All In or Pile Out?

There is a good chance tomorrow's close will indicate direction for the balance of the trading year. Any long term bear trend the bears may have hoped for rests on tomorrow's unemployment numbers. Awash in bale-outs and Fed interventions, the markets are sloshing around with enough cash to fix immediate problems, but raising cash may be easier than restoring confidence in an economy where consumers are finding all sources less willing to oil the big green lending machine. Should trade reaction interpret future job growth to be resilient, the all in bell will ring. On the other hand, no one likes rejection, but the bulls may find that piling on is an art form when price action turns ugly.

Not So Fast

Market a bit ahead of itself yesterday given the data being released today and tomorrow. Indexes will settle back and wait for unemployment data which may be crucial in determining the whether or not a real base can be built upon previous downside action. A hard break on Friday would create some serious trouble for the bulls and the argument that the various interventions have done the job.

Are Bears Missing Something?

The bears, whose numbers are vast, have had to stomach two sessions of short covering and pricing. But let's look at their strongest and weakest arguments about the direction down.

Strongest- Not since the 1930's has such contagious financial losses effected the bottom line in the bulge bracket sector.

If confidence is the name of the game in the making of long term success for investments and a willingness to lend money, then the bear may live in markets continuing to appear as if the worst is over only to see repeated failed rally attempts.

Weakest - Capitulation is the only way to a bottom. The end will come with such force and negativity there will seemingly be no hope for recovery.

Tough to base an argument on the ' know it when I see it ' rule. Bears need to be ready to accept that the speed of intervention by the G and Fed may have trumped the death dive.

Despite all the claims of the bears, great wealth on Wall Street is being created for those who are positioning themselves between bale-out and intervention. Hard to imagine the bears missing that one.

In any event, the ability for the market this week to put the lows behind rather quickly will be the tell on the upside strength. So far, it is still a range trade.

More Up

Stock indexes rejected Monday's break and now have a target placed on last week's highs. It will all come down to Friday action when the jobs number is released. A strong rally and close will confirm the worst is probably over for the year on the downside but yet leaving plenty of room for upside resistance. The question will be whether the price action will be enough to turn on the 'buy' math inside the production boxes in professional trading rooms which grind everyday. As posted earlier in Seed's of Summer, summer lows can lead to a significant upside gain over the next twelve months.

Bears Bomb

Reversal with better volume in the SP500 and NQ100 today as the DJI also turns around. Extreme bearish attitudes are the driving force that provide fuel for recoveries and are setting the stage for a test of the recent rally highs. The easy down is going to be a problem as mentioned before as the greatest marginal advantage has moved to the bulls.

Keeping Them Down

Dull morning after a decent down day as markets wait for various data releases. Bears need to keep the DJI, SP500, and NQ100 under last Friday's lows, being 11325, 1249.25, and 1815.25 respectively, if they are to prevent an up leg test of recent rally highs. Given the end of the world analysis presented every day by the pundits it should be no problem. Unless.

The Big Empty

Market moved lower again on moderate volume as the living dead were trotted out in the form financial stock woes and the pessimism of the IMF regarding the future of US housing. No one has ever cared what the IMF thought, but in a world of doubt, people would believe a talking dog. Merrill did not help things late when they announced a large write down and the intention to raise cash by issuing stock.

Today's action continues the first re-test of downside support created in mid July. The test of the first rally always provides only spotty low volume support. While there is no guarantee of the integrity of current lows, this test process is virtually unavoidable when there is such extreme bearish sentiment. Accompanying this particular break is a professional trading profile of sell side strategies somewhat unique since the advent of electronic trading. There are truly more hands pushing the cart down the hill, which of course, will only add to the chaotic scene of running up the hill when a serious short covering rally does appear. The bears can gain the upper hand by driving these markets into new lows at week's end but will have to convince traders that they are not selling the bottom, otherwise known as the big empty.

Flail About

Now the markets will see just how big the hole is in the side of the overall economy and whether the stimulus and relief packages will be enough to steady if not raise all boats. Bill Gross of Pimco, while not bullish on overall economic outlook, is on the other hand explaining the merits of investing in Freddie and Fannie as better than anything else on the risk side. Of course Pimco has a substantial position in the two and any spin Gross can add cannot hurt.

Hedge funds it appears may have had their worst month in five years according to Bloomberg. This is the result of deteriorating large bank positions and catch the falling knife purchases made when apparent bargains were appearing earlier this year.

Unemployment week is here along with several other bits of data so the market may flail about while trying to build a base for the balance of the year.

Taking Down For Granted

Covering a bunch of down territory yesterday with unimpressive volume and the same old news regarding banks and the economy. Bears must not get too comfortable in this environment because the illiquid nature of price in ranges such as these can provide as much energy on the upside.

Breakdown

The repudiation break written about in the post Tactical Moves arrived today. Tomorrow will be of great interest as it will help determine whether or not today's wide range sell-off is part of an expanded range bottom or part of a more dismal directional pattern. IBM's strength and new eight year high could be the ultimate divergent clue for the indexes.