Thursday, September 18, 2008

09.18.08 - Tick Reversal

We are seeing some support just above S1 for the SPY (the [edit: second objective] $115 level). However, adjusted tick and the AD line rolled over fairly early in the morning in spite of the "coordinated central bank action." Downward price momentum is slowing, but we are at new lows and the VWAP trend is still south as the VIX breaks +38.

If the indicators turn or we hit the $115 level, I'll look at long exposure again (made a stupid trade and held too long), but so far today's trade has been on the short side. Breaking News: Putnam closing institutional money fund on redemption pressures (dollar level not broken). Tomorrow is options expiration, otherwise little official news on the calendar.


o TraderFeed - Notes on a Weak Market
o Kathy Lein - Market Still Believes in Perfect Storm
o Calculated Risk - 25% Off Sale
o BeSpoke - Multiple 4% Moves
o SeekingAlpha - Nasdaq Worst Since 9/11
o Trading Markets - How to Recognize Capitulation
o SEC - New Rules Against Naked Shorts

9:50AM PST: VIX Breaks 40 (now 41+). This is the washout underway. My personal belief is that good intermediate- to long-term buying opportunities will be found between here and SPX 1,100 (yes we could go lower even if we bounce here). Again, patience will pay for cash reserves -- these are volatile times. When I referenced S1 earlier, I was looking at a 15 minute screen. Usually I refer to my three-minute chart, as posted on this site. We are now resting on S1 by that measure ($114.20). I'm very interested in reader thoughts.

Republish from Sunday Post:

"...But the global financial system's value is entirely hinged on trust and hope, and the former is very much a prerequisite for the later. Here, I can even put that into mathematical terms for you:

Value = Hope/(1+Distrust)^Time

I hope you recognize that formula. It's about as basic as it gets and lies at the heart of modern finance, such that it is. I know, I know -- save it for the drama queens on the financial news networks..."

10:20AM PST: Not to get too high here -- bugle and all ;) -- but watch to see if we can break the declining VWAP here. Momentum has shifted a bit, but the $116.50 level may prove resistance... and blew right through it back to pivot (add: now resistance).

Breaking News: "A Short Holiday"/ Calpers to Stop Lending Financial Shares/ "RTC-Like" Fund to be Announced/ TSP Waives Restrictions on WAMU Sale...

SHAZAM! - Hey, I get to have a little fun with this, don't I? Let's see if we can get follow through tomorrow. I'd trail loose stops for the time being (I prefer ATR-type stops).

Comment: Najarian makes a really good point... the cost of hedging through options will get more expensive by an order of magnitude with added short sale restrictions. Maybe one more reason the VIX has been relatively low this year until today. Think about it.

Never Investment Advice


Anonymous said...

Hello Jeff

I must be only one who can type??

Anyway,,VIX hit 42.16 and started falling,,,i went long GS,,didnt hold long,,sold for small profit,
reentered on news and then sold again up 9.8,,wouldnt mind doing it again friday.

Jeff Pietsch CFA, Esq said...

Good work Anon, just don't short them, the Feds may be watching this site! Yeah, wish more people would post. Bit of a mystery though I do keep moderation on so we don't get 1,000 Viagra ads posted. Cheers, J

Dean said...

What's on my radar is the new highs/new lows chart ($NYHL at stockcharts) and the corporate-treasury bond spread which was above three last Friday! The two analyzed together tells me that the short-term looks good for a bounce that could last at least a week using the NYHL chart. Why is this? Because every time over the last two years, when new lows reached 1000+, the market rebounded strongly. See last August, mid-Jan, mid-March and mid-July as references.

But, the corporate-treasury spread tells me that risk is still high and could take a while before we get a sustainable upward trend.

In other words, I agree with you, just using a different perspective.

Jeff Pietsch CFA, Esq said...

Very good viewpoints gents. Thanks for posting, Jeff