The Stress is Back

Pre-market futures have given back most of Friday's anti-stress rally. The banks rallied the market on Friday and the banks are dumping the market today. There was no new or significant change in the news about the capital that banks are raising to meet the "stess test" demands. But fund managers are treating the "actual" raising of capital versus the "talking about" raising capital like it's poisonous news.....Oh yea, and there's another big gap.....the asteroid shower lives on.....

The first support level for the SPY (market) is the gap at 91.40 - 91.50, the same numbers apply today as Friday for the SPY and SPX. A fade down through the 91.00 area is likely confirmation that the Friday anti-stress rally was a one-day wonder. A fade through the 900 area on the SPX and it's probably headed for a test of the 880 area over the next couple of days.

Benny and the Feds will do their best, along with our political leaders, to bogart and prop the market through words, and Benny gets his chance later today. He is due to make a speech about the bank stress tests at an Atlanta Fed conference. The conference is not listed on the official Fed schedule, but I've seen some chatter that it's there, so be on the watch for any intra-day spikes as he speaks.

7:46 am MT: Here is a chart of the SPX:
(click on image to enlarge)

In a normal world of trading with actual "Smart Money" and not "diluted gene pool, Googly-Eyed Money that is constantly falling for the intense new manipulation by the government" this would be as much a no brainer for 880 on the SPX is it gets. It would be so much of a no brainer that the big, smart money would sell it off to 880 by tomorrow at the latest, and not waste any time getting it done. In our world of "coincidently the Fed just happens to be speaking today" and "hey look, it's Geithner at the podium, who knew he was speaking today?", this may not go in a straight line.....However, like I said, in even remotely normal price activity, this is as no-brainer as it gets - the SPX goes to 880.

8:02 am MT: Here is a 60m chart of the SPX:
(click on image to enlarge)

The intra-day chart gives a clear perspective of the 900 tipping point, and the next key level of support down in the 870 - 880 area. The 880 support area is even more visible on the daily chart I posted first. In the other direction, a move above 925 would be a red flag for the bears. A move above 930 and the SPX is probably headed for the top end of the resistance zone at 940. I speculate that the only way we see 940 by tomorrow is a news bogey. Like I said earlier, in an even remotely close to normal market this is a no brainer consolidation to 880 on the SPX, probably by tomorrow. In our current market, it will be important to pay attention to any sharp reversal intra-day, especially if "somebody" is speaking.

8:52 am MT: The market had it's usual buy the dip snap-back, which we have seen so much of the past month. A big portion of the initial stress this morning is not so much that the banks have to raise capital for the stress test, but that banks are raising capital to pay back the TARP so they don't have to be run by the government. In the messed up world of diluted gene pool fund managers, the bad news is good news and the good news is bad news. Last Friday (and previously) the banks needing to raise capital to stay solvent was actually bad news (how excited would you be to know your bank had to raise billions of dollars to stay afloat - would you feel secure about your money?). This morning, the banks raising capital to pay back TARP funds and destroy the governments attempts at socializing the financial system is actually fantastic news, but the market is selling off on the news. The real key to the news is that it's a short term negative, and the Googly-Eyes, being the myopic traders that they are, can't see the long term benefit of not becoming a socialist country.

Here is a 15m chart of the SPX:
(click on image to enlarge)

The key for the rest of the morning is whether or not the SPX (market) rolls over in the 917.50 area, or if it pushes on up towards the 920 - 922.50 area. A push up and the SPX may stay relatively range-bound in a rolling action for much of the day. A rollover from here and the SPX will probably go test the lows around 908, which is the next battle point. If the SPX does reach back down to 908, then drops through the morning lows, it is likely headed towards the 902 area and the move to 880 increases in probability. If the SPX rolls over from here but holds above the 910 area, and then rallies back up to 918, then a move to 923 - 930 increases in probability. In a normal market, the highest probability scenario is a drop to 880, but even the snap back we just had is a caution that this is not a normal market. We'll see how the rest of the day plays out.....

9:25 am MT: Nothing new has developed in the past 30m. This is right about the time the snap back should roll over on the 15m charts - if it's going to. If the SPX doesn't roll over in the next 15m - 30m, then it may hang out for a while, go range bound, and even try to push up a little more.

9:33 am MT: There's the rollover. Now it's a matter of watching how the SPX handles the morning's lows as I outlined above. We'll see if the bears get any traction through the rest of the day, or if the bulls base the market along the 910 area and hold the line.

12:35 pm MT: The SPX did hold the 910 area after the rollover and try to push. And the market did go range bound and push a little to the upside within the range. The bears weren't able to gain any traction through the middle of the day, and the bulls are still reluctant to sell, at least for now. The market is consolidating intra-day within a Triangle pattern, which may be a signal for a continuation of the selling later in the day.

Here is a 15m chart of the SPX showing the Triangle:
(click on image to enlarge)

The market may still fade down through this Triangle. A break of the intra-day Triangle projects the next move almost exactly to the next support level down in the 902 - 902.50 area.

One last note, Benny doesn't speak at the Atlanta Fed Conference until after the market close. So the bulls may have been hanging around waiting for a good news bogey, but when they realized they might not get anything during the market, and that Benny may or may not do them any favors tonight, they may decide to sell a little into the close. The price formation on the SPX daily charts and also the intra-day charts would normally be about 70/30 chance of a consolidation down to 880 by tomorrow or Wednesday at the latest. But in our current environment, I would say the probability is more about 55/45 or so of a continuation of the selling.

1:27 pm MT: The SPX pushed a little and tested right along the resistance line I drew for you in the Triangle pattern earlier. After the test the market rolled over as I warned, and the Triangle is confirming a continuation of the selling.

Here is a 15m chart of the SPX showing the test and rollover within the Triangle:
(click on image to enlarge)

The bears are still having a tough time getting a lot of traction in this current environment, nevertheless the day looks like it will tip in their favor.

5:40 pm MT: Market Wrap: The day did end bearish, and the SPX is in line for more consolidation down into the 880 area.

I have spoken at length about the government manipulation of the news the past two months. I have also spoken at length about the lack of "recovery" fundamentals under this "recovery" V-Bottom. And finally, I have spoken at length about trading calls during the uptrend despite what you or I may think of the fundamentals because you can't fight the fund managers - they have most of the money.

I wanted to post a couple of comments by Meredith Whitney today because they underscore what I have been saying all along. And although I may have been alone in boldly stating government manipulation of the news, and I may have been walking down a road by myself when I talked about the lack of real recovery fundamentals, today Meredith is backing up everything I have been saying for two months, and she did it on CNBC.

Just to set the stage for the comments, remember that Meredith is the analyst who nailed everything correctly with the banks and financial sector all the way through the financial wreck. She called the problems in the CDO's before everyone believed her. She nailed the CDS's before anyone else was talking about them. And she was right on the money and way ahead of everyone else when she called the bank implosion and the financial sector wreck last year. So she carries a tremendous amount of current credibility with the market and fund managers.

An analyst won't help you with option trading, and they won't always be correct forever, so you don't need to run out and subscribe to everything they say or do, but when someone nails the truth way ahead of the curve like Meredith Whitney you keep them in mind for awhile and you listen.

Here are the two articles reporting on her comments today:

Meredith Whitney report:

Additional Meredith Whitney report:

Especially note her comments in the first article about the government's role in skewing the rules and trading in the marketplace. And also note her overall take on the financial sector and the banks. It's very interesting reading coming from a very credible source.