Thursday, September 24, 2009

Where From Here?

Another perfect day for the bears. You didn't gap down which would have been begging for a reversal. You sold off after being up early after the existing housing sales number just like I thought we would. And finally the markets sold off into the close after a failed attempt at a rally. There are always things to be disappointed about. Volume was heavy but I would have liked to have seen another 100 million shares trade. High yield credit sold off but the spreads were only modestly wider. All in all, though great textbook follow through from yesterday.

In my opinion there is only 2 numbers that really matters tomorrow. 1044 and 1060. People are talking about 1035 and 1018. No, 1044 in the S&P 500 which is the upward sloping trendline that goes all the way back to March. Think it doesn't matter? The Dow hit its uptrend line today (it has been lagging the other indexes) and the Dow only finished down 41 points or .42%. It bounced along that trendline all day not following the other indexes lower and hence not breaking it. That has been major support. A weekly close below this trendline would be huge. It is entirely possible that if that were to occur we would be down 5% a week from when we broke that trendline.

The thing is, at best I am putting that scenario at 50/50. I would say it would be almost impossible if it wasn't for the RIMM earnings after the bell. The RIMM miss and subsequent 10% plus sell off after the bell gives the bears an advantage tomorrow.

Tomorrow you also have an interesting economic news day. Durables orders at 7:30, Michigan consumer sentiment at 8:55 and new home sales at 9:00 (all times central). I really have no expectations for the data. The durables number should be way down from the previous month which was goosed by auto sales (I think I am right on that), while who knows on the Michigan consumer sentiment number. The new home sales (the last number) is the real wildcard. I really don't know. It is such a small piece of the actual pie that in reality it doesn't really matter (you have 5.1 million existing home sales being sold on a yearly basis and 430k new home sales, not even 10% of the total) but right now as everything it is how the market reacts to the news versus the actual news. This number could meet expectations or even beat (I really have no idea) simply on the fact that home builders are targeting the 1st time home buyer and the 8k tax credit from the government. The inventory that is there is better tailor made to the demand. If it beats, you run the risk of the market saying, see housing is fine, and rebounding hard.

We may be up or down tomorrow. It really doesn't matter for the bears or the bulls unless you break 1044 on the downside (big win for the bears) or if you break 1060 on the upside (big win for the bulls). The way the markets work, it seems often times it like to make investors sweat. A 1058 close (not a prediction) would do just that causing both sides to go home and chew on there fingernails over the weekend.

One interesting thing is for the firs time, the media and talking pundits are automatically discounting that this is just a normal run in the mill 3 to 5% pullback. No one seems that worried. Even the bears I follow are not as quick to say this is the real McCoy. That is all really good if your bearish.

Maybe this is all a false breakdown. But if I was writing a script for a market breakdown to break the trendline in the next few days and start a big reversal lower, I could not have written a better one.

Time will tell. The bulls (aka government) may have one more trick up there sleave.


The Duke said...

Yep we'll see what the government does, part of me is beginning to wonder if the new regime will let it go down. The conspiracy theorist part. However, the modest down rather than a substantial pullback is encouraging.

The Duke said...

Good call on durables.

Market Seer said...

Ha, thanks...The numbers were worse than I was expecting. The amazing thing is, it really wasnt' because of autos which bodes really bad for next months number.