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March 12, 2009

Ctrl-Alt-Del

It's time to hit the reset button. For the second time this week I reversed my stance only to learn the action was a head fake. The spinner put in last Friday by the S&P 500 made me wary of an impending large up day. However, the nature of Monday's action drew me back into the short side only to have the market gap against me the next morning. Yesterday, oil dropped four bucks right into my trailing stop. I sold. Oil surged today... four bucks and then some. I'm usually fairly astute at filtering out the noise, but the decibel level has printed records recently. In times like this, I like to retreat to my core positions and wait until the earth stops shaking.

So, in order to get our bearings, let's run the gamut on charts and set some expectations.

stock index chart

In order for this view to be correct, the SPX should not be able to pierce 805. The big question is whether a final selling wave, wave 5-of-5 of the Primary Wave, constitute a test of the recent low or another waterfall. It is not uncommon for 5th waves to abort at 3rd wave lows. We will just have to keep our eyes on other data.

stock market indicator

That the current rally was not launched from extreme pessimism suggests a larger wave 5 decline.

stock market indicator

stock index chart

The weekly chart is conveying a different story. While no single day posted panic volume, weekly totals show panic levels. If this week's volume can exceed 30B and hold near price highs, we may be looking at the potential of having printed a more important bottom. I'm not sure how Elliotticians will assimilate such an event, but I'm sure they will find a way.

stock index chart

We are on pace for 100B+ in monthly volume. If this month's candle manages to post a bullish hammer, it would add to the probability of a much larger rally to unfolding.

stock index chart

dolar chart

The dollar chart is beginning to look a lot like the end of the equity bull market. Post a fast drop to draw in bear, then rally to a marginal new high to draw in bulls before failing. I griped yesterday that oil and copper fell despite a falling dollar. I should have taken that as my clue to a head fake. If the dollar bear has returned in earnest, then we may be facing some nasty inflation sooner than later. Along those lines, let's peruse some commodities, shall we?

oil chart

I've mentioned that energy should lead the next big rally in equities. If oil continues to rally, the chances of bearkind seeing a climactic sell diminishes.

gold chart

I'm still neutral on precious metals trading, but if gold can close above the recent swing high at $945, I will look to accumulate. A break below the rising trend line, and I will look to short.

copper chart

stock chart

I still think we'll see that "c" wave down to the trend line.

stock chart

As you can see, despite my near-term bearishness on equities, there is a case to be made for a bottom having been printed. If oil continues higher... if the dollar index continues lower... and if the SPX takes out 805, I think the folks piling on shorts for one more sled ride are more likely to hit a tree than find the bottom of the hill. Overall, I am not placing any large bets either way. If we see some heavy selling-into-strength data while we are in the turn zone (SPX 745-805), I may take a moderate shot at the short side with the idea of seeing a test of the low. There will be better money to be made, though, when the market traps itself in a different situation or by being long miners after GDX finishes its correction. I may even eat Turkey buy my oil back.

 

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