Flip-flopping Thursday

[caption id="attachment_453" align="aligncenter" width="500" caption="SPY"][SPY][][/caption]

[caption id="attachment_454" align="aligncenter" width="500" caption="BAC, C, JPM"][BAC, C, JPM][][/caption]

A great close today. Notice that we're testing the 910/920 (S&P/SPY) resistance with significant volume in the last hour of the day. The volume is more than the level established at the resistance.

The same can be said of BAC and JPM. C's end-of-day volume didn't break through. Recall that these are the 3 banks I said to watch for in last week's CDS crisis. In fact, Lehman's CDS settled without much fanfare. See Lehman CDS settlement of \$5.2 billion.

I expect tomorow morning (was going to say 'day', but who knows these days) to follow through with today's action. We'll see if we can close the week higher for a triple-bottom, with 3 long tails, on the daily chart. In particular, I'd like to see if we can break above 940 for the close as I have opined previously.

[SPY]: http://traderpau.files.wordpress.com/2008/10/2008-10-23-spy.png [BAC, C, JPM]: http://traderpau.files.wordpress.com/2008/10/2008-10-23-3banks.png

Posted 23 October 2008 in stocks.

A sign this financial bloodbath is ending soon?

I am going to stick my neck out and say we are bottoming these days. Why? Here goes.

In Bill Cara's commentary today, he opines about the [rationale for the current market crash][] (not the one last week, but this week). > Why the panic bail-outs? The answer lies in the \$55 trillion dollar > Credit Default Swap market that is unraveling day to day. Banks and > central banks are totally focused on the breaks to the credit ring > when up to \$400 billion of Lehman Brothers CDS obligations come due > in the next week, with nobody at the teller window to pay up. Lehman > Brothers is, as you know, bankrupt. >

What this means is that unspecified banks holding the Lehman CDS derivatives will get nothing, and then they will be unable to meet their obligations to other banks. At stake are the Money Market Funds on deposit in these banks. The entire system could collapse, so banks do not want to be in the position of lending to one another. The credit market has failed.

Bill suggests that we look at the 3 biggest banks in the world (total over 90% of CDS market) for the first signs of when the market will tank further. Because, well... if they can't pull through this mess, we are really doomed.

So here's where my own analysis comes in. Besides Bill's rationale, we know the current crisis is caused by the collapse of the financial market. So I've been looking at the financial heavyweights in any case.

Enough talk, let's look at the market today. After the failed attempt of a rally earlier this week, the market is widely expected to continue spiral down. It has. And the media is certainly not short of fueling the panic. See: Worries over economy spread; global markets sink and Economic Fears Reignite Market Slump. However, what everyone knows isn't worth knowing.

The only information traders should listen to though, is the price data.

[caption id="attachment_394" align="aligncenter" width="500" caption="BAC, C, JPM, and S&P 500"][BAC, C, JPM, and S&P

As I was saying, based on yesterday's end-of-day move, the market is expected to tank today, at least this morning. If we focus on the 3 banks, we can see they have broken yesterday's end-of-day low and are testing the Monday lows. However, this is the key, their 15 min volume on today's low is below yesterday's last 15 min when the prices dived. All of their prices are testing their lows on lower volumes!

In other words, I believe the selling is drying up.

Does this mean we'll be shooting up from here? Perhaps. But this is a very good sign. I would wait until the next significant daily move (either up or down) and watch the quality of the action before making any monetary committment in this crazy market.

[BAC, C, JPM, and S&P 500]: http://traderpau.files.wordpress.com/2008/10/2008-10-16-3banks.png

Posted 16 October 2008 in stocks.