Wednesday, March 4, 2009

Morning Update/ Market Thread 3/4

Good Morning,

Last night the Chinese announced they are adding billions more of their own stimulus to the Chinese economy and that lit the fuse in Asia sending those markets much higher overnight. That action spread to our futures and now into Europe. Here’s an overnight chart of the futures, they are still climbing and as I type the /ES is up to 704:

You can see from my Prophet chart that the channel this morning will be just about 705. This could be a part of the small wave 4, but I think if it breaks that channel it has to be respected as the drop last night could have been a small wave 5 and it could be done:

Bonds are dropping reinforcing the move and the Dollar has pulled back beneath its breakout range. That could just be a gap fill, so we are in a tricky spot. Watch the channel and assume that the larger wave 4 may have started should it break. Yes, it may overthrow a little, but if we exceed 710, the last peak, then something more than an overthrow is likely.

Also, the ADP employment data came out this morning and was worse than expected and worse than last month. I don’t trust their data at all, but part of the report showed that the announced layoffs last month actually went down. Of course one month’s data by itself is not a trend reversal, but the market will take whatever news it can to rally on.

So, I think that the dollar pulling back also has to be respected if it stays beneath the breakout point as that could produce a double top on the charts.

I’ll say this, though… if the larger wave 4 does come here it will come off of a put/call ratio that is too bullish to run too far.

We’re at 707 now, beginning to poke out of the channel. Day to be careful of… we could get a rip roaring rally, but we could also overthrow and dive.

Pivot below is 696, 717 is a pivot but thin, and there’s an open gap from 730 to 735.

News out this morning of a bear fund manager (Leuthold) saying he’s now going long, that the depression will be avoided and that stocks will finish the year above 1,000 on the S&P. Yeah, okay… its fun watching where people who don’t do the underlying math call bottom. Yes, there will be a bottom in here, but no, I don’t believe it will be THE bottom as the necessary actions are not yet in place. By my count, wave 5 is not complete, we should still have wave 4 and then wave 5 of 5 to go. But again, wave 5’s can be any length.

We find support on a rung of the ladder, we draw people in and move up/ sideways for a while, then we fall to the next rung on the ladder. Personally, I don’t know which rung on the ladder will be the last, but I’ll wait to get bullish until the long term indicators such as DOW Theory and the moving average crosses say that it’s time. Now that’s for position plays. For very short term stuff, that’s not what I’m talking about there.

I’ll leave it at that. Non-Manufacturing ISM comes out in a few minutes.

Have a great day, I’ll be updating in the thread, let us know what you see.