Economic Numbers are Flat but TARP is Phat

Pre-market futures area flat at the open. There were a number of economic reports, but none have inspired traders to buy the market. The NY Empire Manufacturing regional survey reported -4.55 vs. -12.0 expected, and the CPI reported 0.3% vs. 0.1% expected. Neither report is really that significant right now, especially since most of the jump in consumer prices last month is coming from only one area, tobacco. The most important report this morning was the Industrial Production/Capicity Utilization release. Industrial Production reported -0.5% vs. -0.6% expected, which is slightly better than consensus. The futures got a little bit of a bump after the numbers came out.

The biggest news (for traders) was the Treasury deciding to make $22b in TARP funds available to the insurance companies. The financials were starting to bounce yesterday as it was, and now the insurance stocks will probably propel the sector a little further. Insurance stocks like PRU, ALL, HIG, PFG, and LNC are all set to confirm bullish bounces right out of the gate. As usual, I'm not a big fan of how the government is using TARP to gain control over the private sector, and I continue to scratch my head as traders embrace the invasion of socialism with open arms, but what I think doesn't matter. What matters is that financial stocks are bullish this morning.

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

The SPY is pinching between the 5dma/10dma resistance cluster and the 20dma/87.50-88.00 support cluster. The lack of inspiring economic reports means the market will probably continue to consolidate in the pinch. But the financials will be a boost to the overall market, so if the financial sector gets a lot of dip buying and excitement today it could push the SPY through the mini-resistance and up towards the 91.00 - 92.00 area by the early afternoon. However, even if the market makes a decent bullish push today, watch for profit-taking going into the weekend. Traders are in conflict over the crosscurrents of uninspiring economic reports and the government TARP news.

7:40 am MT: Some retail stocks reported earnings this morning: JCP, JWN, and ANF. Of the three, only JWN reported better than expected and popped up. The other two didn't alleviate fund managers concerns over consumer spending.

7:45 am MT: All the insurance/financial stocks popped and faded, which is interesting to me. Perhaps some fund managers are realizing that TARP is not really the only answer to our big economic question. Nevertheless, LNC, HIG, PRU, ALL, STT, PNC, JPM, and WFC are all trying for bullish bounces this morning and are worth watching. My bullish hot watch stock from yesterday was IPI, but traders needed to grab it right out of the gate because it's running pretty sharply right now.

7:55 am MT: The more I chew on this the more I think that the overall market will grind while a few major sectors and groups will bull around a bit. Chemical/agriculture (POT, MOS, AGU, and CF) have been the strongest group the past couple of days but the move is starting to get pretty tapped out this morning. Financials (LNC, HIG, PRU, ALL, STT, PNC, JPM, and WFC) are trying to bounce and probably have the best chance of making a little (but not a lot) of noise this morning, if for no other reason than traders are terrified to short financials, and the dip buyers still get excited every time the government makes a news announcement. I think energy and retail are the tipping sectors today. If retail can bounce a little (RTH, JWN, JCP, and TGT) then it will help tip the market bullish. The real momentum tipper would be if energy (EOG, MUR, XTO, COP, SWN, OXY, BHI, and UPL) can rebound, but those stocks are still crunching down a bit this morning.

I speculate that if energy and retail can bounce back this morning or mid-day then the market will tip to the bulls. But if energy and retail can't bounce back and continue to grind then the financials and basic materials (agriculture/chemicals and steel) won't be able to carry the day, and the overall market will chop and consolidate today.

8:05 am MT: It's pretty clear what the support and resistance points are on the SPY (and the SPX). So watch for a break above or a drop below the SPY pinch I charted for you this morning.

12:15 pm MT: There really isn't a whole lot to say. Retail and energy never caught a bid, so the market continues to consolidate in the pinch. In addition, financials, and especially insurance faded after the initial TARP-ah-doodle-doo this morning. I wonder if even the Googly-eyes are starting to figure this out.

The internals are still showing more selling than the overall market. So even though the SPX and SPY are forming an intra-day basing pattern (Rounding Bottom), I speculate that the market won't get a big enough buying spike right now to get back to the early day highs. There's too much selling in every sector that needs to be buying right now in order for the market to go bullish today. And I speculate that the bulls won't be in a big hurry to come piling in just before the weekend. At best, this day will probably finish as a small body candlestick on the SPY that sits in the pinch. At worst, it will break the 88.50 support level and sell a bit more. So look for a mini-buying push right now, followed by some more profit-taking going into the weekend.

12:45 pm MT: The intra-day Rounding Bottom failed as i speculated and the SPY dropped through the 88.50 level. The SPX is peeking just below the 20dma, so this is the tipping point. If the SPX doesn't reclaim the consolidation in the 882.50 - 885 area then it's probably headed towards a test of the bottom side of the support zone at 870. The internals continue to sell, so if we get a little wiggle back test of the 882 - 883 area and the internals keep selling, then I expect the market to roll over one more time and start working its way towards the 870 area.