Market Update

Unexpected good news brought the buyers back to the window today, when the Durable Goods report showed a +3.4% increase on the backs of increased demand for equipment and capital goods.

Economists missed the boat on this one, forecasting a decline of 1.2%. The spread between actual and forecast was a resounding +4.6% and the market liked the news, rallying strongly as the market opened and staying near the highs of Monday until mid-day.

Were these durable goods numbers representative of real buying or was this a statistical blip?

Traders must have sensed the same thing mid day as concern over the sustainability of this rally set in and selling quickly became the order of the day. Geithner didn’t help much when he was interviewed about China’s desire for a different world currency. He tended to agree on his initial response. The market dropped over 4% in just under three hours mid day.

Geithner quickly corrected himself and declared boldly that a strong dollar was still in the best interest of the U.S. I don’t know how many really believed him, though.

Late in the day it appeared that the interventionists were not going to be denied as the financial and building sectors saved the day on another strong spike advance – very nearly reaching Monday’s highs in less than thirty minutes of trading before the close.

How often this last year have we seen the markets jerk in an opposite direction shortly before the close, when the average investor has no time to change his mind on what to do.

In spite of these strong manipulated buying sprees, a topping pattern appears to be settling in right around the 50-day moving averages.

The unbelievable volatility continues to concern and amaze me, even on an intra-day basis, let alone for the short cycle time frames. In the last two months we have seen 12 days where the S&P 500 closed over 3% different from the preceding day, often with more than 6% swings during intraday trading. And two times in March we have seen closings greater than 6% on the day.

The intervention we are seeing in the markets right now is blatant and strong – apparently hoping to convince J.Q. Public that the train is leaving the station. There is a strong and concerted effort by the Fed, the administration and their cooperatives to paint this tape higher and higher, without any pull back.

The problem with such strong swings in opposite directions is that it destroys confidence for the average investor. No one in their right mind wants to deal with the swings we have recently seen. For example, the Russell 2000 fell 27.1% from February 9th through March 9th. It has now rallied from March 9th to the highs seen today for a total of 26.4%. In a 6-week period the Russell 2000 has seen a 53.5% movement in price – all in only two short-cycle swings!

The market is about where it was two days ago, Monday, the 23rd – near the high following the huge monster rally induced by the Geithner and Bernanke 2-trillion dollar promises. This market rally is being held up on promises and more promises.

The normal process of backing and filling has not been allowed to take a normal course, possibly out of fear that it will get out of hand and seriously challenge the new bear market low set on March 6th - just a few weeks ago.

This kind of intervention often ends badly though, as no selling relief leads to a pressure point where eventual selling erupts into a volatile profit taking decline over a day or two that can quickly remove weeks of gains.

We need to see the traditional backing and filling return to the market place. These unbelievable short-cycle swings are evidence of speculation and lack of confidence.

Speculators are only too happy to help run up prices and then jump on the selling bandwagon, and I can’t blame them in a way. But it does make it hard to make sense of the technical and economic data when there is so much manipulation and speculation driven by the enormous spending plans announced repeatedly by the Fed/government.

Technically the market is struggling to hold its footing above the 50-day moving averages. This level was breached on Monday, only to see prices fall back and barely hold on today. Today’s late buying splurge was the interventionist/bulls’ attempt to keep prices above this critical measure.

I told you a few days ago that the S&P 500 prices have rarely remained above the 50-day moving average for more than three days in this bear market. Well, today is day three. If the S&P 500 continues to trend above the 50MA for a few more days, then it will have set a new trend and we must then treat the 50MA as a support rather than resistance.

In my mind the 50MA test is still going on – but I give the bulls and the interventionists and the Fed and the government a quiet hand of applause for all their efforts, right or wrong. They have kept the S&P 500 above the 50MA for three days now.

It will take more to convince me, though, and earnings season is coming up fast!

Remain defensive.