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Weekend Analysis

Government Intervention Saves Market

Tue, Sep 23 2008, 09:53 GMT
by Jack Steiman

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Was the bottom of this bear market seen yesterday at 1133 Sp? That is the question on everyone's mind. If it was, does it mean we still have to go back down and retest? Can it be a V bottom? Lots of questions with no real good answers at this point in time as we saw something over the past 7.5 trading hours never seen before. The type of intervention saved only for the most horrific of times. The question is whether the bad fundamentals still out there outweigh the government's actions to save every bad debt out there. Markets don't normally, actually never bottom when we see intervention but this time it may be different. With the world getting a free pass from what's occurred and whatever may happen in the future it's hard for me to wrap my head around this market going down too much more near term at least. With the Government also disallowing shorting in 799 different financial stocks through October 2nd, and it'll probably be extended through the election, it will be that much difficult near term to take things down significantly. We took out all kinds of resistance today but more are dead ahead. This won't be easy for sure. We gapped up and basically went sideways throughout the rest of the day. Many selling attempts took place but they were bought up in fairly rapid fashion. Shorts are trained for the past year to short whenever possible as they'll be rewarded thus that habit will be a hard habit to break. It may also mean lots of pull backs but I think the market will trend higher overall in the near to medium and we probably won't have a full retest although that's always a possibility. Although it hasn't happened before during any type of intervention, we may have bottomed for a while. How long is hard to say. It could be a year or longer before we see these levels again but please remain open to all possibilities because who knows what news is out there that we haven't heard yet. Nothing and I mean NOTHING would surprise me any more. Anything goes from either the bullish or bearish side of this market. With the Government lying through their teeth almost daily, you should not only expect anything but know that you also can't trust anything you hear. The only thing free these days is the words of the liars. The markets sure aren't free. May never be again, at least from a trust perspective.

Volume was enormous and the advance decline line solid although not spectacular on the Nas. It was fantastic on the Nyse. You can't argue with price action when it is confirmed by such large volume. If the volume had somehow contracted on this advance it would an enormous red flag but we had over 3 billion shares traded on the Nas and that's more than confirming. In addition, and as expected, new lows shot down from nearly 1700 to about 300. Many stocks making bottoms for the near term and if you study those stocks you will see that an enormous number of them have their Macd's compressed at the bottom. This will assure that these stocks have seen their bottoms for quite some time. The energy or fuel if you prefer has been used up as these issues have been riding a ski slope lower that had to end somewhere and now we know where that somewhere was. It was all about yesterday's lows.

The Nas has a large triangle it's sitting in and the very top of that triangle, again because it's so large, sits at 2400, quite a bit higher from today's closing price. It won't go straight up there. Loads of pullbacks but the channel is now open over the next many weeks to months for the Nas to drift towards that key resistance level. That's a full 6% higher from here. Something that can definitely be played. The Dow has major resistance at 11,390, right where we closed, which is the 50 day simple moving average. The 50 day exponential moving average is just above that at 11,447. There's also some price resistance at 11,500. The Sp hasn't cleared either of its 50 day moving averages at 1260 and 1264. 1260 is also the 200 day moving average on the 60 minute chart so that conglomerate of moving averages will now act as resistance. The Nas did not clear its 50 day moving averages either at 2313 and 2316. 2329 is the 200 day moving average on the 60 minute chart. Bottom line is there is some difficult resistance levels just ahead thus things may take time. We're also getting overbought on the 60's so don't expect too much too fast but again, things are looking much better technically overall.

We are witness to the unthinkable here. Hard to grasp it all. No shorting of financial stocks. No this or that. Lots of things that shouldn't be, etc. In the end, however, the job at hand is to figure out which way we go. After some selling to unwind things, we should move higher overall. We may have seen the ultimate bottom. I think we have but time will be the final determinate of that thinking. As I mentioned above, lots of stocks at the very bottom of their Macd cycle. Fabulous news for bulls there. It helps put a floor underneath things. Don't get overly aggressive but if we get a bit of selling I think the waters are warm enough for a swim or two.

Have a great weekend and play with a child if you are lucky enough to have that opportunity.

Published on  Tue, Sep 23 2008, 10:00 GMT

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