S&P 500 - March 20, 2009

charts courtesy of stockcharts.com

It seems like it works every time, doesn’t it? The lead up, the pump, the news, the spike, the dump.

Bernanke spike lasted 2 hours. The guy said he would print as much paper as it would require to hold the humpty-dumpty from sinking further into the deflation swamp, bubble-crook-in-chief clapped and cheered like a clown, and the market sold and took the profits.

What is it that he is really trying to do? Reviving the economy or propping up asset prices? The two may not be the same, you know? As just one example, high property prices are not good for economy as they eventually drain mass disposable income from production and consumption and sink it into pockets (bank accounts) of property owners. Property owners will in turn pay into inflated salaries and expense accounts of city beaureaucrats.

High asset prices is really good for the owner of assets. That usually does not include the majority of the public. Inflation is a bliss to the wealthy. Deflation, contrary to what is sold by bubble media, is good for the longer term economic well-being of the masses. It helps them save and own. Widespread saving and ownership means less reliance on money lenders. It will lead to investment and, eventually, a sustainable economic activity.

But that would not help a banker, would it? The banker wants us to owe and not to own.

Will there be enough paper to fill the depths of bad debt and then spill over? Isn’t part, if not all, of what Bernanke is doing a shift of junk from bank balance sheet to Fed balance sheet? What will happen to the bad debt? Inflation can erode the intrinsic value of a debt. It’s been tried before – with disastrous consequences. Will it be different this time?

Aaaaah, enough talking above my pay grade, let’s talk S&P.

Before doing that, let’s look at a cute picture

No, I am not predicting this, just thought it was a cool pic to show

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S&P pulled back further on above average but decreasing volume.

Breadth was negative and decliners outpaced advancers

So far, market has done everything right: It has set positive internal divergences compared to November lows. It has seized upon the opportunity to make humble souls of as many arrogant bears as possible. It has risen with force and urgency. It has rallied widely and improved its breadth nicely.

But was it just a short covering rally from deeply oversold levels? It’s now a question of how this pullback evolves – the deeper the pullback and the worse the breadth, the more chances of revisiting the lows, and vice versa.

Index stopped rising right at a crucial level which is the bottom of an open gap, and also the low of a wave 1 of sorts. Therefore it has left both the bearish and bullish counts open.

The series of short term higher highs and higher lows is still intact. The weight of technical evidence in on the bullish side, but since the market has left its options open, I need to stay open as well.

I will keep an eye on this chart with the levels marked

So, let’s be open-minded and diligent about this. Let’s give the charts and the market action a chance to guide us through this. And please let us ignore all bubble-heads bullish or bearish. At worst, a bubble head is an idiot, at best, he/she is biased and that is not the way to make money in the market. I don't know about you, I am in this to make money and not to prove points.

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One Technician I read rather regularly is Carl Swenlin, in his latest writing published at his site as well as at financialsense.com, he said this

Quite a few years ago I used to write a daily newsletter, but I decided to give it up because it got tiresome trying to invent new ways to say the same thing over and over. More important, having to form an opinion on the market every single day, especially during volatile times as we have been experiencing, can build a (lot) of stress. Also, since I am primarily focused on the intermediate-term and long-term time frames, it can be counter productive to put too much effort into short-term analysis

Interesting take from an old hand. I can truly relate to the point that sometimes we get to repeat the same thing over and over for days, like saying short term trend is down, or we will need to see how the market pulls back. But I cannot relate to the stressful part. I do not feel like I have to have something new to say every day, nor do I feel like I have to entertain, that is the job of bubble-crook-in-chief-cramer who needs to fill the airwaves with crap and sell advertising slots so that he can insert himself into an expensive tie (he practically said as much on Jon Stewart Show). My mission, as I see it, is to observe and analyse – just write it as I see it, and if the analysis of today is no different than yesterday’s, so be it. I don’t know, maybe at some point it becomes stressful, and that would be my cue to wrap it up and move on, but, for now, it’s a lot of fun.