Consolidation Morning But Swing May Not Be Done

After a 300 point day Dow day yesterday, traders are set to pause this morning. However, the upswing may not be over just yet. The market continues to absorb bad news and basically swing back and forth in a valuation zone between the 8,000 and 9,000 area on the Dow - with extremes in the 7,500 area and the 9,500 area.

The "bad" news today is lowered earnings guidance from BRCM, DHR, FDX, and TXN. The "good" news continues to be the drop in oil prices (now in the $43's) and the drop in 30-year mortgage rates (low 5's). The market pretty much knows the good and bad right now and traders are simply pushing back and forth in technical swings.

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

You can see that the Dow is fighting with the resistance zone I drew out for you several days ago. If the Bulls win then it's off to the 9,400 - 9,600 area. Watch the gaps on the DIA and SPY, if those get imploded then the upswing is likely over.

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

You can see that the Naz wants to make a push to 1,600 but the Bulls will have to overcome the TXN and BRCM news this morning to do it. The same story goes for the Naz, if the Bulls win today then we will probably see 1,600. If they push it beyond 1,600 then it's off to 1,675. If the gap gets imploded below 1,500 then it's right back down to the low 1,400's.

It looks like the market is in the late stages of the current upswing. Certainly the Bulls will take a pause this morning, but they may try to make one more push before it's done. When the push comes, if the Bears slam it hard, then that's an early warning to watch out on any bullish calls.

We'll see who wins the battle between the Bull and Bears today.....

Technical Bounce Gaps to Next Stage

Pre-market futures are up sharply as traders finish out the first stage of the technical bounce that started on Friday. Once again, most of the news has been bad: DOW is cutting jobs, MMM guided down and is cutting jobs, and MET is guiding down. The new White House has decided it will focus on maintaining the stimulus plain (bailout) instead of decreasing the deficit.

Despite all the news, the Dow is set to gap up very close to the next level of resistance. I speculate that traders, who are creatures of habit, are basically "having" a Santa Claus rally despite the fact that there is absolutely no catalyst for a traditional rally (#1 reason is Mutual Fund Inflows - and the market has had huge Mutual Fund Outflows, and will likely continue to have outflows for several more months. And #2 reason is Christmas Retail Spending, and retail spending is down sharply with most of the current consumer spending coming on deep retail discounts). I've learned to never discount human emotion in trading no matter what the fundamentals say.....so bullish for now.....

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

It is important for the gap this morning to hold and not be an exhaustion gap right to resistance. It's likely that the market gaps and then tests the 8,850 area some time this morning. Eventually this current swing may break 9,000 and head for the 9,400 - 9,600 area. If the gap fails then the swing will fall back into consolidation and the upswing will probably be over.

Jobs Report is Nasty Bad But Market Comes Back

The Employment Report came out with a Non-farm Payrolls loss of 533k for November, which was much more than the 320k expected. In addition, October was revised down from 240k to 320k. The Unemployment Rate came in at 6.7%, which was slightly better than expected. Pre-market futures shot down right after the report, but have since recovered some of the losses. European markets are down as well.

It appears that a shocking, catastrophic Jobs Report number has been somewhat priced in to the market. So traders will probably take the market down a bit today, which will be part of a technical move, but it doesn't appear that traders are going to implode the market off the bad number this morning.

Here is a chart of the SPX just after the open:
(click on image to enlarge)

You can see that the SPX is narrowing down in range. Today's early move will probably head down towards the 815 area, but the selling has not been horrible. If the SPX drops through 815, then it is likely headed towards the 790 - 800 area. If the market turns around, then the SPX is likely headed back towards 875 - 885. Bulls may try to make a push today, but there just doesn't appear to be anything that will give them a sustained tailwind. I speculate the market will tighten at best, and sell-off at worst. That means that if you look at any Bullish trades today, stay nimble. It may be that the market pushes and crunches for awhile this morning. I'm guessing that the best signal of the day will be a lower high on the 30m charts on the SPX, the second best signal of the day will be a break-down of the 832 area, and the least likely, although possible signal will be a strong move back up above 855 - 857 that opens the door for a move to 875.

12:15 pm MT: Intra-day update: Well, it looks like it was door number 2, which was a break-down through the 832 area and a move right into the 815 area. I speculated above that we would see the 815 area in the morning, which is what we got. We also got a double-Hammer support bounce off that 815 area on the 10m charts and a move up intra-day. At this point I want to see if the SPX will make a higher high on the 10m charts. I speculate that the Bulls will hold the line until the trend breaks on the 10m charts.

Here is a chart of the SPX showing the intra-day bounce right off the support line that I posted earlier:
(click on image to enlarge)


Here is a chart of the SPX showing the 10m chart trend that needs to break before the Bulls are done intra-day:
(click on image to enlarge)

I won't be surprised to see some weekend selling before the close, so continue to stay sharp right into the end of the day. We'll see how this closes.....

Another Day Another Gap

Stock market futures are down pre-market again. Traders have gone both ways with a gap down the past week. Some of the gaps have led to sell-offs (Monday), and some have been overcome by the Bulls (yesterday). In such a newsy environment it's almost irrelevant why the futures are down, but it is important to keep in mind that traders will probably do their last pricing-in of employment trends before the big Jobs Report tomorrow.

The trend in fundamentals is down, so the trend in the market is down. Companies continue to slash earnings and jobs. The latest downward guidance in earnings came from ADBE, MRK, T, DD, and NOK. The latest job cuts announcements came from T and CS. Speaking of jobs, the weekly Initial Jobless Claims number was actually better than expected, but still a pretty ugly number of 509k. Futures dropped sharply on the news, which means (as I suspected) that the bump the past two days has been a technical bounce, and a sour Jobs Report hasn't been fully priced into the market. That means that any type of strong rally today is probably at risk for late day selling as traders push and shove and position themselves ahead of tomorrow's report.

I know I keep saying this, but stay nimble today.....

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

You can see that a min-Reverse Head and Shoulders may be forming. In the short run, traders may stay trapped in a range ahead of the Employment Report. There is resistance at both sides of the gap at 87.50 and 88.50 (875 and 885 on the SPX), and 88.50 is also the area of the sloping neckline. A move above 90.00 would be fairly bullish and could open the door for a continued move up to the 100.00 area. The first short-term support is the 85.00 area and then the 82.00 area.

As always, we shall see.....

12:00 pm MT: Intra-day update: This is a key area intra-day. The Dow is trying to build off a 3rd Stage Bounce on the 30m charts. If the Dow exceeds the 8,630 highs then it will have succeeded. If it rolls over and drops through 8,470 then it will fail and traders could be induced into some Employment Report selling.

12:10 pm MT: The Dow is making the run to 8,600 as I type. I'm still not that excited about the convergence of the 4-Day price pattern on the Daily Charts and the Employment Report tomorrow. I speculated that today would be a range-bound day, which often leads to a Narrow Range Bar or Doji. Well, so far that's exactly what were getting.

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

I'm just not that enthusiastic. There really weren't any good intra-day swing setups this morning unless you were playing the 5m charts and were being extremely nimble. That's the nature of range-bound days. We are getting a mini Double-Bottom on the 10m charts and a Bull Flag bounce on the 30m charts, so there is the possibility of a small call play right here, but I'm not super excited about it given the Daily Charts and the Employment Report. We'll see what happens next.

Earnings and Employment Trends Keep Things Squishy

Pre-market futures are down sharply as traders keep chewing on more bad news. Although none of the news should be a surprise, and much of it has been priced in to the market, the relentlessness of the the bad news drumbeat is keeping the market in a dour mood. RIMM started things off by cutting their earnings outlook. Then the ADP employment report came out worse than expected, which will make traders a bit more apprehensive about the big Employment Report on Friday.

Yesterday's price action was full of mood swings with the Bulls showing up in volume throughout the day. That means that, as usual, the market is still a tough read that requires nimble trading and strong discipline. I had two nice 9% put "paper" trades intra-day yesterday, and I will probably be looking at puts again today. But I won't take my finger off the trigger because of the erratic nature of the price action.

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

The SPY (and SPX) is set to gap open right about where it gapped open yesterday. I speculate it will stake a quick stab at the two-day lows at about 82.00 (820 area on the SPX). From there, a break of 81.75 probably means a drop to 79 - 80. If the market recovers off the gap down this morning and clears yesterday's high then it is likely headed for 87.50. I'm still looking for the swing down to reach a little further so I will be looking for puts, but I'm staying nimble today just like yesterday.

Wiggle Bounce Early

Pre-market futures are up early on a relief bounce, or wiggle, from yesterday's huge sell-off. There's a little blah blah blah in the news that the elevator analysts are using as fodder to explain it away, but mostly this is just a technical counter-move off yesterday's price action.

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

Translating the SPY to the SPX, here are the numbers: the next support down, short-term, is in the 800 area. A breach of 800 could lead to 775, and then the 750 area. If I play puts on the wiggle, I don't want the SPX (or the market) going above 850. The next big economic number will be the Employment Report on Friday. We'll see if we get a wiggle and drop this morning or a whipsaw. Another day, another volatile market.....

The Drift is Over

The One-Way Little Guys are done drifting the Holiday Market and the current upswing looks like it will attempt a second gap down roll-over. It looks like concerns about slowing growth in China and the rest of the world are the catalyst. However, if you have been following the current upswing, you know that it was time for a rollover last Wednesday with the gap down - but the One-Ways were too excited about being in charge of the market with all the Big Money on vacation and they did what they usually do, drift the market up on light volume. Today they may not be so lucky. The time is right for consolidation anyway, and with Big Money back from vacation the One-Ways won't be able to skew the price action with short-covering and day-trading.

The big X-factor in today's trading is the ISM Index, which will report 30m after the open this morning. If the numbers aren't catastrophic, the real Bulls may take back over the market. Most analysts are looking for a reading of 38.0, which is very low, and very recessionary. So even if we get a number around 40.0 - 41.0, it may not be enough to push the Dow above 8,830 - 8,850, which would be my stopping out area for puts.

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

You can see that a move above 8,850 would probably open the way for a move to 9,000 and then a surge into the 9,200 area. However, barring a great ISM number, and given the swing is probably ready to consolidate, I am looking for the Dow to reach down to 8,500 today, and then perhaps the 8,250 area in a downswing over the next several days. The SPX and the Naz are more at risk because those indexes are Intermediate Term Bearish, whereas the Dow is more Intermediate Term Neutral. The market still has to create a solid bottom from the sliding and crunching bottoming out process that it is fighting through. The SPX and Naz are still at risk for lower lows, which would be somewhat devastating to the Bulls.

For today, I am looking for puts. We'll see what happens with the ISM.....

4:30 pm MT: Market Wrap: Silly me.....I thought the Dow dropping to the 8,250 area would take a couple of days.....then I remembered the now, now, now world we live in and presto - we do it all in one day!

Ssssoooooooo, I was obviously playing puts all day. I had two nice "paper" trades on the DIA and SPY down to 8,500, and then again down to 8,250 just before the close. The Dow finished even lower at the close.

It's the usual for tomorrow. I nice wiggle out of the gate and I'm looking to re-load the puts for a move down to the 7,800 - 8,000 area. We'll see what tomorrow brings.....

Note: I was asked to do the Market Cast today, so if you just can't get enough of me, then you can indulge in my latest ramblings in that format today.