Pavlov Rings The Rally Bell
I have a
great new commercial for CNBC to air. This proposed piece of
cinematography will
capture the very essence of the current market environment.
Forget about the new series of commercials that some brokerage firms
have been running recently in which a very intelligent looking fellow
is telling a room full of
concerned investors to “just calm down, the market always
goes higher in the long term.” We’re in rally mode, baby. We need
something to express the
newfound enthusiasm and confidence in the equities markets.
Get a mental image of this:
The commercial begins with a beautiful
wide shot of a picturesque location such
as a flower-filled field in Napa Valley, California. We see children
playing and laughing while
their parents sit off to the side and watch CNBC on
their 5″ LCD portable television sets with their personalized
“portfolio tracker”
running. All of a sudden, the song “Up, up and away in my beautiful
balloon” begins
playing and the adults look up into the sky. Much to their amazement
and delight, they see hot air balloons hovering by with CNBC cast members
in each balloon smiling and waving down at them. In addition, each
hot air balloon has a
gigantic picture of a CNBC favorite analyst on it. Maria
can be riding in the one with Abby Jo, Mark could be riding in the one
with Battapaglia on it,
and Kernan can be riding in the one with Tom Galvin. All
the while, the children play, the sun shines, the music plays, and
everyone is in a state of
absolute euphoria. This is not a place for fundamentals,
this is not a place for caution, this is the U.S. stock market, where
you can forget about the economy because it’s all about the momentum!
The following comments
that were made today lead me to conclude that although this
rally continues to rage on, the bulls may have outdone themselves ultimately.
“Cisco’s strength today
definitely gives an ‘all-clear’ signal to the market.”–John
Bollinger
“The market has been moving
sideways for a couple of days after a very nice advance.
This typically confirms the bottom of a bear market.” — Bob Pisani
In addition, CNBC had on a gentlemen
from Smartmoney.com, in which their magazine
publication is titled “Are You Ready For The Bounce?” with an
illustration of a bouncing
rubber ball.
What I have tried to do thus far with
my column is to provide a bit of fundamental analysis combined with some market
psychology and tie it all together
with my technical analysis. I have been very successful in my life
by trading according to
this “recipe.” Tonight, however, this recipe does not
work, nor will I attempt to try to make it work. There are times when the
events we observe totally
perplex us. When we look back and examine the trading
patterns we did not satisfactorily recognize, it sometimes becomes
maddening as we pressure
ourselves to be adept to any and all market conditions.
But there are situations where even the most astute trader/individual
must sit back and let the hurricane subside before he can accurately
assess the true extent of the damage.
By examining the nature of the rally
which has transpired over the past nine trading
sessions, it is very clear that this up-move was generated by tremendous
rallies during Globex trading sessions when volume and liquidity are
extremely light. Apart from the huge morning gaps on 4/05, 4/09 and
4/10, regular trading
sessions have demonstrated extremely indecisive trading action.
I have found that rallies which were spurred on by these types of surprise
gap opens have done little, other than squeeze out a substantial amount
of short interest and suck in idle sideline money. When the move has
run its course, there is
very little from a technical standpoint to keep the market
up. Aftermarket today, the S&P futures are trading at nearly 1214,
an 18-point move higher
from the close of the regular session. Is this gap attributable
to INTC beating their own reduced EPS for the quarter by 1 cent? I
seriously doubt it. The market is in “momentum mode” and there is no
way to try
to find a fundamental basis for its actions. All I can confidently say
is that in all of my
experience, the market’s activity these past two weeks may
be the most blatantly manipulated I have ever witnessed. Take that for
whatever it’s worth.
Needless to say, the Dow Jones
Industrial Average was looking like it was playing
into our hands perfectly. As you have been aware, for the past several
sessions I have pointed out the 50% level of the 3/11 weekly bar as a
potential target and
definite resistance. After an early spurt up to within 8-10
points of this level, the Dow sold off nearly 150 points and had created
an extremely bearish
reversal daily bar with a long tail above it. This was before
the typical last-hour jam job, however. With an hour left to trade,
the Dow, Nasdaq and
S&P 500 indexes, which were all trading in the red, somehow
launched another final-hour “Peter Pan” rally which ignited a panicked
buying frenzy. I swear I
heard “just get me long — anything!” buzzing over phone
and Internet lines. Drugs, oil service, fiber optics, biotechs, banks,
tobacco, healthcare,
retail, software, etc. all rose in the tide. As a technician,
you can only react to what you see and try to reasonably anticipate
the future by it. What we witnessed during the final hour of trading
and during the aftermarket session certainly suggests that some upper
levels of resistance are
going to be tested. Once again, the Globex session’s
18-point move higher in the S&P futures leaves us little opportunity
to react.
As such, it appears the following
resistance zones may come into play. In the
S&P futures, we have an extremely bearish candlestick on 3/12 where its
high/low is 1232/1186. It
certainly appears we will open the trading session tomorrow
in the range of this candlestick. Should the 1232 level be exceeded,
the next level of
resistance is the gap that was formed on the gap down open on
that same day of 3/12. The area of the gap is from 1244 down to 1232. If
the S&P futures enter
this gap area, I can assure you I will be shorting them with
both hands.
In the Dow, aftermarket DIA trades
indicate that the index will open somewhere
in the 10,350 area. As such, this would exceed the widely known 10,300
level. The daily chart displays a very bearish candlestick on 3/12
that displays a high of
10,638 and a close of 10,208. The midrange of this bar
is around 10,420 and is the next upside target, should 10,300 be exceeded
and hold. Unfortunately,
even though the Dow’s regular session close of 10,216
(after its 150-point jam job) still complied with my earlier indicated
resistance level, it
appears the market will gap excessively above that level tomorrow
morning. This will require us to shift our resistance targets a little
higher up on the chart.
In light of the current conditions,
neither longs nor shorts provide low-risk setups.
We will need to re-analyze once some of the resistance zones I cited
above come into play.
Goran