Market Battle Tightens Down

Pre-market futures were down strongly this morning indicating that the tightened trading range from yesterday was going to tip to the Bears and the Dow was going to roll back down to the 8,700 area. But the Personal Consumption/Spending economic reports an hour ago appear to have come in much less catastrophic than expected and the SPX futures popped back up to the zero line.

It also looks like the world-wide coordinated effort by Central Banks to cut short term lending rates is having a positive psychological effect on global markets. I don't know if I've ever seen so many other countries cut their rates so closely on the heels of the U.S. Fed cutting rates. Usually other nations wait as long as possible because they are net exporters to the U.S. and they want to keep the value of their own currency as strong as possible compared to the Dollar. The quick cuts mean the foreign economies are much more focused on staying stable right now than they are focused on exporting to America.

The net result of everything this morning is a flat SPX at the open. That means you will want to keep an eye on the NR7 (Narrowest Range in 7 days) from yesterday and see which way we go. A move outside the two-day, very short term diagonal lines means a move to the short term horizontal blue lines, and a move outside those lines leads to the next move towards the next horizontal support or resistance lines.

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

As always, we shall see what happens today.....

11:40 am MT: The Dollar is up as expected. I stated last night in the webinar that the Dollar Basket Index threw a Hammer and was most likely going to bounce, which was going to consolidate Energy, Gold, and Commodity stocks. The ongoing overseas rate cuts has facilitated the Dollar bounce and Energy and Commodity related stocks are seeing a little profit-taking today.

The very short term diagonal trend lines on the Dow broke to the upside and the market immediately traveled to the blue horizontal resistance line. About 15m ago the Dow popped through that line and it's now testing the break of the blue line. This is the point we find out if traders really want to get long ahead of the weekend ahead of the election. My guess is that this is an area to be a little cautious, however, an intra-day bounce is an intra-day bounce (if we get it in the 9,350 area. We shall see if the Dow is going to bounce and head towards 9,800.....

I warned last night in the webinar that if we are hanging out in the 9,400 area in the last 30m before the close to watch your backs. We could possibly get another one of those last 10m of the day fades like last Friday that coincidentally takes us back down below the technical breakout and closes the market in the red.

So far though, the chart construction is bullish, and the 5m charts are in a Bull Flag. It's worth a look, just remain nimble between here and the close.

Bulls Make a Push Early

Pre-market futures are up sharply this morning on a combination of nothing, a lag effect from U.S. and global interest rate cuts, positive earnings, and positive economic reports. It looks like the Bulls are simply following through with their buying interest from two days ago more than anything. Third quarter GDP came out better than expected and Weekly Jobless Claims reported close to in-line. Both reports will strengthen the Bullish underbelly of the buying interest this morning. The market is set to gap up and the Dow will probably attempt to reach for the 9,300 area again.

The big ups on the pre-market futures this morning and the big rally on Monday is really, really, really starting to beg the question "who exactly keeps selling the market hard in the last 10 minutes of the day?" And "how is it that they happen to coincidentally sell the market just above resistance levels and ruin technical breakouts each time?" It may all be nothing.....but.....once is interesting, twice is a little fishy, and three times in four trading days.....well.....

As it is, it means that we all have to watch the market closely in the last 30 minutes for any potential repeats. Is this market manipulation or real selling? I don't know, but I have to be ready for the pattern to possibly repeat itself, probably until the middle of next week. So I will probably dump any call positions 30 minutes before the close no matter how strong it looks. I don't necessarily want to dump the calls like that, but I don't want to get caught in any of these "October Surprises."

Refer to the chart of the Dow I posted yesterday to see potential support and resistance areas. The Dow stocks (Mega Caps) and also the SPX (Large Caps) are the best performing indexes right now. We'll see if the market (the Dow) breaks above 9,300 and heads towards 9,800 - 10,000, or if we get more of a stalling out short term in the 9,200 - 9,300 area. I suspect that Big Money won't necessarily want to make any huge moves ahead of the elections, however, a Dow move towards 10,000 is still reasonably possible ahead of next week.

Market Pops and then Fades at Resistance

Pre-market futures are moving back and forth from slightly negative to slightly positive. The market is set to have some consolidation out of the gate this morning, which wouldn't be surprising or unhealthy. The Fed announcement is set for 2:15pm ET, so traders may push things a time or two ahead of the Fed, but the more consolidation the better. If we move too much ahead of the Fed announcement then I will be looking for profit-taking on the announcement.

In a perfect world the market consolidates ahead of the Fed, the Fed announces and the market drops a bit, and then the market rallies to new highs into the close and we continue the bounce today and tomorrow. But that's a perfect world.....In our real world we could see the market make a follow through move ahead of the Fed and then traders use the announcement to blow-off the last of the bounce from yesterday and it's all done for awhile. I will be ready for either scenario.

Although the market had a nice bounce yesterday, and my posture is Intermediate Term Neutral and Short Term Bullish, I will still be playing short swings until we go Intermediated Term Bullish.

6:00 pm MT: Market Wrap: We got the "real world" scenario number two today, which was a pop ahead of the Fed and then a fade to end the day. The scenario played out exactly as I described it above. Once again the fade happened in the last 15 minutes. The Fed cut rates 50bp, which means that Benny is continuing to settle down and not trying to be a rock star anymore, we'll see if the trend continues. The rate cut was largely psychological because the LIBOR has been coming down despite the Fed cuts, and banks have been focusing more on short term loan risk rather than the Fed target rate anyway.

The Dow hit my resistance line in the 9,300 area and faded back to end the day. Earlier in the day I had nice, profitable intra-day call swing trades on AMZN, RTN, DIA, SPY, and AAPL. Going forward, it may be that we don't see the market confirm a Triple Bottom until after the election. In fact, if I was a Big Money trader, I wouldn't want to put most of my money to work until after the election uncertainty was over with and I was confident in the policy-making of the new White House and Congress.

Here is a chart of the Dow showing the short-term resistance and support areas and the intermediate term support zone:
(click on image to enlarge)

I was the guest on Ben Watson's Volatile Market Open House today (Home Page, lower right link to Open Houses, then Archives, then the last one on the list dated today). The whole thing is about an hour. I did some market and trading analysis in the last half hour for anyone that is interested.

Market Holds Support and Bounces Huge

Pre-market news is mostly bad: GM and F got credit rating cuts, WMT is cutting store expansion plans, and WHR is cutting jobs. However, short-term money market and loan rates continue to come down, the price of gas is in a record free-fall, and European and Asian markets are up. That has pre-market futures up strongly, and back in line with where the market was prior to the last 10 minutes of the day yesterday. Any time traders diverge from the news it's a good thing, although I'm not ready to read a huge amount into the divergence because of all the uncertainty still out there.

Probably what is happening is traders are looking at valuations and asking themselves if fundamentals are strong enough to support the current "cheap" price of many stocks. The big X-factor now in traders minds will be the elections and how the newly elected White House and Congress will affect corportate taxes, capital gains taxes, government ownership of private business, and individual income taxes, all of which will affect the valuations of stocks. A "cheap" stock now could become an expensive stock later if corporate taxes go up 10% - 15%. Traders are always concerned with elections, but there has been so much financial news to process the past month, and so much uncertainty in the polls, that they are probably only now starting to really pay attention and decide how much money they want to put to work before voting starts in earnest.

On a humorous note I got a chuckle out of a headline this morning that bemoaned the lack of predictability of the Fed Funds Futures now. I have been yapping about the divergence from Benny Van Halen Bernanke and the FFF since January. And I've been really yapping about the irrelivence of the Fed Target Rate and the real lending rate for 6 weeks. It always cracks me up when the media catches on to something about 10 months after it's actually relevent.....

As for the markets today, it's the same old story, take the intra-day signals and get out. You can see what would have happened to a put by holding it overnight.....The FOMC announcement tomorrow will only add to the uncertainty (which, again, is ironic since they're supposed to embue the market with stability and predictability). I will still be looking at the clean intra-day signals. Yesterday the cleanest intra-day signal was a nice call trade on the 5m and 15m charts that I "paper" traded for a prophet. We'll see what today brings.....

After the open: The market is fading hard off the gap at the open, which means that election uncertainty and global financial uncertainty are trumping "cheap" valuations at this point. The fade looks pretty ugly, so we'll see if we get some serious chart destruction or if the market holds and comes back. I will only "paper" trade the clearest of intra-day signals if we get them.

7:30 pm MT: Market Wrap: The Bulls fought of the fade and bounced with one of the biggest one-day moves in history. Of course, historical moves seem to be the norm these days. The Dow and SPX are holding the intermediate term support level that has been forming since the middle of October. The Naz is also holding support, but Tech and Small to Mid Caps have not been performing well as Large Caps and Mega Caps. There wasn't any single catalyst, rather it looks like "cheap valuations" won out over "financial meltdown" and "election uncertainty."

Today is a confirmed bounce, and although we have to deal with the Fed announcement in the middle of the day tomorrow, I will be looking closely at my Bullish Movers list since many stocks are acting like they are in a bottoming process. Now, as always, anything can happen, but for now, it looks like the market may be good for another couple of days in the current bounce. There are always news risks hovering around like vultures these days, but I will watch the list of Bullish Movers along with the DIA and SPY for potential quick call swings.

By the way, the Dollar Basket Index is looking primed for a consolidation, which could give Energy and Commodity stocks a little short term tailwind, so keep an eye on that as well.

Here are some nice Bullish Movers today:

Energy: OXY, ESV, DO

Retail: TGT, AMZN, WMT, ROST

Financials: COF, BBT, WFC

Cyclicals&Transports: BA, UTX, CHRW, DHR, MMM

Railroads: BNI, UNP

Steel: NUE, CLF

Defense: RTN, GR

Biotechs/Healthcare: AMGN, GILD, BAX, CELG, CEPH, GENZ

Tech: AAPL

Note: REIT's and Utilities moved nicely today but the spreads on most of those stocks are too wide to trade. Also, CCL is starting to hold support.

Remember, we are still in an anything goes market, but the Bullish Movers were hard to ignore today. I especially like the movement in Retail. I won't be surprised to see consolidation ahead of the Fed, although if we get a big move in the morning, I think I will lock and walk on the bulk of any call trades - because we could then see some profit-taking on the Fed announcement. However, I won't be surprised if we rally into the close tomorrow later on, after the announcement, especially if the Fed doesn't throw out any negative surprises. The Fed Funds Futures are predicting a 50bp cut tomorrow, although the rate cut will be mostly a psychological boost and won't do a whole lot to change the LIBOR rate. As always, we shall see.....

Tipsy Day Fades At the End of the Day

The drumbeat rolls on.....Overseas markets, especially Asia, slammed down hard again, and once again the U.S. pre-market futures are down big. There continues to be all kinds of gyrations and interventions on the part of governments and central banks world-wide to stem the tide, and once again it looks like the SPX will go and test the 840 - 850 support level. The VIX is set to test historical levels again, and today looks like it will be another barn burner of a morning. It's almost weird getting used to this kind of volatility, but it's the norm these days.....

The potential Double Bottom on the SPX is now fading into a Descending Triangle. Price action is weakening as of the last 5 minutes of Friday, and again this morning. I didn't even bother with a watchlist this weekend because I will mostly be watching the SPY, DIA, and Q's for intra-day swings, and intra-day signals. I could do a lengthy write-up on interest rates, the Fed, economic reports, earnings season, and global financial conditions, all of which will come into play this week. But when there is too much information to process in a market that is living in a sub-routine of panic, there's no point in analyzing the minutia. One thing to remember in all of this madness is that you don't have to trade every single day. At the very least, inexperienced traders will want to tread lightly in the potential whipshaws. As for more experienced traders, just go with the price action intra-day, look for clear signals, be nimble, and wherever it takes us is where it takes us. We shall see.....

Early in the day the market is holding support, which is a good sign. This could be a real back and forth battle for awhile.

9:00 pm MT: Traders faded the Dow over 200 points in the last 10 minutes. The very end-of-day drop was almost identical to Friday and caused new closing lows on the year for the markets. Someone has a sell program 10 minutes before the close, which is very interesting.....

We have the Fed this week, and more earnings and economic reports, but we are now getting close enough to the elections that traders are starting to focus much harder on the polls and what that will mean for the policy going forward. So the market is trying to digest a real grundle load of information.

Panic Eases in the U.S. Markets

An overnight global market meltdown has U.S. Futures trading Limit-Down pre-market. The stock market is set for one of its biggest gaps down ever. Russia simply halted trading until next week. The Yen Carry Trade is being furiously unwound as investors world-wide stampede to safety.....

I don't like to use the term blood in the streets, but there's blood in the streets.....Maybe the VIX will actually spike above 100 today.....I speculated that if that happened it would be because of catastrophic levels of panic and selling.....The U.S. 30-Year Treasury Bond Yield dropped to its lowest levels ever, and Oil is down to the mid 60's despite the fact that OPEC announced that it will cut production.

I would like to be able to point to one single catalyst for the huge implosion overnight and this morning, but there isn't one. It looks more like someone rang the imaginary bell and that quietly started a death spiral worlwide. It's as if thousands of big-time money managers around the globe sort of mind-melded and began a super-freak all at the same time. This is the kind of day that happens when everyone sort of tunes in to the same bad frequency at the same bad time.....

This morning looks as ugly as when I watched the markets right after 9/11. It is as ugly as 1987. We may see a climactic blowoff, but the fear is so extroadinary world-wide that any huge bounce-back might not come right away. I would imagine that a lot of investors, and a lot of people will watch today's action with held breaths as they wonder if it's the end of all life as we know it. I expect tons of political and governmental type of rhetoric and "mental intervention" world-wide as "officials" attempt to soothe all the fear in the streets and restore the "confidence game" back to the financial markets.

I'm not going to even bother with support levels, but if you look at anything, you will want to look at a 10 year or 20 year chart at the minimum. We may see a huge bounce back today, but I doubt we will get it right out of the gate, and it may be that we don't get it at all today.....

You will really, really want to stay nimble today. If you do something, you will probably want to use the 5-minute and 15-minute charts for your swings, and you will probably (I can't believe I'm saying this) want to use the 1-minute charts to help time the entries and exits. If you aren't comfortable or nimble enough to do that, then either stay out today, or take smaller positions. If you see really clear setups on the 15m charts, then you could catch a swing that makes you a huge move in 30m - 90m, but look for clear signals and stay in front of your computer or pre-program your stops if you trade this today.

We are in for a very volatile day after a historically volatile month......We shall see what happens next...............

1:15 pm MT: The market made a very nice comeback late in the day, which seems to be the pattern these days. It was very, very encouraging that the Dow actually held the intermediate term lows today despite the world-wide panic and meltdown. I was watching this all day and I thought that the longer it held, the better chance there would be for another end-of-day bounce back, which we may have right now.

It will be critical for the market to hold this late-day bounce, and the Bull Flag on the 5m charts bodes well for that. We may chop a bit for the next 30 minutes, but if the market can close strong then the Bears will really be frustrated in their attempts to push the Dow and other indices through the intermediate term lows.

The "Beardicat" zone on the Dow and the SPX, incredibly, is still holding. The Naz had a huge gap down through the intermediate term lows and made new lows this morning. If the Dow and SPX can close strong, and the Naz can close above the previous three long lower shadows on October 10, 16, and 23 then the Bears will have been frustrated again. We'll see how we close the day, but this late day bounce is very encouraging, I personally would like to see it hold and close strong.

2:45 pm MT: Market Wrap: I didn't like what happened in the last 5 minutes of trading. It looks like several big institutions came in and sold just before the close in order to avoid weekend news risk. The Dow dropped about 150 points in that very end of the day trading. It was disappointing.....

On the bright side of things, the markets didn't do too badly considering the panic in the streets this morning and the futures trading lock limit down pre-market. The market is still holding the intermediate term support zone. It may be holding the zone with one less toe today, but it is still holding, and that's saying a lot considering the whole end of the world doomsday type of morning we experienced. Perhaps there is a light at the end of the tunnel. It sure doesn't hurt to have oil prices plummeting down, although it would be nice if the free-fall wasn't based on the panic over a global recession.....Still, any light that isn't an oncoming train is a good light.....and I'll take that.

Global Fears Outweigh Earnings Positives

Many companies are continuing to post slightly better than expected earnings numbers: UPS, AMGN, POT, LLY, DOW, BMY and others. However, some are beating expectations and then offering very cautious forward guidance like AMZN. The tepid outlook along with ongoing global recession fears is keeping a lid on the Bulls.

Pre-market futures are down, indicating a slightly bearish open. The market came back quite a bit off the lows at the end of the day yesterday, which is still an indication that the lower zones of the loose, wild consolidation the indexes are shaping is a support area. We may get another thrust down into those areas this morning as the battle for value continues. After yesterday's selling and then late day bounce back, I'm still only interested in playing clear signals on intra-day swings. We may sell off a bit in the morning, but I will be watching for a bounce back eventually, and then I want to see how it holds up or fades off from there. I talked about volatility increasing with the earnings reports, which it did, but the fear of financial collapse in the emerging markets has agitated that volatility considerably, so I will continue to be nimble with this market.

1:30 pm MT: The market did bounce back as I expected, it just happened right out of the gate. The we got a big fade back down as concerns over the world-wide financial crisis rose up to choke the Bulls. In the past 30 minutes the market has once again bounced in the "Beardicat Zone" in the 850 area on the SPX. So far, the wild, intermediate term bottoming area is still holding, which is a good sign for the Bulls. It's still a risky area for the Bears, but the Bulls appear to be only holding on to the zone by a hoof.....So this battle is getting more and more critical. If the Bulls don't hold the 850 zone on the SPX then we could see a drop in to the 775 area. If the Bulls can beat down the Bears the SPX could make another run at 1000.