Are We Reaching The End of the Rally? - Things To Watch

obama dollarWell, we might as well start printing new dollars with Obama's face on them, because by the time we spend our way out of this mess, our current dollar will be worthless. Once again we saw another wacky day of trading. Volume remained light today, which makes me even more suspicious of market manipulation. Today, again, we saw these unnatural spikes throughout different times of the day, suggesting several "lump sums" of buying. Whether it's institutions or Uncle Sam, there is definitely a bullish force turning the market around every time the markets begin to drop and as I said in yesterday's podcast (subscribe here), The Fed has motivation to do so. With the light market volume, institutional trading will cause the market to react much more sensitively, compared to trading days we saw last week.

It's amazing to think on days like today, when a 6.3% drop in GDP for the 4th quarter is announced, investors find it a time to buy. We are falling back into the trend we saw back in November and December, where no matter what news is reported, we keep buying. Well, we saw how quickly and violently that caught up with us, and I believe it will be even worse this time around. Once again, we saw this horrible reported number spun as a good sign of the "strengthening" markets. Don't ask me how they come up with that conclusion, but obviously they are using different indicators than I am.

crash market stocks podcastThere continues to be noise from the government as Geithner described how he plans to apply more transparency for hedge funds dealing with credit default swaps and debt trading. Many are cheering his ability to answer the questions, but application of such plans is a different story. President Obama also had more media time today, hosting the first "web" town hall meeting where he talked about more spending he has planned for programs outside of fixing our economy. Wow.

Fort most of the day, the shorts were actually holding up fairly strong. SRS was in the green for most of the day and even FAZ got into positive numbers for a while. However, once again, we found a "mystical" force push all markets up the last hour with no news behind it. Let them move the markets on these low volume days, because when the volume comes strong, it won't be as easy. We are seeing a lot of resistance for SRS at 5o and 18 for FAZ. Tomorrow, should be a good sneak preview of whether this rally still has some legs or if it's running out of gas.

I am feeling a definite slow down in this rally. We may bounce back and forth a bit more around these levels, but as of now I don't see the rally going that much higher. This of course is pending there are no more big government announcements. From below, you can see the moving chart of the S&P. Technicals are showing a definite slow down heading towards that 850 mark. We'll see how close we get to that number or if we begin to retreat from it. If we do indeed push right through it, that's a big move for bulls.

sp trend chart
Another factor leading me feel that we're slowing up, is the slow down in financials. Financials have been leading the way in these crashes and rallies. We've seen C and BAC double since their recent lows, which has helped sent the market flying for most of March. However today, even though FAS was up, GS, MS, BAC, C, and WFC were all down, despite the strong day for the Dow. Moody's cut their rating for BAC yesterday, which probably contributed to the sluggish trading, but overall financials are losing their flare. I would expect if this were to continue, eventually we're going to see the Dow follow.

Also, we are beginning to see inflating prices for commodities and energy. Oil continues to rise, despite us heading into the low demand season for oil. Sure, I believe oil should climb back up, but I do think we're a bit overbought at the time. Gold also continues to rise. I love gold, but I feel we will see it dip well below the 900 level before inflation hits. These inflated prices lead me to believe that the market is a bit inflated in general and that we should see some selling soon. This contributes to the deflation, that I feel, will soon take our economy by the horns.

STP saw huge gains today (up over 40%), based on the new announcement that China will be subsidizing solar costs. I had mentioned STP in a few posts a while back as one to watch in the solar field, so keep your eye on that. These gains caused for some big gains for my IRA, which was nice. Speaking of IRA, E*TRADE is offering a great promotion where you can Get 100 Commission Free Trades in an E*TRADE IRA. No-fee, no minimums. Pretty awesome, check it out.


Below is a comparison chart showing the Dow movements from the 1929 crash compared to our most recent bear markets, including our current one. As you can see, and as I have stated before, our current market is tracing very close to the trends of the 1930's market. Although other recent bear markets were bad, there is not nearly the selling volume that we have seen in our current crisis. So, hopefully this can be a reminder for those feeling that we've hit bottom, that it could (and I very much believe) get a lot worse.
crash comparison
Tomorrow should be a very defining day for the rally. If we someone how end over that 850 number, we could see yet another week of gains for the market. However, if bears return to this market and regain control, there is big potential for a strong sell off. We are due for a sell off and I would expect our next one to be pretty significant. I am remaining cautious, with my light short position waiting for a bit more definition. We are getting close. So be alert, Happy Trading, and we'll see you tomorrow.

6 comments:

  1. Boogy Says:

    FF, Great as usual. I am concerned with the VIX and support levels on the broad market that seem to be close to breaking. If VIX breaks below 40 support level, do you think it could be considerably longer towards the summer before the markets break down ?
    Thanks

  2. bryan Says:

    What do you think will come of next week's M2M meetings and how will this affect the trading in the short and long run?

  3. 5U Says:

    We are due for a sell off, but there are a few hurdles for Da Bears to get through:

    1) I believe on April 2nd there will be some kind of easing on m2m

    2) On April 6th aren't they going to get rid of the uptick rule?

    3) Isn't April 13th Goldman Earnings?

    4) If GS earnings beat and stock has momentum, expect part of the TARP to be taken out through some kind of equity offering. That could add another leg of giddiness.

    By late April real earnings hit instead of this smoke and mirrors called the financials. Da Bears should feel safe to wake from hybernation again.

    It will be great if the market sells off despite these bear traps set up by the govie.

  4. Finance Fanatic Says:

    5U,
    Agreed, there are some definite hurdles coming up which could give some jolts. The announcements could go either way as far as sparking or tanking the market, depending if it is what investors want to hear. But I agree, PROCEED WITH CAUTION.

  5. dreadwinaard Says:

    Another thing for bears to watch out for is any sort of feel-good photo op with the president and the big bankers where the banks agree to auction assets. I think it will move the financial stocks today.

  6. QUALITY STOCKS UNDER 5 DOLLARS Says:

    I love the bills.