Wednesday, June 9, 2010

BP'd Again?

Alot of similarities to last Wednesday when I had the post BP'd. Market looked like death at the end of the day before with all the news on BP. Just like today.

Last Wednesday I wrote:

Part of the problem for the bears is yesterday we were going down for the wrong reasons for the drop to be actually legitimate. Yesterday it was all about BP and the oil trade. Oil companies (basically all of them) got slaughtered. This weighed on the markets until it finally drug the entire market down. The market got BP'd. It isn't about BP though. If the news is all about BP that is bullish because fundamentally BP doesn't matter to the broader market. Europe has very quietly dropped from the financial headlines. BP is everywhere. That is bullish because it is Europe and the financial system which is going ruin the system.

And here we are again. Today was largely about BP. Where we BP'd? I could be wrong but I am going to guess no. I think the probabilities set up where tomorrow we will make a run at and this time break 1040. It may not happen but the odds favor it.

First, this was a massive sell off at the end of the day which is never good. We fell 150 points to close near the lows. The market cannot catch a bid. Investors just are not interested in buying. Volume picked up as the market was selling off. This sell off looked very ugly.

Two, more rumblings out of Spain with banks supposedly cut off from the capital markets. This can't go on for long. The more ignored it today? Will it be able to continue?

Three and probably most important is that at 2:30 p.m. Central European Time Trichet and the ECB Vice President will explain the Governing Councils monetary policy decisions and answer journalist questions. So far everytime Trichet opens his mouth it has been very bad for the markets. Unlike Bernanke who is the market whipping boy Trichet almost seems to have a vendetta against the markets. I think if the markets are not down within an hour or two of this speech, than I will reverse course in thinking a 1040 break is imminent. So what time is 2:30 p.m. Central European Time? From what I can tell it is 7:30 a.m. central time here in the U.S. The risk of course is that this time Trichet does change his tune and the market spikes. You should know before the market opens. If we bounce we have no business going back above 1070 for this scenario to play out.

So what happens if we break 1040? HA!!! I have no idea. We could quickly go to 950 (over a few days or a week) we could bounce off of say 1000 to 1020, you had so much selling to get through 1040 that you have selling exhaustion and now you bounce back to 1100. Maybe it picks up steam and we are headed to the 800s by the end of June. It seems the likelihood is we have some sort of mini crash of several percentage points before coiling up for a big bounce since we it would be adding extreme oversold conditions to already oversold conditions. I have no idea though.

Europe was up today fairly strong after being down 3 days in a row. Those three days were vicious as France lost 5%. It would seem Europe would need another day or two to bounce. Maybe it bounces into the afternoon until Trichet starts talking and sells off like the U.S. did today going into the open for the United States markets?

I was shorting today as I said I would once we got above 1070. As we started selling off I started adding even more. Tomorrow if my scenario doesn't play out quickly I will look to take some of this off (go from more short to just less short). I don't think we have any business going back above 1070.

I am dealing with probabilities. This break of 1040 isn't a "call" by me but just trying to say the probabilities for tomorrow and Friday are very high. I will make the call (and this I think is the key) if we break 1048 that we will break 1040 this time. I don't think the bulls can hold it a third time.

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