinging up off of 84.75 - 85.00, then price action will be tipping itself of as another goofy grinder day. It looks like the 85.25 area is the first gas out point intra-day, so we'll see if the market Bear Flags a little in the 85.25 area and then rolls over and makes new lows as it heads towards the 83.75 - 84.00 area.

7:51 am MT: There's the token double move on the 5m charts and the push beyond the gas out point by the Googly-Eyes. They are nothing if not persistent these days.....That means the 85.40 - 85.50 area is the next gas out area for a Bear Flag. If this goes too far beyond 85.50 before a confirmed rollover on the 10m - 15m charts, then just like yesterday, be very selective about any puts. It's still a Bear Flag on the 10m charts, so as always, we shall see.....

8:02 am MT: And there's our token blast beyond resistance. So this a re-do of yesterday. We'll see if we get a wide rolling price action like yesterday. The market went pretty parabolic intra-day just now, which appears to be coinciding with the utterly meaningless Consumer Confidence report (the public's perception can be easily manipulated by the media, it happens all the time, so a one month reading is not nearly as important as the 3-6 month moving average). My speculation is that the market will keep trying to push and hold the lows of today, just like it did yesterday, and that we may see some rolling up and rolling down just like yesterday. But don't expect the fundies to just give up and walk away today, any rollover will probably only come after a couple of tests, just like yesterday.

8:07 am MT: This 85.75 - 86.00 area looks like the first Googly-Eye peak, just like the 87.00 area was yesterday after the "dip" buying. Again, the bulls have come to life enough that bearish puts will be something you want to be patient with. If the market forms a Bull Flag on the 5m - 10m charts right here and holds the 85.50 area, then it may make another push (or test) of the 86.00 area before it decides whether it will repeat the rolldown action of yesterday.

11:55 am MT: The SPY (market) did Bull Flag on the 10m charts back to the 85.50 - 85.60 area and then bounce back to test the 86.00 - 86.25 area. Now we are in a sideways consolidation that will either continue or reverse.

If the SPY breaks above 86.25 then we will probably get a momentum afternoon as the market makes a push to test 87.00. If the SPY breaks below 86.50 then we will probably get a test of the 84.75 - 85.50 lows.

The price action can be frustrating, which is why it's better to play individual stocks and sectors over the major market index ETF's. The daily chart price action on the markets continues to be gappy and choppy the past couple of weeks.

Here is the current 15m chart of the SPY showing a Triangle forming intra-day, which is usually a continuation pattern:
(click on image to enlarge)

If you are playing individual stocks then only keep a slight watch on the market to see if it reverses or continues right here, and put that in the context of your trade. Otherwise, don't get too involved with the market indexes, we are getting another fickle-trader day at best, and a price manipulation day at worst. In other words, in other lifetimes, with other.....well I won't say the second part.....but in most other market conditions the Triangle would be a continuation by about a 70/30 odds. In this market it's a 50/50 toss of the coin.....well, I'll give it 55/45.....

12:22 pm MT: The market internals are not telling us much today, but there could be a mini clue coming up. If the advancers and volume both break to new highs right now, then expect the SPY to follow and the Triangle to be a continuation pattern, at least for a little while this afternoon.

12:23 pm MT: Ok, there it goes, continuation pattern. That means you can stay with any individual stocks you may have been playing calls on a little longer. It also means to not bother with puts unless we get a major reversal intra-day.

The best case scenario is an upswing on the 15m charts to 87.00, but I don't think it will go that far (perhaps 86.50 - 86.75). However, any individual stocks you are playing calls on could outperform the market if they are strong today, especially if the market holds the Triangle. A collapse back down below 86.15 is a red flag, and a drop below 86.00 means it was a failed signal.

12:50 pm MT: The strongest areas today, by far, have been REIT's and Insurance. There have been some nice individual perfomers like HCN, but the big issue with REIT's is that most of them don't have good spreads on the options. So if you didn't do much trading today, just like yesterday, it's understandable. This is about the time to check out mentally from the day and give it a rest if you haven't been trading anything. Especially since it doesn't look like we will see much momentum into the close. The intra-day continuation is starting to collapse a bit back into the grind.