Stocks rally sharply on Fed plan

qqqq0311.pngStock indexes gapped up on a new plan announced by the Fed to lend up to $200 billion in treasury securities to prop up lenders. The gap open quickly started to fade and it looked like it was going to be more of the same any buying activity attracting another wave of selling. The the financials started gaining strength and the overall market started accelerating to the upside in the last half of the session, with a big burst up in the last few minutes.m The much advertised retest of the Jan 23rd lows is especially evident by looking at the QQQQ (etf of Nasdaq 100). I was looking for possible price rejection into those lows. I think every technical analysts in the world was looking at the same thing. The action last Friday looked like a possible rejection, as the closes in both the Nasdaq and S&P were near the open, creating an indecision bar. But then the sell-off on Monday into new low territory on the Nasdaq, and a new recent closing low on the Dow and S&P, made it look like the much advertised price reject had failed. Trends were all still sharply down, however momentum was very oversold and sentiment among commentators and analysts was extrememly negative. It sure felt like prices were ready for a rebound. The catalyst came this morning and the market responded nicely. Momentum has now turned up as defined by my double stochastic in the bottom half of the chart. The white line is the shorter term line, and there is a little micro-W pattern, and the black longer term line has turned up along with it. The horizontal yellow line on prices is a band of support that was challenged and overcome today. Volume increased from yesterday, but still wasn’t as heavy as one would expect being the biggest up-day in five years. The longer term trend in the stock indexes is still down so the bear must stay in the box. There isn’t enough evidence so far that this rally will continue. There has been much technical damage to the market, with a lot of overhead resistance to get through. A one day pop is encouraging, but since the trend is down rallies so far have to be considered as bear market bounces until the trend changes. In down-trend the counter-trend moves can be sharp and quick, just as sell-offs are in strong uptrends. I would expect some more upside, at least into the upper part of the down-trending blue line on the trend indicator on the chart. If the inevitable reactions after this rally are shallow and on lower volume, then it is possible that the trend could be changing and all the bad news that will probably keep coming out will already be factored into the market. Sentiment seems to have turned from negative to pessimistic to dire almost overnight. Alan Abelson in Barron’s said the Dow only has about 12,000 points on the downside to go, and then they can start quoting negative numbers. Of course he’s a perma-bear, and missed great opportunities on the upside I would think.
The dollar was strong today, but oil closed higher after a lower start. If we are in or entering a recession I would think it would be global. It is difficult to justify the commodity play in a world of recession and the usual lowering of demand with the resulting lowering of prices. This has happened in nearly every recession. I know people will say this time its different. That China will still prosper. But I don’t see how that can be since they depend on exports. And the stagflation of the 70’s was an unusual event with double digit inflation and interest rates, and an extremely incompetent administration, perhaps the most incompetent in history. I doubt that will be repeated. And don’t forget that the stagflation was followed by collapsing commodity prices that mostly remained stagnant for many years. Commodities, especially those grown or mined, almost always revert to the mean eventually. The mean may be at a higher level, but high prices increase supply at some point, and trends reverse. It never looks like that will happen when prices are high and every analyst in the world says this time it’s different. A quick look at a monthly commodity chart of any commodity will show what happens after every bubble.

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