There's Some Very Weird Things Going On In the Market

Fundamentals no longer drives the stock markets. The market has been rising, but earnings have been falling. See the table to the right.

Let’s begin by acknowledging that the average bear market rally rises 33% - - and the current market rally is up 25% on the Dow, 29% on the S&P, and 31% on the NASDAQ. So this one-month rally should not be viewed as anything special; it just feels that way because it has been a long time since we seen a decent market rise.

Another thing to notice is the market has been setting extreme positions on many technical indicators for the past couple weeks. Regarding stock advance/declines, we've had extreme readings 6 times within the last 16 trading days. Normally, we get one such extreme reading after a new bull market has started. The last time there was an extreme reading happened was two months after the market retested its lows in 2003. But the market have been mostly moving sideways for the past couple weeks with the S&P only now touching 855, a key channel resistance. The Dow and the NASDAQ have also experienced a similar situation. All of these stock advances have produced little in the way of overall market movement.

Let’s look at who comprises the market. The stock market can also be broken down into three groups of traders; i.e., the large financial institutions like the major banks, then the hedge funds/pension funds/insurance funds, and then the small traders. The financial institutions control the stock market. The point is, it pays to trade with those groups that have a track record of success and bet against those with a losing record. And to put it more succinctly, the small traders are always wrong.

So where are we going from here? Will the markets break through resistance and rally higher, or will it bounce off and go lower?

We must consider the fact that about 80% of all trade volume on US markets is algorithmic with the remaining 20% to contain most all of the small traders. So of these 80%, who are the primary traders?

As the graph to the right shows, 32.6% of all trading is done by a handful of financial institutions.







The Zero Hedge blog provides some insights into these companies as the graph to the rights shows. As quoted from his web site:

Key to note here is that Goldman's program trading principal to agency+customer facilitation ratio is a staggering 5x, which is multiples higher than both the second most active program trader and the average ratio of the NYSE, both at or below 1x. The implication is that Goldman Sachs, due to its preeminent position not only as one of the world's largest broker/dealers (pardon, Bank Holding Companies), but also as being on the top of the high-frequency trading/liquidity provision "food chain", trades much more often for its own (principal) benefit, likely in tandem with the other top dogs on the list: RenTec, Highbridge (JP Morgan), and GETCO. In this light, the program trading spike over the past week could be perceived as much more sinister. For conspiracy lovers, long searching for any circumstantial evidence to catch the mysterious "Plunge Protection Team" in action, you should look no further than this.

Following on the circumstantial evidence track, the Volume Weighted Average Price (VWAP) of the SPY index indicates that the bulk of the upswing has been done through low volume buying on the margin and from overnight gaps in after hours market trading. The VWAP of the SPY through yesterday indicated that the real price of the S&P 500 would be roughly 60 points lower, or about 782 (not 856), if the low volume marginal transactions had been netted out. And yet the market keeps on rising. This is an additional data point demonstrating that the equity market has reached a point where the transactions on the margin are all that matter as the core volume/liquidity providers slowly disappear one by one through ongoing deleveraging.

So Goldman Sachs is by and away the market maker and is also the primary proxy used by the Treasury’s “Plunge Protection Team” (PPT). More interestingly, the latest market rally has been strongly based on the low volume overnight trades in the futures market rather than intraday market moves itself. This is significant change in method of operation. This might be the prime reason for the currently lower intraday volume, and what appears to be institutional abandonment of index ETFs like DIA/SPY/Qs. It can only be surmized Goldman Sachs can get more bang for the buck with the use of the overnight futures market.

A random sampling of 2008 program trading volume statistics found no instances in which Goldman Sachs accounted for more than about 15% of the weekly program trading volume. That said, for two of the past three weeks of the current rally, Goldman Sachs % of program trading market spiked to over 26%. This is abnormal.

Could it be the PPT is spending more money to prop up the market? Or is it due to the fact Goldman Sachs will be raising $10 billion with a stock offering on Monday to pay back TARP. They do need a high stock price for their offering. This was a big reason for Wells Fargo’s Thursday earnings announcement coming two weeks ahead of time, which helped to provide cover for a GS stock rise.

All of this is significant because as the financial stocks go, so goes the market. We cannot have a sustained rally without the financials going higher. So, we'll continue to monitor the fnancials closely for any hints of a market turn-around.

How long GS will keep the market propped up after their stock offering is completed will be determined by the put-call ratios (market sentiment), the volatility index (VIX), and the potential for making money with a bull or bear squeeze. We are going into options expiration next Friday. But we need to keep in mind that any bank not reporting on par with the Thursday Wells Fargo earnings pre-announcement could tank the market since our expectations are set much higher now, and major bank earnings annoucements will be coming out during the next couple weeks.

To be continued:

Thursday, April 9, After Market Open Comments

Jobless claims came in at 654,000, which was better than the 660,000 the market was expecting. But they raised last week’s number by 5,000, so the actual number is 659,000. It amazes me when it's good news when we only lose over a half a million jobs. And Wells Fargo announced their earnings two weeks early to give the market a boost going into Good Friday, when the markets will be closed.

The attached graph shows the historic trading patterns going into and coming out of Good Friday. Markets typically fall on the Monday after Easter. It will be a double hit on Monday as the usual April 15 pre-tax day stock selling takes place. Tax day selling will likely continue through Wednesday, so be ready to go long on Thursday. I'm getting the sense upcoming bad earnings reports will mostly ignored by the market makers. If this market has any more rally left in it, which it will after this coming three day correction, then Wednesday before close or Thursday would be a good time to enter if you're not already in.

We're In Neutral - Make Sure You Get Your Free Pivot Point Calculator

The attached graph is self-explanatory. Is this a buyable dip or a market turn-around? At the moment, we're in neutral. Most of the experts say we are in a buyable dip.... but I must be from Missouri. After this pre-holiday runup. let's see what next Monday and Tuesday brings.

Don't forget to get your free pivot-point calculator - - see below. Most all companies charge monthly subscription fees for this calculator. I know, because I've been paying a subscription fee for this calculator.

Wednesday, April 8, After Market Close - Get Your Free Pivot Point Calculator!!

It's beginning to look more like a buyable pullback than a market turn-around. The CPC and the CPCE turned bullish after today's action; and the VIX continues to be bullish.

We have several economic reports due out tomorrow, including initial unemployment claims, export and import prices, and the trade balance. The initial unemployment claims report announced before the market opens will have a significant bearing on the morning market action. The market is expecting 650,000 new claims, so if the news is worse or better, it will affect opening prices accordingly. We are heading into a holiday weekend with light volume expected this week, so the market will be volatile with a bullish tint. The market likes to go into holiday weekends on the upside.

The daily and 15-minuts full stochastics are bearish with the 30-min stochastics being leaning towards bearish, but will switch to bearish or bullish at the open, depending on market direction at the open.

A great tool for determining entry points is the pivot-point calculator. A free copy of of which can be downloaded at the following website:

http://www.bestsoftware4download.com/software/k-investing-t-free-free-pivot-point-calculator-download-vtddbrkk.html

This calculator can help you determine the weekly, daily, or intraday support and resistance lines when entering a trade. The pivot point can be thought of as a neutral price for a specified stock or index. Above the pivot point the action is considered bullish, and below is considered bearish.

Pivot points are very important for determining entry points. You don’t want to chase a stock that is 5% or more above the pivot point. This does not mean that you can’t buy when there are normal corrections and pullbacks, especially if the stock remains in an uptrend. This rule applies to the pivot point area when stocks becomes extended. When going long, if you buy at the pivot point and sell when a stock rises 7-10% above the pivot point, your performance will increase dramatically.

When going long, do not buy until the stock triggers the pivot point on above average volume, which is also known as qualifying volume. The pivot point price will usually be treated as a base by the market with significant action as the bears and bulls fight it out for supremacy. At prices above the pivot point, most of the sellers are gone so this is the point of least resistance as the stock breaks into new higher territory.

A brief explannation of the pivot point can be found at the following websites:

http://www.investopedia.com/articles/technical/04/041404.asp

http://www.mtrader.com/StuffOnPivots.htm

Hopefully this will help you with your trading. Also, make it a rule to never enter a trade before 10:30 AM EDT. Let the bulls and bears sort things out in the early morning to get their footing. The only exception to this might be when the market is in a panic rise or fall, but even then it might be good to wait.

I'll have more on this calculator later.

Is This a Top or a Buyable Dip

Here's another way of corfirming a top. The graph shows the CPCE, which is the put:call ratio for stock equities. If the CPCE rises above 0.775 tomorrow and violates the double confirming line, there will suggest a top is in.

On the second graph, if SPX goes below 780 within two days, the uptrend will be changed, otherwise it may be a buyable dip. Why? 4 vs 4, the one wins dominates the prevailing trend.

Though stock futures are down as of this evening, be on alert for the possibility of a big bullish turn-around in the afternoon.

Tuesday, April 7, After Market Close

Today was big down day with light volume. Along with the CPC and the CPCE, the RSI and the Williams%R also turned bearish. We don't quite have a turn-around on stochastics or the advance/decline indcators.

The weekly and daily stochastics are on buy signals with the daily about ready to turn bearish with more downside market action. The 60-min is on a sell at the bottom of the range; the 30-min and 15-min stochastics are both indecisive, but are also at the bottom of the range and could turn up with some postive market action tomorrow. Guidance for tomorrow is indecisive at this time.

Once again it appears we are nearing a market turn-around into a bearish direction. There will be an announcement tomorrow about new market shorting policies, which might have an impact on market activity. In actuallity, it won't make a difference based on results from other world stock markets.

The market is anticipating bad news next week when earnings annoucements begin. Alcoa started out today with a negative earnings annoucement after the maret close, and might be a bellweather of what is to come. Should earnings fall short in the next few weeks, we will likely get a significant pullback in the market.

Monday, April 6 After Market Close

Today was mild down day with light volume. With the exception of the CPC and the CPCE, all of the indicators suggest a bullish market. As CPC and CPCE tend to be leading indicators, it is quite possible the market is ready to turn bearish.

The weekly, daily, 60-min, 30-min, and 15-min stochastics are all on buy signals, but the 15-min is at the top of the range and might be ready to turn down after market open with a little downside pricing. Thus, stochastics suggets the market will turn down somtime in the morning and rise in the late morning and afternoon on Tuesday.

In a market with a strong bull or bear bias, it's somewhat easy to find an entry point. It's more a matter of simply getting in on an up or down day and then staying in until a major market turn-around occurs. But when the market is going sideways as it has for the past several days, finding an entry point without being stopped out for a money loss can be tricky. So I have been working on a presentation to help those of you who are interested in finding a trading entry point. I will also include a breakdown of my investment (betting) strategy to show how to make profits; even in a sideways market. As the presentation is somewhat time consuming, I will likely break it down into two sections over two days. If everything works right, I should have the first section ready by tomorrow morning; or tomorrow afternoon at the latest.

Good trading!!

Monday, April 6 Pre-Market Open

The graph shows all of the indicators are bullish. We should have one day this week with a large move either to the upside or downside as indicated by the small move in the McClellan Oscillator on Friday.

Two large new events in the past two weeks have changed market direction into a bullish direction from impending bearish corrections. The first was the bailout plan proposed by the Treaury on March 28. As bad as the plan is for taxpayers, it lifted the market. The second was the FASB vote to change the mark-to-market rules for financial institutions on Tuesday, March 31 as I had previously provided warnings. This rule change will provide cover for the financial institutions, but does not change the fact they are loaded up with toxic assets.

We will have a new announcement this week that can change the market into a bearish direction. Elizabeth Warren, who is chief watchdog of America's $700bn bank bailout plan, will this week call for the removal of top executives from Citigroup, AIG and other institutions that have received government funds in a damning report that will question the administration's approach to saving the financial system from collapse. The story is here. This could provide the impetus for a market turn-around into a bearish direction; and we are overdue for a correction.

Can more announcements affect the market? Yes, and what they will be and when they come are anybody's guess. This is a tough market to trade, but overall, I think we are in a rising market with a needed correction in the interim. Given the important resistance prices the market is approaching, I am currently faded into some long positions, but will be cautious with some tight stops. I plan short the financials at an opportune time, perhaps today, using SKF in view of the pending Elizabeth Warren bearish annoucement.

SPX Support and Resistance

Looking at the attached graph, using daily channel analysis, the SPX (S&P)will meet significant resistance when it hits about 855 on the S&P. If the SPX can close above 855± for a couple days, then the intermediate bull market is in force and this suggests the rally continues. As I have taken some long positions, I will be monitoring this price level carefully for any pull-backs.

The next resistance after 855 is 875; then 900. Support is at 825; then 800 and 780.

Friday, April 3, After Market Close

Today went pretty much as I expected thought the bears had a little bit better day than I expected. The bulls didn't want to go out without having the Dow close above 8,000. It closed at 8,017, which will be good for the weekend talk shows and should bring money into the market that's currently sitting on the fence.

As the SPX (the S&P) price is touching the top of the red bear channel line D as shown in the graph, the bears have to get prices to fall decisively below the bottom bull channel line B during the morning of trading day on Monday. Unless this is accomplish by a much lower opening price on Monday, it is likely the bulls will toy with the bears in the morning and let prices drop along the top of line B as they did on Friday, then when it approaches red line D, the bulls will shoot prices rapidly up through Line D. Either that, or the bulls shoot prices up through red line D in the early morning. If prices go down to touch green line B in the morning, it could be looked at as a buying opportunity as I expect the market to rally on Monday since the Dow closed above 8,000. It is likely the Dow will go back down to 8,000 as a retest, then jump from there.

The monthly, weekly, daily , 60-min, and 30-min stochastics are all on buy signals. However, the daily, the 60-min and the 30-min are nearing or at the top of their range showing an over-bought market. The 15-min stochastics is indecisive. Keep in mind the market can continue to rally even though most indicators show we are extremely over-bought short-term. A correction will eventually be needed, but it may only last a couple of days. Eventually a longer term correction will take place, but I do not expect it to occur this coming week before the market goes up significantly.

This should be a significant market rally that should not be missed if you are interested in making some money. Like I said before, I have difficulty believing this market can rally given all the bad news and the truly dire state of our economy. We're monetizing massive amounts of debt, the Fed is having big trouble selling our debt, they say more bailouts are needed, our leaders are giving away our currency hegemony, and we are proposing a $1.7 trillion deficit this year with no end in sight. Nothing has changed from last month when we went to new lows, but the market wants to rally.

This is a bear market rally and if you are going long, it will have to be carefully watched. Pull backs can be violent, but excluding a black swan event, I think we have another week left in this rally. And some analysts I trust say several months; though there will be pull-backs.

I will post my main sentiment indicators graph some time this weekend. Though the new day-end data won't be available until 6:00 PM EDT, as of now, the only indicator with a bearish signature is the CPCE, which has spiked up. It is my understanding that rather than sell stocks, a lot of investors are buying puts to protect their positions after the market run-up over the past few weeks. If the market continues to rally, they will likely sell them; thus raising the overall put/call ratio.

Friday, April 3, Pre-Market Open Comments

The bulls could not keep the Dow from closing above 8,000 yesterday, which would have brought lots of money off the sidelines and into the market. This was a significant victory for the bears.

Should the market pull back today, the bears will have two more days to make lower lows to 780 to indicate a market change into a bearish direction. At this time, we are still in an intermediate bull rally within a bear market.

World Bank President Admits Agenda For Global Government

This is just wonderful news about our leaders. A new world order is becoming the news now that its rolling out before us. Here is a brochure on the Federal Reserve Bank you might also find interesting.

World Bank President Admits Agenda For Global Government

World Bank President and Bilderberg elitist Robert Zoellick openly admitted the plan to eliminate national sovereignty and impose a global government during a speech on the eve of the G20 summit.

Speaking about the agenda to increase not just funding but power for international organizations on the back of the financial crisis, Zoellick stated, “If leaders are serious about creating new global responsibilities or governance, let them start by modernising multilateralism to empower the WTO, the IMF, and the World Bank Group to monitor national policies.”

In other words, give global institutions the power to regulate national policy as part of the creation of global government.

What Zoellick is outlining is essentially the end of national sovereignty and the reclassification of national governments as mere subordinates to a global authority that is completely unaccountable to the voting public of any country.

The more cynical amongst us would call this a global dictatorship. Zoellick couches the plan in flowery rhetoric of helping the poor and alleviating poverty, but as we have documented for years, the global elite’s goal of world government has little to do with saving the planet and everything to do with creating a global fascist state.

Zoellick, former Executive Vice President of Fannie Mae and advisor to Goldman Sachs, is a top elitist who was intimately involved in the Enron scandal and the 2000 presidential election debacle. He was also a signatory to the Project For A New American century document that called for invading Iraq as part of implementing a brutal world empire in 1998. He was later a foreign policy advisor to George W. Bush.

As to be expected, Zoellick is a member of the Council on Foreign Relations and the Trilateral Commission. He also attended the annual invitation-only conferences of the Bilderberg Group in 1991, 2003, 2006 and 2007.

Meanwhile, British Prime Minister Gordon Brown will use the G20 summit in London to extend an olive branch to China, offering them a central role in the construction of a new world order and a global government, according to reports.

“Brown will hold talks with Hu Jintao, China’s president, following discussions with Barack Obama, amid signs that developing countries see the G20 summit as a chance to impose a new world order and end the era of Anglo-European dominance,” reports the Guardian.
Under the proposal, China will vastly increase its IMF funding in return for more voting rights.

A central focus of the G20 summit will be the proposal to supplant the dollar with a new global currency. Both the IMF and the United Nations threw their weight behind the implementation of a new global reserve currency system to replace the dollar, in the same week that Treasury Secretary Timothy Geithner told CFR globalists that he was “open” to the idea.

China and Russia brought the issue to the forefront of this week’s G20 when they jointly called for a new global reserve currency a week ago.

Brown has consistently called for global regulation of the financial system as a means towards global governance. In a speech at St Paul’s Cathedral in London yesterday he again called for a new “global society”.

Thursday, April 2, After Market Close (continued)

All of the indicators are sloped bullish with the exception of the VIX, which is still bearish.

I'm still inclined to be bearish, but the market wants to go bullish. I'm hesitant to go long as nothing of significance has changed and in fact many things are getting worse. The talking heads get euphoric as the rates of decline in some sections of our economy; e.g., housing, manufacturing, lessens; but they are still declining. I hardly call that much improvement. When the market wants to rally, it will ignore bad news, which is the case now.

Also, the market is heavily overbought and will need new money from the sidelines to sustain the rally. We will have a major correction, but just not now. Plus, comrade Obama just gave away our financial hegemony to the G20, which in my opinion is stake in our economic heart. But, this is the way it is.

Although it is against what I believe about our economic situation, I will likely go long in the morning after the bad employment news, but before the stocks rally in the afternoon.

Good trading!

Thursday, April 2, After Market Close - - IT IS ALIVE - ITS LIVES!!!

The graph to the right shows the S&P price channels. The bears brought the S&P down to the bottom green line before the close followed by a quick bounce up at the closing bell. In doing so, the S&P also came back down from the day's 845 high to 830, which was a retest of its previous high on March 26th. The bulls will hope to bring the S&P back up to the top green channel line tomorrow. The bears hope to bring it down to their bottom red channel line.

The daily Stochastics went back to a buy signal, but the 60-min, 30-min, and 15-min are on a sell saying prices should drop tomorrow. Where we go in the morning will depend a lot on the jobs report due out at an hour before market open tomorrow (Friday), but the market will likely rally from here until absolute exhaustion. Any bad news from the jobs report tomorrow will be disregarded going into afternoon trading. I expect the market to rally tomorrow. Buy on the dips.

I will post the CPC and CPCE indicator graphs later.

Thursday, April 2, After Market Open

Despite all of the bad news with unemployment and GM, the market should continue to rally with the new accounting rules change announcement, which will allow the financial institutions to falsely make the claim they are healthy. Though a political move, it will drive financial stocks and the general market higher. I expect the S&P to hit 875 and the Dow to hit 8,400 within the next couple of days or week. Though the bears will put up a good fight, I expect the bulls to overwhelm them.

We have firmly slipped into the bullish pricing channel and above. The CPC and CPCE have turned bullish as of this writing, with the VIX still bearish. We are bouncing off resistance at 830 for the S&P and 8,000 for the Dow.

12:10 PM EDT Update:

The graph to the right provides the new bull market channel. The upper side of the red bear market channel will have to be determined by the bears as prices progress.

It is possible the bulls might break out of this channel and into the next channel higher later today. We'll see if the bears can stop them. There's a lot of volume today and I can't help but think the bears will run out of bullets.

12:45 EDT Update:

As a thought, it might be wise to bypass this rally today with the jobs report coming out tomorrow. If the market continues to rally today, a pull-back might be in order tomorrow after three up days. As I see it, the main problem is figuring out how to stay in the game as the rules change on a daily basis.

On another note, the Fed Reserve has shrunk their primary dealers to 15 firms today, which is the smallest on record as the the Fed continues to buy the long end of the bonds, all of which were 5 year notes. The Fed submitted $26 billion against $7.5 billion taken today while intentionally overpaying to drive interest rates lower, which isn't working.

This is what happens when the Fed can no longer find financing for its debt. It is now using short-term 5-year financing versus longer term debt instruments. The Fed and Treasury will eventually be forced to raise the offered coupon (interest rates), which was exactly what happened during "The Great Depression" and as it will exacerbate our current economic mess.

Here's what I consider an appropriate quote from Ayn Rand from Atlas Shrugged: “When you see that trading is done, not by consent, but by compulsion - when you see that in order to produce, you need to obtain permission from men who produce nothing - when you see money flowing to those who deal, not in goods, but in favors - when you see that men get richer by graft and pull than by work, and your laws don’t protect you against them, but protect them against you - when you see corruption being rewarded and honesty becoming a self-sacrifice – you may know that your society is doomed.” Does anything in the quote sound familiar?

Wednesday, April 1 After Market Close (Continued)

To the left are the new indicators after the market close today. Even after the market going up for two days, the only indicator to have changed is the Williams%R, which spiked up. The slopes of the lines for all of the other indicators are in bearish positions.

The futures market for the Dow and the S&P are even at this time. The 30-min Stochastics is at the top in a sell position while the 15-min is indecisive.

Wednesday, April 1 After Market Close

The graph to the right shows the two channels developing for the S&P. The bulls are trying to force the bears into the green rising channel, and the bears are trying to force the bulls into the red down sloping channel. The market participants place their buying and selling within pricing channels as it allows the winner (between the bulls and the bears) to control the general flow of the market.

As the graph illustrates, we are at the top edge of the red channel. If the bears can keep the price level below the top red line tomorrow and force pricing down to the red B, then they will contol the market and the bear market turn-around continues. And vice versa, if the bulls can force the price action up past the red line to the top green (towards the green A), then the bulls control the market. The bears have to stop price increases at this point and force the market down.

Thus, we are at an important point at tomorrows opening where the current rally that began on March 9 continues, or it is stopped and the market heads lower. So far, it appears the bulls are in control of this market. I expect a lot of volume tomorrow morning as the bears make a strong attempt to force the price down into the red channel.

Wednesday, April 1 Commentary

Here's where we are. Though there's been no formal announcement, the Financial Accounting Stardards Board (FASB) has announced a new system of accounting that will allow banks more discretion in valuing unsaleable assets. This is good news for the affected financial institutions as it enables banks to revalue their toxic assets using looser standards for their first quarter 2009 filings. This will allow banks to potentially show a profit on operations and avoid a massive sell-off that would have otherwise occurred. This does nothing to save the banks, but is a political move that buys them some time. The International Accounting Standards Board has not yet adopted this practice, but is expected to comply. A formal announcement will likely be made next week. This accounts for a lot of the strength in the financial sector yesterday and today.

Though we got bad employment news, the market rallied on home sales. The dark dirty secret is many, and in some cases most of these home sales reported are in fact banks bidding on their own properties at the foreclosure auctions at the loan amount to keep the assets on their books at a high price. In fact, for example, of the 342 home sales in Boise, Idaho this last quarter, only 23 were purchased by third-party buyers. The rest of the sales were purchased by the lenders; i.e., the banks themselves. Eventually, this will affect the market badly, but in the mean time, the market likes it.

There are two graphs on the adjacent pop-up. The top graph explains the the 2-2 rule. For the current bearish market turn-around in effect, we have the 2-2 rule, which basically says if the overall price differences for the last two down-days are larger than the than the last two prior up market days, then the bears have over-powered the bulls and the market is in the process of a turn-around. The market turn-around met this rule a couple days back.

This brings us to the bottom graph, which analyses the 4-4 rule. The 4-4 rule provides confirmation of this intermediate bearish market turn-around. Basically it says if the overall price differences for the last four down-days are larger than the than the last four prior up market days, then the bears have over-powered the bulls and the market is in the process of a turn-around. For this to take effect, the S&P would have to drop to 776 today, which doesn't look promising. Therefore, we are not getting final confirmation of an intermediate trend bear market turn-around. Though the indicators suggest we need a siginficant market turn-around to correct the extreme over-bought conditions, we do not have a full confirmation of this turn-around. The bulls look strong today and this turn-around could in fact be a minor market correction on its way back up. Though unlikely and extraordinary, it cannot yet be ruled out.

I don't know where the market is going today. It could keep on rallying or come back down. Right now, the trend is up. I will have more thoughts as the day progresses.

2:20 PM EST Update

Using the 2-2 rule as explained above, if the S&P moves above 829 today, then it would indicate a bullish market turn-up. Assuming the S&P hits 829 today, then the last two up days (including today) must rise above the high of the prior two down days. The S&P is at about 810 as I write so the market would have to stage a large rally from here to make this happen, but it isn't impossible. Reaching 829 would not mark the end of this correction, but it would mean the correction is being delayed. A rally above 875 would mark the end of this correction and the intermediate bull market has resumed.

Another way of viewing this rally is as a retest of yesterday's high price. If the S&P fails to move higher than 810±, then the this casts a bearish tone to the market.

Tuesday, March 31, After Market Close

The indicator data just posted at 6:00 PM EST.

The CPC and the Williams%R spiked downward into bullish positions, but I expect them to go into bearish at tomorrow morning's open. The futures market shows the S&P down by 9.10 points after the close (6:15 PM EST) to 785.70; and the Dow down by 78 to 7,484. The 15-min and 30-min Stochastics suggest the market should decline tomorrow.

I think a turn-around into a bearish direction has been pretty well established by the indicators and by the comparatively extreme overbought market conditions, but experts report a bearish market turn-around with the S&P falling to 766.20 at some point tomorrow will provide final confirmation.

I expect this bearish market turn-around to last for one, maybe two weeks. After that, many experts think the market will rally for one to three months thereafter, but I think a lot will depend on first quarter earnings announcements due out in a couple weeks. If earnings annoucements are poor like in January and February, it's quite possible the market could continue to decline.

I want to keep reminding you, a mark-to-market announcement (MTM) is likely to be made between April 2 and April 9, but more likely closer to April 9. If the annonucement is highly favorable to the banks, then this will be a game changer and the market could rally strong for a week to the point of extreme exhaustion from its current overbought state. A favorable MTM announcement could take the S&P to 900.

I will have some pre-market open comments tomorrow.

Using a 15 Fair Value P/E Ratio, Then the S&P Should be Valued at 225

Here's a graph from an article by Brian Bloom.

For the quarter ending December 31, 2008, we had the first quarter in American history having negative earning per share for the S&P. Even after taking out the financials, the S&P earmings per share were still neative by over $2 per share.

Based on rolling 12 months historical earnings – adjusted for Generally Accepted Accounting Principles – the Price/Earnings ratio of the Standard and Poor 500 Industrial Index in the USA was 54.51 as at March 27th 2009.

In simple English, if the S&P Index was to adjust to an historically overpriced level of 20X P/E ratios (the level of red line), it would need to fall by 63% from its current level.

Can underlying earnings in the coming year be “ramped” by the trillions of dollars being rammed into the economy? Well, anything is possible, but the earnings need to more than double across the board in the coming twelve months for the market to merely hold its ground.

When the current market bounce is exhausted, the Primary Bear Trend is more likely than not to resume with a vengeance – given that it will be patently obvious to a blind man that the authorities will have thrown everything but the kitchen sink at the economic downturn; and failed to arrest it.