A Little Technicallity Sprinkled In

I am not a technical guy but as mentioned on this blog I don't ignore it either. This will be the second post where I pull some graphs to make a point. The market rally today was not totally surprising. To me it has alot of similarities to September 5th. What was September 5th do you ask. September 5th was a Friday I was on the plane to Alabama for a wedding. We had a huge drop on the 4th and basically broke below key levels. While I was on the plane late in the day Treasury Secretary released what became known as the bazooka (actually was a pea shooter). The market had a huge reversal in the final hour and continued higher on Monday before giving it all back on Tuesday. This is the last three months graph on the S&P 500. We had the spike lower in November but the real low was around 808 in November. We hit it twice. We hit it another three times a few weeks retesting that low. We held and bounced along the trend line. Today we broke that trend line which was huge. We went down and then inched higher most of the day before really starting to sell off at the end of the day looking like we were going to break this 808 number. Well all of a sudden the Obama plan was released (probably not by accident) and the markets raced higher having a massive reversal (Conspiracy theorists would probably say the government stepped in and started buying futures at that point - I don't know). Click on the graph for larger image.
Now look at this graph. This is the graph I was referring to on September 5th. If you zoomed out you would see that the first circle area in July was a huge low after a major drop off in June. It looked like on September 5th we were going to break it again heading much lower and that was when the Paulson plan was leaked. If you notice, it didn't change anything. Just pushed it off a few days. Click on graph for larger image:

I am not really that concerned about this rally. I was expecting some sort of pop off of 808 though I expected it to go to 820 before truly breaking 808. The well timed plan release augmented this bounce. I was shorting some right at the close today and though wouldn't be surprised to see a rally tomorrow as long as it doesn't break 850 and especially 870 I think it is all natural. It is the way the markets work. This plan as I said in the previous post is just another pea shooter. Even if it was doable it would take months to do this type of analysis and the government can't even perform a decent analysis on the banks. Add on top of that that if this really does have a mortgage cram down provision, it will be very bad for the banks. I don't do this often but I am going out on a limb and say we will break 808 by February 20th. I don't think this G7 meeting is going to turn out anything postive this weekend and it could turn out alot of negative quotes. Maybe I am wrong but it sure seems like September 5th.