Bulls Push to Complete Excalibur's Sword

Pre-market futures are drifting around, dipping slightly into negative territory on earnings reports this morning. GE and C came out with better than expected bottom line numbers, but GOOG failed to inspire the Naz with it's results and traders are probably sitting on the fence this morning trying to decide if they will complete Excalibur's sword or not.

If they had their choice, the fundies would love to go ding 88.00 on the SPY this morning and call it a trend, then lock a bunch of profits and sell and take off early for the weekend. They may have to settle for yesterday's high as the top of the sword.....

7:36 am MT: The fundies tried to gap the market a little and see if they could get enough of a rush going to get to 88.00, but so far everyone just wants to hang around and do the push and shove. I think today will be about traders holding their breath a little and watching and wondering when everyone else will get a little spooked and take some profits before the weekend. I don't expect big selling because, well these are the Googly-Eyes we're talking about. But I expect some profit-taking today.

7:43 am MT: Back to the earnings, here are a couple of notes: GOOG gapped down but is ramping back up again this morning. The company beat on the bottom line, but gave cautious forward guidance, which is exactly what I said was probably going to be the usual report this earnings season. GOOG is a part-time cult stock, so the culties are pushing it as usual, but the Naz is not going with it, which means the culties are rowing the boat by themselves and it appears that other fund managers are content to let them do so while they lock some profits in the rest of tech.

GE beat on the bottom line and declined to give forward guidance (which is their policy now). The stock is flailing around a bit as traders try to decipher for themselves what every word of the conference call meant and if the company is really seeing "good times" ahead or not. So far, traders are flat on GE.

C beat on the bottom line thanks to a combination of rule changes in accounting, and some accounting gymnastics. C posted a $2.5b gain from accounting rules that allow companies to profit when their own creditworthiness declines. The rule means C could buy back its own liabilities at a discount, which would result in an "accounting" profit. In addition, it appears that C is taking advantage of the mark-to-market accounting rule change that Congress green-lighted last month. C "shifted" some of their "distressed" trading securities (see definition for worthless credit default swaps, collateralized debt obligations, and other sub-prime mortgage derivates) into "long-term, held-to-maturity" investment status. The move "shelters" them from further write-downs while C bets (hopes) the debt instruments will eventually pay off.....If that was a little convoluted, here's the simple explanation: Citigroup just re-classified a bunch of worthless sub-prime mortage derivates that they can't sell for anything on the open market right now - as actually having their full value if they could hold those debt instruments to maturity and sell them (or collect on them) a long long time from now.....because.....well.....a long long time from now they should be worth what we think they're worth.....right?.....and all this accounting fun brought to courtesy of Congress.

I think mark-to-market, which was a knee-jerk overreaction by those same politicians, was too tight. But is this too loose now? Did the pendulum just swing too far the other way in order for some politicians to save some votes? I think all of us would agree, applying a "reasonable person" approach, that banks should be allowed to value assets based on what the market might bear 1-3 years from now, but just how long is "hold to maturity" that C is claiming? What did our political "leaders" just allow? This will be one of those things that we will all probably find out the hard way in about 6-7 years.....

8:35 am MT: Traders continue to hold their breath and watch each other. It's like all the frogs in a blender at the same time and they're all watching each other and wondering who's going to reach over the lid and press the shrape button. It's weird, but it is what it is.....

Here is a 60m chart of the SPY:
(click on image to enlarge)

The SPY needs to hold the 85.75 - 86.00 area and bounce in order to have a realistic shot at new highs later in the day, which would allow traders to complete Excalibur's sword in the 87.50 - 88.00 area. If the market drops much below 85.75 but holds 85.25, then today will probably be a consolidation day at best, with a bunch of little chops and pops and drops and chops all the way into the close.

If the SPY drops below the 85.25 - 85.00 area, then it's probably headed towards the 83.50 - 84.00 area, which would most likely happen next week. A drop below 83.50 would signal the end of the trend, and Excalibur's sword would go back into the stone.....

12:30 pm MT: The SPY (market) held the low 86's and bounced, which opened the door for the move to the top of Excalibur's sword. The SPY is tagging the 87.50 area now, so if you played the bounce, here is where you want to take half your position and lock in profits. And of course, tighten your stops.

If the SPY can make one more push off the momentum pullback and bounce that just happened on the 15m charts, then the market might have one more frenetic buying panic right to 88.00. If the SPY gets in that area in the next little while, make sure to lock the other half of your profits because the mid-day push is getting more and more susceptible to late-day profit-taking ahead of the weekend.

12:41: The SPY just tagged 87.63 and it's getting more and more short-term parabolic. So we are basically seeing the completion of Excalibur's sword right now.

Here is the 15m chart of the SPY showing the short-term parabolic price action as the fundies panic-buy right into resistance:
(click on image to enlarge)

You will want to get real snug with the stops on what you have left. Stop out of your remaining calls if the SPY drops below 87.15.

Here is a 2hr chart of the SPY showing the completion of Excalibur's sword:
(click on image to enlarge)

Here is a daily chart of the SPY showing the completion of Excalibur's sword:
(click on image to enlarge)

12:53 pm MT: Remember, the Little Bunny FuFu's will all be sitting at their desks with their fingers quivering over the eject button just waiting to get the "jump" on each other. The first little bunnies just jumped off about 10m ago when I first warned about the market getting very short-term parabolic.

12:55 pm MT: It's done.....the market is unlikely to get back to the peak at 87.63. It might happen, but it's less likely now.

You hear me joke about the Little Bunny FuFu's always trying to get the jump on each other, but then when you see it play out in real time, it becomes concrete and you understand exactly what I'm talking about.

The peak on February 9th was 87.74, and the peak on January 28th was 87.95. Those were the tops of the left hand side of the giant V-Bottom (Excalibur's sword). Those were the targets that everyone could see that knows anything about V-Bottoms. Those were the targets I had in mind when I said that resistance was 87.50 - 88.00. Why didn't I just act like some goofy, egotistical technical "guru" and make the number precisely 87.95 so I could really wow you and imprint your brains with how groovy and amazing I am? Because I don't care one bit about all that stuff. I know how the fundies behave, and I knew that some Little Bunny FuFu's would try and outsmart their fellow fundies by jumping off just short of the target. So the little bunnies, thinking to themselves just how clever they are, jumped off at 87.63.

I don't know if this is completely done yet. Perhaps we will get one more push to 88.00 in the last hour, but it's much less likely now. Isn't it nice to know you were locking and walking right before the little bunnies jumped. Congratulations, you just outsmarted the fundies who thought they were so smart.

1:28 pm MT: The Googly-Eyes are making one more push into the close, so this is another opportunity to lock profits on any calls you have left.

1:46 pm MT: Well, we just couldn't finish the week without one last bit of price manipulation by some traders.....The SPY popped to 87.65 for about thirty seconds, sucked some breakout artists into the game, and the bunnies just dumped them right back down. Sometimes this stuff is too funny to even write about.

It looks like the original 87.63 (87.65 for those amateurs unlucky enough to bite on the pump and dump) is going to be the high, just as I speculated earlier.

2:02 pm MT: Market Wrap: Another day, another Spinning Top on the SPY. The DIA was more of a Doji, and the Q's also threw a Spinning Top. Price action on the right side of Excalibur's sword (the V-Bottom) is continuing to slow a bit and round over.

You get a better feel for the slowing price action on the DIA over the SPY because there is less financial sector hysteria on the DIA.

Here is a daily chart of the DIA showing the V-Bottom with slowing price action:
(click on image to enlarge)

The economic calendar is pretty light next week, but earnings season has it's first extremely heavy week. Next week will be a day to day trading opportunity because of the huge surge in earnings reports. It will be very interesting to me, and to a lot of fund managers, to see if the aggrigate data shows an economy recovering in a V-Bottom manner, or if there is more uncertainty over the next 1-2 quarters. We shall see.....