Matt Trivisonno's Blog

On Thursday, I wrote:

“We have the big jobs report tomorrow morning, which often establishes swing highs and lows on the daily chart.”

And we did indeed have a dramatic reversal on Friday, did we not? The SPX printed an impressive-looking bullish hammer candle, which often marks the end of a sell-off. However, that hammer reminds me of October 10, 2008. We had a dramatic reversal off of 899 on that day, and the market didn’t violate that low until a month later – but 899 was a long way from the ultimate low of 666, right?

So, perhaps the market has printed an intermediate swing low, with more fun to come for the bears in the weeks ahead. The primary difference between now and then is that in October 2008, the economy was collapsing, and today it has completed its collapse.

The economy is probably more likely to turn up from here than it is to turn down, but the market has not been reacting to the economy. It has been reacting to financial and political events: The Democratic loss in Massachusetts which has caused the Obama Administration to turn hostile toward business, tightening of bank lending in China, and of course, the spectacle of the European financial crises.

So, take a look at the chart in the weeks following October 10, 2008. Maybe we will enjoy another period of highly-volatile range-trading before the market decides upon its next trend. After all, there is quite a lot of crazy stuff going on.

Note to bulls: maybe this film shot from a San Francisco streetcar in 1906 will calm you down; like watching fish swim around in an aquarium:

Hat tip to my colleague, Larry Miller.

If the market can’t rally today after Cisco’s strong earnings report, then that will be a very bearish indication. Of course, we have the big jobs report tomorrow morning, which often establishes swing highs and lows on the daily chart.

I think an upside surprise is more likely than a downside surprise, but I would never bet on the outcome of the BLS’s random jobs generator. More often than not, the best play is to wait for the report to trigger an extreme reaction, and then fade it, whichever way it goes. Also, if large players are looking to sell, they would be waiting for a positive surprise to trigger a rally and then sell loads of volume into it. So that’s something to watch for.

The BLS will also announce its “benchmark revisions” which will likely show that their previous numbers were wildly inaccurate. It’s sort of a tradition.

Is Greece Dubai All Over Again?
Did Abu Dhabi let Dubai twist in the wind because the USA was pressuring it to reign in Dubai’s sanction-circumventing trade with Iran? If so, then perhaps the Dubai Crisis was blown all out of proportion and was more of a political event than a financial event.

And this quote from AEP is making me think that Greece is an analogous situation:

“There are reports that Berlin is deliberately bringing the crisis to a head, hoping to lance the boil early and force the Club Med states to reform before it is too late. If so, this is a risky strategy. German banks have huge exposure to Greek, Spanish, and Portuguese debt.”

If the Germans have that huge exposure, will they really let the Greeks go under?

Schedule
I just noticed WordPress’s scheduling feature. So now I’m going to use it to make the daily trading posts appear each morning at 9am.

Here is an update of yesterday’s chart (click to enlarge):

The futures are sagging a bit as I write this, so maybe a right shoulder will form tomorrow. Notice that the neckline is higher than yesterday’s chart, so the target (red “X”) is also higher at 1135. That level is about a 78.6% Fibonacci retracement of the drop from the highs. So, a bullish resolution of this pattern has enough juice to get up to the peaks, but perhaps not to surpass them.

For the bears: SPY’s volume on the last two rally days (Monday and Tuesday) was lighter than the prior two plunge days (Thursday and Friday). So, that’s a bearish factor. If SPY heads down on strong volume Wednesday, then maybe it will blow right through the lows.

Short term, NYSE breadth is stretched and likely to weaken on Wednesday, though that doesn’t always translate into lower prices. NDX breadth and R2K breadth were actually weaker on Tuesday than they were on Monday. You could read that as a bearish divergence, or that they have room to move to the upside. So, perhaps we will have a mixed day with the SPX flat or down, and the small caps and techs rallying a bit.

Progress, Shmogress
Twenty-five years ago, I had a Toyota with an accelerator pedal that would stick to the floor. Today, Toyota makes cars with the same problem. I know that the Japanese are getting senile, but what was their excuse in 1984?

And let me tell you…it’s quite a surprise to not have your accelerator come back up. I would shift into neutral, and before the engine revved past the red line and blew up, I would shut the ignition off and coast over to the shoulder.

Note: most of you won’t know what a “red line” is because you have never seen a tachometer. And that’s because of Starbucks. Modern latte-sipping drivers can’t spare a hand for a shifter, so manual transmission are a thing of the past. I have even met valets who park cars for a living who were embarrassed because they could barely drive my car.

In summary, don’t buy anything made in Japan, which has become a nation of Alzheimer’s patients. And profit from their misfortune by shorting the Nikkei.

This morning, I said that there were no reversal patterns in sight, but today’s action has changed that. As George pointed out, there is a potential inverted head-and-shoulders reversal pattern forming on the SPX chart. Here is how it may develop (click to enlarge):

A bullish resolution would target the 1120 area, while a violation of the left-shoulder 1078.46 level could be rather nasty. But look at the two purple arrows; they are pointing to a series of declining peaks which shows that there is no neckline yet. So, the pattern is in the very early stages of forming, if it forms at all.

Also on CNBC today, Bob Pisani said that the estimate for Friday’s jobs number was -40,000. I don’t know why he said that because that is actually the lowest estimate in the range, which is -40,000 to +75,000. That makes me think that the floor traders fed that number to Pisani because they are leaning short. And that might be an indication of the crowd leaning short, and perhaps being ripe for a squeeze.

On the morning of January 11th, I wrote:

“The SPX’s 200-month moving average is at 1156, which is also the top of the Box of Beer. That confluence should provide some sort of resistance.”

As it turned out, it was lethal resistance, and now another important moving average is coming up. The SPX made a brief bounce at its 20-week MA before falling through. Now it as approaching its 100-week MA, which is at 1060.38.

The charts are a horror scene without the slightest sign of even a fledgling bottoming pattern. If the market can’t hold inside the November 9th gap, where it is now, a trip down to the 100-week MA seems likely. If the bulls can’t circle the wagons there, then the next rung in hell is the November 6th gap at 1046.50.

If the market can’t stabilize on prospects for a positive jobs report on Friday, that would be a rather bearish omen.

On Thursday, the SPX closed at 1084.53, which is only 0.27 points off of the threshold of the Box of Beer (1084.80). How’s that for accuracy? The Fibonacci analysis that I did four months ago determined that to be a key level, and so it has been.

If the SPX can’t hold in the Box of Beer, it will fall back into the Box of Bulls where the first substantial support level is 1068.11. And, as befits an important Fibonacci level, there is a large unfilled gap right there. That gap opened on the morning of November 9th, and the market never even came close to filling it. This is the gap that George has been showing on his weekly charts.

For SPY, the gap is between 107.16 and 107.87, and it’s a fat, juicy target for this sell-off. If the market does indeed dive down there, it should find some sort of support. How long it lasts is another question.

Also, I think there is a decent chance that next Friday’s jobs report might show that the economy created a few jobs in January. Let’s see what Bloomberg’s survey of economists shows on Sunday.