Many Scenarios, Same Conclusion………………With update
The market is going to have a huge bounce over the next 30 to 60 days, somewhere between 40 and 70 percent. Are we out of our mind, maybe, but we don’t think so, and here are some factors that stand out to us as we navigate the situation?
1. Scenario one background: The market double bottomed in the S&P 840 area on October 10th and 27th, then rallied to 1007 on election day, November 5th. Then the “we are scared of Obama crowd”, started selling. It is important to look at what negative factors the market knows now compared to November 5th and to us the only factor that stands out is the fact that Paulson fooled the market again by not following through on the bailout plan that was outlined. The market knew we were in a recession, knew Wall Street was in trouble, knew we had a lame duck president, and knew Detroit was in trouble. Bottom line, the Paulson surprise pushed the market into a triple bottom which is always a short-term kiss of death. We all know the rest, the market did a “panic” into the 741 S&P low. If you subtract the 741 low from the 1007 high, you get 266 points, times 2, you get a swing point objective on this scenario of 1273 when the picture changes. The 200 day average on the S&P today is 1244 and probably needs to be tested before the bear market resumes.
2: Scenario Two Background: In this scenario the market works off the short-term swing point of 890 which has been established for some time. 890 – 740 = 150 points, 150 time two, gives a minimum objective of 1040 on the S&P. With Scenario one in the background as a much bigger picture look, we would focus on this scenario two for the moment. A trade above 840 will start to trigger aggressive short covering, and real buying will start above 890.
If you need fundamental reasons for any of this to happen we look at these factors, 1) Paulson will be history soon, 2) the Obama Plan is bigger and quicker than most investors expected, 3) sold out perma-bulls will be a big factor above 890.
Gold is perplexing to us at the moment as we still are looking for a 550 long-term buy, and t-bonds are telling a different story than we expect at the moment, so everything has yet to fall in place and probably will not trigger until the S&P trades above 890.
8:22 AM CST
12:17 PM CST UPDATE
The 840 floor on the S&P will probably act as a ceiling for a couple of days. We are not trading out of positions, but there is probably a 3o percent chance you could get back in at S&P 790.