S&P 500 - Feb 24, 2009

charts courtesy of stockcharts.com

Now, this is what I call a bounce.

A new week, a new promise for a new plan. Bulls can now shout on every bubble box they can find that we have just had a successful retest of the lows. Hey, who knows? Maybe this really was a successful retest and we are on the road to S&P 1000 and above.

Of course, there is an awful lot of technical damage to mend before that happens.

We started expecting a bounce on Friday, and we finally got it.

It was an absolutely beautiful trader.

Volume was good, breadth was good on most measures. There still were quite a few lows being made, and that on a day that market advanced from the get-go.

So, the market taught a lesson to late shorts. You see being late to any party may not be much fun. Bears have long-term, and mid-term trends on their side, but, if I am a bear with conviction, and end up getting caught for bad timing, I should not panic into a squeeze. Otherwise, I am a speculator with no conviction, with no timing skills, easily swayed by this talking head or that, this promise of a plan or that, and I pay for it.

Give me a balance sheet, an income statement, and I dissect them in minutes, and I tell you what the fair value is according to the numbers and based on my criteria. But crunching numbers works only if I can find numbers I can trust and a macro environment supportive of forward projections. In the absence of those, it is imperative that I learn basic chartings and exercise discipline.

Now that many shorts are squeezed, the question becomes: what next? Do we get a follow through, do we hold the lows and rally?

There is an open gap in 800-820 area. There is resistance in 800-810 area. And if any of the counts with a 3rd wave is good, we have a wave 1 in that area, and we know wave 4’s are not really supposed to overlap their preceding wave 1’s (exception being an ending diagonal). So, we have a daily oversold market that can go all the way to 800 or so without challenging our bearish outlook.

To the downside, as long as yesterday’s low holds, index has a chance.

Last, but not least, VIX is still range-bound

One thing I constantly tell myself is that I should stay open to change. Maybe this really was a successful retest. If so, market technicals will recover and we will act accordingly.

Until then, long-term trend is down, mid-term trend is down, and short-trend is down.