Reality Brings the Market Back Down

The first two extremely heavy days of earnings season have done nothing to inspire the bulls, and the market is set to gap down again. Couple that with the first day of earnings this week when BAC failed to inspire and the market has reacted negatively to all three days of the first heavy week of earnings season (so far). Normally, these three days of trading would have been fairly easy. Monday, of course, was great for puts. Tuesday should have seen at least a little follow through despite the normal consolidation jostling. And today would have been puts again as the SPX completed its journey to 815 and decided if 780 - 790 was the next target. You can see why I get so cranky when we get government news manipulation. Yesterday was a total throwaway day because of Geithner instead of a nice put trade follow-through. And if my comments about his news manipulation weren't enough to reveal it for what it was, traders are completely proving my point loud and clear this morning as the SPY is set to gap down and give up almost half the move from yesterday right at the open. There is still 20m to go before the open, but it looks like door number two from my market wrap yesterday, which is a "gap or push down through the 840 - 845 on the SPX" and a probable test of the 825 - 830 area.

I don't have to remind you to stay on the alert for another news bogey.....but trade the technicals, which are support and resistance.....and outside of a bogey, the probabilities are down, at least for the morning. If we get another manipulation moment, I'm going to try really, really hard not to grind my teeth as I write about it, especially since I'm going to the dentist tomorrow. Here is a re-cap of the more pronounced reactions to key earnings up to now (pre-market):

GILD +4.83%, SNDK +8.17%, YHOO +2.50%, T +2.57%, BA +4.64%, IR +9.38%, NOC +1.09%

ALTR -3.02%, COF -9.30%, NSC -8.22%, CAL -1.67%, FCX -3.02%, KMB -1.90%, MS -8.15%, WFC -4.52%

In addition: AMD, CREE, and STX are down, so chips will see some pressure.

The Naz is a mixed, with internets up in reaction to YHOO, but chips down. Cyclicals are mixed as well. The top two headlines this morning are (surprise) MS and WFC, just as I predicted yesterday. Overall the earnings don't appear to be any better or worse than yesterday, which means that they haven't been horrible, just not indicative of a V-bottom. This goes back to my two speculations: One is that traders were foolishly pricing in fantastic, amazing V-Bottom economic-recovery earnings. Two is that traders have overly fixated on anything with the word financial in front of it as they scream up the charts on financials (one month long news bogey gauntlet of financial sector), scream back down the charts on financials (BAC on Monday), scream back up the charts on financials (Geithner's "bank capital" news tit-for-tat yesterday), and scream back down the charts on financials (MS and WFC not reporting this morning that the economy is stronger than it's ever been in the entire history of the United States and the universe.....).

Here is the SPX chart again from yesterday's wrap:
(click on image to enlarge)

The SPY is set to gap down about a full point, which means the SPX is probably going to open in the 840 - 843 area. The SPX has a decent probability of going and testing the 825 - 830 area, especially if we don't get news manipulation, and the Googley-Eyes don't keep drinking that kool-aid.

I have been pulling double-duty for three weeks now as I give you constant market updates throughout the day. But today, and the next two days, I will be making my final push to get the new service ready. So there will be less updates today, although I will be around and post occasionally. I need to go into crunch-time mode and blast this thing out the doors so we can all enjoy the next level of service.

1:00 pm MT: I just checked back in on the market action and the news. This was another interesting day to say the least. I was most intrigued by the price spike that started on the 7:50 am MT / 9:50 am ET 5m candle. It came exactly on the next candle after the confirmed rollover from the gap test out of the gate. It appears as though the bulls jumped in on the bearish signal and bought, and that probably set the short on fire and led to the big intra-day spike that has carried the day.

My thoughts on the market overall are that the bulls are headed back for a test of the 870 highs on the SPX right now, rather than the 815 - 820 lows. The rounding over price action is still intact, but it's actually spreading out into a Broadening Pattern as the SPX just came off a lower low and could head back to at least an equal high. Broadening Patterns are always indicative of conflicted stocks or a conflicted market. Traders don't just go out and sell to lower lows and then buy to higher highs because they have nothing better to do, that's way too much money at risk to just mess around. So I have to assume that the Shorts / Bulls are still reacting to the Geithner news bogey from yesterday, because traders are not getting the earnings reports that they like. This has to be a short term phenomenon where traders believe the news that government leaders are giving them about the economic "recovery" trumps the actual news they are getting from the companies they are investing in.

For now, it's bullish, and a combination of rounding and broadening at the top. This is the kind of price action to stay nimble. I always stay on my toes during earnings season, but now the market is reacting to news outside of earnings as well, which means I want to stay on my tip-toes.

1:20 pm MT: The double sell at 86.25 on the SPY, with a failed bullish bounce on the 5m charts just a couple of minutes ago, means the market is probably gassed out at 86.25 on the day. The Bulls pushed back, and the Shorts have been on the run, but my speculation is that the low 86's is probably our ceiling on the day.

1:42 pm MT: That was that.....the failed signal was just what I thought, the end of the buying.

I think there is some "technical" manipulation going on, and I'll tell you exactly how to spot the probability that there is manipulation. You see, I know that failed signals happen all the time, but my experience will red-flag some of the failed signals over others. I have pointed out two failed signals today, one that made sense in the context of earnings, resistance, and economic reality as revealed by the actual earnings and economic data. The one that made sense was the one I just pointed out at 1:15 pm MT / 3:15 pm ET (these are all 5m candles), and it led to sharp selling, which is still going on.

The one that didn't make sense was the bullish reversal off the bearish bounce on the 7:50 am MT / 9:50 am ET candle. I wrote about it above and said all you can do when the market gets like this is stay nimble.

Now I'm going to see if I get more confirmation of the technical manipulation right on the close. The key is that the selling just took the market from being in the green most of the day (after the first hour) to being in the red. The concern for a fundie who knows how other traders might interpret technicals is that the day could finish in the red - and on above average volume, which will be interpreted as a selling or distribution day to any other traders looking at a chart. Someone wanting to manipulate the chart can come in and buy right before or at the close and push the market just into the green (or black) and turn a distribution day into an accumulation day on the charts with one cleverly placed order.

1:58 pm MT: The reason I'm on the watch for additional manipulation is that if the day finishes in the red, it means that the Bigger Money is coming in and telling us that all these games by other fund managers are meaningless to them, and they are net sellers right now regardless of the news manipulation, technical manipulation, or the Googly-Eyes.

2:00 pm MT: I don't know if many of you just caught that, but some trader/fund manager put in a buy-on-close order on the SPY at 85.11, which was just above the close of yesterday at 85.06. So there was someone out there in traderville that did exactly what I was warning you of in real time right into when it happened. You can see the instantaneous order on the 1m charts (look at the high of the 1m candle) right on the close (the 2:00 pm MT / 4:00 pm ET). Someone tried to close the market in the green, even though the market was actually at 84.54 at the bell. They tried to close it all the way up at 85.11 in order to get it in the green. Much of the time these data outliers are quote errors from the exchanges, or some trading desk order entry worker about to lose their job for messing up. But the proximaty and duration of the quote, as I was watching it in real time, leads me to believe that there is a very good probability that someone was trying to technically manipulate the charts. Now, obviously I can't prove that they were trying to manipulate the market, but why put in an order at the close that is .55 above the market, and just in the green, on a higher volume day, on a day that saw an "interesting" failed signal in the morning that went completely against the earnings data and market reaction?.....

Here is a 1m chart of the SPY showing the probable attempted technical manipulation right at the close:
(click on image to enlarge)

The key takeaway from today is that the really big money came in and sold the market pretty sharply, right into the close. There were enough sell-on-close orders by the Big Money that it overwhelmed whoever was trying to manipulate the charts right at the close. Today is now technically a distribution day, which is a down day on higher than average volume. It's exactly what the Googly-Eyes didn't want, and if the market is down on earnings tomorrow morning, for a fourth day in a row, we may finally get the test of the next support level down.

8:20 pm MT: Here is a list of the key earnings after the close: AAPL, EBAY, KNX, LRCX, NVLS, STLD, and XLNX. Here is a list of the key earnings tomorrow before the open: BG, CME, COP, DHR, DO, EMC, FITB, HSY, NOV, NUE, OXY, PNC, POT, RTN, RS, and UNP. There are a few other companies with similar size and impact as some of the above, but this is pretty representational group. Energy stocks will be on the move tomorrow with this many stocks in that sector reporting tomorrow morning. Tech will get some action as well with AAPL and the chips. And financials will see some action with the regional banks. But the heaviest new area of reporting is energy and commodities/basic materials, so look for some volatility in those sectors tomorrow.

I will open a post in the morning with a brief writeup, and then I will be working on the new stuff. I may post from time to time during the day, but Thursday and Friday are crunch time for me.