Lowe's and Highs

Pre-market futures are up this morning after Lowe's beat earnings estimates. It's unusual for a company as non market-driving as Lowe's to have this kind of impact, but the combination of lack of scheduled economic reports or earnings news and excitable fund managers is giving Lowe's the driver's seat.

Trading in Europe and India is also positive. Europe is getting a boost from the banks on a smattering of relatively minor news. And India's stock exchange jumped a record 17% after Manmohan Singh's Congress Party won nationwide elections. Singh is largely responsible for moving India away from Soviet-style state planning (communism/socialism) in 1991 and introducting free-market reforms that have helped India's economy quadruple in size. The Congress Party defeat of the Communist lawmakers is being hailed as extremely bullish for the outlook of the Indian economy.

The SPY is set to gap up almost 1% to about the 89.50 area, which is just below the gap/short term resistance for the past three days.

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

The market will gap up at the open, but the push out of the gate will probably peak at the 90.00 gap/resistance area. Usually a non market-driving company like Lowe's and foreign market gains are not enough to break out U.S. markets to new highs, at least not in our current environment. I think the only real news this morning was the victory over communism in India, which is a great boost for that economy. However, the news from India is also probably driving the price of oil up on a very short-term speculative play. So our own U.S. lawmakers are eventually going to have to decide what our energy policy will be as America comes to grips with the fact that the global economic paradigm has changed in the past 10 years.

7:40 am MT: The SPY is staying in the pinch between the 20dma and the gap/resistance/5dma. If the SPY does pop through 90.00, then I expect the 10dma to be the next resistance at about 90.50. It's possible that the overall market takes the smattering of news this morning and pushes back to the 93.00 highs, but it's more likely that the market actaully fades the news and the short term consolidation continues.

If the SPY does break above 90.00, then any bulish plays should be nibbles and not big positions because of the probabilities. There is still the risk of a drop through the 20dma. The Naz is especially succeptable to a further consolidation to the 50dma, with a pause at 1,650 along the way.

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

It's possible the Naz, just like the SPY, will break to the upside, even if the probabilities are lower. A break above the diagonal channel in the 1,700 - 1,705 area would be an indication that the excitable fund managers are on the move again. However, just like a break above the 90.00 area on the SPY would be a nibble (because of the probabilities), a break above the 1,705 area would also be a nibble. It may be that the market goes strongley bullish short term, but I would nibble on any bullish signals at first and not pile in. If the day continues to strengthen, then positions can be added to. If the Naz fades down through the 1,675 - 1,680 area then it's probably headed to 1,650, and then the 50dma/lower side of the diagonal channel in the 1,600 - 1,625 area. We shall see.....

11:45 am MT: The market pushed a little through the 90.00 resistance on the SPY and then tapped out right at the 10dma. So the lower probability bullish scenario played out, and it played out with the more modest price action that I speculated (which is why I said nibble at first). The SPX and SPY formed an intra-day Double-Bottom on the 60m charts, which is starting to consolidate the breakout right now.

Here is a chart of the SPX showing the intra-day Double-Bottom:
(click on image to enlarge)

If the SPX (market) has a fairly orderly consolidation in this area and holds at or above the 895 area, then there may be a second bullish call opportunity on another push up towards the 905 area this afternoon. The SPX will still be bullish today, but not as strong, if it drops into the 890 area. A drop much below 890 and the whole move on the day is probably tapped out and the market is headed back into consolidation on the daily charts.

1:00 pm MT: The SPX held the 900 area in a Bull Flag before popping again to the 905 area. So the second leg up played out to 905 and is now starting to consolidate a bit intra-day. A few hours ago Treasury Secretary Geithner stated that the financial markets have "clearly stabilized." So the change in probability today (to bullish) was facilitated by a news bogey. The banking index is one of the strongest movers on the day. Remember, the government news bogeys have made traders terrified to short financials. There's not much I can say with all twists and turns of the news other than pay attention to the technical charts like I showed this morning. I wrote that if the market pushed above the 900 area then nibbling on calls was ok, which has played out today. The short term bearish consolidation has turned early and the SPX is heading back up towards the 930 highs. The only play right now is calls, although the move today is getting a little long in the tooth.

The proper technical trade is to stay with calls today, and continue looking for calls tomorrow and the next several days. The charts are indicating more buying than selling, so go with the charts rather than the long-term economic outlook. The bullish bounce today is indicating a return to at least the 920 area on the SPX, and possibly as much as 940. This is exactly why I said, nibble on calls at first and then if price action continued to strengthen, add to the positions. I speculate that this current bounce will at least attempt to push to 920 on the SPX, perhaps higher.