Dead Cat Bounce

by Larry Levin

There was a rally today. What? Say what? Yes folks, the market finally got off its back and went higher, which didn't surprise us at all. In fact, over the last few days I have mentioned it could start soon so we took advantage of it today. Is this the beginning of a real rally, or was this just a dead cat bounce? Only time will tell, along with Friday's jobs data.

This afternoon's financial websites said something like this: "investors are searching for signs of a turnaround ahead of Friday's jobs data." Uh-huh, sure they were; like this morning's terrible ADP data I guess? The ADP private-sector payrolls survey released today said that companies axed another 697,000 jobs in February. Not good, but the market went up anyway.



In looking at the ADP numbers as a potential preview of the nonfarms payroll number coming on Friday, "you have to wonder which side of minus 700,000 it will fall. Also, will we see the unemployment rate move above 8.0%?" asked Kevin Giddis, an analyst at Morgan Keegan & Co. Inc.

Perhaps investors were "searching" for good clues in this afternoon's Beige Book report from the Fed? Uh-huh, sure they were. The Fed's Beige Book information was bearish, but the market continued higher anyway. In it the Fed said: looking ahead, contacts from the various districts rate the prospects for near-term improvement in economic conditions as poor, with a significant pickup not expected before late 2009 and early 2010.

"It's a pretty straightforward rendition of the gloom and doom," said Josh Shapiro, chief U.S. economist at MFR Inc. "It is much more indicative of a long, grinding recession as opposed to some of the more optimistic forecasts we've seen from the government and the Fed itself." Only the food and drug sectors seem recession-proof, the survey found.

Based on market conditions and the way it has reacted to the news recently, I wrote in Notes from the Pit that the selling was running out of steam and a buying auction was due. The market tried to generate a buying auction both yesterday and today, with much better results today. It may or may not continue due to Friday's potentially massive affect on the market. Stay tuned!



Previous Day's Trading Room Results:

Trade Date: 3/4/09

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

1) 80% sell @ 8:40am at 706.50 = +2.00 & +4.75 (2-lot)

2) IDVA buy @ 9:35am at 701.50 = +1.00 (1-lot)

3) IDVA sell @ 11:40am at 711.25 = +1.50 & +4.25 (2-lot)

4) VA buy @ 12:00pm at 706.00 = -1.50 (1-lot)

5) TP buy @ 1:15pm at 706.00 = +1.50 & +5.25 (1-lot)

6) Algorithm positions (2)...combined SofT and Algo total...+17.25


Electronic (YM) Mini-Dow:


1) No trades today



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