Just as people describe mid-March as the "BSC Bottom", I think what we saw Friday will be remembered as the "FRE/FNM Bottom." Thanks – once again – to a government-orchestrated bailout, the market is getting ready for a major bounce.
I'm glad to see this for a couple of reasons. First, it makes sense from a charting perspective (as I wrote this weekend). And I like it when things make sense. It appeals to my rationality. And I'm serious about this. It would actually be frustrating and confusing for me if the market had kept dropping on Monday. We were so due for a bounce.
Second, we bears need a lift in this market. A lot of sectors are way too beaten down to be attractive shorting opportunities. The same certainly applies to stock indexes in general. I'm watching the @ES0809 right now (it's 4:15 in the morning), and it just keeps leaping higher (currently up about 19.75). I would like to see it up about twice that much (getting back to about 1,270 on the S&P 500) before I even toyed with the idea of an index put. And this is a major intermediate bottom, the bulls might enjoy another 100 points or so tacked on top of that before we start to tilt down again.
What is very clear now is that mid-May was a gift. Although I was griping, agonizing, and whining about it at the time, we simply didn't know how good we had it. If you look at a daily chart of the S&P, the huge rise from mid-March mid-May was a gift straight from heaven. In retrospect, it obviously would have made sense to run around like mad and short every non-energy stock in existence, because it was a perfect setup for the bears. It just goes to show you what a blessing in disguise looks like.
