Thursday, July 31, 2008

July 2008 Rewind - "Bazooka" Interventionism

This July, the major U.S. equity indices put in a yo-yo performance mirroring volatile energy prices and fresh bank failure fears, later mitigated by significant Federal intervention. The S&P 500, Dow Jones Industrials and NASDAQ 100 cash indices posted mixed results of -0.99%, +0.25% and +0.66%, respectively.

However, these mild month-end results mask the turmoil experienced through the 15th, when the S&P was down some 5% and the VIX (implied options volatility) briefly surpassed 30 points. Fueling fears early on were reports of a potential General Motors bankruptcy, rumours of a Fannie Mae, Freddie Mac or Lehman Brothers failure, and the seizure of IndyMac Bank. Although the thick of earnings reporting season also added to investor anxieties, results largely exceeded expectations. Lastly, inflation measures also came in particularly hot, economic measures continued to be mixed, and Iranian tensions appeared ready to flash higher at any moment.

In that regard, crude oil peaked at record highs exceeding $147 per barrel, only to retreat rapidly to the low $120s on signs of global deceleration. Equally supportive of the ultimate relief rally, Federal agencies made a concerted effort to combat further bank failure fears with Treasury Secretary Paulson's metaphoric "Bazooka," including:
  • Substantial unspecified credit made available to the GSEs;
  • A general extension of Fed Window lending through early 2009;
  • A covered-bond plan proposal;
  • A naked short-sale ban on nineteen Financial stocks; and,
  • Passage of a "mortgage default bailout" bill, initially estimated at $25-plus billion.
In spite of the erratic action in equities, the acquisition market was quite active -- particularly in the Pharma and Biotech spaces. Unlike recent months, Style-Box performance showed relative strength in the Value camp with the nascent recovery in the Financials and Homebuilders leading the reversal. Conversely, Energy and Materials saw sizable losses.

With many pundits calling an intermediate bottom, it will be interesting to see what August's traditionally light summer volume brings traders ahead of the Fall political season.

Sentiment: Highly-Mixed
Volatility: Moderate (VIX 20-30)
Direction: Sideways-Mixed



The Style-Box was calculated using the following PowerShares™ ETFs: Small-Growth (PWT), Small-Value (PWY), Mid-Growth (PWJ), Mid-Value (PWP), Large-Growth (PWB), and Large-Value (PWV). The Sector-Ribbon was calculated using the following Select Sector SPDR™ ETFs: Materials (XLB), Industrials (XLI), Energy (XLE), Staples (XLP), Discretionary (XLY), Financials (XLF), Technology (XLK), and Healthcare (XLV). The Standard & Poors 500, Dow Jones Industrial Average and NASDAQ 100 may be traded through ETF proxies, including the SPY or IVV, DIA and QQQQ, respectively.

07.31.08 - Burning Off Overbought


We were fairly overbought at yesterday's close and are currently weaving around the pivot. S1 for the SPY is at $126.85.

11:40AM PST UPDATE: Adjusted Tick is looking bullish. Wish I'd held my WM longer! Nice!

12:25AM PST UPDATE: Price obviously couldn't follow through on the accumulation that appeared to be occurring. Stopped out. Could turn back up, but the edge looks diminished. The Maestro sure has a penchant for plain speech now that he is away from the helm.

12:55AM PST UPDATE: Whoa Bill -- Greenspan comments plus calendar risk tomorrow with the jobs report? S1 has failed -- next support at low $126's.

Wednesday, July 30, 2008

07.30.08 - Another Shooting Star? - No!


R1 is acting as intermediate support on the way back down, but I'm not convinced it will hold (now breaking as I write). Cumulative Tick is turning and the AD line is down trending. Still, an impressive reversal effectively putting in a higher-low on Monday. Will we see a corresponding higher-high by week's end? Outlook unclear, althougth the month-end effect is still in place.

o Blog to Read - Quant Edges/ Quick Recoveries

CLOSING UPDATE: That was no shooting star -- though it certainly shot higher, next stop the 50-DMA? Brian Shannon thinks so. Will oil continue to cooperate? I'd guess the energy complex is due for at least a bounce, but that doesn't necessarily mean further recovery will be thwarted.

Tuesday, July 29, 2008

07.29.08 - Mixed Odds

I won't be able to post later today. I'm seeing mixed odds on the day; perhaps leaning negative. While I wouldn't make a large commitment either way, the last several days of the month often have a positive expectancy. The short-term RSI is well below ten. A couple days there often makes for a good buy. Here is where we have come in three short days:

Monday, July 28, 2008

07.28.08 - No Buyers on Calendar Risk


It seems no one wants to get ahead of the various reports coming out this week. Thus far the SPY has found support near S1 ($125/ -0.45%). Cumulative Tick is only getting worse though it looks as though most sectors are trying to recover as Energy (XLE + 1.34%) comes back a bit. Money is mostly rotating into bonds using yield as an indicator. Financials stink (XLF -1.65%).

Amazing how many pundits "want" lower prices and/or more definitive capitulation. Practically screaming for it. Maybe they should look at a chart going back more than five days. Ugly.

o I agree, though it's a bit late in the game (so much for an H&S) ~ AlphaTrends
o Take a look at this ~ Bespoke/ EPS Changes Ex-Financials

Sunday, July 27, 2008

Weekly Rewind for July 25th, 2008

Last week's trading action was characterized by a continuation of the powerful short-covering rally off of the prior week's lows. The move was led by Financials (XLF +0.6%) as short-sale restrictions went into effect and promises of further government intervention were reiterated. A strong pullback in the Energy complex (XLE -6.8%) was equally responsible for the bounce, also providing "fuel" for a Consumer group comeback (XLP +1.3%).

After the six-day move back up to even on the month, equities somewhat predictably sold off, giving up nearly half of their recent gains in a day. While downward volatility remains prevalent, the pullback may provide the technical base for a fresh advance going into the end-of-month, news flow permitting. This time, however, real buyers may have to step up to the plate.

Next week's action will be dominated by the "Homeowner Rescue Plan," on-going earnings announcements, the possibility of an end-of-month markup, the Advance GDP on Wednesday, and the all important Friday Jobs Report. I hope you find this new MarketRewind weekly recap feature useful in preparing for the week ahead!

o Yahoo! U.S. Earnings Calendar
o Yahoo! U.S. Economic Calendar

NEVER INVESTMENT ADVICE

Friday, July 25, 2008

07.25.08 - Steady Sailing


A quiet low-volume summer day with price holding at the convergence of the 10- and 20-day moving averages, which are actually just about ready to cross (midly bullish).

I actually got hit with a nasty little cold a couple days ago. My father-in-law coincidentally asked how much longer the market would be "sick." Well, there is no way of knowing of course, but bear markets typically run their course in 18 months or so. That could take us out another two to three quarters. This go around we have the wild card of the U.S. elections ahead and energy problems that aren't likely to just go away. But hey, anything can happen. Enjoy your weekend. (I know, brimming with insight today - sneeze!).

Thursday, July 24, 2008

07.24.08 - In the Zone


We are in the pullback zone identified yesterday. Note how the tick was positive even as price declined. Neither price nor the AD line was confirming that signal line. I'm lightening up on my TWM (double inverse Russel), but will keep some on hand until/if we see signs of a turn.

12:00PM PST UPDATE: If we can come down to about SPY $125 by the end of tomorrow, news permitting, that could set up a nice inverted-head-and-shoulders technical pattern forming an upswing Monday or Tuesday of next week with a good sized upward objective. That said, today could technically fit the bill as well, maybe put a bit on at the close with an associated stop while stalking a potentially better entry ahead.

NEVER INVESTMENT ADVICE

Tuesday, July 22, 2008

07.23.08 - Out-of-Pocket Today


I'll be unable to post tomorrow (July 23rd) until near the close. Today's impressive oil induced rally takes the short-term RSI's up to pretty heady territory. I wonder how much oxygen is up here? Asia is up pretty strong as I write this in the late evening. Have a good day.

P.S. Happy Birthday Little Brother!

CLOSING UPDATE: Another bull day. Bit of a shooting star doji though (bearish), probabilities are for a consolidation pull-back tomorrow or Friday. Oil is about as short-term oversold as equities are short-term overbought. Looking to unhedge between SPY $126.00-126.75 in this camp.

Blog to Read: VIX & More ~ Apparently Bill Luby is thinking along the same lines ~ The Headwinds Index. Bill is a creative analyst and a pithy writer, I highly recommend his blog.

07.22.08 - What's This?


Buying on the dip? Although the A-D line appears to be flattening out and Energy and Tech are still in a world of hurt, all else looks positive. However, R1 is proving tough resistance for the SPY ($126.40). We'll see if it can hold above the rising VWAP/ 5-day MA. I'd expect so at this point. Trade of the day was Short Semi's (SMH -5.5%) , Long Transportation (IYT +3.04%). I wouldn't get too aggressive on the Nasdaq 100 until/if those Semi's turn.

12:30PST UPDATE:

Woo Hoo!



o Blog to Read: Quantifiable Edges/ Quantifying Follow-Through-Days

Monday, July 21, 2008

07.21.08 - Energy Comeback


Not too bad of a pull-back [edit] at the mid-day. Cumulative Tick is very positive though we are still below the declining VWAP, which is acting as resistance. Energy has been the real leader today - though financials are doing just fine, thank you very much.

Broker No-Shorts Letter

Does this mean they won't look for shortable inventory, or I plain can't short these 19 stocks?



"July 18, 2008

Dear TradeStation Clients,

Due to the industry impact of the recent SEC emergency order on short selling, TradeStation Securities will not be able to facilitate retail short sales that are cleared through TradeStation Securities in the following securities beginning 12:00:01 a.m. on Monday, July 21, 2008, and ending 11:59:59 p.m. on Tuesday, July 29, 2008.

We will notify you if the SEC extends its emergency order beyond Tuesday, July 29, 2008, in which case TradeStation Securities will likely extend its restrictions.

The securities identified in the SEC's order are:

Company Ticker Symbol(s):

o BNP Paribas Securities Corp. /BNPQF or BNPQY
o Bank of America Corporation /BAC
o Barclays PLC /BCS
o Citigroup Inc. /C
o Credit Suisse Group /CS
o Daiwa Securities Group Inc. /DSECY
o Deutsche Bank Group AG /DB
o Allianz SE /AZ
o Goldman, Sachs Group Inc /GS
o Royal Bank ADS /RBS
o HSBC Holdings PLC ADS /HBC and HSI
o J. P. Morgan Chase & Co. /JPM
o Lehman Brothers Holdings Inc. /LEH
o Merrill Lynch & Co., Inc. /MER
o Mizuho Financial Group, Inc. /MFG
o Morgan Stanley /MS
o UBS AG /UBS
o Freddie Mac /FRE
o Fannie Mae /FNM

For additional information, please visit the SEC website at www.sec.gov or contact a client services representative."

Sunday, July 20, 2008

Bumping Against ST Overbought


I'd be sure to trail stops against long positions or consider mild hedging going into post-expiration week (slight negative expectancy). After last week's strong rebound, from a technical standpoint many of the indices are at or near short-term overbought levels. By the same token, I'm getting some breadth-based continuation long signals.

To play it safe on balance, for hedging purposes I'll be keeping an eye out for immediate potential SPY resistance tomorrow at the $126.00 to $126.50 level (Friday's close was at $125.98). While it would be terrific for the longs to stabilize around here, I have to imagine that the shorts are hardly done with this market and that there could be significant resistance above at each stair-step we experienced on the way down.



NEVER INVESTMENT ADVICE

Friday, July 18, 2008

07.18.08 - Light Earnings + Expiration Vol


I didn't think those Tech earnings were all that bad, specifically overseas... And, it's nice to see continued relative strength from the Financials (XLF +1.68%). You have to think companies are going to guide down/ be especially conservative to play it safe in this environment. This could mean huge beats in a quarter or two unless things really unravel.

Nevertheless, Cumulative Tick looks better than price action, which is slowly deteriorating under a declining VWAP. I'll be looking at support minimally near the pivot due to the former (say SPY $125.00-$125.20). We were due a retrace after such a huge move (SPY 2-RSI[-1] = 83) , and it's constructive at this point. I'd say the Nasdaq 100 weakness is buyable for a trade (with stops)(also see links below).

Other blogs to read:

o Quantifiable Edges/ Big Volume Follow-Through
o Quantifiable Edges/ Continuation?
o BeSpoke/ Earnings Beat Rate >70%

11:15AM PST UPDATE: What's up with this narrow range. I hate narrow ranges -- make me nervous. I'd guess upside break-out, but...

11:55AM PST UPDATE: Someone (large institutions) must be leaking out a heck of a lot of supply at this level to keep up with fairly consistent positive tick. Who will break first? Don't know. Overall volume is fairly light though.

1:10PM PST UPDATE: Very happy with the day. Next week will interesting. Enjoy your weekend.

NEVER INVESTMENT ADVICE

Trading Around the World

Remember that old '70s Captain and Tennille song? Well, if that can't "bring us together," no doubt Trading can.

Since posting a new tracking widget from ClustrMaps on the blog site a couple of weeks ago, I've been amazed and impressed by the global distribution of Market Rewind readers, as depicted below. (No worries mate, it only tracks your ISP's registered location, not your individual computer's.)


In the spirit of our mutual global interest, I thought I would post a series of interesting links to a worldwide stock heatmap maintained by FINVIZ.com, visually indicating the relative performance of markets across the world both historically and in real-time. It's eye candy for sure, but possibly useful to momentum/ relative strength traders. FINVIZ also posts both sector and ETF heatmaps that are easily drilled into at no charge. Enjoy!

Today's Relative Performance


Three Month's Relative Performance


Six Month's Relative Performance

Thursday, July 17, 2008

07.17.08 - Hanging in There

The monkey picture is for my father-in-law, who likes it when I post pictures. OK, don't we all? :-)

Price is hanging in there with a bit of consolidation and accumulation occurring. This is an important interruption to the reflexive up-day-followed-by-double-down-day pattern we've been seeing for months on end. Most trades appear to be occurring at the ask, indicating buyers are being relatively aggressive, as seen in the Cumulative Tick. I'd like to see the Trin a bit lower though (negative volume is keeping it up). Meanwhile the A-D line and VWAP are relatively flat. If we can continue to "hang in there" at this level on moderate to low volume, it should be bullish for tomorrow.

The short-term RSI is getting up there (about 78), but intermediate oscillators are still oversold, the MACD is officially crossing back up, and the VIX is stabilizing lower. The widely tracked McClellan Oscillator (tracking the advance-delcine line) is also picking up some steam. This is all technically bullish, though we'll still need to see more follow-through over the next several days.

Anatomy of a Day

Yesterday was a classic short-covering rally off of extreme oversold conditions. The prior day, a strong stretch of the VIX representing palpable fear set up by strong overnight selling abroad was countered by testimony on the hill and a rapid sell off in the energy complex. The two days together present a good look at how traders view technical levels during the course of a day. Here they are:

  1. Light Horizontal Lines/ Day Trader Pivots - Pivots take the prior day's absolute range and divide it into sections. The gold line is the Pivot, lines below it are 'Support', lines above are 'Resistance'.

  2. Solid Bold Green & Red Line/ Volume Weighted Average - The daily average price weighted by the volume of shares transacted at each price bar.

  3. Dashed Light Blue Line/ Five-Day Moving Average - Speaks for itself. Lots of computer program trades track this line. In general, the expectation is that the market will behave relatively bullishly above the line, bearishly below. Where price lies relative to longer-term moving averages, such as the 20, 50 and 200-day, also tells alot about the current environment. In addition, they often represent key-levels in their own right.

  4. General Behavior/ Higher-Highs & Higher-Lows -or- Lower-Lows & Lower-Highs - The behavior of price action tells you if accumulation or distribution is occurring within a trend.
There is no magic to these levels, but many traders have these same indicators up on their screens and they often act like magnets for day traders and buy/sell programs alike. Cumulative Tick, the Advance-Decline Line and Arms Index/TRIN also provide important clues as to what's happening "under the hood."


Beyond these "levels," well before the Open I review overnight performance overseas, and take a look at the economic and earnings release calendars. During the day, I also like to keep an eye on treasuries, the VIX, unusual volume shifts (adjusting for the AM and PM disparities), and relative strength or weakness plus correlations among the market leaders/ current industries under scrutiny. Financials and Energy are a recent example. Trend and/or rotational changes among these can signal trend changes for the broader indices in advance of a turn.

Traders more accomplished than I are also said to track changes in open interest among option pricing levels and various cross market spread ratios. I hope you find this a useful primer for future reference. What do you track? Post your comments here!

Wednesday, July 16, 2008

07.16.08 - "Been Down So Long...

... It Looks Like Up To Me" ~ At least so far today. Tick and financials (XLF +6.87%) are rocking, oil is down (USO -2.70%). Earnings, commodities and international matters are cooperating.

I imagine we may see a pause at yesterday's highs/ R1 (say SPY $123.25), if not sooner. It will be interesting to see whether/how this holds up nearer to the close.

CLOSING UPDATE: A text book short covering rally with XLF up 12.29%! My goodness. I may do a post-deconstruction on the day latter on since it traded so predictably from a technical standpoint. Ebay is just out with an EPS beat, but apparently there is some dissappointment on either revenues or outlook.

Quick VIX-Stretch Study

As promised, here is that brief VIX-Stretch study investigating the daily expectancy of the S&P500 for brief periods of time subsequent to extreme stretches of the VIX relative to its near-term mean. The premises are that the VIX is mean reverting, runs inverse to price, and that relative levels are more important than absolute levels.

This subject has been written about extensively, most notably in my research by Larry Conners of Trading Markets. Many entry and exit rules can be used to prove the point, here are the simple rules used in the quick studies provided below:

Entry Rules: Enter the SPY at the close when today's VIX is "X"% above its 15-day moving average.

Exit Rules: Hold the SPY "N" number of days, then exit at the close.

Two days ago on July 14th 2008, on a closing basis the VIX was more than 16% stretched relative to its 15-day closing average. Over the last ten years, entering an SPY position at that level of stretch and holding for five days would have yielded a total return of +57% over 357 days invested for a compound average daily gain of +0.121% (invested 15% of the time including overlapping periods, with no trading costs assessed).

In contrast, buying and holding the SPY over the same period (a total of 2,516 trading days) would have yielded a +21% gain for an average daily change of +0.008%, 6% of the daily stretch-rule gain. Holding for only a day improves the expectation considerably -- no wonder it is said that volatility begets volatility!

Tuesday, July 15, 2008

07.15.08 - Support to Break?

Looking at Asia and Europe overnight, I'm guessing that SPY support we have been seeing will break. Too many tests and too much negative news flow. Lots of data up tomorrow plus Bernanke. We'll see.

7:00AM PST UPDATE: Talk about water torcher -- the VIX just eased over 30. Europe and Asia ended up down over 2-3% across the board. Math test, how many days in a row can the market drop 2%? Hint, it's more than 50! Answer, it's actually limitless, save you'd eventually hit a penny. Think about it!

News flash, Fed has just downgraded growth forecasts, but upgraded jobs with inflation just slightly hotter. Next SPY support is widely estimated between $115 and $118 -- pretty much have to throw that type of analysis out the window at this point.

Yes, the writing was on the wall for this one folks, but then again, it had been since at least 2006. When it finally came, boy did it come fast. Oil is coming in. It's going to have to come in harder or some phenomenal news flow is going to have to emerge to turn this train around. This is day 27 below the ten-day moving average.

AN ASIDE: Barron's is calling for a housing bottom. Real Estate is (still) a levered personal asset. I wonder who they think is going to lend to said requisite buyers?

7:50AM PST UPDATE: Vix at about 30.5 is now nearly 17% stretched from its ten-day moving average. The Vix is generally mean reverting and inverse to price action. It can certainly stretch more, but this level of stretch is often bullish. I haven't been good about getting studies posted, but I'll make a concerted effort to get a mini-study up by day's end on this. Looks like my post times are now corrected.



8:05AM PST UPDATE: Oil is free falling now and stocks are responding nicely. Come on in baby. I'm out of DUG, thank you very much. Interestingly, Gold is hanging tough. No more posts until the normal mid-day time.

9:30AM PST UPDATE: CAPITULATION?

OK, I'm willing to blow the bugle and more "officially" call this capitulation. With Oil down 5%+, the Vix mean reverting after a break of 30 and a 17% stretch, and the AD, Tick and Trin lines all looking supportive after a major down-gap, we have apparently found an intermediate base and are forming a nice hammer doji on the day. Now take a closer look at the fellow to the left! Hey, no taking your eye off the rising VWAP as a stop.


ANOTHER ASIDE: Boy, before today I would have thought that Stable Growth + Low Inflation = Financial Market Stability. Thanks to Mr. B, we now all know better; the right side of the equation can be independently managed...? Hmmnn. (edit: addition) Okay, now after Paulson's testimony I get it: give the agencies a blank check. Think this might have been scripted?

BREAKING NEWS: From SEC Chairman Chris Cox -- what is this about short sale regulation...? Maybe I misheard -- more momentarily. Here it is, emergency order preventing naked short selling in Fannie and Freddie, and possibly more companies/primary dealers to come. That has to support some short covering here, though we aren't yet seeing it in the broader market. (edit: That was fifteen minutes ago, as of this writing traders are finally getting it and all averages are up sharply -- hope I'm reading this right -- importantly, just how prevalent is this anyhow?)

With all the rumour mongering and capital access destruction based on stock price plunges, this certainly makes sense in this environment. With record short levels, maybe this will finally light a fire under a recovery bounce effort. Financials are now positive +1.75% on the day, a 6%+ intraday turnaround.

11:00AM PST UPDATE: Indices are struggling as the Nasdaq 100 and Dow Jones hit their five-day moving averages -- a technical sell signal for the last two months. We'll see if they can break through going into the close. For the SPY, the 5-day is still a buck above current price, probably due to energy. Everything else looks OK so far.

12:30PM PST UPDATE: Well,turnaround aside, less than impressive with Tick quieting down after the SPY was also rebuffed at its five-day. Obviously oil is going to have to keep its head down and "certain" upcoming earnings are going to have to cooperate for this to follow through (hint, wait for this!). Capitulation calls aside, from here or anywhere, trail stops. As Brian Shannon is always preaching, "Bottoming is a process, not an event." I'll get that study up after the close.

NEVER INVESTMENT ADVICE

Monday, July 14, 2008

07.14.08 - Talk about...



...an inability to catch hold a bid. We are more or less at the Friday lows after the opening bounce was heavily faded. Cumulative Tick is very negative, though it looks to me like a little accumulation may be happening here.

Glad I refinanced with WAMU before it... just kidding. Did I read that financials have been moving down at the rate of 4% plus per week since the new year? No wonder they are so tempting to hit over and over again. Amazing ranges on the financials -- they are being played heavily.

Separately, it will be interesting to see what impact, if any, the continental shelf drilling ban-lift announcement will have. (edit: Note this will require congressional approval). Also, don't forget that it's option expiry week. It often adds a bid to the market, but also typically introduces heightened volatility. The value to the far right (-1) on the chart below represents Friday's close.

Friday, July 11, 2008

07.11.08 - VIX Spike


The Vix is now up 12.5% and we have tested (edit: and held) that 2006-drawn level of support in the SPY indicated yesterday down to S2 (say $122.50 to $123.00). At a Vix high of 29 we are very close to the levels yearned for by market observers to indicate a wash-out and reversal base (edit: VIX 30-35).

The Vix is starting to come down a touch along with oil and for the time being Tick looks like it's bottoming (edit: nope, still down trending). Headlines are about as bad as I've seen them in a long, long time. What a way to finish out the week.

VIX APPROACHING 30



GOOGLE SECTOR SUMMARY


GRIM YAHOO HEADLINES





10:00AM PST UPDATE: This isn't holding -- I'd stay out of the way, maybe even through the end of Monday (often follow through Friday to Monday) unless we see much better signs of stabilization. Vix is now +14.6%. My post times still aren't right for some reason.

10:15AM PST UPDATE: Hmm... SPY S2 still holding... I'll keep looking for a tick divergence. Obviously alot of uncertainty here, including yours truly.

11:10AM PST UPDATE: That divergence set up about ten minutes after my last post. VWAP is green again and Trin is coming down. Still be careful -- trail stops on any longs!

11:50AM PST UPDATE: DISCOUNT WINDOW OPEN TO GSE'S. Talk about by hook or by crook! Huge short covering rally to come.

12:15PM PST UPDATE: We went briefly green... no confirmation by the Fed, trail stops. Got to get to real uninterrupted work here... have a good weekend. These rumours have gotten nuts.

NEVER INVESTMENT ADVICE

Thursday, July 10, 2008

07.10.08 - GSE Insolvency?


Thanks Will Poole. Financials are hurting badly (XLF -1.15%) -- but not quite as much as Consumer Discretionary (XLY -2.33%) on retail same store results. Probably fool hardy to draw support lines across two years of data (OK, many would say across any time frame), but here it is... SPY $123 anyone? (Edit: The $122.50 to $123 range from the 2006 lows) would likely cause reason for pause, at the very least. We are about a buck above the line this morning. Yesterday makes 23 closes below the SPY's 10-day Moving Average.

9:45PST UPDATE: Carving a Bottom?

Looks like we are seeing some accumulation here though I don't like that lower-low. Price is above the VWAP and the TRIN is settling down; keep an eye on that as XLF is still struggling to break even and ugly rumours abound. In this environment we need to see a series of days like this, not one day collapsible wonders (edit: unless they are really strong -- see Hanna). I have updated my posting time setting to Pacific Standard Time (previously Central, though I've been here for about a month).



11:00AM PST UPDATE: Did you anticipate resistance at the Pivot/ Five-Day Moving Average? It would be fine with me to close just around this level, maybe just above the 5-day if we can manage? Then a few accumulation days to allow that line to flatten and head gradually up. Not a predication, what I would "like" to see.

11:25AM PST UPDATE: OIL IS EXPLODING (+4.6%) -- WHY?! CNBC STINKS! IRAN? MARKET DROPS 100 POINTS IN FIFTEEN MINUTES AND THEY DON'T EVEN MENTION IT. YOU HAVE GOT TO BE KIDDING ME. -- NOW THEY ARE TALKING ABOUT A TECHNICAL BUY... WHATEVER, BUT SO MUCH FOR WHAT I'D "LIKE" TO SEE. BOT SOME 'DUG'.


12:20PM PST UPDATE: OK, I've calmed down. Pretty good recovery -- 'hopefully' it holds. The DUG, inverse oil and gas exit target is set close. Something about Nigeria, after all. Reader John W. points out a couple indications of bull frustration nicely posted by Bespoke:

o Frustrations
o Running of Bears

Wednesday, July 9, 2008

07.09.08 - Consolidation


We are more or less flat and seeing a bit of consolidation after yesterday's big gains. Semi's are struggling the most on the CISCO "misinterpretation." Yesterday's call worked out unexpectedly early, though I wish we hadn't closed on the day's highs -- too tempting to fade in this market. To be clear, it was just a short to intermediate bounce call (of stronger magnitude than we've seen of late) and the stars just happened to align, so consider employing stops.

Stocks are back to oil correlation mode and Iran is up to its shenanigans, so keep an eye on it. Right now USO is +85bps. Hopefully we'll see SPY support today at the flattened 5-day MA/ pivot (about $126.30). I'm updating my charts on the new machine, so if they look like work in progress, they are.

12:00PM PST UPDATE: Broke right through the pivot on the second attempt. Trin is all the way up to 1.94 -- Tech and Financials just could never get a foothold. USO is back down so that may limit losses, but I wouldn't get in the way of this through the close.

12:45PM PST UPDATE: OK - No fun going into the close and we are far off of any action related to the original "Consolidation" title of this post. Nonetheless, I have noted relatively strong relative Cumulative Tick for what we are getting in price action. Lots of individual stocks triggered sells this morning by surpassing their intermediate moving averages, as did the major indices by hitting RSI's in the upper range after yesterday's (too?) big up move... long way of saying this could be as much technical selling as yesterday was short-covering. And as of now we are still logging a higher-high and higher-low on the day, if not slimly so. Old habits are hard to break. So I'm not giving up on this, but do have stops just a hair below my entry points from yesterday and will trail them upward on any bounce.

NEVER INVESTMENT ADVICE

Tuesday, July 8, 2008

07.08.08 - Time to Back up the Truck?


Just intuition here, but it looks like time to back up the truck to me. Put a nice chunk in at the pre. As I've written here, there has not been a big event-driven and/or high-fear sell-off during this decline, but it has been so extended and so many stocks are at extreme, read historic relative lows, a swing trade for the intermediate trader has to be setting up.

There is certainly a lot of downside priced in at this time, and this little energy down move could be just the "fuel" we've needed for a little reversal. Of course nothing - HAS - to happen -- especially any particular way that I foresee!

MID-DAY POSTING (9:45AM PST)


Cumulative Tick looks strong at the mid-day and most sectors are trending slowly higher after a mild retest of yesterday's lows. The AD line is flirting with the unchanged. Jamie D. is stating the obvious, but it's good to have a competent and confident voice recapping where we are at without a hint of that deer in the headlights look Mr. B. gets. I especially like his candid, articulate political comments hurled at the opportunist regulatory moves afoot. He's got my vote.

INVESTOR LETTER EXCERPT

A little paste-in from my investor letter is provided below. By my estimation we are currently at the low end of the fair-value range for the S&P 500. On the other hand, “typical” bear corrections are said run about thirty percentage points from their respective tops, leaving open the possibility of another eventual ten percentage point-plus correction to the downside (say S&P 500 ~ 1,100).

The S&P Investment Policy Committee recently reduced its forward estimate to $89 per share -- with second quarter earnings announcements just around the corner, we will see how they measure up. As shown in Method 1, the market is either pricing in worse earnings, requiring a higher rate of return, or both.


NEVER INVESTMENT ADVICE