Same Story, Different Day.

by gmak

Although probably of little interest to many south of the 40th parallel, EVERY single top seed in the opening round of Hockey’s Stanley Cup playoffs lost home ice advantage by splitting the first two games. What this really illustrates is that NOTHING usually turns out as expected, and that 8 heads in a row is a probable and does happen once in a while.

The case against GS seems to hang on a single almost-technicality. However, the SEC action has made others bold. If you turn over enough rocks, you will find the creepy-crawly maggots. If nothing else, these and subsequent events MAY slow down the out-and-out gaming of the markets. Or, maybe not.

I’m cynical and suspicious by nature, and I have to wonder if this case against GS would have come to the surface if the Prez was still riding a huge wave of popularity, and incumbents “jobs” weren’t in danger. No matter. Like Pavlov, the American Public is trained to be manipulated. You should take notice though, that the volcano and GS news items seem to have pushed Greece off of the public radar.

I look at the daily SPX chart and I see a single day’s sell-off with support coming from a TD momentum indicator and the “Since Oct 21” trend line. This latter has now been re-tested from above – which is what one would expect after a major trend line is broken to the upside. I look again, and I see the 62% FIB (from the all time SPX high and the March 2009 low of 666). This is just too close not to be attempted at some point.

What do I think MIGHT happen? The market can only go up or down. If it goes down, I look for support coming from the 21-day SMA which closed on Friday at SPX = 1181.34. If it goes up, I look for some resistance at the High of the Month at  SPX = 1213.92.  This will either push SPX back down to re-test the “Since Oct 21” trend line, and the 21-day SMA – OR – it will allow SPX to hit the 62% FIB and test it. Either case, a rejection from the 1214 level, or a rejection from the 1228.74 level, IMO, will lead to a move down to look for interim support around SPX = 1160. This will not take place in a single day, IMO – unless there is another shocking unexpected event.

I would show you the chart, but I am once again behind a firewall and unable to save the image properly.

Overnight

Asia is red. Europe is red. It is incredible how a little civil lawsuit can put the fear trade back on.  The DAX opened up right where it closed on Friday and looks to be putting in a classic bear pennant, right on the suport at 8150 (the support is visible from April 8, 2010).  Green sectors are Utilities, Industrial, and Health Care. All the rest are red – and most of the companies in those sectors. Consumer Staples and Financials are the leaders to the downside.

ESM0 has been in a downward sloping channel all night. Right now, it is sitting on TD technical support, hoveing above the next pivot. Pivots:

• R2: 1219.50 = Out of reach while the fear trade is on.
• R1: 1205 = Ditto. That 1200 for SPX is going to be a formidable barrier to try to get back through.
• Neutral: 1194 =  The roof for today, IMO – unless someone waves a magic wand to make the fear trade go away.
• S1: 1179 = Just below ESM0 at the present time (7:30ish NY Time). The SPX trend line on the daily chart “Since Oct 21” has a value of SPX = 1184.93; This is just above the ES pivot once the spread is included. I would expect this to be the support level that HAS TO give way if we are to see a larger correction. Otherwise, I would see SPX heading back up to try to grab the fruit at the 62% FIB at 1228.74.
• S2: 1168 = Where support will lie if the move to the exits for the leveraged money continues.

I think that the big issue is that the timing of the GS suit, and the way it was issued without consultation, suggests that Wall Street is about to be punished by the Administration – and this may lead to regulators being required to no longer look the other way. In other words, like that stupid “Survivor” show, allies are now competing for the same prize – who will rule.

Data today is only the Leading Indicators from MARCH (heh), which are expected to be 1.0% vs 0.1% prior. As I mentioned before, the equity markets are one of the indicators and one has to be able to believe that they DO discount the future for the number to be valid. I don’t believe this in the currnent environment). I could change my mind if someone will tell me what will happen October 16, 2010 that led to Friday’s sell-off. 🙂

My Best Regards.

UPDATE

Friday’s bar was a 52. Thursday’s was a 33. With this combination there is a greater chance of the CLOSE > OPEN as follows:

After a ’52’:  CLOSE < OPEN (41%); CLOSE > OPEN (48%); OPEN = CLOSE (same bar segment = 11%)

After the ’33’ / ’52’ combo: CLOSE < OPEN (31%); CLOSE > OPEN (46%); OPEN = CLOSE (same bar segment = 23%); The most likely bar shapes are: 51, 42 (both of which have a close < open); and 15 and 55 – this last one is interesting because it suggests that SPX will spend all day below the open, but come back at the end to close in the same bar segment as the open.

I had mentioned several times that SPX had been way too far above the 55-day SMA beyond the usual time frame, and then there was a correction. I think that this type of analysis helps support the VIX / Bollinger signal. The 55-day SMA is curving upwards, and the SPX looks like it may head sideways for a while. 

TD Pressure has signaled a low risk sell – but the last time this happened (March 25), SPX continued to move higher after two down days in a row. In fact, SPX hasn’t seen 3 down days in a row since the January sell-off (referring to where the close is in comparison to the previous day’s close).

Bottom Line: I’m leaning towards that ’55’ bar shape – simply because it would fit in with the way the market has gone to date. Nothing more, nothing less. The market could be topping here, and the 62% FIB could remain out of reach for a while. I remain ready to play either scenario: A (perhaps) final move up; or a correction followed by a bounce to 62% of the height.  In fact, this is a good time to keep one eye open and looking for a possible Gartley pattern (which will have a 62% bounce off of wherever we wind up). I think the extent of this possible correction will depend heavily on how ingrained the ‘buy the dip’ pattern is in the short bus riders.

The odds favour a close higher than the open.