All Downhill From Here (WEDNESDAY).

by gmak

Don’t worry about the extent of this rally. There have been 26 greater ones of 55 weeks since the Great Crash of 1929 even though it has led to 77% gains. Ambac, C, FNM, BPOP, and BAC are the most traded stocks.

This market reminds me of that web-site that allowed members to trade fake stocks – with real money. So long as more ‘traders’ kept coming in, these names that were backed by nothing more than the alphabet kept going up. The site was shut down as  a Ponzi scheme, but the members protested and actually wanted it to stay open. (Cue Mortimer and Randolph trying to keep the market open to turn things around at 2:25).

http://www.youtube.com/watch?v=_gekaEzqj5g

I wrote yesterday that it was more likely CLOSE > OPEN, and it happened – even though the market headed down initially. So far the probabilities on the SPX have a good track record.

Here is decent trade: If you want to make some easy money after the correction, a number of bear ETFs and leveraged bear ETFs are going through reverse splits. I don’t think that there is a better definition of easy money than this. Some details are here

Overnight

Asia was green – all of it. Europe is as well – except for Greece (wonder why?). The DAX gapped up. The risk trade is back on. It held the gap and has since jumped up again to test the 6280 level from below. The market is being led by Info Tech, Financials, and Utilities. Only Industrials are red. Breadth is ‘across the board’ i.e. most stocks are up.

This sets the tone for SPX – which will open with a gap up if ES is any indication. There is a lot of data to increase volatility. At 7AM, mortgage applications were down 9.6% vs -11% prior. 8:30 will see the CPI and its constituents, along with Retail sales. This latter one is the important data point, IMO. MAR is expected to show an increase of 1.2% vs 0.3% in February. Less Autos = 0.5%, Less Autos and Gas = 0.4% expected. Business inventories come out at 10AM, and the FED beige book at 14:00 EDT.

All of this data could be a market mover if expectations are not met, or if they are exceeded.

A final note to say that I have been impressed with Geronimo, Rammstein, and Zero – and how they have been lining up nicely, recently. My own TA works very well with these indicators and they provide an additional level of confidence to my trades – not to mention cash.

Subscribers get to peek under the Kimono.

SPX Daily Chart

The TD Risk level, which is the purple dashed line above the recent bars, and started at the purple number ’13’, is still the limiting level for SPX.  TD Pressure is turning down and needs to cross below the red signal line. The yellow picket fence at 1174.76 is likely to be the support for any correction.

The 10-day SMA (which is barely visible under the most recent bar, and is lying near the “Since Oct 21” trend line, is “lifting” the SPX and providing interim support.

The two most recent bars were types ’12’ and ’45’. This suggests that today, the OPEN > CLOSE and that any move up should be looked as a shorting opportunity intra-day.

Just to refresh memories, each bar is divided into 5 segments of equal length. The first digit refers to where the OPEN is on the bar. The second digit refers to where the CLOSE is on the bar. A ’45’ means that the OPEN was between 60% and 80% of the way up the bar, and the ‘5’ means that the CLOSE was between 80% and 100% of the way up the bar. I believe that there is a relationship between bar shapes before a particular day and what happens on that day. I’m also going to go to 4 and 3 segments and check that data out to see if it is more or less meaningful in its insights.

SPX has been above the 55-day SMA for 30 days. As I’ve mentioned dn nauseum, there is a much higher probability that it stays there beyond 50 trading days than if it moves back below the SMA in the next 10. Be cautious of the head fake down.

The VIX did indeed close (barely – but it’s there) inside the Bollinger.Two of the three conditions for a correction within a week have been fulfilled. Given the probability of OPEN > CLOSE tomorrow, I would suggest that we will see the third condition.

As I’ve mentioned, I believe that this correction will be used to set conditions such that the big money can exit through distribution and short covering upon a subsequent market rip.

Here is the VIX daily chart

The VIX had a hard time holding onto the 10-day SMA – but given what is happening down below in TD Pressure, today should be an up day for it. If you can see the green dashed line and the green picket fence, sitting on the upper Bollinger in yellow, that is where I think the VIX will run into resistance. The value is around 18.32 – old enough to… whatever. This suggests a quick short correction.The only fly in the ointment to this assessment is that VIX is a derivative of derivatives and cannot be read like an equity index. I see a max value at the blue picket fence of 21.41 for the VIX – on this move up anyway.

I’m not even going to think about the EUR. That bitch is behaving like ES used to. At the time of this writing, she is trapped just under the 55-day SMA. As said yesterday, there are sharks in the water. I understood that the FX players were the smartest ones on this ride, but Sunday’s action makes me think that they are being dominated by newcomers (likely retail) fleeing from equity.

Overnight the EUR made a move back up above the 55-day SMA, but couldn’t hold it. TD Pressure is into overbought territory, and that means a correction or sideways move is coming in a day or two (or three).  I would expect a re-test of the purple trend line that is running parallel to the 55-day SMA (yellow line that touches the most recent bar).

Daily EUR Chart

Bottom Line:

The probabilities say that if SPX opens strong, it will finish weak. Since this is a work in progress, I’m not trading it – but I will be using it as input to assessing the Geronimo and Zero calls and information. As I mentioned, so far those guys are confirming what the TA is saying – and in a compact, early manner.

I’m looking to see if SPX can close above that TD resistance line at 1200.83, and if there is a decisive move from there. I suspect not, unless the data this AM is aggressive and bullish. I believe that there is a small correction coming in SPX and I will not be fooled by the possible ramp off of that downtrend.

In my mind, a Greece default is just a matter of time. I don’t know what this will do to the EUR, but so far market responses indicate that it would likely push it down against the USD. At some point, more countries will default simply because either interest rates would need to be raised to ridiculous levels to roll over debt, or the repayment of that debt would make slaves of its citizens (unlike the US, many countries do not want debt slaves because they have a history of expressing their displeasure forcefully against the political elite). This is deflationary, and as the credit contraction continues violently, this will not be good for risk assets (such as equities). Keep some powder dry for this day.

My Best Regards.