Friday, March 20, 2009

IT thoughts - SPX 780 taken out

We have good news and bad news, if you are bullish.

The good news is that SPX took out 780. This has the SPX now potentially uptrending on the daily charts and in a confirmed uptrend on the hourly charts. The bad news is we have rallied right into the resistance - the upper BB on the daily charts. So we should see some kind of a pullback starting here. Now to make a bearish case here, we need to get the hourly downtrending again and break below the SPX 730 pivot to get the daily downtrending. There's gonna be some fight before all that happens. But the no-brainer bearish case is gone after the breakout above 780.

The case for an IT bottom has been made based on the strong breadth and 90%+ up/down volume days. But to me in a bear market that's a measure of how fast the bulls have spent their money. If anything the MCO spikes have all marked tops in this bear market and have not been continuation signals. Now we have this breadth surge into the dialy BB resistance. Have the bulls run out of coins ? We will find out. Also i have been talking about the 9 month crest potentially mid-to-late March. Now cyclically it's bearish all the way into the fall ! But trend overrules cycles in my book, so i will be watching as to how the trend unfolds here.

Bottomline VST i am bearish, looking for a pullback. Once that pullback leads to an hourly oversold condition, i would be a buyer to see what kind of firepower the rally has. If that raly fails, i will return back to the bear camp.

FOMC statement - March 19

In these circumstances, the Federal Reserve will employ all available tools to promote economic recovery and to preserve price stability. The Committee will maintain the target range for the federal funds rate at 0 to 1/4 percent and anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. To provide greater support to mortgage lending and housing markets, the Committee decided today to increase the size of the Federal Reserve’s balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion. Moreover, to help improve conditions in private credit markets, the Committee decided to purchase up to $300 billion of longer-term Treasury securities over the next six months. The Federal Reserve has launched the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses and anticipates that the range of eligible collateral for this facility is likely to be expanded to include other financial assets.

This is by far the spookiest statement i have read so far. Bernanke is fully commited to test his academic theory that a deflation is not possible in a fiat regime. So a purchase of 1.25 trillion in agency mortgage-backed securities and $200 billion of agency debt and $300 billion of longer term securities. That 1.75 billion. Add to that the government's 1.75 trillion in federal deficit. That's a cool 3.5 trillion we have created without a sweat on the brow!! Whew ! Now who's bigger - the Government or the Fed ? We have a socialist government and a autocratic Fed. Do i see the light at the end of the tunnel ? Nope.

Monday, March 16, 2009

VST, ST and IT thoughts

Well, it would be foolish to say that nothing changed since my last update on 3/9/09. The hourly which has been downtrending since 2/9 has now started uptrending. Since we have not had any meaningful pullback since this bounce started on 3/6, it's hard to come up with upside targets for this move at this point. But clearly the big resistance is around SPX 780.

The ST and IT trends are unambigously down. Many claim that we seen an IT or a LT bottom here. But those are just claims, until proven right by the market. I did not see any bottoming action based on my indicators on 3/6. A high volatile move suddenly morphing into a low volatile bottom is not something typical. Had the market put a high volatile wide range reversal bars, leaving most behind, then it would been a signature of a long lasting bottom. But this bottom seemed to accomodate everyone !

Let's first get the daily (ST) uptrending and then we can discuss about the IT. If SPX takes out 780, then the ST(daily) would start uptrending, suggesting that the market has legs. But for a ST or IT trader the trend remains down and shorting seems to be the safer, high odds bet (until 780 is taken out).

This week's market action should provide more clues. Will post an update next week.