Bullish Day Flows and Ebbs

The combination of the G-20 meeting announcing they will double the financial resources of the IMF, the European Central Bank cutting interest rates to 1.25%, and MON beating earnings is giving the market a sizable lift this morning.

The enthusiasm attenuated a bit when the Weekly Jobless Claims reported 669k vs. 650k expected. Traders the past two days have been entirely focused on anything that doesn't have to do with job losses and job attrition. Eventually the rising job losses will catch up to their enthusiasm, but for now it's a bullish push, which is at least fun to watch. The fundies are nothing if not hopeful, which is an ok thing, hope is good. Maybe the fundamentals will eventually catch up with their hope and it will all be justified. So with that them in mind, the market continues to be bullish, and continues to fight off pullbacks.

The SPY gapped right to resistance this morning, so I'm not a buyer of calls at 83, and the market could have a little gap and fade early on. If the pullback is orderly, then their are still enough fundies thrilled by everything that isn't employment-related, and the market could try to break to new near term highs. I'm a skeptic, obviously, especially because the fundamentals really aren't "coming around." But I've always said, ignore logic and go with the trend, because Big Money is going to take the market where Big Money decides to take the market.

7:42 am MT: There's the gap and fade. We'll see how orderly this pullback is and whether it has legs for another push, and possibly a breakout to new highs.

7:47: am MT: There's the push to new highs after the first little fade. There's nothing wrong with playing a little in the way of calls, but you will probably want to focus on stocks and not the index ETF's, because the market may run out of gas today before the core group of momentum stocks do the same.

It is interesting to me that MON has given up the entire Bull Gap from this morning while MOS, POT, and CF are holding an orderly gap. It tells me their are a lot of cult traders that aren't even watching whats going on with the very stock that started their run this morning.

8:02 am MT: Here is the 5m chart showing the gap, little fade (wiggle), and pop to new highs. There is a Shooting Star forming right now, signaling the probable end of the first wave of after-the-open buying:
(click on image to enlarge)

8:20 am MT: It was evident, after yesterday, that some traders are excited about the government "actions" in the U.S. and Asia. In addition, an in-line ISM (manufacturing report) and a better than expected Pending Home Sales (low mortgage rates are helping soak up a little of the expansive levels of inventory) pumped up the enthusiasm. Many fundies pretty much ignored the bad ADP Employment report and just plowed the market up.

I mentioned that the reaction of fundies was probably going to be enough to put the market on hold until the big Employment Report on Friday. So far, traders are following the exact same M.O. today. They focused on government "actions" in Europe (G-20 and interest rates), and the Factory Orders number this morning that beat expectations (1.8% vs. 1.5%), and ignored the jump in Weekly Jobless claims. In addition, traders are ignoring all the bad revisions to last month's data, like the Factory Orders, which beat expectations this morning, but was revised downward to -3.5% for January, which is a huge downward revision from the -1.9% that was originally reported. Those kinds of revision discrepancies smack of incompetence or worse, but that hasn't crossed many traders minds yet. You see, if the government can revise last month's data down so sharply, what's to say that today was really 1.8%, maybe it was really -3.2% after the "revision" next month.

Nevertheless, it's not up to me to tell the market what to do, but to simply trade in the direction of Big Money. Right now, market internals are positive and the market is chugging along. It may run out of gas right in this area for a bit, and I'll watch how the consolidation forms, but for now, the tone is bullish.

8:23 am MT: The Shooting Star on the SPY is being followed by a Dark Cloud Cover at the same resistance level, so this may be where the market consolidates for a bit intra-day.

8:25 am MT: Here is the 5m chart of the SPY showing the small consolidation starting to form:
(click on image to enlarge)

Again, I am focused more on a few individual stocks rather than the index ETF's for any potential call trades. It may be that the SPY shows a nice buy signal a little later on, but for now I'm laying off SPY calls.

8:30 am MT: One thing I am going to keep an eye on is the Employment Report "effect" that may hit the market later today. Somewhere, deep in the recesses of at least some of the savvy fund manager's minds should be the thought brewing that tomorrow's big Employment Report might not actually meet expectations. I'm not sure how many more clues they want after recent corporate layoff announcements, the big ADP Employment Report miss yesterday, and the Weekly Jobless Claims miss today. That teeny tiny little thought may eventually find it's way to a few frontal cortexes and lead to at least some end-of-day selling, perhaps in the last hour or so.

However, until I actually see the $UVOL-$DVOL unravel, or we get the "monkey rings the bell" selling spike, I'm going to just go along with the direction of the fundies trading, which is up right now.

9:20 am MT: The move in the SPX today will probably not make it past 850. However, the bounce and move to new highs has opened the door for a push to the next resistance, which is the 875 area. It's always possible that the Employment Report comes out better than expected tomorrow, or that traders simply ignore the report and just plow ahead, which would push the market to the 875 target. So just go with the push for now. There is a tremendous bullish enthusiasm out in marketland today, so once again, calls are the most appropriate trade today. Watch the last hour for any potential profit-taking, and the current second leg up intra-day has made price action pretty extreme and due for a bit of intra-day consolidation, but everything is bullish and enthusiastic buying out there today. There may be a third leg up intra-day after the next consolidation, although this next consolidation may last longer than 15 minutes (perhaps it will go for an hour or more).

9:35 am MT: Here is the current daily chart of the SPX showing today's move:
(click on image to enlarge)

I looks like there is a bit of intra-day exhaustion going on right now, which will probably lead to the next intra-day consolidation. However, I'm still looking for another push after the period of consolidation. I have learned over the past 7-8 years of explosive Hedge Fund growth to never underestimate the freneticism of traders and just how extreme they can get with their trading, regardless of fundamentals. Today is one of those extreme freneticism types of days, and these days don't usually just fade away, they fight and push, and kick and scream for more most of the way through.

10:13 am MT: The current intra-day consolidation did last longer than 15m as expected. The Bull Flag on the 10m charts bounced a few minutes ago, but I speculate that this one will double back into a bit more intra-day consolidation.

Here is the 10m chart of the SPX showing the Bull Flag with a bounce:
(click on image to enlarge)

We'll see if this goes extreme to the upside, or if traders gather some energy for a push to 85 (850 on the SPX) after a bit more consolidation. So far, the bulls continue to absolutely rule the day, and the buying volume hasn't even seen so much as a dent in its move. As I said earlier, it's definitely a momentum day full of buying enthusiasm.

10:32 am MT: No, double-back off the 10m charts, just more chugging along. There is a pretty distinct trend channel forming on the 10m charts, so this 84.50 - 84.60 area on the SPY is the next intra-day pullback point.

10:49 am MT: The market is starting to pull back a little right off the 84.50 - 84.60 area. The next key support may be the 83.50 - 83.75 area after a bit more consolidation. Fund managers continue to buy the intra-day dips, so even an extended period of consolidation will probably see another push before we get to the last hour.

11:03 am MT: As speculated earlier, the market is pulling back. There is an Evening Doji Star on the 15m charts. Also, as I stated a few minutes ago, the pullback may go a little deeper, which would break the 10m chart trend channel and drop the SPY to the 83.50 - 83.75 area and create a lower low on the 10m charts. Swap over to the 15m charts now and watch for the next price formation.

11:07 am MT: There's the 10m trend channel break.

As many of you have figured out by now, I'm ramping up some things. So I need to work on that a bit every day for the next week or so. I will have half an eye on the market for the next few hours, but this consolidation will probably put the market in a pause for a bit, which gives me a chance to work on that "ramping up."

11:42 am MT: There's the pullback into the 83.50 - 83.75 area. If the market (SPY) drops much below the 83.50 area then we could be in for a round trip back to the gap at 83.00.

11:50 am MT: It looks like the low before the wiggle on the 15m charts was 83.53. We'll see if this is a bounce or not, it still looks a little iffy.

11:56 am MT: The iffy was correct, no bounce yet but the SPY is still testing the 83.50 area.....Well, I need to get back on some of these projects.....

2:30 pm MT: Market Wrap: The market (SPY) did eventually bounce off 83.50 and had a nice little move for one last short swing before the final hour profit-taking hit. Volume was above average, but not spectacular across the entire stock market. I speculate that some fund managers retained a sense of concern over tomorrow's Employment Report. I also think some of those same fund managers wonder if the American Taxpayer is actually footing the bill for most of the $1.1 Trillion dollars dedicated to the IMF. In other words, the American Taxpayer is already paying for the U.S. corporate bailouts, did we just get committed to bailing out the rest of the world? There was a world-wide whirlwind of news activity, and it was by design.....and it achieved its desired affect, which was to push up stock markets all over the globe. I will give you a quick synopsis, and what it really means. Then I will remind you that it doesn't matter what logic and common sense tell you, keep trading in the direction of the trend.

Here are the "news" catalysts for the global financial gains and all the attendant headlines they were designed to achieve. I will refrain from supporting or denying any of the political comments or actions. I will just piece this together for you, ask a few pointed questions, and let you decide what just happened today:

1. Several weeks ago, Romania, Hungary, (and other European countries previously) requested bailout money from the European Union. They were denied the money because Europe had no money to give, and then referred to the IMF (International Monetary Fund), which supposedly had 250b in "crisis" reserves. At that time, EU finance ministers also backed a call (by the IMF) to double the IMF's crisis fund to 500b. They especially backed the call because the emphasis was for countries like China and Saudi Arabia to pony up the money, and not so much themselves (since they didn't have any money). Also at the time of the request, the Euro was dropping, and just a few days later European manufacturing reports were showing alarming contraction. From the time of the request for more money, about March 10th, until this morning, zero yaun, riyal, pounds, francs, rubles, or any other type of money had been added to the IMF "crisis" fund.

2. Yesterday, the president went to the G-20 Summit in Europe (London) and apologized to the rest of the world because America "caused" the global financial crisis. Today, the G-20 Summit announced a huge increase in the IMF "crisis" fund. The initial report was for a doubling to 500b, but the final report was a tripling of the fund to over $1.1 trillion dollars, or an addition of over $750 billion dollars. If no other countries were forthcoming with financial aid to the IMF in the past three weeks, where did all that money come from today? Or at least, where did the majority of that money come from? After extensive research up to the time of this posting, I have not seen any breakdown of where the money is coming from.

3. At the same time the G-20 was announcing a tripling of the IMF "crisis" fund, the European Central Bank cut interest rates, but cut them only 25bp to 1.25%, which was less than forecast. Currency traders were expecting a larger cut, so the less than expected cut set off a rally in the euro. The rally in the euro, of course, coincided with a sharp drop in the dollar. The drop in the dollar caused a rally in the commodities market and also commodity stocks. The rally in commodity stocks helped propel the U.S. stock market to a bullish day. The rally in the stock market caused a rotation out of the bond market (treasuries), which are dollar-based assets, which added more dollars to the market, causing a further drop in the dollar. The dollar dropped 1.4% today, but the drop in the dollar (along with the enthusiasm of oil traders over what they perceive to be the end of the bear market) caused the price of oil (futures) to rise almost 9% to $52.64 per barrel.

Here are a few more pointed questions. Does the weakening of the dollar help the U.S. economy? Or is this a sign that currency traders are starting to get concerned that the Treasury may be preparing to print exorbitant amounts of dollars out of thin air in order to fund all the "government bailout pledges worldwide", which will further devalue the dollar?

Does the drop in the dollar, which makes products in exporting nations more expensive to U.S. consumers help European and Asian economies? Since the U.S. consumer buys more from the world than any other consumer, and the drop in the dollar gives the U.S. consumer less buying power in the world, will the U.S. consumer slow down consuming overseas?

Does the drop in the dollar, which "artificially" raises the price of all commodities, especially the price of oil, help the U.S. and world economy? What is our comprehensive energy policy? How is the U.S. government attacking the new global paradigm of "demand shock?" Is the government easing limits on production, or are they forcing the consumer to change their energy habits? Will the forcing of change in energy habits help or hurt business and the U.S. economy? Does energy propel the U.S economy, or can we simply stop using as much energy and remain a leading world economy?

4. The strongest "moral emphasis" from the G-20 Summit was the announcement that "world leaders" would enforce "stricter limits" on hedge funds, executive pay, credit-rating firms, and risk-taking by banks. The world is being shown that the "world leaders" are going to bring down the hammer, no more funny business out of the globabl financial sector - which means the U.S. financial sector. They really mean it this time.....

5. At the same time (is that phrase starting to sound familiar?) that the G-20 and the ECB were making their announcements this morning, the U.S. Financial Accounting Standards Board, under authority/pressure from Congress, voted unanimously to let banks exercise more "judgement" in mark-to-market accounting. The softening of the old "stricter limits" on the way banks value assets (based on their own "judgement") will allow banks to re-value impaired (didn't the govenment call these "toxic" when they didn't like them?) assets. The announcement caused buying and short covering in financial stocks today, further propelling the stock market.

Does the announcement to get "stricter" on one side of the pond seem to contradict the announcement to "soften" on the other side of the pond - especially since both announcements pertain specifically to the financial sector?

It's probably a good idea for banks (and other companies) to value their assets based on a 1-3 year outlook for what those assets could be worth in the future. But is a 5 year outlook too much? And is now the time to allow the banks to re-value assets that may not have any real value even in 10 years? Shouldn't this rule be for a normally functioning financial sector and not to "manufacture" assets (and therefore profits) on the balance sheets of banks when many of those assets probably won't have any real value for a long, long, long time? Why the ruling today? Why now? What's up? (Well.....the banks are up......now.....). Also, according to the government, weren't these the very same banks and ceo's that were culpable for irresponsible greed and dangerous speculation in the sub-prime market to begin with? After today, aren't these same banks, along with their leadership, now being given authority to "judge" the "future worth" of the very same risky sub-prime loans and sub-prime derivatives that they were supposed to be guilty of creating in the first place?

In addition, Is this the time to devalue the dollar, or rather to strengthen the dollar? Which really helps a global economy? (Especially if the U.S. consumer has less money to spend, or is forced to change their energy usage).

By the way, here is the photo op that came out of the G-20 Summit. Notice the sign the "world leaders" are standing in front of and what message they are trying to send to the world.

This brings me to my last series of pointed questions, this time aimed at the fundies.

Is manufacturing really stabilizing in the United States, which would, in part, level-off the downtrend in employment? Are the government measures and policies in place to create a new, macro bull market and strong economy? Will oil prices take off (9% gain today) every time the stock market ramps up on "news", thereby keeping a lid on sustainable economic growth? Is the huge, unprecedented national debt, which may have gone up even more at the G-20 today a cause for concern?

Are the banks going to be able to unload their huge inventory of foreclosed homes, or will they simply "revalue" the assets now that mark-to-market accounting standards have been "softened?" Is the real-estate market really stabilizing, or is the climb in Weekly Jobless Claims this morning to the highest levels since 1982 an indication that there may not be a stable market for homes just yet? Are the ''good" housing numbers the past month due more to a migration towards apartments and condos, and a refinancing wave by "secure" U.S. homeowner who are in position to refinance because they are not upside down on their home equity, have a good credit score, and have stable jobs? Will the ongoing job losses actually lead to more at-risk homeowners handing their houses back to the banks?

No one can know with perfect certainty what the future answer to all these questions will be. I don't, and I know that I won't know the answer for months to come. I can speculate though, based on probability, what the answers to many of the questions probably will be in the coming months.....

I know the information I presented and the questions that I posed will not really affect my trading day to day, but sometimes I like to stand back on the moon and look at the earth just to get a good view of what might be going on. If some major thing or other happens, I will be able to understand and adapt much quicker to the changes if I always have an idea what the big picture is, and to also have an idea who's moving the market and what their quirks and behavior are likely to be.

Now here is where I come full circle to the statement I made before. It doesn't matter what I think. It doesn't matter what common sense and logic tells me. It doesn't even matter what I or you hope about the market. We trade what we see, and what I see right now is an uptrend. The Employment Report tomorrow morning may affect that a bit, but the market is in an uptrend until traders decide to sell more than they buy, regardless of what I think.

10:45 pm MT: Note: It took all day, but I finally found a reference to one contribution amount into the IMF's "crisis" fund. According to UK prime minister Gordon Brown "China has agreed to a $40b contribution to IMF funds." So China, which has either the 3rd or 4th largest GDP in the world of $3.3t to $4.3t, depending on how you measure GDP, has decided to contribute $40b of the $750b the G-20 Summit pledged to the IMF to save the world economy. That amounts to a little over 5% of the total pledged money. So I ask the question again, where is all the money coming from to "save the world from financial ruin?"