We have three important economic reports coming on Wednesday, and they will likely set the tone for the day. I expect the data to be bad for another six months, if not longer, but can’t predict individual reports. I have added links for the Bloomberg and Yahoo economic calendars to the Blogroll links on the main page. Durable Goods is the big one Wednesday morning.

On Tuesday, volume was below the recent daily average for the XLF and IWM, and was minuscule for the QQQQ and SPY. That’s a bullish factor.

A bearish factor is that the IWM only briefly poked into its Gap of Doom at the close on Monday, and then dropped 4% on Tuesday. In a bull market, hedge funds love the small caps, so where is the love? The IWM’s gap is about a dollar wide stretching between about 42.67 and 43.67. The IWM is lagging SPY, QQQQ, and XLF in this regard.

I will be looking to scalp in the direction given by the reaction to the economic data. Bulls might be planning to use any bad data as entry points.

Support levels:
804.00 – The hugely important level, of course.
797.00 – Was resistance in the 3 days after the Gap of Doom.
780.00 – Was resistance before the plunge to 666.
768.54 – The Geithner Gap from Monday morning.

Resistance levels above are:

823.65 – The rally peak so far.
826.84 – The top of the Gap of Doom.
839.43 – The final resistance level before the Gap of Doom on Feb 13.
875.01 – The February 9th peak.

While the market is open, please limit comments to the market and events that may effect it.

839.43 is the next important resistance level. That was the high on the day before the Gap of Doom, February 13th, and is a Fibonacci confluence level that I can arrive at four different ways. If the SPX can break through that level, the next stop is the February 9th high at 875-878, which is also a confluence level.

But what about the Geithner Gap? If Monday morning’s gap turns out to be a “measuring gap” then you calculate the target by placing the gap in the middle of the trend. So, the uptrend began at 666, and the Geithner Gap opened at 772, so 772-666=106 points. And 106+772=878, which just so happens to match the February peaks, and my Fibonacci projections. Here is a chart where I use a fib retracement to align the gap and arrive at the projection (click to enlarge):

So, if the rally is to continue, it is geared for 878. Of course, the market is terribly overbought now, and with the Gap of Doom more-or-less filled, the market should turn down. Filling the gap is bullish in the intermediate term, but usually bearish in the short term since gaps often serve as targets that terminate trends.

If the market pulls back, we want to see if the Geithner Gap gets filled. If it does, then a good chunk of the rational for 878 goes out the window.

Seeing the market race up to the Gap of Doom at the close, I bought some BGZ right before the bell to fade the gap. If the market can move above the top of the gap, which is 826.84, I will barf up and go long for an expected trip to 839 where I will flip short again.

Today was a good example of how the third approach to a support or resistance level is the one to bet upon. The market first approached the 803-805 level on Wednesday after the FOMC announcement, then again on the following morning, and for the third time today.

So, since this is the first approach to the top of the Gap of Doom, odds are good that the resistance will hold at least initially.

While the market is open, please limit comments to the market and events that may effect it.

In 1994, AIG fired its IT staff of American workers and replaced them with cheap H-1B imports.

From Wikipedia:

“One criticism of the H-1B program has been over its role in replacing U.S. workers. The first documented cases occurred in 1994 when AIG (Livington NJ) and SeaLand (Elizabeth NJ), took advantage of a loophole in the law to replace their U.S. programming staffs with H-1B workers.”

From Programmers Guild:

“One day in September of 1994, Linda Kilcrease received a memo from her employer, insurance giant American International Group in Livingston, instructing her and 129 fellow computer programmers to show up the next day at a local hotel.

“After we were seated,” she recalled, “an executive stood in front of the room and coldly told us that the computer systems were outsourced. We were each handed a folder of papers that detailed our 60-day notice and severance.”

And now we are showering money on these evil traitors?

David Merkel used to work for AIG and has commented on the company being a shady operation. Here is his latest column on AIG.