What a wild market situation
we have unfolding before us!
by Stephen Tetreault, T-Waves | March 27, 2009
PrintFor trading on Thursday I am expecting a 55:45 chance of a continuation in the late day bullish tonality especially if we see some bullish in the futures and possibly the pre-market hours…however that tonality could reverse on a dime as the market’s tonality will likely hinge on the initial claims data to be released at 08:30 as expectations are for a reading to 645-650,000 this is where the trouble could lay for bulls or bears as I expect the number to come in at 702,000 and if I’m right the markets could to sell off, however this labor department could hit us with weak number due to seasonal factors…it’s the continuing claims number that will be the deciding factor…and to muddy up the scene even more we get the final reading on GDP for the fourth quarter tomorrow!
This week let’s keep our focus on the price of crude and our greenback as a continued drop in price of crude or pop in the dollar could be a positive for equities (especially the Nasdog) in the near-term however it could be a negative signal for the energy patch which is a heavy weighted component of the SPX, also we will need to watch the bond market as a retracement here could result in a rotation out-of or into equities in the short term. As always I’ll be watching the Transports, Small/Mid-caps along with the SOX for early directional indicators/ signals and clues along with the overnight Asian markets
The bears and bulls have been waging a bloody war, and so far this week the battle was won by the giddy bulls and we need to watch for a early program-trading after any positive releases/data by futures participants as we could easily see a potential gapping situation brewing, the question to be answered is will it be a gap and run, or gap and fade? The funds will certainly attempt to influence tonality as we encroach into the end of the quarter. I still believe that investors have been very skittish, and the path of least resistance on signs of weakness has been to trigger the sell-buttons as we saw today; especially by those that bought this recent bottom as they are sitting on a horde of pent up profits. We will soon see which market emotion “Greed” or “Fear” will win out (maybe both will).
The markets are heading into the end of the first quarter with a strong tailwind due to a massive bear-market relief rally and according to market analysts, mutual funds are buying stocks and money is flowing into those funds (its this hype or reality?). We won't have the weekly cash flow numbers until Friday but they are expected to be large if you believe the hype. What we do know is that mutual funds, hedge funds and the trading-desks are facing the end of the quarter after this major rebound and they really do not want to send out statements that show their investors that they are mostly in cash, and have missed this departing train. They are greedy SOB’s and they know how to fudge their books to make them appear to be better than they are as they want to be seen as astute managers who bought at or near the bottom and ended the quarter mostly invested, and they want to show that they have in their portfolios most of the quarterly winners (I will write more about this phenomenon this weekend…but we call it window-dressing). This need for these greedy managers (they want their bonuses) to be invested [especially those who missed the past 8-10-day rocket ride will be the fuel for this proverbial end of quarter window dressing and why I think most dips (as we saw late today) will be bought…just as I had in our trading room suggested it would.
The Dow closed out the secession today at 7,750+/- (gain of 89.94) and after posting an intraday low of 6,470 March 6th and in just 14+/- days the market has rallied upward to an intraday high of 7,864 Today a remarkable gain of 1,394+/- points or 21.5% and this relief rally appears to be very tired right now; it has been fueled by a multitude of so-called-positive headlines regarding bailouts and additional taxpayer-monies being put at risk by the Geithner Plans! Nevertheless the Dow is now very-overbought on a multitude of time frames….the daily, along with the 240/180/120/60-minute charts are all embroiled in very overbought conditions and a significant pullback (backfilling after this parabolic move) is very warranted! The Dow has significant OHR at the down-trend-line at 7,898-7,920 thereafter at the 100Dsma at 8,149. If the bad news bears return in a nasty hungry mood they will likely look to drop the index back down to the 7,320-7,350 level of support, thereafter 7,145-7,175 zone of support comes into play.
The SPX closed out the secession today at 813.90 (gain of 7.63) and after posting an intraday low of 666.79 March 6th and in just 14+/- days the market has rallied upward to an intraday high of 826.78 on Tuesday a remarkable gain of 160+/- points or 23.705% and this relief rally appears to be nearing the exhaustive point; it like the other indexes has been fueled by a multitude of so-called-positive headlines…unfortunately the daily, along with the 240/180/120/60-minute charts are all embroiled in very overbought conditions and a significant pullback is overdue in my opinion! The SPX has significant OHR at the down-trending 72Dsma at 823.00 thereafter at 840-843 the 100Dsma and the Weekly 20ema at 853. If the bad news bears return in a nasty mood they will likely look to drop the index back down to the 773-777 level of support, thereafter 752-758 zone of support comes into play.
The Nasdog closed out the secession today at 1,528.95 (gain of 12.43) and after posting an intraday low of 1,265 March 6th and in just 14+/- days the market has rallied upward to an intraday high of 1,546 on Tuesday a remarkable gain of 290+/- points or 22.50% and this relief rally appears to be very over-extended right now; as on a multitude of time frames….the daily, along with the 240/180/120/60-minute charts are all embroiled in very overbought conditions and a significant pullback (backfilling after this parabolic move) is very warranted! The Nasdog has significant OHR at the down-trend-line at 1,555-1,565 (coincides with the weekly 20ema at 1558) thereafter at the 1595-1,605 level. If the bad news bears return in a after being bloodied during the past several weeks they will likely look to drop the index back down to the 1,450-1460 level of support, thereafter 1,415-1,425 zone of support comes into play.
The Russell-2000 closed out the secession today at 426.49 (gain of 9.71) and after posting an intraday low of 342.50 March 9th and in just 11+/- days the market has rallied upward to an intraday high of 432.25 on Tuesday a remarkable gain of 90.00+/- points or 25.60% and this bear-market relief rally appears to be very tired right now; it is now very-overbought on a multitude of time frames; the daily, along with the 240/180/120/60-minute charts are all embroiled in very overbought conditions and a significant pullback (backfilling after this parabolic move) is very warranted! The Russell-2000 has significant OHR at the down-trending 20Wsma at 443 and the 100Dsma at 448 thereafter at the 100Dsma at 455-460 level. If the bad news bears return in a nasty ravenous mood they will likely look to drop the index back down to the 395-401 level of support, thereafter 377-381 zone of support comes into play.
As I wrote on 2/15/2009….At this point I cannot rule out the possibility or probability of a multi-week rally, as you all know I expected this (relief rally) to start last on or between 3/5-3/7) as I had previously forecasted. I had been expecting, due to an Elliot-Wave analysis-count a wave C-up within a B-down and it could have started this past Tuesday. The timing is right as my wave analysis has pointing toward a potential coiled spring potential for a bear-market-relief rally and with the spring equinox turn period ahead, it is concurrent with a pair of my timing-wave turn dates, one scheduled for this coming Wednesday the 18th, the other scheduled for March 29th (could play out on the 27th or 30th plus or minus 2-days as the turn its on a Saturday), sandwiching the March 20th spring equinox between these two Gann, Fibonacci and Hurst cycle-analysis. The fact these two turn times/periods are so close to each other could mean either there are going to be two distinct volatile turns within the next 2-weeks or there will be one significant major turn within this range with either a pull-back or relief rally within the turn. I am leaning toward expecting one significant turn, likely up, so please stand ready to hope aboard the train as it starts to leave the station no mater what the direction…now we could have a nasty contagion to the recent relief rally with this latter turn-time as the tape is flashing multifaceted divergences. Please always remember that the power of greed is a very strong emotion and market driver and when coupled with FEAR of missing out and the FEAR of missing out on a bonus is a potential Tsunami wave of bullishness!
I am still looking to buy the dips near-significant support levels (today we saw that the 50% retracements of Monday’s mega rally were bought with vigor). We are nearing the end-of-the-quarter and I expect the window dressing could result in many a rollercoaster whipsawing rides for the next several days. We will likely reach a point on Friday or Monday where the various funds will pull in their horns and just try to maintain these recent gains (many will write or buy insurance calls/puts) rather than push the indexes or stocks higher (many of the dogs could be coughed up as well as no-one will want a dog with flees on their books). It is a typical pattern I have observed many times over the years I have been trading so when you see the indexes start to stall and struggle to move higher I would be extremely cautious about entering any new long-positions. The beginning of the quarter undressing, where funds sell those end of quarter posturing positions, could this time be stifled by those expecting a major victory in the mark to market FASB ruling due out the first week of April, a massive wildcard. If FASB does modify the ruling we could easily see a massive exhaustive topping event (a mother of a short squeeze lasting several-days to a week). This factor that could make the trading landscape very volatile as the potential for a distinct mark-to-market rule revision that could be out as soon as 4/2/2009 but likely in and around 4/7/2008 is a looming contagion especially to shorts.
The Mark-to-Market rule took effect in 2007 and it caused a drain on capital at the over-leveraged lecherous banks, lenders, and the various brokerage firms and this was a huge contagion for them to market these over-valued/priced assets at current market prices as those prices no longer reflect what those who are holding the assets want for them (as they are clearly underwater)….
This rule if you listen to the talking-butt-heads and the CEO/CFO’s of these firms that had masked their exposure and placed these assets and massive over-leveraged derivatives in off-balance-sheet entities; as it was the beginning of the end because the money available to loan dried up as they had to protect their asses as their proverbial ponzi scheme was uncovered. It to some extent had a negative contagion despite the intended result of quantifying assets on bank balance sheets (that were so often left off the reports), as it did now quantify them, however in this deteriorating economic environment it actually caused the value of the assets to fall because there was in their opinion no real liquid market to substantiate the values as they told their investors there was). If these assets were not trading at prices according to those holding them; in a very liquid trading environment (meaning that the assets were trading at values the holders wanted) then a true value could not be determined (as how could they have been wrong in their original assessment). Notwithstanding this if we see that FASB bows to the demands of Wall-Street and these over-leveraged greedy firms, and they change the rules on early next month many of the talking buttheads believe the crisis will be over as these manipulative-ponzi-scheme lenders and banks can again use unsubstantiated models [not true market values] to mark up their books. It’s also very important to remember that there was never a significant cash crisis at the major lenders/banks; it was basically a massive liquidity crisis [due to their massive mismanagement and overleveraged status derivatives exposure] and as a result they quit lending to each other because they did not trust the values on the respective balance sheets [as one financial whore, who use unrealistic assumptions and massive overleveraging didn’t trust another whore] and due to the massive circle of mistrust among the SOB lenders, banks and brokerage firms they basically felt more secure in attempting to protect their own balance sheets and weather the potential uncovering of their personal {off balance-sheet contagions} they hoarded their cash in order to offset the mark-to-market valuations being forced upon them due to the implosion of the mega real estate bubble that they helped to inflate. For what it is worth the damage from mark-to-market has for the most part done. So to change the standards now is in my opinion nuts.
Copyright © 2009 Stephen Tetreault
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Stephen Tetreault | Southern Maine, USA | Email | Website
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