Timing Market Turns - 03/27/2006

Market Timing - posted at 0405 EST

Swing trade - still 100% short. Stop at SPX 1310, MIT.

Investor core - still 100% short. Stop at SPX 1310, MIT.
{MIT is market if touched, or immediate closing of position}


When lateral movement is the forward result from a time locus, we tend to take time off from trading. It seems like that would have been a fine path to wander down in view of the past week's trading action. On several indexes a near perfect horizontal channel was formed. Volume patterns had to be examined with a jeweler's eye piece. Accepting the upward and downward spikes on the 20th, on the Dow, I see an ascending/expanding triangle ending with the spike, as a new descending triangle began with the spikes. Tomorrow should take the market into the apex. Descending triangles frequently break upward, but not always.

So how comfortable are we now with being short into Monday's open on the SPX? Not much different. We are pleased to see that we have the large commercial traders in our tent. They have moved over the past weeks, and continue to move, toward very large net short positions from modestly net long positions. This also good news when compared to the non-commercial traders who are still net long the indexes.

We expect to possibly exit this trade at the close on Monday. If the SPX trades at 1310 before the close, we will exit then. Some might want to lower the stop toward SPX 1307.50.

Structurally, we see the intra-day action needing another downward move at least.

Rumours, bonds and FOMC -

We are rarely found to be in a trade or trading during FOMC announcement day. Re-entering after the standard whipsaws is a much safer, unstressed, lower risk to capital opportunity to trade.

I suspect the FOMC will raise the Fed fund rate again and risk sending the economy into a recession. Of course, that would include a significant downward move in the broad indexes over the next 9 to 12 months. I published an article in early January concerning a declining stock market for 2006 after April. ( New readers can Google the title, A Brief History of the U.S. Stock Markets Through April 2006 ) The article is also buried near the end of this digest of posts, http://timing-market-turns.blogspot.com/2006_01_15_timing-market-turns_archive.html .

Chairman Bernanke will be vilified if the recession begins in the next few months. Justifiably.

Bonds should begin a strong move upward as market rates decline if the FOMC insinuates that this rate increase MIGHT be the last one for a time (that is the rumour). The $US should receive a thorough cleansing in this process.

I look forward to trading a choppy downward market over the next months, filled with lucrative swings. I won't enjoy the pain inflicted on those least aware of its imminent start, nor that of the people who will soon find themselves laid off as a result of excesses in the economy.

Corrections in an economy, in a stock market and in a person's life or career are not expected by most, but have been a reality since time began (no, I wasn't there when time began). :) The prudent prepare for it in the way they prepare for prosperous times. They plan. They are frugal. They share with anyone in need, for they know the need could be theirs in the future.

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Good Trading and God bless

W. B. Busin