I'll start with a chart of the 3 month long channel. You can see in January we spent awhile bouncing off the top... then we dropped.. spent awhile bouncing off the bottom, relatively the same amount of time. Which is interesting because we have a turn date period on deck between Feb. 9th and Feb. 18th. The last turn date signaled the drop from the top of the channel to the rattle around the bottom. So this SHOULD signal a rise back to the top. Which would complete a "Bear Market Rally"
Channel chart for the S&P starting mid Novemeber at the bottom;
In a 6 month chart like this (3 month long channel), today will just look like a pin underneath the rising trendline (bottom of the channel). The important part is that we closed back inside the Channel and today was a hammer. Which is the most bullish candle you can have.
Here is the definition of hammer if you said to yourself.. "Dude.. WTF is a hammer?"
http://www.investopedia.com/terms/h/hammer.asp
If "Candle" confused you,.. that's just a line that represents the high and low of a trading day.
O.k... so we have a Hammer.. we have time symmetry that signals a possible reversal which is most likely upwards. We also had good retail sales news...
"Government is so full of shit... reporting a bunch of BS... wonder what they did with the numbers to make sure this came out positive!"
That is the typical response to the retail numbers today.. which were above expectations by quite a bit and well into positive territory.
Here's my explanation, please consider it;
Here are facts;
1) you have tons of people going into foreclosure
2) very often these people end up living for free for several months.. sometimes up to a YEAR.. for FREE.. until they are foreclosed on.
3) the next step for these people is to rent. Often rent in a similar home is 1/3rd of what they were paying in mortgage previously.
4) Not only is rent cheaper... gas is 3$ lower.. everything overall is cheaper..
See where i'm going with this.. these people are going to have a lot more money in their pocket. How much money would you have after 6 months free rent? and then how much after 12 months of renting at 1/3rd the cost of your old mortgage?
Think you might go out and splurge a little on a nice car for cheap? or a nice sound system or sweet TV? Maybe that new laptop upgrade you've been waiting to get?
There might be a surprise increase in retail sales going forward. Which might result in some new hiring and slow the pace of job losses.
Lets talk about the financials for a minute;
The recent proposed plan does not bode well for the financials. Things like "stress tests" are necessary, however this is starting to go down the path of let the banks who are going to die..... die. Who knows if this plan actually works the way it was said to, since no details were given. However, it will be hard for the financials to rally with his hanging in the air. If we do rally hard, it is possible the financials lag. I would expect commodities, energy, and tech to do well.
Now the financials could certainly have a good run.. maybe even more than what I mentioned, but that is not a given right now like it might have been a few months ago.
Lets talk important levels;
804 S&P... this is THE bottom.. if we break this.. good night.. 600's is on the table.. maybe even lower
868 is the 50DMA... if we cross 868, then we could see a run to the top of the channel, in which case the target is up over 1000. Ths would be a bear market rally and probably would become more violent than the charts suggest.. so I wouldn't write off 1100. This kind of rally would produce a bottom call from every talking head on CNBC before it ended. In fact it would go as far as a kid in the mall talking about how the stock market is the new place to be.
Nothing interesting happens without breaking 804 or 868. They must break convincingly and on volume. 868 will need to break MORE convincingly. If we just stumble below 800.. it will be lights out.
Last thing to mention, weather has been unusually warm for a few weeks in the NE, that is changing next week with a potential snowstorm in the works. That will affect energy. Oil has been hitting new lows with the warm weather along with nat gas. Top weighting in the Russel 2K is energy stocks at the moment. So a bump in oil and natgas will help the market.
That's about all I have for you now. Stay frosty, this reversal portends good things, but is not written in stone by any means.
We technically should see somewhat of a pullback tomorrow, maybe even enough to make it seem like the afternoon rally was just a freak occurance. But that should end and we could have a chart that looks very similar to today.
GL trading...
CJ
