Intra-Day Update: Picture Forming

UPDATE 2:00pm EDT: So, I have been watching today’s gyrations a little and it seems that a picture seems to be emerging slowly. Now again – this is all a bit preliminary – but it’s worthwhile throwing out to you leeches. Let me present the evidence I have collected thus far.

1. We are most definitely in a consolidation rally as the wave pattern so far is behaving according to a minor wave 4 scenario. We should have dropped a lot more today if this were a simple retracement of wave {4} of 3 of (3). Yes, it’s possible we drop steadily from here and the day isn’t done yet, but the climate is still quite bullish right now, in my not so humble opinion, and we could push higher from here. As a matter of fact I hope we do.
   
2. On Monday, the Fed said it would provide limitless dollars through its swap lines with foreign
   central banks in an effort to unfreeze inter-bank lending. The Fed has been increasing those swap lines in the last few weeks, most recently raising them to $620 billion earlier this month. So, where is the Dollar TED spread today?

   

   It has hardly moved, further indicating that the major players in the credit markets still do not trust each other. Unless we see a considerable change here the pressure on the equity markets will continue. Which means that we can expect further down potential in the longer term. However, judging by the last two days the bull had quite a run on hope and prayers – let’s not forget that. The market can stay irrational a lot longer than we can remain solvent.

3. Meanwhile the NYSE bullish percent index is still at 10; the NYSE McClellan oscillator is at -50. So despite my short term momentum indicators pointing downward right now, the risk is clearly to upside as of now. I tell you when I want to load up on puts – when we see the $NYMO at -10 and above and the $BPNYA at anything better than this (30 would traditionally be oversold, but were at 2 on Friday).
4. Mr. VIX is still in fear mode and I need to see something below 35 at least.
5. It’s expiration week – everyone but MMs gets hurt during expiration week.

So, if this did not clear the situation up for you – GOOD! Because that’s kind of my point here. The market may swing either way any second and it seems picking a direction right now is playing Russian Roulette. Plus, as it’s expiration week and volatility is high the market makers are having their devious fun with you. I scalped a few points today with some tech options but unless you can daytrade I recommend you stay away from that. In the meantime I’m not trying to force the situation – this market still has not come to me. And I have zero confidence in loading up on puts right now and holding anything overnight.

UPDATE 3:34pm EDT: Market just retraced by quite a bit in the last minutes (can you say institutional buying?), making my point above. Anyway, I don’t have a crystal ball either, but one of my favorite analysts, Nouriel Roubini, chilled the market today when predicting the worst recession in 40 years:

Roubini Predicts Worst U.S. Recession in 40 Years, Market Rally `Sputter’

I only disagree with him on the level of severity. In my mind this recession is going to turn into a depression and it’ll probably be as bad as the 1929 Great Depression.