S&P 500 - Feb 06, 2009

charts courtesy of stockcharts.com

Second thrust past 850, this time with a big bang.

All day, there was one theme, and one them only, on the S&P’s tab: Buy, buy, buy, the train is leaving, BUY!

Buying was broad based, and came at good volume, less than yesterday but good

MACD poke through, and McClellan Oscillator turned up from its trend line. A little bit of that and price and breadth momentum may run bears into hibernation

Yesterday I said:

Technically, index is poised to move higher if it can get a little push. Stochastics look very good, MACD looks like it needs an excuse to be on the way

And index followed its technicals higher.

I also said

I have plans to stay with the bear till the index makes a new high above the peak of January 28. And, at this moment, it seems like I am pushed into a tight situation.

And I am now being pushed into a corner

I also said

But that does not mean that I have to stand there for mad bulls to run me over

And that is the key why I can sit here relaxed and objective. I am still of my bearish view (I may be proven wrong as soon as next week), I still have a short position, and I am not looking at earth-shattering losses.

One may be bearish but that does not mean one cannot trade with the bulls.


Remembering this chart from yesterday

We expected a push up, as soon as the push came, one could side with the bulls.

Index advanced all the way to the top of the gap that it had opened on January 29. It has retraced a bit too deeply for me to be too comfortable with the above wave scenario that regards this advance as a minute wave 2.

Yes, this is a tough market to plan and trade, it is doing everything it can to destroy both and bear. One has to constantly play the advocate of devil, and ask: What If? One must have a plan to cover both sides, and keep losses low.

I read in a blog that the blogger envied those who had just gone to cash and were enjoying their lives without paying attention to the market.

Since this rally is heralded by Nasdaq, let’s look at Nas100

It is getting overbought. Let’s look inside

Very overbought here. Same wave structure as others, not looking terribly impulsive, and in a range.

It all comes back to the same thing, the unresolved range we have been stuck in since November 2008. No wonder some envy those who are in cash and are doing nothing

This is getting to be a bit of a long post, even by my verbose standards. I hope I am not boring the living daylight out of you.

This is getting to be a bit of a long post, even by my verbose standards. I hope I am not boring the living daylight out of you.

Here and there I read bearish bloggers getting ready to pick a fight. I read somewhere a comparison between this assault on the bears and the German tactics in the battle of the bulge, which was doomed to fail. I really like that comparison, but neither Germans nor Allied Forces could know how long the Battle of the Bulge would last, we don’t know how far the indexes can advance.

I just need to be careful. The goal is to make money and not to pick fights.

Yes, I think we are still in a bear market

Yes, the intermediate trend is still down, although it is getting close to a reversal

And yes, the rally started on words about making accounting rules not to account for certain measures, and hopes about The Plan that cures all ills and wounds of our times

But

Index has moved past a very strong resistance level with a lot of force

Index is not overbought at all on mid-term time frame or on longer frames (it has room to go)
Nasdaq, which, unlike S&P and the DOW, did not go into a downtrend, has been cheerleading this rally, and that indicates bullishness and tendency towards risk

Credit situation, as measured by Libor and TED, is tame, although LIBOR has been rising, but it’s not anywhere close to what we have seen, that indicates lack of concern towards credit situation

Safe havens: Treasuries, Gold, and Carry Trade currencies: US Dollar and YEN are either correcting or look exhausted

We know that bear market rallies can be ferocious, and we know market and present state of the economy can go on different paths for weeks and months.

So, what am I going do?

I have not changed my stance. My plan is still the same: as long as index has not made a higher high above Jan 28, I remain bearish. But, as I have said, that does not mean I will let a herd of mad bulls run me over.

There are a few things I could do, for example, I could sell out of my shorts and go long, or use options to hedge my short positions

Now, as long as index is above 850 area, I need to give it the benefit of the doubt that it might register a higher high. If that happens, chances are that index may pull back soon afterwards, and then I can re-evaluate, if that does not happen, either market’s hope fizzle (read drop) or we enter a new range for sideways action (more base building?)

We will be keeping an eye on Nas100, it is getting extended and a pullback may ensue

If Nas100 pullback brings other indexes down, chances of a fizzle, or more sideways action increase.

If Nas100 pullback results in money rotating and advancing S&P and other indexes, chance of a sizzle increase

To wrap it up: Support: the 850 area, and it should hold if this is a real rally. Resistance: 878 (top of Jan 28 peak), 912 (a pivot)

Food for thought: In the past, weekend decisions from officials would come when markets were closed. Now, we get to hear rumors and stuff when markets are open, and we all get enough time to sell our shorts and buy our longs if we choose to do so. Is this a new era of transparency, giving us all a fair chance to participate in the next great bull move?