S&P 500 - March 5, 2009

charts courtesy of stockcharts.com

Forgive them Lord, for they have sinned. Grant them the absolution - the Absolution of the Bulls.

Seems like all the cautionary words of yesterday’s post were well warranted as markets went through another day of selling.

From early hours of the future markets, S&P was under pressure, and that pressure continued all the way into the last half hour of the cash market. In the last half hour, there was some high volume buying, but we can’t really say if they were shorts covering after a good day at the market, or bargain hunters picking battered stocks.

Volume was above average, and breadth was very poor.

There is some breadth divergences building, which is a positive development.

There also is some positive momentum divergence building on lower time frames, which also is a positive development.

But that’s all there is for now on the positive side. Positively diverging technicals signal ebbing selling pressure. To translate that into a turn, we need buyers, and it seems like buyers have finally smartened up. Even the screaming head of bubble vision was saying that market would go only down. I will, of course, treat that as a contrarian signal on the plus side of the market.

As for the wave count, we now face the strong probability of a wave extension

This is a closer view using SSO

Easy trade, was it not? The 696 area failed and price stayed below the MAs. That certainly has been the case these past days of selling – easy trades for the bears. Just walk in and short it. I think I have said before that when making money in the market becomes easy, I feel uneasy. Maybe I am paranoid by nature, I don’t know.

696 is now an area of resistance. 644 is an area of support.

There are now some who are voicing the possibility a stealth bottom – meaning a quiet abatement of selling, no final day of reckoning for the remaining bulls – just a whimper at the end, or a muffled sigh.

Of course, not all who express ideas care to explain their reasons. But some do. My good friend and colleague Dean examines a historical precedence for a quiet bottom, it’s a very good read and he is a very good observer of the markets.

I don’t know what the market will do – duh! I still like a final day, or some final days of rinsing – call it The Absolution of the Bulls. There, that’s something you will not hear from the Bubble-Paganda machine.

While we are talking of Bubble-Paganda, I suggest this video of Jon Stewart, especially the last 20-30 seconds.

It's of course easy to pick on Bubble-Pagand machines these days. They are exposed naked - just some expensive ties, and nothing more.

Just be careful out there, statistical predictions and projections are nohing more than predictions and projections. Divergences can stay for a long, long time, just look at the chart of crude oil to see what I mean. Sentiment stuff are OK as secondary confirmation tools, or warning signals. The most important indicator of all, is the simplest of all: Price. Pay attention to the trend!

The larger your time frame, the more dominant the trend - DUH!