Potential SPY Reversal

As SPY fell Friday after 2:00pm, it did so in two distinct thrusts that were retraced about .618%, and closed while engaged in a third thrust downward. So, a potential Bullish Three Drives pattern is developing. See page 220 in The Harmonic Trader. Here is the pattern so far on the SPY 1-minute chart (click to enlarge):

So, a drop to $73.24 on Monday is a potential reversal area. The equivalent level on the SPX is 729. Since the market is so weak, a further extension of the final thrust down might occur beyond 127% to 161.8%. Those SPY/SPX levels would be $72.80 and 724.95.

In the comments on Friday, I said that the market could bounce when the Russell 2000/IWM hit its November low. And the R2K is only an eyelash above its closing low on November 20th, and its intra-day low on the 21st, right now. So that is good additional evidence for a bounce after a further dip.

Also in the comments Friday, I mentioned that the IWM has a bullish inverted hammer candlestick on its daily chart. So, that is another piece of evidence.

Do you see what I’m doing here? I’m using three different approaches to build a case: harmonics, traditional support/resistance, and Japanese candlesticks. I will continue studying the problem from different angles and see if I can strengthen case further.

The next angle is sentiment. As I mentioned in the comments on Friday, people on CNBC were euphoric over “The Amazing -199 Point ‘Rally'”. In fact, you can see Maria Bartiromo praising the market while it was falling at 3:45 into this interview with Robert Prechter on CNBC Friday afternoon (sorry, CNBC took down the video).

That went on all day. As we have been discussing in the comments, there was no panic as the SPX took out a major low. In fact, there was quite a lot of bullish cheerfulness as reflected in such indicators as the put/call ratio. So, I’m thinking if a rally develops next week it won’t get far because so many traders have probably already placed their bullish bets.

Now lets do a gap analysis:

First, lets consider that the Gap of Doom was a “continuation gap” continuing the move down from the February 2nd top. Here is what the textbook says about such gaps on page 219:

Its inference is that prices will go as much farther beyond the gap as they already have gone between the beginning of the move and the gap, as measured directly (and vertically) on the chart.

And indeed, if you look at the Fibonacci retracement I have drawn on the chart, you can see that the Gap of Doom is placed neatly in the middle of the wave down from the top on February 9th to to the close on Friday. In fact, the top of the gap is right at the 61.8% fib (blue line and blue arrow) and the bottom is right at the 50% mark (green line and green arrow).

Prices snapped back hard from Friday morning’s gap down (red “G” on the chart), so it is possible that that was an exhaustion gap which may terminate the wave. Also, during the day Friday, I said in the comments that I was shorting as SPY filled the gap at point “X”. Prices usually reverse when gaps are filled, so I was just fading the gap. However, the fact that SPY was able to fill just about all of the gap is actually bullish because it ate away at most of the resistance there. So, if SPY can climb back up to the “X”, it has a good chance of being able to eventually punch through.

This chart shows some potential rally targets:

The market has two downtrend lines: The 2009 downtrend line (upper blue), and the February downtrend line (black). I have also made an exact parallel to the upper blue line to form a potential downtrend channel.

SPY may want to drop a bit more to tag the lower blue line before moving up. If SPY is not able to recapture the black line, it will likely embark upon an even steeper dive. The purple and yellow lines are potential Fibonacci resistance levels, and the blue “X” marks an ideal spot for shorting. There is triple resistance there from the blue downtrend line, the Gap of Doom, and the turquoise line, which would be a 50% retracement of the drop from February 9th. That’s about 805 for the SPX.

As Phil mentioned, there is a full moon on March 11th, so a rally up to the blue “X” around that time would likely bring out the same frothing-at-the-mouth-bullishness that we saw at the full-moon peak on February 9th. Wouldn’t that be a beautiful shorting setup?

Also on the chart, notice the volume at the November low (black circle), and the volume last week (blue circle). As I have been saying in the comments, volume looks too low to put in another major bottom. However, if volume continues to increase (purple line on volume chart), it would be very dangerous to add short positions.

Thursday’s Trading – 2/26/09

I don’t have much time to write tonight, but I think that Thursday morning we will find out what the big funds think of the “stress test” news that came out after the bell on Wednesday.

So, I will be watching XLF very closely. On the chart in Wednesday’s game plan, I showed XLF with a 100% extension off of its low. On Wednesday, XLF was able to extend up to the next Fibonacci level (127%) at $8.37. That is also the lower bound of its Gap of Doom, and it immediately fell back.

If XLF can power up into the G.O.D, then we have a hint that the big funds might like what the Obama administration is doing with the banks. And if that’s the case, then SPY may be able to complete its head-and-shoulders bottom.

The futures were rallying a few points after hours, but have fallen back as I write this. So maybe the rallying was just some knee-jerk short covering after the “stress test” news came out.

Also, since we are in the traditional month-end-markup period, you would think that the gremlins would be levitating the futures to drum up some phony bullishness for the open. But they are not, so far anyway. So, maybe that is a hint that the big funds are not enamored of the latest banking rescue.

SPY Working on H&S Bottom

Here is a 15-minute SPY chart over the past couple of weeks (click to enlarge):

The height of the attempted Head-and-Shoulders pattern is purple line “A”. If SPY is able to break above the neckline on strong volume, it could run up the price-projection line “B”.

Notice that SPY is having trouble holding the green uptrend line. Also, the Chaikin Oscillator is still negative indicating insufficient money flow into SPY.

Even if SPY can get it together and break-out, the setup implies that it will not be able to fill the Gap of Doom.

Wednesday’s Trading – 2/25/09

It’s very curious that Obama is on a mission to cut the deficit. Weren’t the Keynesians just arguing that we need to dramatically increase deficit spending to stimulate the economy and pass a gigantic stimulus bill? You know the rationale: it doesn’t matter what the government spends money on as long as money is injected into the economy. They could buy cars from GM and drive them into the ocean, and the jobs created at GM would still be a net gain for the economy. And now Obama is going to cut the deficit?

I’ll bet that nothing is cut from the deficit. In the end, money will be shifted from Republican constituencies to Democratic constituencies. Politics will be done as usual, and nothing to truly help the economy will be done as usual.

Game Plan – 2/25/09

Now that Bernanke has shot down the Obama bank-nationalization trial balloon, all is well. The crisis is over. The banking crisis has been solved – yet again. In fact, we should have a big party on March 14th to celebrate the first annual anniversary of the solving of the crisis when Bear Stearns, the black sheep of Wall Street, was put down.

Oddly, after March 14th, the banking crisis just kept coming back, like the Terminator, alternately crashing and rallying the stock market. Funny how that happens. And the black sheep just keep on multiplying somehow.

But I’m sure everything is fine now! I’m sure all the toxic assets were magically wiped away while Bernanke testified before Congress. Hurrah!

The XLF rocketed upward 13% in relief today. Take a look at the moonshot on this hourly chart of the past few days (click to enlarge):

The XLF has completed a full 100% Fibonacci extension off of its low. I drew my fib extension from the low at point “A” to the peak at point “B” to the low at point “C”. So, at point “D”, we have the 100% extension. Of course, the XLF can extend farther, and if it does so tomorrow, it may be the first part of the market to confront its Gap of Doom. Rest assured that the XLF, and the rest of the market, will not sail right through the G.O.D. There will be a fight, and in the short-term, it is an excellent area to short against.

SPY is already overbought on its 60-minute slow stochastic. The last time it reached that level was February 13th – one trading day before the Gap of Doom. Of course, SPY was overbought on longer time-frames at that time, so after a modest pullback, or some consolidation, SPY could push higher.

However, there will almost certainly be a sharp correction to Tuesday’s rally soon becuase the froth is already thickening. Traders bought calls like crazy on Tuesday. Another day like this and the put/call ratio will be as overbought as it was at the peak on February 9th.

While the XLF is closest to its Gap of Doom, the IWM has a smaller gap coming up first. The IWM’s close from the 19th is a potential early stalling point for the market.

You should also have this down-trend line on your SPY chart. Might be a problem on Wednesday:

Here is the inverse head-and-shoulders pattern on the 5-minute chart that I was talking about in the comments on Tuesday:

To determine the price target of this pattern, you measure from the neckline to the head – green line “A” on the chart. Then you measure that same distance upward from the neckline – green line “B”. Notice that SPY turned down right after hitting the target.

The fact that SPY just completed an H&S means that it is now a man without a country. We don’t know what the next pattern will be. However, SPY was sold heavily at the close, and came in second on the selling-on-strength chart. So, with a nuetral news-flow, I would expect SPY to begin the day Wednesday moving down.

I added to my shorts at the bell. However, if SPY falls on light volume, I will consider parting with them because a low-volume decline would make the next pattern a bull flag. If a bull flag were to develop and complete, I could then put my shorts back on at better prices.

Tuesday’s Trading

Now that the QQQQ has taken out its January 20th low, the next stop is the November low. The Q’s still have a gap left over from the open on November 24th. I have the bottom of the gap at 26.67 and the top at 26.84. So, if the market takes another leg down this week, that is a logical zone in which to look for support.

Apple is also nearing two gaps left open from January 21st and 22nd, so those might be important levels where the market could bounce. Gaps will usually produce an initial bounce, but if the gap is filled, think of it as a support level being erased.

Make sure to see JungleGirl’s EWT projections here.

Game Plan – 2/24/09

Looking around the blog-o-sphere over the weekend, it seemed to me that the accepted wisdom was that the market was very oversold and that shorting was dangerous. I had that opinion myself. Another example is Sol at xTrends who is currently losing money on a long ES position. xTrends has been correctly bearish for a long time.

So, a lot of otherwise winning bearish traders were playing for a bounce on Monday. And yet their buying didn’t even make a tiny dent in the market. Even though most traders seemed to be in cash waiting for a bounce to short, or long trying to catch a bounce, the market plunged anyway.

I think we are seeing large funds distributing in a serious way. At first, I couldn’t think of a catalyst that would blow away the bullish technical setup that we had going into Monday morning. But now I think it was Obama’s pledge to cut the budget deficit. That, of course, is code for “raise taxes”, and “raise taxes” is, of course, code for “raise taxes on non-Democratic interest groups.”

That’s right; it’s soak-the-rich time. Obama hasn’t announced anything yet that I know of, but I’m thinking we should plan on such things as capital gains taxes being raised. And if you add that on top of all the other things going wrong in the economy, you could see why big funds would want out of the market. There is literally no light at the end of the tunnel.

So, while the market is indeed very oversold here, I’m willing to be short because this sort of free-fall can get ugly. In fact, the double-top scenario that I wrote about four months ago in Goodbye Bull is inexorably playing out. And it is a very long way down to the completion of that pattern.

So, my plan is to have a small short position to profit from any sudden plunges, and add to shorts on any strength that may materialize. If we embark upon a listless, apathetic drift down, there may not be much strength to short. In that case, shorting on lower time-frames might be the only option. So, for example, instead of waiting for SPY to get overbought on the daily stochastic, you might short it when it gets overbought on the hourly.

It is possible that a new apathetic market will behave differently, so it’s good to start thinking about what it might act like.

Just look at the put/call ratio. The market takes out a major low, and nobody is alarmed? Nobody is buying put-option insurance against a market plunge? The apathy meter is pinned to the edge of the dial.

Here is a 5-minute chart of Exxon on Monday (click to enlarge):

After a fatally optimistic gap-up at the open, XOM fell in a bearish broadening pattern (megaphone) all day. If that pattern remains in force Tuesday, things will not go well for the market. If I’m not mistaken, Exxon is the stock with the largest impact upon the SPX.

No More Rallies

Rallies are so 2008. Forget about rallies. There will be no more rallies. The jack will no longer pop out of the box and flop around like a flaming moron. The spring will not get wound tight enough anymore. Why not? Because the child is tired of playing with the toy. He will not expend the energy necessary to push the jack back down into the box. He is either depressed and in need of medication, or off playing with other toys such as gold.

Steven M. Sears plaintively cried out for an answer to the Vix conundrum in Barron’s:

“Even though the VIX is at an extremely elevated level, it is still far below last year’s intraday high of 89.53, even though the stock market is falling through last year’s low. It isn’t clear that anyone has a really good answer why, and this just makes people more nervous.”

If you have been foreclosed upon and kicked out of your house, do you still need homeowner’s insurance? No. If you have sold all your stocks and gone into treasuries or gold, do you need to buy put options on stocks? No. If you are a value investor with a years-long time horizon, do you buy puts on your stocks? No. If you are grimly holding onto stocks that are practically worthless, shaking your fist at the market and shouting: “I’ll see you in hell bear market!” do you need to buy puts to protect your stocks from becoming more worthless? No, you don’t have any money to buy puts.

A few days ago in the comments, I said that I thought we were heading into a long apathy phase of this bear market. And I’m thinking that investor apathy toward stocks translates into relatively lower levels for the Vix.

Of course, I’m exaggerating when I say there will be no more rallies. But you see what I’m getting at right? Last year’s March-to-May rally actually got up above the 200-day moving average. Remember that? They just don’t make rallies like that any more.

The McClellan Terminator

Take a look at this chart of the McClellan Oscillator (click to enlarge):

During the rally that peaked on January 6th, the MacOS hit an all-time high – point “A” on the chart. Think about that for a second. An all-time high level of bullishness when the economy was in a death spiral. Think about how wrong that was. How insanely, incredibly foolish those bulls were.

Now they are being punished. What do you think would be a just punishment? I propose that these bulls be punished with an all-time low on the MacOS. As far as I can tell from my data, it looks like the October 10th low is the record so far (“E”). And today we closed a bit above (“D”).

So, one more down day, and justice may be served upon the Larry Kudlow’s and Dennis Kneale’s of the world.

On the chart, I have drawn a Fibonacci price extension. I connected the peak at “A” to the low at “B” to the peak at “C” (light blue line). The software then draws the Fibonacci projections using those points. The point (ha,ha) of this is to get an idea of how far down the current wave will extend. In many cases, the wave from “C” to “D” will be equal to the wave from “A” to “B”.

The purple line marked “100%” would be a “harmonic” extension of the original wave down, and is a potential target.

The red and green dashed lines are the overbought and oversold levels for the MacOS. We have been oversold for five days now. During the plunge down to the October 10th low, we stayed oversold for six days. So, another down day is certainly possible.

Tuesday could be a capitulation day. A big plunge down, soaring volume and then a snap back. Where might the market bounce? I suspect that it is at the level where a lot of the big value fund mangers will be willing to catch another falling knife. What do they have in mind? 700? 650? 600?

I don’t know, but I should have something further to say on the subject later when I am done studying all of my charts.

Monday’s Trading – 02/23/09

You Know Things are Bad When…
…Dubai has to be bailed out.

A Plague of Boxcars
After shipping all of our factories to China and Mexico, our laid-off workers can now take up residence in the miles of idled boxcars that plague the nation. So the global economy makes sense after all…

I noticed that the Dow lead the way down through the November lows. Sure, it is packed with zombies, but I’m wondering if there is more to the story. After all, in an increasingly protectionist world, doesn’t it stand to reason that multi-nationals will be hit hard?

Game Plan – 2/23/09

Let’s start out with some solace for the bulls: the S&P 500 bounced at 754 on Friday, which is two points above the low closing price of the November low at 752. This might indicate that dip-buyers were eager to get in before the market inevitably bounced off of what they expect to be a successful test of “the” bottom.

But I doubt it.

That low came at 1:20pm on heavy-ish volume. The market then bounced up on light volume in what was probably a standard retracement before another move downward. But then the White House announced that it would not be seizing any banks and the market, having been worried about nationalization, sprang upward.

So, I think the market was saved by the bell. But even if you don’t buy my explanation, you still have the general rule that the first two approaches to a major support area will hold, and the the third approach is the one that punches through. From page 238 of the textbook:

“…it is an odds-on assumption that a third attack at a Resistance Level will succeed in penetrating it.”

So, it was perfectly normal for the market to bounce where it did on Friday afternoon. I am expecting the market to eventually punch through the November low, but it won’t go without a fight. So, let’s try to figure out how high the market might bounce before it comes back down for round two.

The SPX formed a bullish hammer on its daily chart Friday. If we drill down into the intra-day chart, we see that a bull-flag formed after the White House announcement at 2:16pm. I think that is the spot to begin measuring the flag from since that is when the volume exploded.

The market retraced all the way down to the 78.6% Fibonacci level at 3:30pm and then closed higher. So, the flag was in good shape at the close. As I type Sunday night, the futures have successfully re-tested that 78.6% fib level at 763, and jumped higher.

The futures are ignoring the fact that Asia is down, and it looks like the market is poised to follow through on the bull flag Monday morning. A 100% Fibonacci extension would take the market to 783. However, the market is very oversold, so the spring is wound pretty tight. Dumb-money shorts covering like their heads are on fire could take us up two more fib levels, 788 & 794. At that point there will be a good deal of resistance; the price range where the market traded sideways for most of Tuesday, Wednesday, and Thursday.

Nevertheless, the market is set up for one-day wonder event. If the bull flag completes, we will have to see what pattern develops next. And of course, there will be very heavy resistance up at Tuesday morning’s gap.

I haven’t had time to do a full analysis, so I probably won’t be trading tomorrow. However, if the market can get up to 805 and work off most of its oversold condition, I would look at doing some shorting. I think Tuesday’s gap has a very good chance to be a “Gap of Doom” like the still-unfilled gap from October 6th.

Ghosts vs. Zombies

This week was all about the zombie companies like GM and Citigroup. But don’t forget about the ghost malls!

Here are some links to retail expert Howard Davidowitz on TechTicker. The ironic thing is that Davidowitz may run out of clients for his consulting business:

“Worst Is Yet to Come:” Americans’ Standard of Living Permanently Changed

American Retail Goods: On Sale Now — and Forever?

Get Ready For Mass Retail Closings

Friday’s Trading – 2/20/09

Gremlins Tapped Out?
I don’t see anybody trying to herd the cats in the futures as I type here Thursday night. I’m thinking that the options gremlins may have reached the bottom of their war chest. Trying to prop up a falling market to save your put positions ain’t cheap you know…

If this is indeed the case, then perhaps Friday will be less boring than Wednesday and Thursday.

Game Plan – 2/20/09

The McClellan Oscillator got more oversold today, however I’m not covering my short positions yet. The MacOs is a momentum indicator after all, and it is telling us that there is powerful downward momentum. I still think we need to see a high-volume capitulation barf-up to complete this move. SPY, QQQQ, IWM, and XLF all had light-to-average volume on Thursday, so that was no capitulation.

Also, the MacOS is calculated from moving averages of advancing and declining stocks, and that data (called “breadth”) strengthened on Wednesday and Thursday. In fact, at one point Thursday morning, advancers minus decliners was +1,501 on the NYSE – a burst of buying euphoria that eventually faded to -1,370 by the close.

So, after Tuesday’s plunge, dip-buyers came in and bought the dip on Wednesday and Thursday. Yet the market kept falling. I think we may have run out of dip-buyers, and the market is likely to fall further.

Here is a projection of price movement based on the chart that I posted yesterday (click to enlarge):

The SPX hourly bars are in light blue, and I have drawn an Andrew’s Pitchfork to capture the trend so far. I drew the fork connecting the high at “A” to the low at “B” to the high at “C”. If prices continue falling at this pace, we will arrive at 740 sometime early next week. The fast projection is for Monday at the red arrow, Tuesday at the blue arrow, or Wednesday at the green arrow.

Notice that prices moved away from the red “fast” line to the green “slow” line on Thursday. This could be just normal consolidation, or it could be a prelude for prices breaking out of the green line and heading back up to back-test the breakdown at the purple line. That is normal. However, we have already had three daily closes below the purple line, so the breakout of the rectangle is pretty much certified. If we get a low-volume run back up to the purple line, that would be an excellent spot for selling.

Here is another projection using a Fibonacci Fan instead of the fork:

We have the same principle here. The market was following the steepest projection along the red 23.6% line and has improved to the blue 38.2% line. The blue line still lands us at 740 early next week, though the market could of course improve to the green or turquoise lines.

But I’m expecting a speedy arrival at 740 because the pattern coming out of the rectangle is a pretty well-defined bear flag:

The flag is tilted downward indicating a small population of dip buyers.

Game Plan – 2/19/09

I’m looking at the market with a rectangle pattern (click to enlarge):

The rectangle spanned the range from about 810 to 875 (purple lines). When you fall out of such a pattern, you can expect to keep falling about the height of the rectangle, which would be 65 points. So, 810-65=745. On the chart, look at red line “A” and then red line “B”, which is the same height. This projection sets us up for a test of the November 20th low at 741 (green circle).

The trajectory of the fall should be about the same as the trajectory inside the rectangle (blue line). However, we are proceeding faster than that, and Tuesday morning’s gap is likely the cause.

To consider this gap, turn to page of 131 of Technical Analysis of Stock Trends:

“When a gap within a pattern area is followed by breakout from that pattern, the gap is seldom quickly closed.”

And indeed, SPY has only been able to put a small dent into its gap so far.

Could the breakdown from the rectangle be a fake-out? From page 216:

“False moves are seldom attended by gaps.”

And, as to the quickened pace of the decline being affected by the gap:

“they carry the suggestion that the buying demand (or selling pressure, as the case may be) that produced the gap is stronger than would be indicated by a gapless breakout. Hence, it may be inferred that the ensuing move will carry prices farther or faster, or both.”

If you look at a 15-minute SPY chart, you will see that volume was much higher after the gap than it was before. Yes, that was a Friday before a three-day weekend, but the surge in volume after the gap down Tuesday morning is still a bearish factor.

So, while many people are expecting the gap to be filled soon, I’m thinking that SPY will continue to be limited to trips up to the lower bound of the gap around $80.50.

OK, now look back on your SPY chart at the big gap down on October 6th. SPY was not able to fill that gap either, and it is still open to this day. As I’m sure you recall, the market did not do well after that day. That was a scary gap, and so is Tuesday morning’s gap.

The options gremlins have been trying to rally the market to weasel out of all those SPY puts they sold, but they are not having any luck. I wouldn’t be surprised to see a trip down to 740 this week.

The McClellan Oscillator is at the same deeply oversold level that it was on October 6th and November 19th. In those two cases, a capitulation event was required before the Oscillator could move back up. That may be the case this time also.

So, I’m looking for a plunge down to 740 soon. As the textbook says, we should see a bounce on the first approach, and the second, and then penetration on the third becomes a possibility.

I’ve stayed up late studying the market because I think we may have some extra excitement soon. I have also put on a short position in the futures (at 782.25) as a crash play. You will hardly ever see me shorting into a deeply oversold condition like this because it is usually suicidal.

However, oscillators work great when the market is ranging, like when we were in the rectangle. But when the market is trending, as it is now, you can’t depend upon the market to bounce off of an extreme reading. In a trending bull market, your oscillators will just keep getting more and more overbought. And as we saw in 2008, in a bear market, your oscillators will just keep on getting more and more oversold.

If we hit 740, I would take profits and then look to short the bounce if it took the form of a bearish pattern such as a rising wedge.

Wednesday’s Trading – 2/18/09

MacOS
The McClellan Oscillator is oversold, so if you are short, you need to gird your loins for a bounce at any moment. However, if you hold a piece of paper up to the screen on the MacOS here, and connect the dots from the October and November lows, you will see that the MacOS has broken its uptrend line. So, it seems likely that we will see deeper oversold levels in the intermediate term, and lower stock prices to come.

XLF Butterfly Setup
I haven’t had time to study it in detail, but it looks like a bullish butterfly pattern is trying to form on the XLF daily chart starting from the January 20th low. See page 192 in “The Harmonic Trader” which is a free download. As a rough guess, you might start to look for a bounce if the XLF can see its way clear to fall to $7.77, or maybe $7.13.

I haven’t finished reading the book yet, and haven’t tried to trade any of its advanced patterns. However, I have used some of the simpler patterns, and like them a lot so far. The butterfly may look strange to you at first, but all that you really need to do is a couple of simple Fibonacci calculations.

It’s hard to imagine the banks rallying much while everybody is talking about nationalization, but it is options-expiration week after all. So, as Friday approaches, the options market’s power to rag-doll the stock market will grow stonger and stronger. By time we get to Friday, the options market will have the stock market down on the canvas in a rear-naked choke, and the stock market will tap out.

In other words, during opex week, all manner of technical moves become possible for stocks.

Tuesday’s Trading – 2/17/09

Tsk, Tsk
As I studied my charts over the weekend, I kept shaking my head and making the “tsk, tsk” noise. Everything looks bad among the majors – except for Apple and the Q’s. But even there I see potential trouble. NASDAQ internals are weakening. For example, on Thursday, when the Q’s were up, advancing issues minus declining issues was only 47. The day before it was 277.

So, it looks like leadership may be narrowing on the ‘daq, and that’s not bullish. Also, as the futures sank over the weekend, the NDX futures were always down a bit more than the SPX futures. And finally, “max pain” for the Q’s is $30 and $95 for Apple. Both of those levels are below Friday’s closes, so none of the big options players have an incentive to push them up.

Gap Down
The gap down for Tuesday that I predicted on Saturday morning has already occurred in the futures. So far, in trading on Sunday night, Monday morning, and Monday night, the futes have not been able to fill that gap. The ES closed at 820 on Friday, gapped down to 814 for Sunday’s 6pm open, and has only been able to reach up to 818.75 so far after 24 trading hours. So, if this pattern holds until Tuesday’s opening, the market’s gap down looks to have a good chance of sticking.

China or Chimera?

Dr. Copper is giving the economy the thumbs up. But I think that we need to get a second opinion. The Chinese are stockpiling copper and other base metals.

So, the copper being purchased by the Chinese is not going into a toaster that will soon be shipped to Walmart because of rabid consumer demand. Rather, it is going straight into a warehouse in China where it will collect dust.

Larry Kudlow was waxing poetic about the Shanghai Index last week, raving about how it was “the hottest stock market in the world,” but I am skeptical of this Chi-mania.

If China’s business model is to sell stuff to the American consumer, how exactly does China lead the world out of recession? Especially now that Congress is stamping “BUY AMERICAN” in big red letters onto all the laws it passes?