Trader's Rhapsody.

Is this the real trend..?
Is this just a fantasy..?
Caught in a credit crunch..
No escape from volatility..
Open to risk..
Looking for probabilities..
I'm just a trader, I need no buy and hold..
Because it's easy come.., easy go..
Little high.., little low..
Anyway the wind blows doesn't really matter to me, to me........

When studying the S&P going back to its inception in the 1940’s, one can see that many cycle bottoms have occurred in March.

This has been particularly true since 2000. March 2000 was the peak of the bull market. March 2001 was a turning point that saw the S&P rally from 1080 to 1315. March 2002 was a peak prior to a waterfall decline into July 2002. March 2003 was the beginning of a 5-year-plus advance, the first leg of which ended prior to a consolidation in March 2004. March 2007 marked the bottom of a quick, sharp, 100-point S&P multi-week shakeout prior to the beginning of the blowoff into July 2007.

W.D. Gann placed a lot of emphasis on the need to find the zero point, or the beginning point, in measuring time and price. In Gann theory, the beginning of spring and the Spring Equinox on March 21 mark an important inflection point, that's "zero degree". It appears that last week marked an important test of the January low.

At the January lows, I stated that my cycle work suggested that January would be the low for the year. Although those intra-day lows were violated this past Monday, the S&P has not scored a closing low below the January intra-day lows. Consequently, this past week’s large range outside week up with a close at / near the highs of the week suggests a successful test has occurred.

W.D. Gann also liked to say that the tendency of the market is to “put in some time on the side.” In other words, after cyclical tops or bottoms it is common to see the market consolidate in a period of accumulation or distribution before trending in earnest.

Last week’s large range outside up week in the S&P is in fact the first outside up reversal week since the week ending November 30th, 2007. In tracing out three higher weekly highs, that upside reversal week in November turned the three week chart back up. That defined a high on the week ending December 14, 2007. That high at 1523 looks like a right shoulder of the bull market. The low of that week at 1467 should be serious resistance. It is interesting that the 200 DMA is in that vicinity, currently at 1456.

On Monday, the strong surge may be a place to look to lock in some profits as the market is still subject to another shakeout or liquidation; especially if many hedge funds are going out of business before quarter end. However, I would warn against becoming too aggressive on the short side: with many poised to buy pullbacks, if the market doesn’t come in we could see a runaway upside move.

So I'm left with the proverbial $64,000 question of “Was last week 'A' bottom or 'The' bottom for financials?” If this was the bottom, other than “events” like Long Term Capital Management, it would be the fastest bottom to occur in modern economic history. Heck, the last time I checked, economists hadn’t even agreed that we are in a recession. And now, we're declaring “the bottom”?!

To be clear, although I don't believe a bottom has been reached, I neither wish for nor foresee a systemic crisis. In fact, I give the Federal Reserve and U.S. Treasury high marks for their crisis management. And importantly, I believe their aggressive actions will avert the kind of global failure that some might expect.

At the same time, though, I believe there are significant further declines ahead as the weakest firms fail, and the stronger are buttressed through coordinated government intervention and even nationalization. But to those who believe this can occur without further significant common shareholder dilution, I would offer modern banking history as caution.

So, it this a bottom? ..Yes. THE bottom? ..Not close.