Markets Fading

There is a serious lack of buying interest in the markets. A real rally just hasn't materialized even after a nice bounce off support. There are several things to blame for this. Financial woes have popped back up again. Oracle's miss has people questioning whether troubles have spread to other companies outside the financial realm. The democrats are talking regulation and taxes.

Today's action was poor. Stocks trickled down all day with no capitulation or panic. Financials were weak and a rally never had a chance. Right now the markets are in no man's land. I wouldn't think of buying until reaching support or some sort of panic (gap down/spike in the VIX) ensued.

Weakened Buying Sentiment in XLF

XLF was very weak throughout the day relative to the market. Small caps also performed pretty badly suggesting that participants are still unwilling to come into the market at this stage and do some real buying. Without movement in these two sects, it'll be difficult if not impossible to sustain a rally.

Right now, we're signficantly off the lows and seem to be range bound. I don't see a huge break up or break down in the near future unless we get another Bear (which is unlikely). Accordingly, this doesn't seem like a great place to pour into the long side (nor the short).

Mood: Near Term Bearish but Patient

Nice Rally; Resistance Still Above

Turns out I was REALLY right. The XLF closed up nearly 7.5% on the day and the S&P up about 2%. I'm still concerned about the 50 day simple moving average not too far above this level. Keep a close eye on that and continue to monitor the financials.

Here's some links (All Three Are Bullish):

http://www.thestreet.com/story/10408703/1/towering-vix-signals-a-rally.html

http://quantifiableedges.blogspot.com/2008/03/big-drop-after-big-up-day-rarity-that.html

http://www.thestreet.com/story/10408225/1/kass-11-good-omens.html

Strong XLF Leads SPY Higher

As we got near 9:45 the SPY was pushing to its lows while the XLF stayed stubbornly near its highs. As selling in the SPY started letting up, the XLF continued moving forward providing a nice point to get long the SPY. Like I've said before, the financials control the market and spotting divergences between their performance and SPY performance is a good indicator of shorter term and longer term market direction. Sure enough as I began looking at this action, the SPY started firming up and has since rallied over a dollar.

50 sma is Still Resistance

Update on Picks: JP Morgan closed at its lows even though at one point it was up over 2 bucks (like 5%) where it should've been sold. Google also closed at its low after being up almost to 450 dollars.

It's clear the 50 sma is still providing significant resistance for the broad market. If the markets move up, watch the 50 sma level closely. If it gets weak, short. If not, then stay away.

Bullish Market Turn

Todays action was clearly bullish. This morning the market opened with a respectable gain until financials such as Lehman and Goldman really started taking off. As these rose, the broad market followed strongly. Any dips were bought into and the market closed near the highs of the day.

There was a great opportunity to get long today besides the morning. Right after the fed announcement there was a nice little headfake selloff that provided a good bottom to trade off of. The market then rallied strongly from there into the close.

I think the market still has upside from here. The investment banks are becoming much less of a worry as the junk (Bear) is finally getting thrown out and the prime players (Goldman, Lehman) can now distinguish themselves.

Google looks like it has the potential for a bit of a snap back rally. The chart shows a quick double bottom that looks tradeable. JP Morgan might still have some juice here as well. It's one of the healthiest banks out there and showed it by picking up Bear Stearns on the cheap. Denis Gartman also publicized just the other day that his fund started buying it. Plus, it didn't move near as much as the other banks today.

Bad News, Good Action

A combination of solid action and good news makes this market look a lot better. Even though Bear is gone, Lehman and Goldman are still chugging along, restoring some confidence in the troubled investment banks. Both reported earnings that beat estimates this morning and are up big in the pre-market as a result.

This in combination with the solid action yesterday (big gap lower was completely erased into the afternoon) has me thinking we could get a few days if not more to the upside.

Look at yesterday's spike in the VIX. It was exactly the type of move that I was looking for to get long off of. Everyone got too negative which let off a nice buy signal. Gaps lower in a downtrend continue to be a good opportunity to buy.

The XLF looks set to lead this morning. Their success, as I've pointed out in the past, is essential to the health of the overall market. The issues that surround the financials control the fed, sentiment, and thus market action. Keep an eye on their movements as they may lead the market up or down.

JPM Buys Bear for Two Bucks a Share

JP Morgan announced Sunday that it will be acquiring Bear Stearns for just two dollars a share. This will likely spur a downfall in the market on Monday as the economic situation continues to be proven worse than initially and commonly thought. However, the Fed meeting on Tuesday could caution shorts from being too aggressive.

We're now down three weeks in a row on the S&P and Nasdaq. If we get beaten down this week as well, I might consider buying the Nasdaq for a mean reversion trade. Typically, the broad indices bottom out (short term) after 4 weeks down in a row. This is a result of overdone negativity where sellers get worn out and overextended.

This market's theme continues to be sell strength and buy extreme negativity. This will continue to be the case until there is either signficant fundamental change or financials regain their leadership position.

Gap Lower; Reaction to the Upside

After gapping down signficantly on the open, the S&P is now breaking higher. It is coming right over its 50 and 20 sma (1 minute chart) strongly and looks set to move higher from here. We'll have to see if this can hold into the afternoon.

Here's a link to a great article that was recently posted on Quant Edges which states that buying gaps down (like this morning) in bear markets is a profitable strategy.
http://quantifiableedges.blogspot.com/2008/01/large-gaps-lower-in-uptrends-vs.html

Slow-Mo Move Downward

This morning I mentioned that the market didn't look too bad. Well that was true for about 45 minutes. The S&P rallied a dollar from where I posted but has since faded.

The S&P continues to drip down slowly. For anything to change there needs to be some panic or signficant fundamental change. The VIX hasn't moved up enough to indicate panic. I think that means there is more to go on the downside before any rally.

Watch the January lows. There needs to be a signficant reversal off those levels for the market to see any real upside in the coming days/weeks.

Rally After Gap Down

After a gap lower, things are really starting to heal up. The Nazz is leading and both the RSP (unweighted S&P) and XLF are outperforming the S&P by a considerable margin. I think things have gotten a bit overdone and we might be in for a bit of a rally here (i'm seeing one as typing). We're slowly moving towards positive, but I feel sure we'll get there if not more.

We'll have to see if this holds into the afternoon. Previous rallies have faded and this one could just as easily do so as well.

Markets Fade: Big Suprise, Right?

Once again, the market fades into the afternoon. We're now down 25 points on the DJIA and down nearly a point in the S&P after being up decently in the morning. Like I said in my earlier post, I expect any up day where the financials don't participate to fade. I continue to believe we'll drift lower in the coming weeks until we get some capitulation, a succesful test of the lows, or a big news item.

S&P Chops Along; Bias Downward

The S&P continues to consolidate. Financials are still weak (XLF is flat on the day) and it's obvious that there are no aggressive buyers in the market. To turn the market around at this point the bulls need a big washout (not just slow trickle down days) or significant fundamental news. The washout would have to cause panic similar to the drop that led to the lows in January. This has not happened yet. A shift in the fundamentals would really have to be large (ie government bailout of bond insurers) and credible, which could be the hardest part. Traders don't trust Bernake or Paulson, period.

The drops continue to be more significant than the pops. Everything participates in the downside fade but only a select group participates in the upside.

Resistance on the S&P is at the 50 sma, right where it bounced of on the last advance. Support is at the January lows (1275ish). Continue to watch for tests of those levels and trade accordingly.

Cover VAR Below 51

VAR is trading right around 50.89 right now. I'd look to cover the short right here or lower for a couple quick bucks in profit.