Which Way Wednesday?

We are in serious need of follow-through today!

It's got to come from the SOX, which is holding down the Nasdaq and it has to come from the transports, which are still holding back the Dow.  The Russell also needs to gather some strength but there's no complaining about the move they've made the past 5 days but that index faces a critical test at 815.

Of course we need crude to behave itself to make any real progress and that means we need Iran to behave itself and we need rebels in Nigeria to behave themselves and we need T. Boone to contain himself and we need oil inventories to be kind and we need Criminal Narrators Boosting Crude to contain themselves as oil slips back down to the lower half of the $60s.  Is that too much to ask?

David Fry wrote an excellent article this morning pointing out that this is the week that mutual funds reinvest some very significant dividends and a lot of IRA money is flowing into the markets so perhaps that explains the very general nature of the buying we've been seeing.  The best example of this is that, for the week, fund flows are up $7.4Bn for the week (3/28) but ex-ETFs, up just $1.4Bn vs. a $9.3Bn outflow for the previous week (3/21).  The Fed continues to dump easy money on the prime brokers who use it to pump the oil patch – how this helps the "average" American is beyond me but the average American this government caters to drives a car that cost's more than the other average Americans' entire family income and has over $250,000 in the markets which need protecting.

David drew a Nasdaq chart which will probably tell the tale of the markets today  as the Qs are firmly wedged in a trading channel that the SOX (the far weaker IGW) must push them through:

How closely are these two indexes really linked?  Here's the 3-month chart of the two.  The separation between the SOX and the Nasdaq is now at a 5-year high and the last time they were almost this far apart was Nov 2005 which was quickly followed by a 10% Nasdaq decline.  So when I say we need the SOX to perk up – I REALLY MEAN IT!

Asia looks like they mean it, with triple digit gains in all the major markets as the very small dollar move gave exporters hope, along with continued strength in their auto industry (remember when we used to have one of those?).  Europe is flat ahead of the US open so we'll ignore them.

On the whole, our markets look very strong and up is good, down is bad today as consolidating at these levels would be just fine:

Wow!  What a difference a day makes…  We purged 14 red boxes to end up with 35 green (+8), 11 neutral (+6) and just 6 red (-14, and those mostly in India, which gained 1.5% today).

It's all about our oil inventories today and I said more than enough about that in yesterday's wrap-up so I defer to ZMan today, who says we need to keep an eye on imports and capacity utilization – two things that are not obvious on the initial numbers so today, the initial reaction needs to be ignored and we will play the 10:45 direction.

We had a rough first day with our oil puts but I promised you last week that we would have the British sailors home by Easter and my man in Iran, Ahmadinejad is going to play nice now as he has read our posts from last week (he's been a member since December) and decided it would be better to be a good World citizen today (and he also picked up a boatload of Zman's put suggestions).

While I called for scaling into positions yesterday, meaning we should be no more than 20% committed to our new puts, we now need to treat them like mattress plays if we get a big drop-off.  I think we may get a chance to grab a few more shares (maybe another 10% round) ahead of inventories as traders will be hoping for a save there but anything less than a major draw-down should give us a clear path back to $62.50.

We'll keep an eye on gold for a nice global tension indicator but we can expect a head-fake from them as well as a lot of money stands to be lost should gold fall back below $660.

It's going to be an exciting day – see you inside!