LET’S GET TECHNICAL – OVERHEAD RESISTANCE
Guest contribution here from reader “Spider Trader”, an institutional trader with several decades of experience trading capital markets around the world. The combination of a skilled technician and a skilled fundamental analyst has the potential to be a dangerous duo.
From “Spider Trader”:
Recovery rallies are almost always led by the high beta sectors of a market. In the case of this economic recovery, think China and global small caps. With China recently topping out and weak action in the small cap Russell 2000 index we are sitting in much the same camp that TPC currently sits in – wait and see mode. For now, the potential double top in the Russell and the overhead resistance at the 50 day moving average serve to validate the underlying fundamental outlook of a stalling economic recovery.
In addition, the recent sell-off that took us below resistance was on substantial volume compared to the recent rally which has been on very low volume. Small caps and high beta names are now exhibiting weakness compared to high quality names in what we view as a sign of a shift in risk tolerance. This could be a sign that the rally is finally beginning to taper off. For now, keep your powder dry. The market will tell us how to plan our next move.
You have to be one step ahead of the markets. See you in the 900’s soon when everyone is declaring the rally is over and chumps are too scared to buy or short then too, then I’ll buy. I’m going to begin buying VIX calls VERY shortly. Haven’t you heard we are only going up and up now because of liquidity and performance chasing into year’s end?
Rob Reply:
November 11th, 2009 at 4:05 AM
I agree that a correction will occur only after most people stop looking for the correction. My guess would be in mid December when practically everyone is looking for a year-end rally. (Bears and bulls alike).
Rob Reply:
November 11th, 2009 at 5:14 AM
You might have to wait until the S&P train goes to 1115 or even 1150 before we see the next mini correction. If it gets there maybe there won’t even be a near-term correction that goes as low as the upper 900s.
I bet we see 1200 or even 1300 before a major correction.
Right now the market is only a bit overvalued. At 1300 it would be significantly overvalued. Now when the market dips below 1050 there will be lots of buyers, because there are many who see 10-15% more upside. Once we get to 1200 or 1300 that belief in upside opportunity may disappear.
A major correction could take the market back to 800 (below fair value). A 70% to 80% retracing of the rally off the bottom (no matter how long or big the rally) would be consistent with other bear market bottoms. The correction will come when everyone stops expecting it. When I stop seeing talk of correction both on CNBC and on financial blogs, I will get nervous that a correction is coming.
Right now I see the risks about equally weighted to the upside and downside.
James Reply:
November 11th, 2009 at 7:25 AM
Rob, I never said people are wildly bullish or anything. They aren’t. They never will be, through DOW 1 million. So good luck finding people who are bullish. With that being said, all you need are people resigned to thinking things will go higher and higher and higher because of liquidity and performance chasing. By the way, your argument is flawed. You are saying the next significant correction will come when things are 10-15% higher because then everyone will think things are over valued. When the hell does the market to what everyone thinks? Everyone thought BAC was overvalued at 3 dollars in March. Was waiting for much lower to buy. It never went that low. Everyone is waiting for higher levels on the SnP to short or look for a correction. We will see if the market does what everyone is looking for this time. By the way, nobody needs to be bullish. We just need them to sit out of the game. And trust me, most people have no intentions of shorting any time soon for whatever reason as you and TPC and many others have stated. And you won’t short at 1000. I’d be surprised if you buy at 1000 either.
WTF is going on with the futures overnight?
Henry Reply:
November 11th, 2009 at 5:17 AM
I smell a trap.
Rob Reply:
November 11th, 2009 at 5:27 AM
Bear trap or bull trap?
Henry Reply:
November 11th, 2009 at 7:21 AM
I am still watching this…it depends on the volume. Volume decreases but this keep climbing. They make up story to justified the move…Oh it’s Asia blah blah blah. Lots of time, Asia went up and futures unchanged or down…But today it’s up 9 points when Nikkei is unchanged, Hangseng is up by a small percent.
My belief is that correction will arrive after Christmas…
Could someone say me which is the symbol to trade the VIX (or options on the VIX)?
Thanks
I have used the VXX (an ETN) that tracks short term volatility futures. I tend to get in and out. I believe there is an ETN for the long-dated vix futures. I remain skeptical though. If the Fed/Treasury can keep boosting futures on low volume (or whoever, it doesn’t matter does it?), and can keep the dollar in the shitter, then surely they can keep a handle on the vix too.
The dollar is not yet below its low reached last year, and US government actions have underscored the belief that they don’t really care if the dollar goes lower. The dollar is going lower (who on Earth would buy it?). Therefore the carry trade is alive and well. The correction will come when every bear has been silenced. We’re not even close yet. A new high will be reached today because the prop. trading desks have deemed it so, and we will consolidate for a week or so at slightly lower levels, then rally into the end of the year, crushing any remaining short sellers. (Forecast subject to revision without prior notification.)
Edna Rider Reply:
November 11th, 2009 at 7:56 AM
John Mc,
I like the sound of your forecast. It sounds like capitulation.
Thanks for posting my outlook TPC!
JTodd Reply:
November 11th, 2009 at 8:18 AM
Nice post Spider!
I too have been watching the IWM and it is showing (along with the S&P) non-confirmation with the Dow. It is also clearly stuck under the flattening 50 day SMA. The negative divergence is also getting out of control.
SpiderTrader Reply:
November 11th, 2009 at 8:22 AM
Thanks JTodd. The 50 day is at 59.61 so that is the level to keep an eye on. It doesn’t look like we’ll close above that today, but you never know with this market.
TPC Reply:
November 11th, 2009 at 8:49 AM
Thank you!
Here we go again. Your dollars fall, but everyone cheers a stock market rally! Go Ben go!
JTodd Reply:
November 11th, 2009 at 8:24 AM
Gee strange how even the market is up all the volume is coming on the selling and we printed three -1000 ticks. Funny.
SpiderTrader Reply:
November 11th, 2009 at 8:57 AM
IWM reversing its entire move from this morning. Can you say SELL THE STRENGTH?
We just saw the highs for the year. Too many non-confirmations with the double top in the s&p. Less 52 week highs, hit the top of the rising trendline from March at 1100 (now resistance), small caps + financials + technology no longer leading the way. And most importantly, no volume! Barring a meltup into the close, looks like we won’t get to the next Fib retracement level after all. What an exciting day.
SpiderTrader Reply:
November 11th, 2009 at 8:42 AM
It’s all dollar based liquidity chasing. If I could snap a picture of the current economy I think it would look a little bit like this:
http://i.telegraph.co.uk/telegraph/multimedia/archive/00675/money-from-the-sky_675663c.gif
Go get those devalued dollars everyone!!!
SpiderTrader Reply:
November 11th, 2009 at 8:45 AM
How do you post an image here TPC?
TPC Reply:
November 11th, 2009 at 8:55 AM
Great question. I have no idea. I don’t even know if you can.
I would really love to short this rally, but I agree with TPC. Best not to stand on the tracks when the train is coming through.
How deep in the red will we close today? I bet we close down 4 points on the S&P.
TPC Reply:
November 11th, 2009 at 11:12 AM
I’ll take the other side of that bet. +4.
Rob Reply:
November 11th, 2009 at 1:52 PM
This is the pattern I see. I bet the S&P500 closes above 1,100 sometime this week or next (maybe tomorrow), probably touching 1,116. Then a pull back of 5%-6% to about 1050 or 1060. Then another run up over 1,100 and test the 1,116. If it closes above 1,116 a couple times then on to 1,200. If not then maybe the slightly larger correction everyone has been waiting for is finally in the cards.
Whatever happens. Most every major world stock market (except China and India) will be going more or less in the same direction at the same time and the dollar will be doing the opposite.
KK R Reply:
November 15th, 2009 at 12:52 PM
What makes you say India will not head in the same direction US is going to. I trade S&P CNX Nifty (Indian version of S&P 500, although Nifty is just 50 stocks). The correlation between Nasdaq and Nifty is at the highest right now.
MARKET QUOTES
THIS WEEKS MOST POPULAR STORIES
MARKET NEWS
© 2009 pragcap.com · Login.
Home · Advertise · Contact us · Disclaimer ·