Financials Drag the Market Down

Pre-market futures are up after TGT and BJ beat earnings expectations, which is bolstering retail stocks and the overall market. In addition, DE is up a little after its earnings report, which is helping cyclical/machinery stocks and agricultural stocks. Energy stocks are getting a boost from higher oil prices ahead of the Weekly Inventory Report this morning. Oil has risen above $60 a barrel again in early futures trading. The SPY is set to gap up almost exactly to the highs of yesterday.

The early gap up will probably propel out of the gate briefly, but then some sectors (chemicals/agriculture and other commodity stocks) may see some profit taking because they are a bit extreme short term.

Financial stock investors continue to have internal conflicts over what they want to do right now. Some banks popped up on Monday, rolled back over yesterday, and are popping again this morning. The early indication is bullish, but again, watch for a bit of a gap and fade.

Here is a list of bullish stocks if the market stays bullish today: UPL, ATI, CAM, MUR, ECA, DO, APA, BHI, DVN, SCHN, PCP, X, FCX, CNX, BTU, STT, ALL, AFL, PRU, NYX, TGT. Commodity and energy stocks are performing the best, although many of these upswings are probably in their last day or so today. It looks like energy stocks will be the best performers this morning. The swing may run out of gas soon, but energy stocks (UPL, CAM, MUR, ECA, DO, APA, BHI, DVN) are the strongest performers followed by chemicals/agriculture (very extreme so I won't post them), coal (CNX, BTU), and then the metals (ATI, PCP, X, FCX). If the energy and commodity stocks have an early and orderly consolidation on the 5m - 10m charts, they may have another move in them today before the upswing is over. Stay nimble today, but energy and commodity stocks still look playable for one more short swing, even if the short term move is getting close to being done.

7:55 am MT: This is the time and area I expect the first consolidation on the SPY (and other stocks). If the energy stocks have a nice, orderly pullback, they may be playable, but remember, the Weekly Inventory Report comes out in 35m, so stay nimble. The SPY and DIA are in play this morning for calls, along with the other stocks on the list I mentioned. The target for the SPY (market) is 93.00, so anything in that area is a good place to take profits, especially with so many market-driving basic materials stocks getting a little extreme on their swings.

8:02 am MT: The bulls are making an almost frenetic push right now, as if they want to get to 93.00 as quickly as possible. If the SPY does go that extreme intra-day, then take profits and stand back to see how the market consolidates over the next hour or so. The best case scenario for the SPY over the next 1-2 days is a push up to the 94.00 - 94.50 area. However, a frenetic move this morning means that the market is likely to gas out around 93.00 and then consolidate for a while intra-day until it decides if it has enough energy to make one more run at the resistance zone.

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


Here is a 5m chart of the SPY:
(click on image to enlarge)

The ideal price action for the bulls is for the SPY to hold the 92.20 area or so on an intra-day pullback and then make a push into the 93 area and a little beyond. A drop to 91.90 is acceptable as a test of the gap, but a little further than ideal. A drop below 91.80 - 91.90 is a mini red flag. A drop below 91.00 and the short term upswing is probably over.

8:11 am MT: The SPY is rolling over a bit intra-day, so now it's a matter of how the consolidation forms up and if the intra-day support levels hold. If we get an orderly intra-day consolidation that holds the 92.00 - 92.20 area and bounces then the market may have another nice push up into the resistance zone. We shall see.....

8:24 am MT: Retail, energy, coal, and metals are the "on fire" sectors that keep pushing the SPY (market) right to 93.00 in a straight line this morning. It's a speculative play right into the Weekly Inventory Report due out in about 5m. The market is going to have to consolidate for a while after this extreme move. I'm not sure if it's Shorts that are panic-buying, or Hedgies that are frenetic-buying, but it's getting pretty overcooked ahead of the report. My guess is that there are some fast money Hedgies that are trying to get as much as they can, as far as they can, and as fast as they can ahead of the oil report. They aren't interested in "orderly", they want a fast, extreme move right into resistance and right into the report so they can lock quick profits and go golfing. It will be even more important to see what kind of selling we get at 93.00, and after the report.

8:36 am MT: Treasury Secretary Geithner is testifying before the Senate Banking Committee about TARP funds. Every major media network is carrying the yappity yap session. So you have Timothy Geithner telling Christopher Dodd how well everything is going in the banking sector now, while the mainstream media broadcasts the sunshine session to the world. I don't even know what to say about this stuff anymore. If traders can't see a staged event being played out by the very people, organizations, and media that got us into this economic mess in the first place.....I just can't even find words to express myself anymore, it's astonishing to see this on a daily basis, and it's even more amazing to see how many people can't see through these machinations. All I can bring myself to mutter is.....that it is what it is.....

8:46 am MT: The SPY is going into consolidation mode. Traders will probably take a breather for a while. Stay focused on the stock charts and the overall market and ignore all the news propaganda. The charts will tell us if there are more opportunities to trade calls today. We'll see if the price points on the SPY hold up.

9:02 am MT: Flip over to the 10m charts of the SPY to watch how this Bull Flag forms up. If it pops and then doubles back I may flip over again to the 15m - 30m charts and see how the market holds up throughout the morning and early afternoon. If the 10m chart Bull Flag pops and reaches a higher high, then take some profits in the 93.00 - 93.10 area and bring up your stops. We'll see how this plays out for the next few hours.....

9:22 am MT: The SPY (market) has come all the way back to the gap. The day is still bullish, but the SPY is at an intra-day tipping point. A drop below the 91.80 area would tip the day away from the bulls and into more of a range-bound mode. A drop below 91.00 and the short term upswing is probably over. It's also likely that the 92.75 area is resistance even on a bounce off the gap. The best case scenario for bulls for the next several hours is a repeat of the sideways, intra-day Rectangle like yesterday. The worst case scenario is a drop through 91.80 which leads to a drop through 91.00.

9:34 am MT: This is the bounce point, if it's going to happen. I speculate that the 92.75 - 93.00 will stay resistance for the remainder of the morning.

10:10 am MT: The SPY tried to bounce and then collapsed down through 91.80 into the 91.50 area. The day has tipped from bullish to consolidation. This may be more of a range-bound day at best.

Energy and commodity stocks are still the most bullish performers, so they are worth keeping on your bullish movers for the day. A bearish list today would include: MTB, HPQ, PNC, RKH, JPM, EMR, NTRS, ADP, ACE, and TRV.

If the market continues to sell off throughout the day, then more stocks will come on to the bearish list. If the market stays range-bound, then both bullish and bearish stocks on the watchlist may be playable. Financial stocks are the biggest drag on the market right now, despite the yappity yap session.

11:40 am MT: This is a bounce point for the bulls intra-day. The bullish stocks should catch a little tailwind for the next hour or so if it follows through.

Here is a 30m chart of the SPY:
(click on image to enlarge)

You can see the bounce on the 30m time frame. You can also see why I said 91.00 was the swing tipping point. A drop below 91.00 and the market is probably headed back to the 88.50 - 90.00 area. I speculate that this bounce will pause and think in the 92.00 - 92.25 area and then decide if it has the strength to climb back to the 92.50 - 92.75 area. Any way you slice the price action, it looks like a range-bound day at best and a selling day at worst. There are some bullish stocks out there (energy and commodities) still finishing up swings, so there are some possibilities, but the overall market is probably not going to make new highs later today.

1:50 pm MT: The SPY crossed 91.00 and the price action turned into a selling day. This is why I gave you some nice bearish stocks to watch. All the bolded bearish stocks from the earlier update have dropped since I posted them - most of them dropped enough to be profitable on short swings intra-day. With just a few minutes before the close, and the market so close to the 91.00 tipping point, I'm sure some crafty big money is thinking about technical chart manipulation, so we'll see how this finishes out.

2:00 pm MT: Someone either threw a weak attempt at technical manipulation with an order well above the market, or the SPY had a data error. Whatever happened, it doesn't matter because the sellers came back in on the bump up in the last 10 minutes and pushed the market back down to close near the lows. Today's price action is officially a Bearish Engulfing and a rollover (with a lot of Shooting Stars on the index charts), so it's back to short term bearish after a 2 1/2 day flirtation by the bulls with their favorite News Masseuse.....(you can add that to your list of Dwightisms, and I'll let you guess who the News Masseuse was today).