Today's action had little if anything to do with bullish investor sentiment, Americans feeling good about the markets, bullish or bearish news from lame-duck tech companies or anything like that. The parade of analyst drones CNBC lined up in bowling-pin fashion had little if any real clue, either.
Early in the session we saw a floor shot of Art Cashin when the Dow had spiked to +110 and fallen sharply back to +75 or so. When asked if anyone on the floor made much of the sudden move he replied that no one seemed convinced it had legs. Such was the mood of stock traders on the NYSE floor.
But things were different over in Chicago where the biggest of big boys play. We later learned that a substantial market player was buying long S&P futures contracts while moving out of bonds in a fairly stout asset reallocation move. Ron Insana eluded to other major money being "sheltered" from this move by Goldman Sachs and Prudential, who were facilitating the trade. A contact I have who only trades the S&P 500 told me tonight that some pretty big futures players were furious as they tried repeatedly to short the market without knowing who was pushing the pile.
This might help explain why we saw blocks of SPX calls clearing all day while big blocks of SPX puts would get bought long and then dumped soon after at loss. This noisy process repeated much of the session as those in the know bought calls while those who were outside the loop kept trying to fade the move.
That my friends is how the markets move sometimes. Nothing to do with JDSU or similar pigs of the NDX being touted or panned. Nothing to do with IBM shedding a dollar or two. Nothing to do with breaking market news of any kind. Just one of the bigger boys moving a few billion dollars around that sent the dominoes falling.
Pit insiders who've spent time trading over at the Chicago Mercantile Exchange swear that S&P stands for "Snake Pit". Looks like a few big traders got bit by a much bigger viper today, now doesn't it?
And so the markets went after popping out of coiled wedges built for the past few days. Where does that leave us from here? It goes without saying that someone controlling a modest fortune believes they are better off in equities than bonds today, that we can be sure of. We are just as sure that such behemoths do not view the market as traders do: they manage risk/reward by holding positions over time. It might take -100 handles (index points) down in the SPX to shake this guy out because he's positioned to catch +400 up in the next year or three. Or that money is parked in the SPX as liquid cash instead of bonds, because risk of slippage is greater in debt than equities. This does not help retail traders with shorter timelines at all.
Let's see where the charts ended up.
(Daily Charts: Dow & NDX)
I realize this is a cluttered view, so the dissection will begin. The Dow has moved up from 25% retracement levels measured between May highs and September lows for the most recent range of extreme. Next up would be 9,375 area as 38% of this range and likely target to hit.
Meanwhile, price bars look to have formed a bear flag pattern but it's early to assume that. The steep ascending trendline also served as overhead resistance to halt the gains late today as well, or was it simply trading curbs? We'll find out tomorrow.
QQQs have formed their own little bearish expanding wedge, albeit on a bullish engulfing candle of Wednesday's action over Tuesday. The Qs are eyeing that 38% retracement just like the Dow and both charts have stochastic values at or near overbought extreme but poised to continue higher as well.
(Daily Charts: OEX & SPX)
Both S&P indexes are also flirting with 38% Fibonacci values from May to September extremes as well. The SPX chart is a little off and that 38% value should actually be 1084 I believe, but you get the picture. Resistance from the steep ascending trendline that recently broke down in addition to Fib values will offer the next upside challenge. Stochastic values are turning bullish again and will make that upward cross on further strength tomorrow or keep ticking down if markets sell off instead.
(10-Minute Chart: SPX)
Many readers asked why today's setup was not a playable swing trade. Swing trades by definition are a pullback against the trend that will soon correct. The "trend" had been downward since last Thursday afternoon when recent highs were posted that still hold. Daily-charts across the table were bearish and warned of downward direction being the high-odds bet.
Then the Dow hit 9,000 level, buy programs in the S&P futures turned on and all bets were off. Individual traders who've seen this type of thing before and smell a possible rally brewing could have bought calls in four viable places: the bottom at support, right where the wedge broke to its upside, the first continuation bull flag or the final bull flag this session. All Dow, OEX and SPX 10-minute charts look exactly the same and 5-minute chart stochastic values lined up in unison at oversold extremes as well.
But this is nothing a website can possibly do. There was an excellent chance any of the several selling attempts could have squashed the early action flat: that would have easily happened most days without a market giant building his very own chart. This is not "swing trading" by any stretch of the imagination: it is day-trade scalping that resulted in some solid gains for those who dared try. Just because markets move and profits accrue does not mean a website service can easily participate.
As I've repeated too often before, we strive to teach you how to spot these setups yourself and learn to take advantage of them. Taking the trades is easy... using the proper amount of capital and getting out with profits or slight loss is where rubber meets a very fast road!
Best Trading Wishes,