Wednesday, April 1, 2009

End of Day 4/1

What fitting action for April Fool’s! The big dump followed by a 305 point ramp job! One thing’s for certain, volatility’s not lacking. You have to be a pinball wizard to play this market!

And after all that, the DOW finished up 152 points (2%), the SPX rose 1.66%, the NDX gained 1.3%, and the RUT rose 1.5%.

Internally, advancers were a little more than 3 to 1 on the NYSE, while 82% of the volume was up. The number of new lows rose to 12 producing a slight bearish divergence. The Put/Call finished at a neutral .91.

The XLF managed to gain 2.8% on hopes that the FASB will amend the mark-to-market accounting rules tomorrow morning, and that they will be proactive, allowing the financials to mark up the previous quarter’s write downs. To which all I can say is HA, HA, HARDY-HA! Okay, now that I have that out of the way, I do expect that the accountants have been fully coerced and that it will happen. The arguments for doing so ring terribly hollow to me, even if they PLAN to hold it to maturity as they can always unplan to do so later after jerking investors around.

And while the rate of economic decline slows in some of the recent reports, most data is still declining at record pace, especially year over year. Is the data exceeding expectations? Well, if they are expecting zero, sure, but let’s face it… some of these numbers are so low they almost can’t get much lower, it’s impossible for the rate of decline to continue. Does that mean it’s bottomed and has to turn up? NO. What if it looks like this – L? SPLAT!

And how about the other headlines today besides economic data (which wasn’t really that good)?

Let’s see... we have riots outside the G20, Thornburg Mortgage (jumbo loans) finally filed bankruptcy and won’t be back, the GAO says Giethner is full of it when he says that there is $135 billion of TARP money left – they say it’s only $32.6 billion, Ford sales plunge 41%, GM sales plunge 45%, Gottschalk’s is officially adios, Moody’s says credit card charge offs soar 20%, a study finds that Chinese manufacturing is worsening, our Fed bought another $8 billion of our own Treasuries, South Korea exports decline 21%, Honda offers employees buyouts and cuts wages in North America, another Obama nominee has tax filing problems, a mall owned by Simon Property Group (SPG) defaults on their payment, of course GM and Chrysler are on the verge of bankruptcy (don’t count F out), and to top it all off we learn that Geithner is limiting his new program to buyers only who have $10 billion or more (Mish Article – More Ugly Details… and How Geithner’s Plan Really Works…); all in all a pretty rosy outlook, I can definitely see bottom in that – lol!

Maybe I need lessons in “looking past it,” you know, out into the future. Because I certainly couldn’t have seen this economic storm coming, NOBODY DID, that’s what I keep hearing on CNBS (just don’t read the chapter in my book entitled “The Perfect Economic Storm”). Of course my advice is that if you want to see into the future, keep your eye on the debt and the $1.44 quadrillion derivatives timebomb that’s still ticking… G20 Summit must focus on Derivatives, Off-Balance-Sheet Vehicles.

Enough, to the charts!

Here’s the 10 day SPX. I’ve taken all the channels down because I don’t see any good ones. From a distance, it’s beginning to look like a rounded top? While the reversal and climb was impressive, it failed to break the 61.8% at the close. Yesterday and today look an awful lot like an abc correction, possibly wave 2? Sure looks like it. Wave 2’s are supposed to make you question your thesis and a run of 61.8% is the most common destination. If we get above that tomorrow, I get more bullish. I can actually envision a spike higher on the FASB release in the morning, but I’m not sure it will run and it could be a sell the news event. Be nimble – a pinball wizard. Note that the stochastic here is overbought as it is on all timeframes up to 60 minutes, making a down day tomorrow more likely. Also note that today’s action closed the gap:

On the daily SPX we can see that the bulls are still clearly in charge with a pin through the 50dma and a rise above yesterday’s candle. This area is a real chop zone, the bulls are trying to be bullish but there is a bunch of volume resistance overhead:

The DOW looks similar and you can see that it was on lower volume. The DIA was also on lower volume, but the SPY was about equal:

The XLF closed its gap today as well, but did so on lower volume. Again, much will depend on the market’s reaction to what the FASB says tomorrow:

GLD produced an interesting black daily candle today as you can see on this 3 month chart. Usually the market goes lower after a black hammer like that, but note how it did so right at the confluence of the old breakout point (blue line), the uptrend line, and the 50dma! It came on lower volume today, but I’d say a break beneath that trendline would be very bearish while a break above the hammer is very bullish. I think it’s going to have to make a move soon:

TLT produced an outside hammer today just outside of its sideways channel and just under the upper Bollinger. That’s a reversal candle, but again would need to be verified with a break in the morning beneath the hammer. Bonds going up as they have at the same time as stocks do is not the natural way of the world. If money were to come out of bonds tomorrow, it would likely be bullish for stocks. This shows how Bernanke’s move to prop up the bond market influences stocks. Again, the markets are no longer free, so we’re going to have to deal with it. His underpinning will not work forever, eventually he will be swamped with supply:

Below is a chart of the VIX. Again note how it is trapped between the 50dma on top and the 200dma beneath. This is going to have to resolve fairly soon. The P&F chart is still saying it will resolve up, but the market will have the final say, of course:

Here’s a chart of the past 3 months on the SPX. I placed their price volume on the side so that you could see the volume resistance just overhead. That’s what the bulls have to contend with. That’s one of the heaviest volume areas of the past two years, and why the bull push came to a screeching halt on the first run. Perhaps they’ll take another shot at it here, changing the rules again seems to be their method in addition to throwing all our future earnings at it:

So, we STILL have not had a pullback that amounts to a hill of beans. I think if the market gets above the 61.8 in the morning it’s more bullish and if it doesn’t manage to break it, then we may yet finish a respectable retrace of the bull run. Either way, you best be a pinball wizard if you wish to play!

Tommy – Elton John, The Who - Pinball Wizard: