Game Plan – 4/1/09

Bulls in Denial
March was the strongest month for the market in a long time. And while everybody was talking about month-end mark-up, a couple of idiots were complaining that the bears marked the market down:

Jim Cramer
NAILED
3/31/2009 4:02 PM EDT
But nice effort by the bears to manipulate the averages below the 50 day moving averages!

Scott Rothbort
Bear Markdown
3/31/2009 4:11 PM EDT
Jim – not only did the bears mark it down into the close and below the 50 day ma but they got the SPX below the psychological round 800 figure. I can hear John Lennon singing Mind Games.

WTF???

What bears? Bears are extinct. The only bears that I am aware of are the stuffed ones decorating the offices of the PPT.

Cramer and Rothbort are miffed because they “know” the bottom is in and that the business cycle has turned. They are wrong, and the market will punish them.

Note to bulls: if the rally has ended, instead of blaming the bears, you may want to consider the fact that the companies of the S&P 500 HAVE NO PROFITS! What part of “negative earnings quarter” don’t you understand?

That type of attitude from Cramer and Rothbort tells me that the bulls have not barfed up their long positions yet, but they are starting to doubt the rally. And that means that a wave of panic selling is possible in the near future.

On CNBC’s “Fast Money” on Friday, Carter Worth said that talk of a 400 target for the S&P 500 was “crazy”. He advises that you ignore the egregious double-top on the S&P 500 long-term chart. I say that ignoring the double-top is playing with fire. We have now closed below the neckline on the monthly chart for two months in a row (click to enlarge):

Solace for the bulls: the monthly candlesticks for February and March form a sort-of bullish piercing line pattern.

Strategy
We have a short-term overbought condition, a news bomb (Obama putting GM through BK), and head-and-shoulders patterns on the intra-day charts over the past six days. So, the market should open down on a gap, after which I will be looking for bear flags to short. Lots of financial institutions own GM paper, so the haircuts could be quite painful.

I wouldn’t be surprised to see the Geithner Gap filled on Wednesday. Mark-to-Market accounting will probably be scaled back on Thursday, so I likely won’t hold anything short overnight.

Support levels:
791.37 – Intra-day low from March 25th.
780.00 – Was resistance before the plunge to 666 & the low on 3/30.
768.54 – The Geithner Gap from March 23rd.
752.44 – November 20th low close.
741.02 – November intra-day low.

Resistance levels above are:
797.00 – Tuesday’s low.
804.00 – Still in play, but weakened.
810.48 – Tuesday’s high.
815.94 – The top of the Detroit Gap.
826.84 – The top of the Gap of Doom; now weakened.
832.98 – Rally peak so far.
839.43 – The final resistance level before the Gap of Doom on Feb 13.
852.00 – Was resistance on Jan 26th and Feb 4th.
875.01 – The February 9th peak.

Other Important Levels
800.58 – Weekly low close from 2002 (October).
815.26 – Monthly low close from 2002, and top of Detroit Gap.
826.84 – Gap of Doom. Still critical on weekly chart.
828.51 – 78.6% retracement from Feb 9th peak using closing prices.
830.45 – Ditto, but using the extreme high and low.
832.50 – Obama Downtrend Line (ODL).

I have the Obama Downtrend Line at 832.50 today. I have drawn the line from the close on Election Day through the close of the January 6th peak.