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.

6 Responses to “Game Plan – 4/1/09”

  1. junglegirl says:

    Did everyone see this? According to the article, five US banks hold 96% of US derivatives, with JPM holding $88 trillion of them—-no typo there… TRILLION.

    http://www.financialsense.com/editorials/engdahl/2009/0330.html

  2. K says:

    JG!! WHOOOOOOA is all i have to say. thanks for the link

    and Mat thanks for the analysis as always

  3. Charlie says:

    Futures are down by a lot. Would anyone happen to know why? Was it that people are coming to their senses now that 1Q is over? Was there negative news AH? Just curious.

  4. towelie says:

    Charlie, I believe it is because Obama said he thinks that bankruptcy is the best option for GM and Chrysler. Can’t say I don’t disagree, but it doesn’t really seem like something he should be saying out loud…at least not until it’s a done deal….then again, maybe it is a done deal.

    http://www.bloomberg.com/apps/news?pid=20601087&refer=top_news&sid=aA3.YrmEsfdA

    The silly thing here is that we have loaned GM a “paltry” 20-30 billion and we can force the CEO out. We OWN 80% of AIG and yet they are allowed to carry on as if they were a regular old company and keep fulfilling debts to other banks.

    Junglegirl: So together, JPM, BAC, C and GS hold 188 trillion in derivatives. Assume they are worth 50% (a VERY high number) of their original value and we have nearly 100 trillion that goes poof. We are fighting this with a combined 12 trillion in stimulus. Seems like a pretty easy math problem at that point. It’s only 13 years of current GDP. ;)
    Seriously, what the hell were these guys thinking? Some quick math tells me we could make up that kind of money with a decade of 60% inflation. Pick your poison….

    How on Earth could these contracts actually be enforced in our judicial system? It would be as if I borrowed a “bazillion” dollars from a friend and they actually expect me to pay them back. The thought that a small group of people could actually let it get that out of hand is quite remarkable.

  5. MKB says:

    Towelie:

    I hope you noticed from the above FSU article the dollar figure was notional. It is like saying Barclays total exposure to ishares is the total amount of money held in the account. Or that Dumferline (a Scot building society bank) is exposed to a default on ALL loans. Derivatives have been around for hundreds of years. When olives were the rage a lunatic went out and rented all of the presses knowing the crop would be dramatically different that growing season – you might say he bought a call. Just as an option trader can limit maximum exposure so can a counterparty – no one is exposed to the notional value. Counter if you like but like but it may kill the buzz!