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.