SPY July 19, 2013

SPY daily chart July 19, 2013

Bears were given the gift of the perfect storm on Thursday night: MSFT and GOOG both posted weak earnings, and an NFL city - Detroit - declared bankruptcy. It doesn't get much better for the dark side than that, not unless Ben Bernanke wakes up in the middle of the night after having a really bad dream and stubs his toe.

So, futures quickly dropped ten handles and then traded in a five-point range in the 1670s, with a lot of action at the lower end. Things looked even worse for Bulls when the Nikkei suddenly and inexplicably dropped 500 points in about ten minutes around midnight (that was probably positioning ahead of the Japanese election, and the Nikkei subsequently held the key support level of 14500).

Bears were busy patting themselves on the back and counting their profits in advance from the day ahead. The question wasn't whether the market would tank - it was only by how much. That, by the way, is a pretty reliable signal that things might not be quite as bad for the market as they might seem.

The market indeed opened lower, ominously declining into the cash open, but then refused to tank even further. Instead, the futures started creeping higher, with several extended pauses along the way. After Bear disbelief gradually gave way to frustration, and then resignation, they obligingly generated the usual final-hour short covering that propelled the futures back to the 1690s in the usual parabolic pattern that Bears know all too well.

We have seen this movie time and time again. In sum, something bad happens that, in days of yore, would have sent the market down at least 5% overnight. The Bears, stuck in the rational 1990s, accordingly react as if the normal market rules still apply - you know, that bad news, especially from market leaders like MSFT, means the market must go down.

It doesn't have to. Not in the age of Bernanke.

As I argued in yesterday's post, this is not an earnings/economic data-driven market. Bulls know that Fed Chairman Bernanke has their back, and that's pretty much the end of it. We can rant and rave all we want about what a joke that is - but it is the reality. It gives traders that necessary stiffening of the backbone that keeps minor pullbacks from turning into those cascading red candles we all remember from 2009.

Looking ahead, the tendency of this market, over and over, is that when an attempted move lower (due to bad news) is decisively rejected, a sharp move higher follows. In addition, the Japanese election takes place on Sunday. Futures could easily react to that on Sunday night. Look for a decisive Abe win if you are long, and hope for an Abe defeat if you are short. We remain Bullish and expect to see 1700 on the futures fairly soon (maybe next week).


On a personal note, someone helpfully pointed out to me today on Twitter (@The__Slayer) that I sounded "nervous." Well, all I can say about that is, you bet I was! If you ever read something posted by someone who acts as though they have it all figured out, that the market is a mere "bag of shells" as Ralph Kramden would say, and that they knew what was going to happen all along, my suggestion is - run the other way as fast as you can! I am a real trader with real positions, and I've even been known to throw things in reaction to market moves. Any trader who wasn't at least a bit uncertain about market direction in the last 24 hours was probably dead, and traders who pretend they don't feel a thing about the market might as well be. Just don't let fear/nervousness/panic/trepidation/ecstasy/joy/disbelief cloud your trading judgment and you'll be fine.