Via streaming quotes, I’ve had the opportunity to watch how the market has reacted on days where there is a scheduled Fed announcement. The typical pattern is usually a slow build up until the Fed releases the statement at which point there is huge volatility. The market spikes up and/or down once or twice before deciding on a direction. It’s always a nailbiter. Today was no different. Here’s a 2-day chart of IWM (it tracks the Russell 2000) to demonstrate what I’m talking about:
Can you tell where the Fed made it’s announcement? Even without my big hint, I’m sure you could make an educated guess.
Anyways here is a longerterm chart of the IWM:
I still am in agreement with some of the bears out there that there is room for more downside to the markets.
Finally, the market is getting interesting once again. We are soon to be at another crossroads as the indices approach their 50 DMAs. Tim Knight recommends to handle these coming days with care and posts some charts of interesting short opportunities.
Here are some more charts and trading ideas if you’re having trouble finding something worthwhile:
As for myself, I exited a couple of my puts when the Russell was down 1%, a little too early, as it later declined another .7%, but best to be safe than sorry I guess.
After Tuesday’s huge up day (I saw freaking 7-10% gains for some banks and brokers), yesterday could be termed as consolidation, though after Bernanke’s testimony the markets turned downward for modest losses.
Now I think most people are worried or hoping that this rally will continue. Here are some charts of volatility and advance/decline. These charts show that we are at a critical juncture.
And one last chart of volatility: the CBC put/call ratio.
Five experts from the American Enterprise Institute (a former employer of mine) have graded and assessed the Federal Reserve’s recent policy decisions. Each expert gives good analysis, but the feeling I get is that the majority of would give Fed should get an “A” for effort and good intentions but a “C” for delivery.
Next, the Resourceful Bear Blog says Lehman Brothers is likely another Bear Stearns. The fact that Golman Sachs and Lehman Brothers debt was downgraded on Good Friday by S&P is cited as an indicator of this possibility.
Finally, according to Oppenheimer analyst Meredith Whitney, Merrill Lynch and and UBS may suffer respective first-quarter write-downs of $6.03bn and $11.06bn.
The slope of the 50 day moving average for SPY is still pointing down. There is also some evidence that chances of a pullback increase when the market closes higher 3 days in a row while under its 200 day moving average.
One last, large factor that indicates a pullback from this small rally is the lack of volume. Volume has decreased over the last few trading days, thus creating a negative divergence between volume and price, and this is not favorable for a rising market.
With all this in mind, I feel its highly unlikely the market will rise, but certainly more likely that the markets will be in a trading range or will be falling once again.
I remember seeing an interesting chart from some blog showing a long term chart of some broad-based index showing the rarity of a decline in the markets for four straight months, but I can’t seem to find the chart or blog. Thus, I’ve created my own chart, a 20 year monthly chart of the S&P 500. I’ve highlighted the points where there have been 4 or 5 straight months of decline.
The important thing to note is that these series of declines have all taken place during a period of recession. Also, there is usually a good-sized rally after these series of declines. Just something to keep in mind.
This was one of the most volatile weeks I had ever seen in the markets. This might have a little to do with me being on spring break and therefore was able to watch the markets in more detail, but probably more so to do with these troubling economic times. With only four trading days this week, we saw hundred point gains and losses every single day I think.
Here’s the intraday chart of IWM, an ETF that tracks the Russell 2000 index, that shows the index bouncing and bounding across the intraday fib lines:
It’s really uncanny watching streaming quotes of the market and see the prices of stocks bounce off of and hover around the retracement lines. But anyways, it seems that the market is finally going for a rally after nearly 4.5 months of decline. Money is getting sucked out of leveraged positions in commodities and being put back into securities. One example of this I think is General Electric (GE).
GE had an huge day yesterday, making a 5% gain. For this week, GE went from a low of 32.83 to a high of 37.74. And just look at the huge volume on Thursday. GE has NEVER seen volume like that ever. I actually bought a put on GE, but if the market movers are getting back into GE, that might not have been the wisest decision. But in my defense, I bought the put as GE was pushing up against the 38.2% fib line. The stock moved up past that but now its cozying up to another point of resistance as you can see from the blue line.
I took a snapshot of my holdings this morning. Notice how they are all puts.
I closed half of my positions today and also made a tiny bit by scalping the IWM in the last 30 minutes of trading. This week still has time to be a doozy.
Sir John Templeton on bull markets:
Bull markets are born on pessimism,
grow on skepticism,
mature on optimism,
and die on euphoria.
Hat tip to Rebel Yid
Apparently the CPI has cooled down a little, remaining unchanged in February.
A second bit of news is that J.P. Morgan, in combination with the Federal Reserve Bank of New York, has agreed to provide secured financing to Bear Stearns. There’s more to this than meets the eye. Despite all the “positive” news, seemingly designed to combat further market slides, I feel that the downtrend will resume soon.
UPDATE
The headline of the day at Marketwatch is “Bear Stearns Bailout.” Bear Stearns screwed up royally. Their stock was over $170 over a year ago. Now its in the low 30s. This is all attributable to arrogance and an over-abundance of greed (don’t get me wrong, greed is good, but too much of anything is bad for you).
“Our liquidity position in the last 24 hours had significantly deteriorated,” Alan Schwartz, chief executive at Bear, said in a statement. “We took this important step to restore confidence in us in the marketplace, strengthen our liquidity and allow us to continue normal operations.
“Bear Stearns has been the subject of a multitude of market rumors regarding our liquidity,” he added. “We have tried to confront and dispel these rumors and parse fact from fiction.”
Despite those efforts, Schwartz said “market chatter” had undermined Bear’s liquidity.
So blame it on those awful market rumors. What an silly and stupid a-hole!
