Well, the much anticipated relief rally finally arrived last week with the S&P vaulting more than 13% off oversold conditions.  The rally was a bit deceptive with no real spike in fear or capitulation accompanying the move, but remember that capitulation doesn’t necessarily need to occur to mark a bottom… and that’s not to say this is “THE” bottom.  There’s certainly a tremendous amount of overhead resistance to work through and this is nothing more than a short covering, bargain hunting rally until bulls can prove themselves by breaching key downtrend lines.  I’ll keep the commentary light this week and jump right into the charts..

Everyone wants to know.. is this the bottom? How long will the rally last?  I think the charts can provide some clues to that.  Taking a look at the magnitude of the initial rallies off the October and November lows reveals that the average gain was right around 20% with the rally in October rising 19% over 6 days and the November rally producing a quick 21.5% gain in just 5 days.  If we assume that this rally will be in the neighborhood of those moves and falter after popping 20%, that runs the S&P500 right into big resistance at 800.  So, it’s quite possible we see another quick 5 – 7% in the first half of next week.  Yeah, these bear market rallies are sharp and deceptive leaving many behind.  If you missed it, don’t sweat it!  Whatever you do, don’t chase these rallies.  Be patient and wait for a digestion of this sharp move up because it will come.

Taking a look at the technicals of the S&P shows the break of the Feb/March downtrend on Wednesday, followed by another big surge on Thursday that sent the S&P back above the November lows….

Continue reading This Dead Cat Has Legs, But Big Resistance Looms →

I have to admit I was turning a bit optimistic there in the middle of the week when the market rallied on the Bernanke testimony, indicating the government wasn’t interested in wiping out Citi shareholders (although at $1.50 that’s essentially what’s happened) and that he was optimistic of a recovery in the economy within a year or so.  Ordinarily, I wouldn’t place much importance on a move following a comment from a Fed official, but given the oversold conditions I thought maybe, just maybe this market was poised for a short covering fueled, oversold, relief rally.  Let’s just say it didn’t pan out that way. 

While Obama continues to enjoy high approval ratings from the general public, on Wall St it’s been an entirely different story.  That’s not to say this administration is responsible for the entire additional 20% plunge in the indices, but clearly the cabinet IRS gaffes, the doom and gloom rhetoric, the questionable stimulus package and the budget proposal has left Wall St clinging to a crisis of confidence and wondering if we’ll ever get out of this mess.  You have to wonder as 401K’s continue to implode, how long those lofty approval ratings will last.  On Thursday morning, with the market looking strong and still poised to potentially breakout, the budget proposal was released, immediately sending the market into a tailspin that broke key long term support levels.  I sent the following to my members on Thursday night:

Continue reading Mr Market Gives Thumbs Down to Obama’s Big Goverment Budget, Dow Likely To Test 6500 →