Analyst expectations for today’s non-farm payroll number was bad — really bad. And when the news came out, it was worst than even the most downbeat estimate, yet the market opened down and powered up to close on a high note. Why? Because the script was already written.
“W” Test of Bottom Setting Up on Daily Chart
2:43 PM Teresa: You around?
2:47 PM Pete: hey t, +119
2:48 PM Teresa: yep, they were all braced for a bomb and it was hard to beat that kind of fear, so we’ll see if it can power up big time.
Pete: well the number was terrible and for buyers to show up its a good sign
2:49 PM Teresa: all the sellers were out of the way and dummies short, so it had to go up
Pete: how was your day?
Teresa: we’ve seen this sort of thing before back in the mid 1990s. Remember that blowout employment number way back then, but that was to the upside, and then they started watching it forever and ever
2:50 PM Pete: +200
Teresa: some things never change
Pete: human nature can’t change
2:53 PM Teresa: nope
2:54 PM they are getting excited, lol
Pete: yea we bottomed, lol
2:59 PM well u did say to watch positive divergence
3:08 PM Teresa: plus when they are braced for Armageddon, you know that who ever wants out is out and the dummies are short
3:10 PM Pete: and life goes on, saved for another week
Teresa: man, I am exhausted. Was on my feet from 12noon (Vienna time) to now
Pete: you went to gallery?
Teresa: Yeah, saw the Van Gogh exhibit and am packing now. Are you listening to Maria? She doesn’t get it, after all these years. And some guy is pumping POT…
Pete: yeah, nice pick
3:11 PM Teresa: Arch Coal, and Flowserve. Geez.
Pete: crazy oil broke $40 today
Pete: yeah guy tell em to buy coal… the LOVE IS GONE
Teresa: I think things are actually getting worse out there in “the real economy”. Today’s move up is “technical”
3:12 PM the reason being, that everyone knews for weeks that this number was coming, and it’s going to be bad. Just wait for the next “unscheduled” announcement
Pete: well we will soon get overbought via the sentiment. We watch: just when everyone will say ‘its ok to get in now’ lol
3:13 PM Teresa: and maybe make that diabolical two swing bear flag after the trendline breach
3:14 PM The economy is not going to bounce back much by “mid 2009”. I mean, there is continuing credit contraction and people can’t even pay back loans even if the interest rate is zero. They can’t even amortize the principal on schedule.
Pete: thats the big problem
3:15 PM Teresa: and every guy that walks away from his house, it not gonna be OK. All his CC are gonna get #@$%#@, and the guy is down for the count for years. And that’s before the billions of LBO debt need to be rolled over next year
3:16 PM I mean, TLT is off only 1.4% on the day
3:17 PM seems to me that it’s 2+2 = 4, but everyone thinks it is 3 or 5
Pete: well the these are the pieces of the puzzle and people have to accept them
Teresa: they don’t understand that this market didn’t “shrugg off” this news: they knew the date it was coming and got out of the way.
3:18 PM They expected Armageddon. Maybe this is the part they all get faked out, a big bull trap coming up.
Pete: what if we test the lows again we KNOW they going to freak the @#$% out
Teresa: breach the downtrend line above and then whammo. That must be the script because now with the downtrend line, we can draw the Trader Vic 1-2-3
Pete: yeah this should be a mother of all traps if that happens
Teresa: FINALLY, if it goes down one more time
3:19 PM they will say “there is no bottom”
Teresa: I think the market will not allow Bill Miller to be right, and maybe we get a classic 2B test of bottom after the big bounce
Pete: a very good setup to trap. NO ONE out there thinks like you lol
Teresa: They’ve been wrong about the fundamentals, about how bad this whole thing all the way down
3:20 PM and now they think all will be hunky dory in 6-9 months. lol
Pete: Miller said in April the worst was done already..
3:22 PM Teresa: Man, this market is not that convincing so far…only +150
3:23 PM Teresa: considering how many people might be trapped
Pete: Dead Cat Bounce in bear market…once bear flag setups start failing then they have to go into sideways phase
3:28 PM Teresa: 1/2 hour to go. Will they pile in? It could go up 200 more, but we shall see
3:29 PM it ought to if there are as many people trapped as there should be but bonds are NOT being pounded
3:33 PM Pete: +250
4:04 PM Teresa: yep, they did it
For details about the “W” Test of Bottom, please see Chapter 10: Reversal Patterns. Remember to type in the password: impossibleportfolio.com