Noted This Weekend

The biggest thing I noted this weekend was that the NY Composite Index -- "a measure of the changes in aggregate market value of all NYSE-listed common stocks, adjusted to eliminate the effects of capitalization changes, new listings and delistings" -- violated the December 7 swing point which equates to 1267.06 on the S&P.

That is significant because it pokes a giant hole in the super bullish wave counts that placed the major indices in 3rd waves that were about to accelerate to significant new highs.  To eliminate this potential with near 100% certainty would still require 1158.66 to fail, but to say that I celebrated last week's market action would be an understatement.  The bull case has a serious dent in it now.

To paraphrase Jessie Livermore, the uncontradicted bull dope of the last few years has been seriously contradicted.

I will actively be trading for bounces, and I feel that we are in a new market now that means one should pray for bounces and sell them.  The bounces should be sharp and fierce and rather scary for the bears, but ideal for aggressive call buyers who trade against their shorts.

Over a week ago, I offered this:

I smell a rat inside this J.P. Morgan mess.  It's a CDS (credit default swap) trade gone wrong in their London office (operation London Whale), and it's got me wondering if they're upside down on some European sovereign debt.  And, if they are, who else is?  There is never just one cockroach.  The first thing I thought of when this news broke was "Bear Sterns, Part 2."

Cue Zero Hedge.  ZH reported that body language (and ex-intelligence) experts from Business Intelligence Advisors gave their take on J.P. Morgan's Jamie Dimon and what he's said so far about the shocking losses from the London Whale trade.

"Using techniques developed at the Central Intelligence Agency, BIA analysts pore over management communications for answers that are evasive, incomplete, overly specific or defensive, potentially signaling anything from discomfort with certain subjects, purposeful obfuscation, or a lack of knowledge."  Some of their findings:

JPM’s European exposure is likely riskier than Mr. Dimon would like investors to believe.

JPM may be increasing their European exposure more aggressively than implied.

Volcker rule may require JPM to significantly change their proprietary trading strategies and risk profile.

From Bob Prechter's latest Elliott Wave Theorist, Prechter noted that "Of the past 12 years, the market has risen for 8 years and fallen for only 4.  Despite having rallied for twice the time that it fell over this period of a dozen years, the S&P on April 2 was still 8.4% below where it started."  Prechter measured these returns from the March 2000 high using intraday extremes.  In other words, he was very fair to the S&P.

What has not been fair has been the amount of meddling by the Federal Reserve.  Despite all their efforts, all they've managed to do is keep the market afloat.  Kind of like Morgan Stanley and J.P. Morgan last Friday when they tried to keep Facebook above $38 per share.  Facebook could well turn out to be a fractal of the tone of the market as a whole.  Once again, the public looks like it has gotten burned.

As for the S&P this morning, should it bounce,  I have my eye on 1309.  I own some SPY 130 calls against my short position, and would like to buy more, but want to see some confirmation.  I'll be watching the Aussie dollar, oil, and gold for signs of Risk On returning.  The Aussie though seems to be suggesting lower lows.  If so, the S&P's 200-day MA is 1278.68 and its 50-week MA is 1282.71.