Tuesday, March 10, 2009

Say yes to the crowd?

Yesterday
After the morning rally the market continued lower without many attempts at the upside to close at a new 52 week low. It seems almost that the market has slowed down just a little bit the past few days. Considering how fast we have dropped it was assumed that it cannot go on forever, however, we have not been able to setup a rally off this extreme down turn and continue trading lower in a narrow trade channel. VIX staying extremely close, past 3 days pretty much the same range with the close getting narrower and narrower.

Today
Ok since we are talking about policies and it was brought up in the comments yesterday. So everyone knows we are talking about marked to market accounting rules - again looking it up on google if you do not know what it is.

Now applying a change here, we are talking about a major change, one that would make financials rally like never before. Its probably as large of a rocket or larger then what the Feds did back in October/november last year.

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. We are seeing a lot of outside pressure coming into the market place almost forcing them to say yes to policies - and quite frankly, look at the markets from 945 to 676 in less then a quarter, I can understand why there is so much pressure. On top of it, we did not hold the 700 range which again is quite negative so there may not be much of a choice but to inspire a rally here. As we are approaching 50+% numbers we have immense pressure on 401K's. All the average investors have seen are down days after down days - and every day your account is getting smaller and smaller - they need to see some sign of relief because otherwise why not take out the money?

Back to the markets, premarket we are already close to yesterdays highs, keep in mind at 8:30 we have Bernanke speak so we have some more information to absorb before the open. Watch futures carefully. If we do end up breaking yesterdays high, there is a chance to see 709 and 716 respectivly so be careful. If that is to occur we have to watch the action carefully as this could be a breakout of the trade channel we have established off the mid 800 range.

I still feel very strongly that our current low of 666 is not yet the final bottom in this cycle, but we have to be careful and watch trade action carefully.

How to trade this?
Well yet again a large GAP open today, re-read our GAP analysis from last week and watch today carefully to analyse if the low of the day could be established in the early morning hours. If we are to reach the 700 range the 709 represents the best short there with great protection.

Other then that, again, stay light, and be patient.

19 comments:

  1. "SEC Has No Plans to End Mark-To-Market Rules"

    http://www.cnbc.com/id/29613713

    I guess we have our answer. Which makes this a great short entry if we hit my target.

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  2. Looks like 709 was a great call, we'll see if we can't break 700. I went short at 706 after the second top. Saw a lot of divergence in indicators pointing towards the downside on 5-min chart.

    Thanks again for the analysis. :)

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  3. almost touched 716 as you predicted...do you think this is the start of the breakout?

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  4. Do the following, take a look at the 60min chart of S&P 500. Look at the trade channel off the 860 till feb 23 (upper and lower - draw trendlines). You can see we go from the lower end and break the uptrend line on feb 26th. This widened our trade channel but we maintained the channel.

    Now take a look at last week friday, we ended up at the bottom of the trendline, now broke the upper rages right at the 709 and possibly widened the channel with the 716 mark. All indicators are screaming overbought (ignore that for a moment). If we get ourselves back below the trendline in the next 3 hours all we did was widen the downtrend a little. If we remain totally sideways today (as I cannot see it going towards 724) this may be a break. So today will decide.

    Fundamentally, nothing changed, and to make matters worse the accounting rules will see no changes (just as we had assumed) - so why all this buying? Because this is more then short covering. The next 3 hours will tell.

    Let me post a pic of what I am talking about.

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  5. posted a picture on main page.

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  6. :) Brilliant commentary & explanation!!! Thank you!

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  7. thx =). To be a bit more precise, if we manage to get at least 5 points below 710 we can assume with a fairly high probability that our down trend is sitll in tact. If we close above 710, we have broken the downtrend at least on the short term. This could mean more sideways trading/distribution or a test of the so important 741.

    At this point its 50/50 though I would like to count out the uptrend from here. The only thing I see happening from here is a sideways type of scenario - but I have been wrong before so lets wait first until we get our signs here before assuming too much.

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  8. our decisions should be occuring here in the next 15 minutes. Either break below 710, if we will not break below that range shortly the chances of setting the tone for a new trend (sideways or up) are extremely high.

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  9. yeah 2 minutes after I had posted. breakdown occured at 2:14 lol, lets see how far down this will take us or if the market threw us another fake breakout which is very possible. You all know I am quite bearish here so I am trying my best to stay objective. But looking at all the data in front of us, it does seem that the "easiest" way is down from here.

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  10. the last 10-15 mins will really tell us on the breakout of breakdown - looks more like like a brake to the upside and 720 like a possible close.

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  11. yeap, thats why I was stressing the breakout to occur around the 2:30 time frame. Now its a bit too late even if we close at 710.

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  12. if we close at 710 or more does this mean we have a new trend (sideways or up) ?

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  13. RE: Adam's "if we close at 710 or more does this mean we have a new trend (sideways or up) ?"

    Yes

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  14. its step one as part of a 3 step program. =) I will go into more details tomorrow and explain all scenarios and confirmations.

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  15. Looking fw to details - thanks for your input .. pretty close to 720.
    720 was the high on the 60m candle stick before we started droping on 3/4. I was hoping we would brake through that today but I guess we'll see that tomorrow

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  16. posted a LONG review for today ahead of time =) I figured everyone wanted to get more details and more direction after a day like today.

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