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Fast Times at Wall Street High


...after cleaning the tire tracks off his back Boo got a glimpse of the license plate as this big rig jackknifed in the last half hour from down 80 to up 160 on the DJIA Highway.


I got no car and it's breaking my heart
But I found a driver and that's a start
Baby, You Can Drive My Car (The Beatles, performed by Russell Crowe)

Like I told the guy on ABC, danger is my business.
Jeff Spicoli (Fast Times At Ridgemont High)

"In battle, all appears to be turmoil and confusion. But the flags and banners have precise arrangements: the sounds of the cymbals, fixed rules."
-Sun Tzu (The Art of War)

Is there any doubt left in any corner of what minds we as traders have left, after the last week, that the market doesn't move, it is moved?

I don't know who drives this 18-wheeler of a clown car, but, after cleaning the tire tracks off his back Boo got a glimpse of the license plate as this big rig jackknifed in the last half hour from down 80 to up 160 on the DJIA Highway.

It's the fast lane, baby. It's a fast, fast market. After a few years of hibernation, volatility has come out to play the Reversion to the Mean Game.

It's Fast Times at Ridgemont High – Jinx and the market are going to punish anyone who fails the pop quiz. It's learn or be schooled.

Despite Wednesday's seemingly random turbulent tour through Tape Town, there were some telling road signs.

The S&P crossed through the unchanged line at least eight times before undercutting the morning low and making a bee line towards 1440 S&P.

Click here to enlarge.
On Wednesday the S&P undercut its 200 DMA making a low at 1439.60 before ricocheting to close at 1466!

Yesterday, I offered the importance of 1440, suggesting that the market should stabilize at that level before turning up. To recap:

  • The monthly mark had come and gone.

  • The 200 day moving average on the S&P was set to be undercut.

  • 1440 S&P coincided with a trendline on the monthly chart tying together the 2006 low and this year's low.

  • 1440 also coincides with a 270 degree move down from the 1556 July high.

  • 1440 S&P coincides with the high of the low bar month of this year – the March monthly bar.

Is the market a random walk or is it driven? It is just happenstance that after backing and filling all day, the morning low was undercut, pulling back the rubber band prior to a jam job to the high of the day – all in 20 minutes?

Click here to enlarge.
On Wednesday, the S&P undercut the morning low, tagged 1440 and blasted off. Probably, just happenstance.

Did a Parnelli Fund (for lack of a better nom de plume) put the pedal to the metal? The whole last half hour lap around the track was orchestrated and by design.

It was set up by the intense selling in the last half hour last Friday and this Tuesday. Wednesday intense buying was the mirror image.

Who's that masterful? Who's that good? Take a bow, Hank.

It seems to me the expectations for yet a third fire drill to the downside in the last half hour was just a tad too pat, a bit of a crowded trade in that car chase.

Consequently, when stocks turned, there was good reason to believe, like last Friday and then on Tuesday, that stocks would be driven and driven hard into the bell – and they were.

It was truly an amazing ride fueled in part by the fact that the S&P futures were down as much as 18 handles on Tuesday night. That was some S turn, some scenario and some short squeeze. It played out according to the score, but it doesn't change the credit crunch under the hood or the fumes of high octane panic in the tank.

Be that as it may, I think stocks can be traded from the long side on dips, and that many stocks are in a position to rally into the weekend prior to the market setting up another selling opportunity.

Click here to enlarge.
As I suggested, the gap down open (A) on Mastercard (MA) was a sell as the stock gapped through its 50 DMA. Note how MA hit the 140 midpoit of the 110 (B) to 170 (C) range.

No positions in stocks mentioned.

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