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The $SPX has advanced +8.2% from the 1257 low (3/17), which was extended to the one year -2.0 Standard Deviation Band where we said that any short term rally would obviously be no surprise. I also said that the derivative meltdown news would take precedence over the technicals. The Thursday rally in front of the long weekend was a real bonus for daytraders, because the $SPX opened down just enough to take out the 1296 low (3/18) which set up the RST reversal strategy. The intraday low was 1295.22 on the 9:40AM bar, and the RST entry was above 1298.41. There was symmetry with the 1299.25 .50RT to the 1257 low. The $SPX traded up to 1330.67 and closed at 1330.22, so RST traders were a happy lot, and what they made just depended on how they managed the trade, which was certainly not a cerebral task. The shorts were forced to cover in front of the holiday weekend, and there was also triple witch option activity.

Shorts that covered in front of the long weekend obviously made a good decision. JP Morgan (JPM | news | PowerRating | PR Charts ) raised the bid for Bear Stearns (BSC | news | PowerRating | PR Charts ) to $10.00 in stock over the weekend versus the original $2.00 which is small solace to BSC stockholders who saw their stock at the $171 all time high on 1/18/07. The timing of the news was perfect, and the major indexes had gap openings yesterday with the $SPX finishing the session at 1349.88 (+1.5%), and BSC at 11.25.

The reported increase in existing housing sales was another catalyst hyped by the media. The SPX hit 1355.69 on the 10:45AM bar versus the +1.5 VB 1355.36, which was also an RST. However, there was no real contra move as the $SPX reversed from 1350.23 forcing you to scratch the trade. The last entry after the 1359.68 high declined to 1347.55 which made it a plus day for traders. There were no initial pullbacks after the Gap openings that set up any long entries, unless you are an emotional trader and always chasing price after the fact. If you are, go find something else to do because the “Casino” will clean you out before you know it.

NYSE volume was the highest in 5 days yesterday at 1.56 billion shares, with the volume ratio 62 and breadth -1979. The $US dollar index was +0.9% as interest rates increased, with the TLT -1.9%, and gold declined as you would expect with the rising dollar. There are 5 trading days left in the 1st QTR, so it is a perfect time for the PPT (plunge protection team) to accelerate buy programs in front of the Generals and Hedge funds trying their best to mark up this rally even more. The derivative meltdown is far from over, and the Fed can’t stop the business cycle from playing out. This one is not your garden variety downturn, so expect more volatility in the equity indexes, and the probability remains high that the $SPX will make lower lows unless the Fed has some more magic to increase confidence and restore liquidity to the mortgage backed security market.