Morning Musings From Art Cashin

Via UBS Financial Services

The Bulls Are Forced To Keep The Champagne On Ice For Another Day – The bulls thought they had it all set up Friday morning. For two weeks they had been tip-toeing toward a retest of the January highs. Thursday’s action finished with the S&P right on the goal line. The S&P closed Thursday’s session a hair’s breadth below its January high of 1150.45.

As I told Becky Quick on Friday morning, the bulls were confident enough to have the champagne on ice in the locker-room. They hoped to punch conclusively through the prior high and maybe stampede tons of sideline money into the market. At the very least, a significant run above the prior high would relegate the recent pullback to “correction” status and clear the path for the March ’09 rally to resume.

The bulls had their opportunity enhanced when Retail Sales, released at 8:30 a.m., were surprisingly strong, “despite the February snowstorms”. So, as brokers prepared for the opening bell, the futures were solidly in plus territory. As the trading day opened, the S&P shot above 1153 in a matter of minutes.

But, before the bulls could kick into second gear, or even begin to celebrate, the rally stalled. The stall occurred just as the University of Michigan Confidence Index dipped to 72.5 from 73.6. Whether cause, or just excuse, that release marked the day’s high for the S&P. For the balance of the day, the S&P and most other indices snaked around the unchanged line, again and again over the course of the day. The inconclusive action allowed the bears an opportunity to challenge. The “one-day” failure to break out was being called an indication of a potential double top.

So, the game is on the table. We’ll watch to see if the bulls can break out from the January levels and excite sideline money. Or, will the bears have a goal-line stand and force a double top. Friday did not give us a clear answer. Stay tuned!

It Was The Other Thing He Said – Most of the headlines coming out of China this morning are about Premier Wen’s slap at what he saw as U.S. meddling on the Yuan. But there may be another story. Here’s a take from UBS’s sharp-eyed London observer, Andy Lees:

China – Premier Wen Jiabao warned on Sunday that the Chinese economy could suffer from a "double dip" this year despite its apparent smooth recovery. Despite the beginnings of a world economic recovery, he said the main problems have yet to be solved. "The situation is potentially more dangerous than it looks," said Ma Ming, dean of the department of applied economics at the Beijing Institute of Technology. Whilst growth has been fairly impressive, it has been achieved mainly on the back of government stimulus measures, including the $586-billion stimulus plan and the 9.6 trillion yuan ($1.4 trillion) in new loans last year. "A double dip is possible if the government exits from the stimulus package while enterprises have failed to adapt to the new situation," said Zhao Xijun, finance professor of the Renmin University of China. "The government must continue its proactive fiscal policy and moderately relaxed monetary policy,". Wen reiterated the continuity of those two policy lines and promised to strike a balance between maintaining economic growth, adjusting its economic development model and managing inflation; "Only in this way can we avoid the 'double dip'.

Since many observers were counting on China to lead the recovery, a double dip could produce a global shock. It’s a story to be watched carefully.

Cocktail Napkin Charting – The S&P battle of 1150 is still on. Expiration week begins and may bring some added volatility. Given Friday’s narrow action, the napkins suggest the same numbers we saw Friday. Resistance for the S&P looks like 1155/1158 with support around 1138/1142. The McClellan Oscillator hints a big move (100/200 points) is due.

Spot! Spot! Come Back – Our ham radio pal passed along the latest sunspot data. It contained a surprise or two. Maybe I should say a surprise or four.

The sunspot readings for March 4th through the 10th were: 40, 35, 0, 0, 0, 0, 12. So, we had two days of multiple spots, followed by four spotless days and ending with one weak spot. Satellites indicate a new series of spots may be coming over the solar horizon. Nevertheless, don’t put that sweater in mothballs quite yet.

Consensus – The vigil of the FOMC statement may drag on trading. Also, the rumors of a looming “fix” in the Greece crisis may limit bets. If the bulls make the break to the upside, follow-through will be critical. Stay very nimble.

Trivia Corner

Answer - If 6 chartists could construct 6 charts in 20 minutes, the same six chartists would have constructed 36 charts in 2 hours. (Always divide time into time to narrow confusion.)

Today's Question - Sal walked along the beach highway from Great Kills to South Beach. The distance was 5 miles and he walked at a steady two miles per hour. During his walk, 40 buses passed him from behind and fifty passed him coming from South Beach. What was the average speed of the buses?

History Trivia

On this day (or potentially two days either side) in the year 44 B.C., one Caius Julius Caesar chose to ignore the warnings of his wife and a certain part-time augurer named Spurinna. Caesar seeking to reform Rome went to the Senate to assume the broader, near-dictatorial powers he sought. There he was met by a group of former supporters and friends who felt he was betraying the reform movement, and took a stab at telling him so.

To celebrate, have an Orange Julius while lending an ear to a friend at a place called "The Forum", and try not to make some too brutally pointed remarks on why, with today's political debate, we may need the "V Chip" for C-SPAN.

(Editor's Historical Note - To avert further complaints from the twelve, or so, NYSE members who pointed out that in an earlier episode, I failed to note that Caligula's horse's name was Incitatus {6 to 5 on the morning line} - nitpickers please note that originally the Ides of March was not necessarily March 15th but rather the period March 13th to 17th. Later…..Roman calendar makers would save on tablets and papyrus by designating the Ides to occur on the 15th of March, May, July and October. In other months, it was the 13th. If you're not confused yet, let me try to explain derivatives to you.)

As we have noted previously, traders anticipated the Ides of March with just a little trepidation. Now they will face them with a large dollop of confusion.


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