Neither the Fed minutes, rising interest rates, or anything else is going to stop the bulls from SPX 1,200 and INDU 11,000. Some gurus are suggesting even 1225 on SPX is not out of the question. I don’t chase price, but I do setup for reversals. It’s all a matter of following the herding instinct or going down that path less traveled… and right now that path is cluttered with overgrowth since there are probably only 3 bears left on the planet.
The Dow may be 31 points away from 11,000, but it is also 3,225 points away from its all-time high. No one can deny that the Dow, indeed all the indices, have made a hell of a run off the lows of March 2009, but be real, there is also no denying that there is still a long, long way to go before one we can feel good about crossing these round number thresholds.
Day trading the long side is one thing, positioning for extended long swings is something else… for that I need a correction. At these heights going long means smaller size no matter what I see in the charts. Look at volume on the SPY today, half what it’s been the last 3 months. Where’s the conviction of bullishness? It’s there, but only for a few… so far.
Every major index has developed a rising wedge pattern and nearing a channel line which are the next patterns it has to destroy… spx, dji, iwm, spy, above is the SPX example of a Rising Wedge nearing a top channel line
Tomorrow before the open FDO, GBX, MON, and MSM are scheduled to report. Watch closely how these stocks react to the announcements, especially MON, for clues as to how the market will handle earnings starting next week with AA. If they sell off on reasonably good reports then they were overpriced to begin with.
One year ago today, March 6th, 2009, if you were in the market or just a casual observer you would have been convinced the end of Western civilization(?) was at hand. The stock market had been in an aggressive accelerating downward spiral and by March 6th value in the S&P500 had been cut by ~57%. And it did it in frightening high record setting single day drops as the credit markets froze up.
Buying into those drops on the way to Mar. 6, 2009, specifically during the period between Sep 29 and Mar 6, was as deadly as shorting into the rallies since. The relentless rally started on March 6th and has rallied ~67% with only one ~8% correction.
I mentioned at the beginning of last week that I sensed a paradigm shift in sentiment mainly due to ever improving price action and improving, but spotty, economic reports. These favorable reports were topped off by Friday’s jobs report and rally.
All of a sudden, as shown by the drop in the VIX in recent weeks, the bullish reading in the $TRIN, the bulls have made their move. Things are so bullish… that they’re now bearish technically speaking. We’ll have to wait and see if the fundamentals really have improved and only time will tell us that story.
The market always overreacts up or down, always overplays its hand, and always reverses when least expected. The bullish readings are so high that the trade has to be a short play but (there’s always an infuriating ’but’) we can squeeze higher still… 1150 SPX looks like a target but it’s too obvious.
My best bearish scenario would be a small push higher on Monday that fades quickly and, more importantly, a pullback across all sectors with a sharp pullback. Developments in Europe and Asia over the weekend will influence Monday’s trade as usual. If the market really wants to show bullishness it will have to correct (headline unknown at this point) and bounce back sharply. Any correction in this environment will be short lived and that’s okay with me as long as it’s sharp… say down to SPX 1109 which would make price sit right on the Feb low uptrend line. Probably more realistically for any pullback next week would be to target closing the gaps down to 1116… roughly a ~2% pullback and certainly not a correction.
A correction is meant to shakeout the excess usually by violating a trend line… a pullback still maintains it’s uptrend. My last comment of the day on Friday in Trader 2010 on Finviz was, “Lack of volume throughout the last 5 days will take it’s toll on today’s rally.”
Here comes the job report and of course the market will react to the headline accordingly. However, the headline number of an additional 824,000 jobs that we will see is already built into prices. That headline came out earlier in the week… (if I could find the article I’d include here but can’t find it just now). With today’s report, the government will also issue revisions to payroll figures going back to 2005. The annual benchmark update, which aligns the data with corporate tax records and covers the period from April 2008 to March 2009, will also be announced. The Labor Department estimated in October that payrolls for the 12 months would be cut by 824,000. In any event due to yesterday’s drop and depending on the real report underlying numbers, not this revisions number, Wall Street economists expect the January report will show a tiny increase of 5,000 jobs. That would be only the second monthly gain since the recession began. But it probably wouldn’t be enough to hold down the unemployment rate, which is forecast to rise to 10.1 percent. We’ve seen institutional money getting out ot the market starting last week and continuing this week. After the initial plunge this morning and unless there is another accompanying heretofore unknown negative headline we will get a rally presumably based on the real January report as mentioned above to be a gain of a few jobs. Just guessing here but a move to 1050-1046 as I suggested yesterday to Trader 2010 participants should be here at the open… I suppose it could get worse to a low of 1030. But since that headline 824,000 number will bring in lots of new short side players, (this is the cruelty of the market) and considering the plunge all week long by institutional sellers I’m looking for a sharp rally back to at least our opening price if not to yesterday’s close of 1061. These are the days hedge funds live for in that they helped drive prices down and will now take advantage of the new sheep coming into the market and buy this market.
Headlines drive the market from day to day. Here’s one the market is probably pricing in these days…Some Bailout Goals Still Unmet. You saw the reaction in banks last week, although not attributable to this report. With all due respect to dentists, most of us would rather spend an hour in a dentist chair without Novocain than read a report about what the government is doing with our money, but here’s the new quarterly report from the Inspector General of TARP… http://www.sigtarp.gov/reports.shtml. (Click on the January 30, 2010 Quarterly Report). Bottom line: “…even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car,” and, I might add, with bigger then ever “too big to fail” banks. Now I don’t pretend to understand every aspect and nuance and ramification of the details of this report… I know it’s not good overall. Why is that important? Because if the market heads into a freefall, or grinds downward, it will give me confidence to hold a bearish trade even if the market tries to rally from time to time. Of course if the news is incredibly bullish that same is true… witness the market reaction from the March 2009 lows as headlines changed from doom and gloom to “green shoots.” And that’s what’s important in staying abreast of things. You want to determine the impact that any news can have on the market so when the market takes its queue from a similar headline you’ll know that it’s more than a just a one day move… the market is probably going to go in that direction, up or down, based on the impact the news has overall. This generally does not come out of the blue. Its headlines like this day after day that takes it toll, recently against the bulls, and should serve to be one variable that gives you confidence in a trade. Significant headlines matter, it’s that simple. Which ones are the critical stories to follow? Easy… watch the reaction in the market. If it’s significant enough, that’s the trend until a equally significant offsetting headline/story is powerful enough to reverse trend. Stocks and industries do not move or trend in a vacuum… they move according to perception of the impact of news on future earnings. Write that down. Traders learn very early in training that a trend is in place until it is broken. We saw last week that the March to January uptrend line was finally broken, really broken.
You can read and watch all the Barron’s, Bloomberg, MarketWatch, CNBC, and WSJ gurus about the SPX going to 1200-1300; I’m here to tell you it’s going to 875 first.
You didn’t want to hear that, did you? You want to believe that the Crime Syndicate in Washington will levitate valuations to 1200 and beyond from the 666 lows of March 6, 2009. Ain’t gonna happen.
You believe that this earnings reporting season will be a blockbuster. You believe what the talking heads with vested interest have been saying. You’ll be wrong.
What do I know with any certainty? How can I say that without skipping a beat on the keyboard? Simple… I trust the Crime Syndicate to generate a headline that will panic even Robert Doll and Blackrock as well as Bill Gross at Pimco.
I trust government and political types about as much as I trust Enron bookkeeping.
Valuation models and guesstimates aside, your politicos will throw Wall Street under the bus one more time (at least) as the ‘takes a village’ crowd revs up their printing press.
We know some things with certainty: governments and politicians lie and lie big, banks lie and lie as big, corporations lie trying to survive in between the aforementioned lies.
Who do you trust? You trust the swiggles, buckles, lurches, and spikes on those stock charts. You trust the money movement as shown to you on the charts as market participants try to discover price. You track that chart and every nuance that you understand about the indicators within.
Believe the money movement before you believe in “change”.
The above is something for you to think about as we go through the week. Ultimately it is how strong the market reacts, positively or negatively, to the news of the week and the underlying ongoing recent sentiment as to whether we have a trend day or not on these Fib Time Series days. Nevertheless, I have Jan. 8th (jobs report Friday) as a Fib Time series (blue vertical lines) day from the 12/18 low, as well as Jan. 11th off the 12/9 low (red vertical lines). Jan. 11th is the Monday following the jobs report and it is also the first day of Q4 earnings season with AA reporting after the close. The bear in me says a lousy job report (at least not as good as expected) coupled with a bad AA number, and we have a catalyst for a reasonable pullback to take the excess out of the December advance. The bull part of me says a good job report with a good AA number and we then advance to 1200 on SPX. Neither scenario will surprise me, I just need to be ready either way… have a plan, trade the plan. Fibonacci Time Series simply suggest a big move without telling me which direction. Note the big drop on Thursday the 31st, that was a Fib Time Series day from the 12/9 low. It’s a tool with some predictive ability, but I watch it because when other factors line up, we usually get a big move. So it allows me to at least be paying attention on those days, perhaps to have a plan thought out in advance, bullish or bearish, should the market have a trend day. (A “trend day” is one in which the price of a futures contract moves consistently away from the opening range and does not return to the opening range prior to the close.) The strongest trend days appear when there’s synergy between the prerelease bias and subsequent news. The broad market can gap up/down and hold above/below the opening price easily when these two forces work together.
The horizontal lines are Fibonacci retracement levels.
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“Gordon Gekko was right!”