… and it was more exciting than yesterday’s action. Couple of things I noticed during the day yesterday. First, look at this SPX chart. 
Compare the two rectangles. While not the exact same pattern, it looks fairly close to me. Notice the first bar in the pattern as a negative day for the market, followed by three positive bars which appear to lose steam each day, then followed by a negative bar and finally a nasty selloff. Looking at the action from the past week, it appears to be following a similar pattern. Futures so far this morning are down so we’ll see.
Wednesday, March 26, 2008
I’ve Seen Paint Dry…
Tuesday, March 25, 2008
Confirmation?
Life appears to be grand for the bulls the past couple of days. Yesterday’s action appears to be strong in terms of closing prices, but was it as strong as everyone thinks? A year ago, I would have been excited to see such a rally. Today, I’d like to analyze it just a bit before waiving the all clear flag.
From a simple resistance/support view, it does appear by a healthy margin that the S&P 500 has broken above the 1330 level and is making a march potentially to 1400. The markets gapped open yesterday and never looked back.
Let’s take a look at a daily SPY chart since it typically follows the S&P.
On face value, it appears that the SPY too has broken above resistance and is headed toward the 139 – 140 level. But I’d expect a pullback, and potentially a sharp one at that. Take a look at yesterday’s volume for the SPY. A couple of things to note. First, yesterday’s volume was lower than the 20 day moving average volume. Next, look at the past three trading days. There appears to be a steady decrease in volume which may signal some tired out traders. The lack of volume might be a cause for concern. In any event, before the all clear is sounded, I’d like to see if this rally does indeed have legs. The first step in seeing if this rally is valid I think is to have a retest of that 1330 level and having it hold. If it fails, it may just be one of these two to three day sharp rallies nested in a bear market. Then again these markets have been very news driven the past couple of weeks it may be that no one has much of a clue about what’s going on.
Futures are marginally higher this morning. Let’s see if they can hold through the opening.
Sunday, March 23, 2008
Have We Hit the Bottom?
“The bear market’s over!”
“We’ve just seen the bottom.”
“The VIX has retreated; therefore, we’ve hit the bottom.”
This is what I’ve seen or heard since Thursday. So have we seen the bottom, waved, and moved on on merry way?
Last week was definitely an interesting week. Bear Stearns (BSC) was purchased for $2 per share (yes, $2 and not $20 as most figured $2 was a typo). The Fed cut the discount rate not once, but twice last week. Sunday evening, the Fed cut the discount window by a quarter point. What was more important was the opening of the discount window not only to banks as usual but to investment banks as well such as Lehman (LEH) and Goldman (GS). Could this move have saved BSC? I don’t think we’ll have the chance to see that but one never knows seeing as how the sale may take longer than expected due to litigation, BSC employees and BSC stockholders.
Liquidity issues? Doesn’t seem to be an issue anymore. Credit crisis issue solved?
Not to be outdone, the Fed on Tuesday cut the discount rate by another half point to 2.5% as well as the funds rate by three-quarter points to 2.25%. After putting in a strong hammer candle on Monday, the combination of the technicals from the hammer plus the rate cut helped boost the markets Tuesday.
Wednesday’s drop could be perceived as profit taking as well as full digestion of the previous day’s rate cut. The bears also have a strong foothold on the 1330 S&P level so some resistance was expected.
Thursday was expiry day with a number of derivatives expiring including March options. Was Thursday a solid rally day or more of a short covering into a holiday weekend? I will point out if you look at Thursday’s candle, it’s very close to a bullish engulfment. Normally, a bullish (or bearish) engulfment will “engulf” the previous day’s candle. In Thursday’s case, the bullish candle closes just slightly lower than Wednesday’s open. If you notice, the top tail of Thursday’s candle does reach Wednesday’s open but backs off slightly indicating continuing strong resistance at S&P 1330.
So what does this mean for Monday? I foresee a battle between the bulls and bears at that 1330 level. If the bulls can push it past Wednesday’s high, in the short term expect the markets to move higher. The next logical level appears to be near the 1390-1400 area. It all hinges on the financials. If they can keep up their current bullish sentiment, expect S&P 1400 to be here much sooner than you think.
Friday, March 14, 2008
BSC To The Woodshed!
Rumors have been swirling about Bear Stearns (BSC) having a liquidity crisis. Earlier this week, BSC came out and said everything was alright. This morning, JPMorgan (JPM) and the Fed Bank of NY came out stating they’re providing BSC with liquidity. BSC came out soon after stating the past 24 hours liquidity within the firm has deteriorated rapidly. BSC currently trading at 37.95, down 33% on the day. Options activity is showing BSC actually going belly up. Stay tuned.
Update: Michigan sentiment is out a bit lower than expected at 70.5 vs. 70.8 expected. It doesn’t matter since the Dow is down 200 points. Let’s hope capitulation finally kicks in.
February CPI Unchanged
CPI report came out a few minutes ago showing core inflation, ex-food and energy I believe, remained unchanged in February. This allows the Fed to cut interest rates further next week if they deem it necessary. Everything I said about doom-and-gloom a couple of days ago can be tossed out the window. Forget the fact that we’re seeing record prices in oil and gold and the dollar’s weakness against everything (including the Peso I bet!). With CPI unchanged, expect the markets to be expecting their anticipated 75 bp cut.
If the current levels hold, expect the markets to move higher. For how long, I couldn’t say. Frankly, I’d rather ride The Hulk at Universal Studios’ Islands of Adventure. At least on that roller coaster, you know what’s coming when.
Here’s the DJIA chart from yesterday’s close. Notice how we retraced Wednesday’s losses and bumped up against resistance again almost perfectly this time. If we can close above resistance today, coupled with the Fed’s imminent rate cut next week and Visa’s IPO (largest IPO in history I believe at $16b), expect the markets to go higher.
Here’s a chart of the Dow Futures, known as the YMs. This chart is of the June futures contracts so volume’s a bit light since the rollover from March to June just occurred yesterday. Notice anything? Although volume’s lacking on the first half of the chart since these are the June contracts (the March contracts show the same graph with strong volume), doesn’t it look like an inverted head and shoulders with the neckline right around 12,200? So now the question is, was last week’s action the market bottom? Normally, inverted H&S patterns are a reversal signal, right? Then again the markets are so news driven technical patterns have been blown out recently. I still think we’re in need of going lower but for the short time, it looks as if we may be headed higher if this inverted H&S holds and the markets get their beloved rate cuts next week.
Edit: Here’s a graph of the March Dow Futures. The inverted H&S shows up quite a bit better since volume’s a bit heavier.
