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.
Here is the China-wants-to-ditch-the-dollar story that K mentioned earlier:
http://business.timesonline.co.uk/tol/business/economics/article5961065.ece
On March 5 Technical speculator anticipated a rally to the 870 area, but also would be anticipating lows in June and October. The price level of those lows depends on the strength and duration of this rally. Until May and go away? http://tinyurl.com/c8ujo9
Are we really surprised about China after the Fed announced it was going to become a snake eating its own tail?
This is a very long term issue (think decades). China has 2 trillion in dollars. It is most certainly not in their best interest to dump it all in the near future. However, it is in their best interest to slowly ween themselves off of it and build up a basket of reserve currencies. What did we expect? Welcome to globalization. Besides, haven’t you guys seen Star Trek. There is no money in the future!
Watching an interview on the nightly news I was struck by the misconception of the problem. Apparently we still think that if the banks would just start lending all will be well. Talk about fighting yesterday’s battle.
Matt, so far you shorts are doing well. dax back testing the breakout line, if it holds we should go up higher though. Waiting for the move up to become wedgy.
danny posted this link in his newsletter which I think describes the situation quite well:
http://thehousingtimebomb.blogspot.com/2009/03/i-smell-rat.html
“Something tells me the government saw some economic data that has scared the living daylights out of them.”
This to be linked with the need to close the month and the quarter as positive as possible.
GD I ended when the income differentials in society had contracted significantly. If I look at recent actions the powers that are do not understand the power of the underlying dynamic so it will take longer and get uglier until this is resolved. Though I’ll miss the sound of I-Bankers’ Porsches racing to work in the morning.
Another little gem – somehow Montesquieu got overrun by the bull bus:
http://www.marketwatch.com/news/story/Treasury-take-over-Bear-Stearns/story.aspx?guid={855A56BF-E8A1-49B5-BD95-02F6A9A813B2}
Yerk-
Hope you read the WSJ article “We Need
Honest Accounting.”
Have a great day.
Julie,
thanks for the link. This guy is right in his criticism although so far I believe the FASB has cocked a snook to the banks. Let’s see how this develops.
The discussion really goes into details, for instance here:
“However, once the garbage FASB standards become prevalent, their entire impact can be ignored by avoiding the Net Income line altogether and instead looking at Comprehensive Income which differs from Net Income by an adjustment line known as Accumulated Other Comprehensive Income (AOCI).”
http://zerohedge.blogspot.com/2009/03/brutalizing-fasbs-attempts-at.html
A unilateral fundamental change in the accounting rules would lead to a backlash from Asia and Europe, so changing the line items is perfect solution to political pressure.