Tuesday, March 10, 2009

Daily Review

On a day like today let me spend more time right away to provide more information as to direction and what to make out of all of this. I tried my best today to provide as much input as possible during the trade day so we can make the proper decisions going into the close.

First the question of the current trend. I had outlined what needed to occur to remain in our down trend and it seemed that we hit all targets. First at 709 which represented the widened trend line, then at 716 as another attempt to widen the channel yet again. Both of those numbers were also inline with current resistance lines established earlier. I had stated in the comments that a breakdown needs to occur within a specific time window to remain in the trend, and while indicators showed extreme overbought conditions they gave false signals for entries or holding of positions (shorts). We saw the bulls and bears battle it out at my time targets after 2:12. You could see the increased volume and strong moves between the 714 and 708 range trying to find the decision. It is very important to be able to know when and when not to use technical indictors and quite frankly there is no easy answer to know when that time is.

Now why did we rally so strongly today? It is quite ironic, very ironic to be honest. Back in november 2008 once we formed the low I stated before confirmation that our bottom is in.

[Nov 2008 - is this the bottom?]
Well the market got exactly what it needed. The promise of new leadership and the bailout of Citi over the weekend will give the market the confidence back - yes some will look at the Citi bailout with a negative view but I think rationale is out the window again - I said 2 days ago that investors need an excuse to go long, an excuse to buy - this is it.

What inspired our rally today? Citi yet again, unbelievable. Fast forward in time to my long term review.

[March 2009 - Special: Review of Reviews]
Well after the mid term lows are in I feel the market will find new bulls and new excuses to go long – yes I said excuses. I do see us trading back towards the 741 range with a possibility of kissing the 800 one last time before we say good bye for the long term but we need a lot of commitment from the bulls to make this happen so stalling here before those targets is very possible.

Is this the reason to inspire a major rally? (I am stating it here as a question because quite frankly if this is the reason - I would be very surprised)

I had re-stated again today that I feel very strongly that our bottom for this cycle is not yet in. My bottom targets started at the 640 range and we fell 26 points short. Is this margin acceptable especially considering it was posted 2 months previously? Was I right on the bottom call? was I right on the call that our bottom is not yet in for this cycle? I could easily sit here and copy and paste comments from various posts making me come out to be a winner, but I have to admit that todays rally has me quite puzzled and I would be lying if I knew the answers to those questions with the normal confidence levels.

The market was waiting for a regulatory change on the accounting rules, something I had posted very early this morning before Bernankes speech.

While it makes sense from one perspective to manipulate the markets as we have dropped quite a bit we are "only" at 676. The feds know how much worse its going to get and this is one of the policies they may want to hold on to, there are only a few aces left, this is one of them. They have to decide if its time now.

It seems they decided against it just as we had assumed. I would have expected the result to be quite a bad blow towards the overall market. When weighing in Citi's rumors and the promise of our leadership stepping it up to even out the playing field I would have put much more emphasis on the FEDs stepping in and the market not rallying off pure rumors.

Now lets look more carefully at today, while volume was well above average it did not show us a proper bottoming type volume break out signs. Price wise yes we did see an incredibly strong move, volume wise I need to see more to be totally convinced. As I am writing this at 4:30 our futures are already pointing back at the 715 - of course an acceptable margin but I would have liked to see some more follow through or holding of the price even after hours. We will have to see how we hold up overnight.

Now retracement wise - our top at the 878 range towards fridays close, today represents a mere retracement of 23% (716) - even a retracement of 38% (746) is totally acceptable for a major down trend. Close the range a bit and look at our next top at the 780 range to our low on Friday, we fell short just a few points of the 50% mark (724). Those are important points that still need to be broken or at least tested to give us further clues.

So from here what trend are we in at the moment? Did we just put on the brakes, something I was hinting at last week where I wanted to see holding at the 700 range, or did we bottom out? Well there is no easy answer but we can make conclusions after seeing today.

Even now we are only at 720 and we are still within our time window for the mid term bottom (anywhere from mid march towards end of march). I had jokingly said that its the first step as part of a 3 step process. The first step is in by breaking out of the channel and closing in the breakout range, what is the next step? First we need to analyse tomorrows retracements that could bring us back towards 716/709, even getting to 700 is acceptable but the further away we go from the 716 target on the downside the faster we need to reverse to bring us back above 716. This will give us great clues depending on how we trade there. The other scenario is continuation right away to hit the 724 (50% retracement) target I referred to in my comments. I did not think the market had the strength left to hit this today - and we fell short half way there though managed to close at this half way mark.

The next step is to continously remain above key ranges with close prices above the 710 range. If we see 3 days in a row with a continued upward trend, even if it is minor, we may have to re-evaluate the mid/long term outlooks. Keep in mind the moves of today are still inline with our overall long term outlook we had posted last week. The market cannot just go down and down and the forecast was made with the assumption of the acceleration (break of 800) not continuing once we reach 700 - so nothing has changed for us here, we are still "miles" away from major resistance points and only had one day thus far "out of the ordinary".

Why do we even need to know a trend to trade? Well first off we don't, we have many great and easily protected trades at our door step now that some of the crazyness is done with. However, knowing the current trend is important as it allows you to properly protect yourself in your positions, especially when holding overnight. Additionally many here also trade longer term positions so knowing where we are trend wise is very important to readjust long term price and time targets. If you ask me what I feel the current trend is? My call is still that we are in a downtrend until I see a break of the 738 (yet again a number I had hinted at a while ago).

In summary. After today, am I still a strong bear? Yes I am, though I am a bear that is looking over his shoulder a bit more carefully now.

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