March 10th, 2009

Don’t Pop the Bubbly Yet

CNBC is about the best comedy and comic network on the air today. Watch it today and you’ll feel much, much better. You’ll forget about the fact that stocks were down since the second trading day this year by 27.05%, prior to today’s rocket market.

I listened off and on throughout the day and I don’t think I heard that fact once today. All I did hear was “this is a generational low”, “market was up a historic 6.37% today”, “there are low valuations everywhere”. How many different ways can they say we had a big bounce today.

On Monday, I wrote:

“The various trendlines aren’t Fibonacci lines. Instead, these lines are placed at critical congestion levels at a slope parallel to the top-most line connecting the double top peaks. Each of the parallel lines represented boundaries of a range in which the market hovered as it cascaded down. Furthermore, the 2008-09 ranges paralleled similar ranges as the market expanded during the 1990’s to the Tech Bubble peak.

The market is currently at the bottom end of one of those ranges (680-740) paralleling a similar trading range in 1996 (600-680). One the one hand, everyone except for the Bears is hopeful for a 10% or more bounce from 680 to the upper end of the range at 740. As a best case, the bounce could carry the market up to the double-top’s neckline around 800-810.”

Did you read carefully? On Monday we could see a bounce of between 9% to 18% and then run into new profit taking and downward pressure. Today’s 6.37% upside move represents, at best, a third of what I currently see as the total move before a retracement and retest of this “generational low”.

If you’re nimble, you can try to collect a few shekels by playing the bounce. But I suggest you not buy the “talking head” sales pitch of the Bull Market returning again on solid footing. There’s an incredible amount of overhead that the market has to struggle through in this order:

  1. A downward sloping trendline currently at 790 that stretches back to last summer’s highs
  2. The 60-day moving average at around 830 which might attempting a turnaround and moving up again as it’s vain attempt in January.
  3. The 90-day moving average at around 850 that is also close to starting to turn up. The Index would first need to cross over both these averages.
  4. Horizontal resistance trendlines stretching back to parallel action in 1996-97 that today rests at 740, 810 and 890.

Don’t get me wrong, I bought the S&P Ultra Longs on Monday and have owned a few of the individual stocks that looked too compelling due to excellent chart patterns like solid horizontal trendlines in their chart patterns (see March 4, March 1, February 24 and February 15).

It does look hopeful for now but not an all-clear.

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