Many analysts were expecting 850 to be a major resistance area, but the market took only one day to blow through it. I think 877 will be a more substantial resistance level.
Last week, JungleGirl said that the action looked corrective to her, and that indeed turned out to be the case. So far, April is a bull flag (click to enlarge):
A 100% extension will take us to 877, though the market may want to consolidate a bit first.
873 is also a potential peak. I projected this back here on March 18th. It’s not labeled on the Box of Za-Zoom chart at the bottom of that page, but the top of the range is 873:
The market closed Friday almost exactly on the 23.6% level in the Box of Za-Zoom, so the proportionality of the wave harmonics since the 666 low seem to be intact. Here is what it looks like now; notice the last three pivots developing at the projected Fibonacci levels:
So, it looks like the market wants to test the February peaks. If it can break above those peaks, then a test of the January high will likely be in the cards. In the next chart, I make a new box by duplicating the Box of Za-Zoom, and then stacking it on top. I dub it the “Box of Banks” in honor of the banks which have miraculously turned from toxic to fabulous – if you believe that sort of fairly tale.
Notice that the top of the box extends to the January peak:
If the rally is able to break into the Box of Banks, important resistance levels on the way up to 944 will likely turn out to be:
889
901
909
917
927
I still believe that the business cycle has not turned, and that this is another bear-market rally.
another ‘must print and distribute around town” post. Thanks Matt.
Thanks Danny.
Ditto for me. Keep ‘em coming and keep adding to my toolbox. Learn something new for my collection every time you do one of these posts. Between trading all day and reading/research/thinking all night do you bother to sleep ?
Gracias.
Oh yeah, business cycle ain’t turned at all. NONE of the data that’s been green-shooted indicates anything other than a slowing of the rate of decrease…which still leaves us at a bad level (the Yellen Doctrine):
http://llinlithgow.com/bizzX/2009/04/green_shoots_vs_selfarrest_bac.html
You’ll notice on the market some re-use and exploitation of your prior teachings.
Thanks Matt. Great charts.
I’m curious if anyone on this board has comments on this Tyler Durden conspiracy theory (or what appears to be such):
http://www.rgemonitor.com/globalmacro-monitor/256367/the_incredibly_shrinking_market_liquidity_or_the_upcoming_black_swan_of_black_swans
I have no way of knowing whether it’s serious or just nonsense, or just somewhere in between, as I understand very little about program trading and its implications for market liquidity.
newbie2, I’ve sifted through that a few times now…here’s my understanding of it:
All you have to know about the big program traders at the top is that they are the “market makers” – a somewhat loose term that is equally as vague. Basically, these guys WAY at the top buy and sell so much so often that they are willing to take many other orders (say from your broker or another less-large investment house) and can wait for an offsetting order OR just sell/buy what they already have in their massive inventory directly. They are on the buy and the sell side at the same time. They are the reason we can buy/sell in fractions of a second. Sadly, they are also one giant black box (see front-running).
TD’s point is that program trading has increased dramatically – dramatically to him appears to be 8% over the 52 week average. I have no clue if this really is a large increase or if it happens fairly often. I would want to see yearly volume data and corresponding program trade volume data to really make the decision. How many data points can you possibly have for yearly program trade volume? This could just be statistical noise. I’m inclined to believe it is not since it seems very coincidental that this increase has occurred the same month we have seen one of the largest one-month rallies ever. But correlation does not equal causation.
Another interesting tidbit is that GS accounts for ~27% of all program trades (sorry, but that scares me to death) and that those 15 firms listed account for 95% of all program trades. Perhaps our market makers have gotten too big and can influence markets more than they think they can? His other implication is that GS is mainly trading for its own benefit (rather than to facilitate market liquidity). Combine this with his other claim that most of these trades are closed after hours and you have an explanation for the wild gaps up/down in the last few weeks. It is also rather convenient that GS plans to sell some stock soon to pay back the TARP…I doubt things will go down the tubes before that happens.
IF all of that is true then it implies that either GS has gone wild as of late and/or that the “vanilla money” (retail, pension, funds, etc) are on the sidelines and the increase in program trades means the big guys are just passing the money back and forth. This would imply that the assumption that supply/demand is setting the prices in the market isn’t exactly true for the time being. Once they stop (and they would have to eventually) we will have good recipe for a crash.
Sadly this type of hypothesis looks like it can only be proven true and can’t be proven to be false. Fun stuff. Anyone else out there feel free to correct/add to that.
towelie— you make some good points.
newbie2 (feel like I’m talking to hank)— also see what Denninger says about this, if you haven’t already:
http://market-ticker.org/
Scroll down to “Do Not Be Stupid.”
Matt, 881 is the 23.6 retracement of the big move down so we have confluence. If BKX stays above 33 there is chance for a run up to ~46. spx then in the box of banks. But the house of cards looks toppy to me, we need a retracement…
towelie – “Combine this with his other claim that most of these trades are
closed after hours and you have an explanation for the wild gaps up/down in the last few weeks”. Just the opposite, the stuff is closed during market hours.
To recapitulate the anatomy of a bear we need improvements in real data for a bottom, not declines in the decline rate. And a bottoming process, not a single V-shaped event with a massive disconnect between stock prices and credit markets.
towelie – thanks. That’s very thorough and pretty close to my understanding w/o having put that level of work into it. Front-running is a fundamental No-No. The big problem with the breakdown in fiduciary trust with the Finance industry was own account trading since they feel in love with leverage and financial engineering and got detached from reality. Reality being providing a value to the rest of society.
Yerk – last paragraph – BINGO and nicely put. Very nicely put. And we are IMHO a long way from that economic bottom. If one actually listens to Summer’s EconClub interview that’s exactly what he says.
speaking of program trading…
http://econompicdata.blogspot.com/2009/04/if-goldmans-selling-beware-of-buying.html