Stock Market: Dead Cat Bounce On Tuesday?

Where the DOW (^DJI) drops 300 points on the first day, the S&P 500 (^GSPC) breaks 700 for a short amount of time, and the Financial Sector Downturn Theory developed since December of ‘08 holds true. Amidst the anguish and peril of the market we have been burdened with, our government still lags on productive measures to aid the situation, as Obama inducts yet another non-tax paying slacker to his crew as the U.S. Trade Representative:
http://www.marketwatch.com/news/story/Obama-pick-Trade-Rep-owes/story.aspx?guid={E91A370C-E852-479A-9A8F-62011F956A1D}&dist=hplatest

Don’t you just love the United States government?  $10,000 owed in taxes and Mr. Kirk will eventually get away with a slap on the wrist.  Despicable.

In other news, today’s tape was hella crazy, as we’ve proven yet again that we can go lower with the snap of a finger.  AIG (AIG) was the talk of the day as predicted, and the market rejected this news like a small child rejects vegetables.  I was busy on StockTwits all day today talking to people about getting into Direxion Financial Bull 3X Shares ETF (FAS) when it first hovered around its $4.06 support set back on February 20th.  The volume didn’t pick up, so I did happen to miss the exact entry point, but I got into FAS at $4.13 and decided to go along for the 45 minute to an hour ride.

The one thing I screwed up on today was diagnosing an exit point for FAS.  My first mistake was not watching my volume channel I set up on my FAS chart, my second mistake was not watching the VIX beginning to gain momentum around 2:30-2:45, and my third and final mistake was not keying into the $UVOL as it began to decline again in the same time period that the VIX (^VIX) began to go up.  All in all, I became too lackadaisical and unobservant and still squeaked out an +0.11 FAS trade.  Mental note-to-self, I won’t let it happen to me again.

Let’s go to the charts:

$SPX Market Carpet  2-27-09 to 3-2-09

Pretty self-explanatory, especially if you sat through at least half of today’s trading session.  Most battered sector award over the past two days goes to the Energy sector, racking up a 9.8% loss.

VIX  1 Day, 10 Minute

$UVOL  1 Day, 10 Minute
The VIX and the $UVOL worked in tag-team fashion today, as the two could have been used to diagnose entry and exit points to the cent (ok, maybe not the cent, but you get the idea).  The FAS trade that I made today is outlined on both the $UVOL and the VIX, showing where my entry point was and where my exit point should have been.

$DVOL  1 Day, 10 Minute
A special day for the $DVOL, as there was not a down tick to be seen in a 10 minute interval.  The $DVOL to $UVOL ratio at the close was an astounding 50 to 1.

Goldman Sachs (GS)  10 Day, 15 Minute
** Ended $.01 above its intraday support level.  If it doesn’t hold here tomorrow (Tuesday), its next support level is $84.54 **

FAS  10 Day, 15 Minute

FAZ  10 Day, 15 Minute

Yet again, Direxion Financial Bear 3X Shares ETF (FAZ) and FAS are the classic definition of a dangerous trading couple.  If you time your exit and entry points correctly (for instance, if I would have exited FAS at $4.35 and entered FAZ at that time at $70 - $71), you will have ultimate control of gaining profits.

SRS  10 Day, 15 Minute

SRS  60 Day, 60 Minute

Not only did UltraShort Real Estate ProShares ETF (SRS) tear it up all day, its most notable explosions were off of the open and into the close.  I contemplated buying SRS at $87 towards the ending time of the fake out market rally because of the enormous sell off volume spike seen around 2:30-2:45, but decided not to because of the, “strength of FAS.”  At its intraday high ($94.98), SRS was a $1.12 off of its middle of December high of $96.10.  As it began to get closer to $95 at around 3:15 on, however, SRS began to lose its momentum and faltered a little bit to close $2.98 under its intraday high.  We may see SRS go lower into tomorrow’s open and possibly throughout the day due to the market’s medium to high probability of a dead cat bounce.

Apple (AAPL)  10 Day, 15 Minute

Research In Motion (RIMM)  10 Day, 15 Minute
** AAPL and RIMM are Tech Tickers that I like if the market pushes higher **

GLD  1 Year, Daily

I found something interesting in SPDR Gold ETF (GLD) today.  I began to flip through 10 Day, 20 Day, and 30 Day charts, and I finally decided to look at GLD on a yearly basis as a long-term ETF that I would hold for more than ten days if the pattern supports it.  The interesting part about GLD was its heavy sell off throughout last week, even as the market and the financial sector were declining.  This is normally the inverse of what happens, for when the financial sector gets brutalized, many look towards Gold as a solid commodity to invest in and raise capital with.  On CNBC today, a couple of the talking heads were saying that the sell off in GLD and other gold names were due to the freeing up of cash.

This statement, however valid it may prove to be, makes no sense: why would people want to free up cash now?  Are many traders calling for a bottom and they’re ready to put their cash in other sectors such as Energy, Basic Materials, and possibly even financials (although highly unlikely)?

As GLD falters, I may want to wait and see what happens.  If you expand a one year chart on GLD, a double top is clearly seen at $99.86, which is GLD’s strong resistance level.  If GLD begins to pick up again, we might be seeing a similar pattern that is comparable to the one seen from the second week of Sept. ‘08 to the third week of Oct. ‘08.  Given the current financial circumstance, we probably need more time to assess the charts before making accusations like this.

For now, I leave you with the thought of a probable dead cat bounce tomorrow and a 20 year chart of the $SPX.  Next support level, 640:

$SPX  20 Year, Monthly

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