Keep Your Seatbelts Fastened - It's Gonna Be a Bumpy Ride

Ok, I know. I got all geared up, getting set for a Bear-back ride, and what happens? I discovered the big nasty Bears aren’t big and nasty after all, they’re Teddy Bears. You would think that if you’re out in the Wilderness, and you’ve prepared a plate consisting of a bankrupt financial sector, a commodity conundrum, a burnt out tech sector, and economic woes that occur once a decade, that the Bears would take that sucker down. No problem. Well, apparently it’s a problem for these Bears.

Sure, you’ve gotta give some credit to the Bulls for defending the 1200 level on the S&P 500 [SPX] for the third time. We almost made it there yesterday, got as low as 1211 on a gap down on the open, but the Bears were quickly rejected and denied for the remainder of the session. Then with only 20 minutes left in the session it looked like we would finish flat, the Bears got up in a bunch and covered their shorts. The markets rocketed into the close. So I guess all in all, it was a good thing that we were all geared up, because it sure was a hell of a ride.

click to enlarge

So, what does that mean from here? Is the market going down, or what? The fundamentals and technicals all say it should have, and it may do so in good time - we are after all still waving the bear flag. But for now, we bounce. The big questions are; “How high?” and “How long?”

Immediately ahead for the S&P are the 20 and 50 day moving averages at 1269 and 1265 respectively. If we get beyond these levels then we have wedge resistance at 1290. If we bounce off of any of these levels, then we may have a good short prospect, and in that short we go for the wedge bottom, and possibly 1200 will give way. On the Naz we have double resistance at 2320, or last week’s gap down, and the 50 day moving average at 2323. And then above that we have the 20 day moving average at 2347.

This bounce, if it does in fact occur, will be very telling on how the next move down will be defended. If we have a strong impulsive move up, that will strengthen the MACDs, making the next move down an easy mark to defend for the Bulls. If we have a retracted move up and the MACD gets weaker, then the next move down may be the one to take out the floor.

Disclosure: Short

Comments

[Schweizer:]

In August there was many predicting a trip to the 200d ma near 1350 but it only got a smidge passed 1300. Now there is tons of resistance and increasing evidence that earnings will be worse as well as the economy going forward. There are no new buyers, just traders covering shorts.

1200 will be tested again for the 4th time, and this time it will fail.

2008 Sep 12 07:46 AM

[Larry House:]

Thanks for passing along the obvious.

2008 Sep 12 11:52 AM

[wpdragon:]

Like it or not, and I for one do not like it, Bernanke's gift to the investment banks of 200 or 300 BILLION dollars from a wide open discount window gave them all the ammunition they needed to day trade this market up and down, taking huge profits both ways (its basically their ONLY profit base), in exchange for which they have plenty of money available to keep a bid under this market.

In fact, they may not have gotten the discount window candy if they DIDN'T agree to keep that bid at 11,100.

The election is too important for them to leave anything to chance, and a meltdown in the US markets would be very bad for George McCain and the nitwit.

Invisible Hand and the Plunge Protection Team win... the markets and the Constitution lose.

2008 Sep 12 12:22 PM

[proactivetr...:]

Short covering always acts as a cushion in a bear market. We are in a short term selling cycle, in a bear market and that will take us into Oct. Yes we are having some unusual bounces, but it is still a selling cycle that will continue to test the bottom of this market. It ain't over until it is over. And this market is far from finished with the current short term selling cycle. If you would like to see our chart signals that will tell you when it is over, and we are ready to start the next bounce up in a short term buying cycle then just email [e-mail] I will send you the annotated market charts. This call for a bounce up is just pre-mature. The existing bottom of this bear market is seriously in question. The next few weeks will determine whether it holds. Watch out. This is hurricane Ike coming at us. According to the Traders Almanac, Oct. is a bear market killer. But at what price? Our major signal on the SP500 turned bearish last year and has remained so since then. You will see this on the chart I send you. Any short term, next week bounce, will be a sucker bounce.

2008 Sep 12 08:53 PM