Rally Time!

by Larry Levin

Today's massive rally was surely due to a plethora of reasons; short covering, rumors, beefed up stimulus, and bottom picking in the financials. To be sure, it was not a single reason.

The market opened with another black eye, staggering lower as if it were in the 4th round of a 5-round UFC cage match against The Iceman: Chuck Liddell. The body blows being delivered were not from the Iceman; however, they came from Apple and Google. Apple was cored today - down a massive $39-share near its low. And Google didn't fair much better. At one point today it was boot-stomped about $63-share lower!

The ECB reaction to the "cajoling" of Wall Street to lower rates in Europe fell on deaf ears, which pressured the market lower. Remember, Wall Street's rendition of a 5-year old in the checkout line screaming for a candy bar is always rewarded with sweets in this country – but not so in Europe. "In demanding times of significant market correction and turbulences, it is the responsibility of the central bank to solidly anchor inflation expectations to avoid additional volatility in already highly volatile markets," said Jean-Claude Trichet, president of the ECB.

Although the market opened lower again, it could not build a strong trend lower on high volume. I believe this led to the short covering that always precedes a rally after a huge sell-off.

The President (G.W.) reiterated today that the fiscal stimulus will be (loosely quoted) "enough of a stimulus to make a difference." Translation: We will at least double the stimulus package...maybe triple it. Odd thing though, he didn't say how he would pay for it. Since the country is broke, we'd have to borrow it, once again going out with hat in hand begging for the dough.

The President's original rebate package was $150 billion. But U.S. stocks lost more than twice that much in the first few seconds of trading yesterday. And the whole idea of providing more cash and credit is the wrong strategy anyway. These efforts at Keynesian stimulus were designed to overcome a different kind of enemy...a case where consumer demand was low or where consumers saved too much money. But the real rate on savings now is less than zero. And the savings rate is down to minus 0.5% of disposable income.

Therefore it's hard to believe this will make a difference, other than putting the country (instantly) in the hole for another $300-billion or more. But it's hard to blame the politicians for bad ideas, isn't it? After all, they have to "do something."

Finally, the market exploded late in the day due to a rumor about the mortgage companies in trouble; MBIA and Ambac. Banks and brokers that are counterparties to bond insurers met with Eric Dinallo today, who is New York's state insurance regulator. He declined to say what was discussed, but reiterated the regulator's goal of restoring stability and injecting more capital into the $2.3 trillion market. During afternoon trading, the Financial Times reported that Mr. Dinallo pressed the banks to provide $5 billion in immediate capital to support the bond insurers and to ultimately commit up to $15 billion.

Real Time Trading Signals*for

Trade Date: 1/23/08

E-Mini S&P Trades*
(before fees and commissions):


9:00 ID VA Buy 5.75 = +.75, -1.75, -1.75

9:33 VA Sell 2.25= +.75, +2.00, +4.25

10:03 FT Buy 30.50 = -1.75 all

11:09 ID VA Sell 5.75 = +.75, +2.00, b/e

1:37 VA Buy 2.50 = +.75, +1.50, +1.00

1:44 ID VA Buy 01.00 = +.75, b/e

2:00 VA BUy 2.50 = +.75, +2.00, +8.50

E-Mini Russell Trades*
(before fees and commissions):

1) Buy @ 8:35am at 657.9 = -1.2 (1 lot)

2) Buy @ 8:40am at 658.0 = +1.0 (1 lot)

3) Sell @ 9:38am at 669.5 = -1.0 & -1.0

4) Sell @ 9:45am at 668.3 = -1.2 & -1.2

5) Sell @ 9:56am at 669.1 = -1.3 & -1.3

6) Sell @ 10:12am at 669.4 = b/e (1 lot)

7) Sell @ 10:35am at 665.4 = b/e (1 lot)

8) Sell @ 11:26am at 664.8 = -1.2 (1 lot)

9) Sell @ 11:49am at 657.3 = -.9 & -.9…

10) Buy @ 12:31pm at 660.0 = +3.0 (1 lot)

11) Buy @ 12:51pm at 665.4 = -1.3 (1 lot)

12) Buy @ 1:31pm at 673.4 = -.8 (1 lot)

13) Buy @ 1:47pm at 669.5 = +1.3 (1 lot)

14) Buy @ 2:06pm at 676.5 = +8.0!! (1 lot)

15) Buy @ 2:25pm at 685.0 = +5.0!! (1 lot)…+$500.00


Sign up as an AvidTrader Member to receive "The Technician" Value Area's each day. The market then has an 80% chance of filling the Value Area. Many traders familiar with the Value Area and the techniques that go along with it use it to help them decide what trades to do each day. Join and see how this technique can help you trade more successfully!

Log in for Larry's Daily Trading Tip each day too!