Tuesday, September 30, 2008
The Verdict Is In!
I just finished counting the negative vs. positive comments on my last four market related posts. The verdict is in! A total of 24 comments express the view that I am an idiot and/or that the market is going much lower, 3 were at best mildly supportive of my views, and the rest did not take one side or the other. So my "Comments" indicator shows 89% bearishness. Hmmm.......
Business Week and Forbes Chime In
Here are the covers of the latest issues of Forbes, Business Week, and Time Magazine. I especially like the Business Week cover. These are simply reinforcing and reflecting the public's already profoundly bearish sentiment. Any break in the clouds will send this market way up.
Today's Headlines
Here are today's front pages from The New York Times and Chicago Tribune. Both are devoted entirely to yesterday's big stock market drop and the House rejection of the bailout legislation.I think the Tribune's front page is classic. Two graphs showing the market going lower, a photograph of a trader with his face in his hand, a photograph of a Great Depression breadline, and the headline itself: How Low Will It Go?
The front page of the Times is slightly less dramatic, but in the same spirit.
Front pages like these occur very near important low points in the averages.
Guesstimates on September 30, 2008
Spiders - September S&P E-mini Futures: Judging from this morning’s headlines and the bullish divergences evident in the advancing issues numbers I think that yesterday’s low either ended this drop or is very near the final low point. The market took out the September 18 low at 1136 yesterday on a panic decline but this morning is trading above that level which is a minor bullish indication. It has established a trading range between 1112 and 1166 and I think it will move out of this range on the upside today or tomorrow.
QQQ: The Q’s will probably act worse than the S&P for a while and eventually drop into the 34-35 zone before a solid low is in place.
TLT - December Bonds: I think a big drop is underway in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is now at 149.40.
Dollar-Yen: Resistance is at 108.50 and I think the market is headed for 98.00.
XLE - OIH - USO – November Crude: Next downside target is 75.
GLD - December Gold: Gold still has resistance at 935. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1390. Next downside target is 900.
Google: I think Google will make a low near 375 and then begin another multi-year bullish trend.
Monday, September 29, 2008
Advancing Issues
The S&P made new bear market lows today on the news that the House rejected the bailout plan. This new low gives us the opportunity to examine some technical indicators for evidence that the market's technical condition is not as bad as it seems at first glance.As you can see from the first two charts above this post, both the 5 (purple line) and 10 day(red line) moving averages of the daily advancing issues number for the NYSE are higher than they were 10 days ago at the September 18 low at 1136. This is a bullish indication and I think it means that these markets are about to rally.
Looking at longer term divergences we see from the second chart from the top that both the 20 day moving average and the daily readings of the number of S&P 500 issues trading above their 50 day moving averages stand well above the levels reached in July at the 1200 low. The 10 day moving average of the advancing issues number also stands above that low. Finally, the 20 day moving average and the daily count of the number of S&P 500 issues trading above their 200 day moving averages (top chart) is above its January, March, and July lows. This shows a market which is gathering strength for a big move to the upside.
Republicans Tank Market
Well, I never thought I'd see this, but it seems the House Republicans are content to see the economy slide into depression. They just voted down the bailout bill. On the news the futures dropped 50 points, from 1166 to 1116 in about eight minutes.
I don't know what these guys are smoking, but some sort of magical thinking seems to be at work. Their notion of a "free market" solution, proposed Saturday, was to make banks pay the Treasury for insurance. Brilliant! Let's drain liquidity from the banking system just at the time when it needs more liquidity to survive.
After all is said and done I think more sensible heads will prevail in the House. But it is so sad to see a great political party commit mass suicide.
These Dogs Aren't Barking
World Panic!
Yet the bond futures and the notes futures are each trading below the high points they reached in March 2008. Gold is not only trading below its 1035 all time high reached earlier this year, but is still below the 925 rally top it put in a couple of weeks ago. Silver is down almost $9 from its mid-year high.
I think these are the early signs that the panic is about to end. These markets are all panic barometers, refuges in times of certainty. Given the current panic situation in world markets I would expect bond, notes, gold, and silver to be at new highs for 2008. But they are not. These dogs aren't barking.
Let's take a look at the stock market from this point of view. The first real panic headlines and magazine covers started to appear in mid-January of 2008. You can view the chronology here on this link to my contrary opinion posts. At the moment the S&P is trading about 8% below its mid-January low. I find this remarkable. If you had told me then that the events we have seen during the intervening eight months would occur I would have predicted that the S&P would be trading near 900 now. But it isn't anywhere close.
Again, that dog hasn't barked. I infer that much higher prices are in store (i.e. a move above the 1600 level) once these panic conditions pass.
Everybody Hates the Bailout !
It has been very difficult, almost impossible, to find anyone willing to go on the record as approving the soon-to-be-implemented bailout by the Fed and the U.S. Treasury of the U.S. and world economy. So I will.
People seem to think that this is a Wall Street bailout, a life preserver thrown to rich guys who caused all the trouble in the first place. I think there will be plenty of time for recriminations once the smoke has cleared. But meanwhile I want to emphatically make the following point.
THIS IS A BAILOUT OF MAIN STREET TOO!
If Wall Street and the global banks fail, so will your local bank and your money market fund where you think you have your savings safely squirreled away for a rainy day and your retirement. NO ONE will escape the ruin that would follow from a rash of bank failures in the current climate. Worse, once the banks fail the economy would grind to a halt and unemployment would skyrocket - a true Great Depression scenario. Not only would you lose your all your savings, you would lose your job too!
Ben Bernanke, the man who, along with Henry Paulson, is trying to stave off disaster, is an expert on the failures of fiscal and monetary policy during the great depression. That depression occurred precisely because taxes were raised by congress and the money supply was allowed to fall by the Fed when the banking system started to fall apart. The slogan then was "let the free market do its work and clean out all the dead wood and speculators and risk takers- don't bail them out - don't print money or run a fiscal deficit". Sound familiar?
So the free market did its work, pushed by Congress and the Fed. The result was a 10 year depression and 25% unemployment.
Is that what people want to happen now? It seems so because such a repeat of the Great Depression is precisely what will be in store for us if Bernanke's and Paulson's efforts are thwarted and financial institutions allowed to fail. If you don't believe me look what happened when Lehman Brothers was allowed to slide into bankruptcy. A run on money market funds, for one thing. A near collapse of Goldman Sachs, the best managed investment bank in the world for another. Do you think your bank will be far behind if Goldman were to fail, if Citibank were to fail?
Let's get real, folks. This crisis has hurt a lot of people, but if we want to get through it without even more pain and suffering the Bernanke-Paulson plan is the only game in town.
Guesstimates on September 29. 2008
Spiders - September S&P E-mini Futures: I think the e-minis are headed for the 1160 level. From there the market should turn up once more and a rally to 1300 should begin. Resistance above the market today is 1200.
QQQ: The Q’s should hold support near 38.50 and then start a move up to 45.00.
TLT - December Bonds: I think a big drop is underway in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is now at 149.40.
Dollar-Yen: Resistance is at 108.50 and I think the market is headed for 98.00.
XLE - OIH - USO – November Crude: Crude now has resistance at 112.00. Next downside target is 75.
GLD - December Gold: Gold still has resistance at 935. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1390. Next downside target is 900.
Google: I am not very sure about Google’ technical position. I still think it has a good shot at 375 before it resumes its long term bullish trend.
Friday, September 26, 2008
Out
I sold my one unit long at 1197.50 because the market broke back below the 1200 level and showed increasing volume on the break. I'm now flat and scratching my head.
Covered and Long
The market just made new highs for the past couple of hours on increasing volume. I bought two units at 1204 and am now long one unit net.
Short
I just sold one unit of the e-minis at 1198.00. I am betting that we have seen the high for the day.
Guesstimates on September 26, 2008
Spiders - September S&P E-mini Futures: I thought that the e-minis would hold above the 1205 level but so far they have dropped nearly 20 points below there. I think this means that the market is headed for 1160. At that point the trend should turn upward and a move to 1300 should begin.
QQQ: The Q’s should hold support near 38.50 and then start a move up to 45.00.
TLT - December Bonds: I think a big drop is underway in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is now at 149.40.
Dollar-Yen: Resistance is at 108.50 and I think the market is headed for 98.00.
XLE - OIH - USO – November Crude: Crude now has resistance at 112.00. Next downside target is 75.
GLD - December Gold: Gold still has resistance at 935, but my guess now is that Thursday’s 925 high marked the end of the rally. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1390. Next downside target is 900.
Google: I am not very sure about Google’ technical position. I still think it has a good shot at 375 before it resumes its long term bullish trend.
Thursday, September 25, 2008
Out
I was expecting a strong close but it's not happening, so I sold my two long units at 1214.25.
I am still bullish and expect to put this trade back on tomorrow.
A Look Ahead
Here is a one box, 10 point box, reversal chart of the cash S&P 500. At times like these, when everone about you seems to be loosing their heads in panic, a look at a point and figure chart like this can be an antidote to unreasonable bearishness.
On this chart I see two potential bases that could support substantial upmoves. I emphasize the word potential because neither base will be completed until we reach higher prices.
The base whose width is shown by the red line will be completed when the S&P reaches the 1270 level. If this should happen, and I think it will soon, the count across the base projects a move up to the 1380 level (red dot).
But a move to 1380 would complete the second base which began building in July, 2008. If this larger second base is completed, its width projects a move up to 1700.
Food for thought and and indication of this market's upside potential once the gloom starts to lift.
Traders Comments
Some of you have taken to posting your trades in my comments section.
This is just useless clutter unless you identify yourself in your comment somehow, e.g. with your initials or name. From now on I will not publish trading comments unless they are so identified.
Added Second Unit
I just added a second e-mini unit at 1208, making me long two units at that price.
Headed Up
During the first half hour of floor trading the e-minis have broken out of their 1180-1200 trading range to the upside on high volume. I think this means that we have seen the low of the day and that the market will reach 1230 today on its way to 1300 or higher.
Cash Levels in Money Market Funds
Commenter Howard Bernstein pointed me to this chart of mutual fund cash levels. It comes to us courtesy of Navellier Research and Ned Davis Research.The chart shows the ratio of money market fund assets to the market value of the S&P 500. The ratio is now nearly as high as it was in 1982, the start of the great 1982-2000 bull market. Apparently investors are showing the greatest preference for safety vs. speculation in 25 years.
Needless to say, this is another very bullish indication.
High Anxiety
I never thought I would see four non-financial, weekly magazines publish Wall Street related covers in the same week. But here it is. Both Time and Newsweek, the two biggies, as well as The New Yorker and The Weekly Standard have done so this week.I think this is a very bullish indication for stock prices looking ahead over the next year.
Guesstimates on September 25, 2008
Spiders - September S&P E-mini Futures: The e-minis are in a trading range between 1180 and 1200. Strength above the high of this range will mean that the market is headed for the 1300 level. Failing that indication the e-minis will probably drop to 1165 first and then start a big rally. The current rally should carry the S&P up to1400 during the next few months and much higher than that next year.
QQQ: The Q’s should hold support near 39.50 and then start a move up to 45.00.
TLT - December Bonds: I think a big drop has begun in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is now at 149.40.
Dollar-Yen: Resistance is at 108.50 and I think the market is headed for 98.00.
XLE - OIH - USO – November Crude: Crude now has resistance at 112.00. Next downside target is 75.
GLD - December Gold: Gold still has resistance at 935, but my guess now is that Thursday’s 925 high marked the end of the rally. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1390. Next downside target is 900.
Google: I am not very sure about Google’ technical position. I still think it has a good shot at 375 before it resumes its long term bullish trend.
Wednesday, September 24, 2008
Headed for 1160
The market is waiting to learn the fate of the bailout package and has traded in a very narrow range today (given the high level of volatility). Rallies were on decreasing volume so it looks like 1160 is the next stop. I think the 1136 low will hold, however.
Reversed to long at 1189
Well today I seem to be the yo-yo on the end of the market's string. I just bought 2 units of the e-minis at 1189, making me one unit long at that price. I don't want to miss a big rally that I have been expecting and if this is it then the market should hold 1187.
Out then Short
I just sold three units at 1185.50, making me net short one unit at that price. It now looks like the market is headed for 1165.
Long
I just went long one unit of the e-minis at 1191.00. I am betting that we have seen the low for the day.
Guesstimates on September 24, 2008
Spiders - September S&P E-mini Futures: The E-minis have bounced three times off of the 1188 level but the rallies from there have been on decreasing volume. I conclude that the market has to go lower before it can start a move to 1300. My downside target for today is 1165 but since I am bullish I won’t be dogmatic about this. The current rally should carry the S&P up to1400 during the next few months and much higher than that next year.
QQQ: The Q’s should hold support near 39.50 and then start a move up to 45.00.
TLT - December Bonds: I think a big drop has begun in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is now at 149.40.
Dollar-Yen: Resistance is at 108.50 and I think the market is headed for 98.00.
XLE - OIH - USO – November Crude: Crude now has resistance at 112.00. Next downside target is 75.
GLD - December Gold: Gold still has resistance at 935, but my guess now is that Thursday’s 925 high marked the end of the rally. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1390. Next downside target is 900.
Google: I am not very sure about Google’ technical position. I still think it has a good shot at 375 before it resumes its long term bullish trend.
Tuesday, September 23, 2008
Chart Page Has Been Updated
I just updated my public chart page on StockCharts.com.
The main message is that there were many very strong bullish divergences at last week's 1136 low. This together with the profoundly bearish sentiment in the market and very high volume last week is strong evidence that this market is headed much higher over the coming months.
Guesstimates on September 23, 2008
Spiders - September S&P E-mini Futures: There will probably be high volatility around 10am, the time Bernanke testifies before congress today. I think the e-minis will probably make it down to 1190 but from there the market should begin a rally to the 1300 level. The current rally should carry the S&P up to1400 during the next few months and much higher than that next year.
QQQ: The Q’s should hold support near 40.50 and then start a move up to 45.00.
TLT - December Bonds: I think a big drop has begun in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is now at 149.40.
Dollar-Yen: Resistance is at 108.50 and I think the market is headed for 98.00.
XLE - OIH - USO – November Crude: Crude has resistance at 110.00. Next downside target is 75.
GLD - December Gold: Gold still has resistance at 935, but my guess now is that Thursday’s 925 high marked the end of the rally. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1330. Next downside target is 900.
Google: I am not very sure about Google’ technical position. I still think it has a good shot at 375 before it resumes its long term bullish trend.
Monday, September 22, 2008
Out
Well, it looks like we are going straight to 1200-10 without a rally first so I sold my 1 unit at 1219.50.
Long
I just purchased one unit of the e-minis at 1227.00. I am betting that the market will hold above 1220 and I'm expecting a move up to a top above 1250 but below 1291. Then down to 1200 later this week.
The End Is Near - Buy!!!
Here are the images of the covers of the latest editions of Time Magazine and The Economist. Note the interesting fact that both show an image of someone or something plunging into a deep hole. This is yet more evidence of widespread bearish sentiment and a sure sign that the stock market is headed up a lot from here over the next few months.
Guesstimates on September 22, 2008
Spiders - September S&P E-mini Futures: T e-minis will probably drop to support in the 1200-10 zone before they move up above the 1300 level. In any case I expect last week’s 1136 low to hold for quite some time. The current rally should carry the S&P up to1400 during the next few months and much higher than that next year.
QQQ: The Q’s will probably drop to 41.00 over the next couple of days and then start a move up to 45.00.
TLT - December Bonds: I think a big drop has begun in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 147.50.
Dollar-Yen: Resistance is at 108.50 and I think the market is headed for 98.00.
XLE - OIH - USO – October Crude: Crude has resistance at 110.00. Next downside target is 75.
GLD - December Gold: Gold still has resistance at 935, but my guess now is that Thursday’s 925 high marked the end of the rally. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1330. Next downside target is 900.
Google: I am not very sure about Google’ technical position. I still think it has a good shot at 375 before it resumes its long term bullish trend.
Friday, September 19, 2008
Bailouts and Ben Bernanke
There has been a lot of commentary in newspapers and on the Internet about the actions taken this year by the Fed and the U.S. Treasury to prevent the bankruptcy of various financial institutions. I would characterize the general tenor of the discussion as puritanical.
People seem to think that Bear Stearns, Fannie Mae, Freddie Mac, and AIG were “bailed out”, rescued by the Federal government despite their having committed one of the seven deadly sins: greed. These corporations are now seen to have been imprudent because their balance sheets were highly leveraged. A good portion of the assets on their balance sheets are regarded now as “toxic waste”, mortgage-backed securities which have become highly illiquid. Commentators tell us that these institutions had no business being so highly levered to finance assets of such dubious quality.
There is another theme which runs through this commentary. It is that the federal regulators who are responsible for oversight of these institutions are “letting them get away with murder” by “bailing them out”. Worse, by bailing out these institutions the federal government is supposedly encouraging such reckless behavior in the future.
Finally, most of these commentators think that the financial crisis of 2008 was entirely foreseeable by regulators and therefore could have been prevented. They claim we are confronted by a clear case of regulatory misfeasance. Indeed, some argue that it is actual malfeasance resulting from financial benefits congressmen have received from these corporations.
I believe the views I have just characterized are terribly misguided. They ignore the history of financial crises and the well developed body of practical wisdom which is now guiding Bernanke’s and Paulson’s response to the current crisis.
Every financial institution is in the business of lending long term and financing these assets by borrowing short term. Most of the time this mismatch between the durations of assets and liabilities causes no problem. But if for some reason it becomes difficult to borrow short term against the value of these long term assets a so-called debt-deflation spiral can begin. Virtually all financial crises are examples of this phenomenon. If short term financing becomes tight or unavailable, financial institutions must sell long term assets. This depresses the price of long term assets and thus reduces the value of these assets as collateral for short term financing. This in turn makes it even more difficult to borrow short term to finance holding long term assets. This self-accelerating process will inevitably lead to severe drop in the value of long term assets and a long lasting economic depression if allowed to continue unchecked.
Depressions caused by debt-deflation spirals have happened in the past. The panics of 1857, 1873, and 1893 were the principal examples of the 19th century. Within the past 100 years the
People seem to have forgotten that the Federal Reserve was created in 1913 precisely to be a lender of last resort. Congress believed then that the reason for the frequent panics and depressions in the
It seems to me that Bernanke and Paulson are fulfilling their responsibilities as lenders of last resort. The actions they have taken are only what is necessary to prevent a catastrophic debt-deflation spiral, not just in the
Let me say something about the term “bailout”. Many people seem to believe that the bailouts we have seen pose a serious moral hazard problem to the economy by encouraging reckless behavior by financial institutions. But I do not believe this fear withstands closer scrutiny. The first thing to keep in mind is that the stock holders in these institutions have lost most or all of the value of their shareholding. The bondholders come out somewhat better, but will still show the scars of this event. The top executives in these corporations have lost not only their jobs but a substantial part of their net worth as the share price dropped close to zero. It defies belief that these stakeholders in the troubled institutions are indifferent to these consequences. To the contrary, I think they are being severely punished for whatever bad decisions they may have made. So I think this aspect of the moral hazard problem is difficult to take seriously.
There is a second moral hazard consideration which escapes the calculus of individual choice. Hyman Minsky (1919-1996) made his considerable reputation as an economist by developing a theory of financial crises. I think his books can and should be profitably read today. In his book of essays, Can “It” Happen Again? (1982), Minsky predicted that financial crises would become more frequent. Because the Fed was now willing to act as the lender of last resort he believed the cost of averting crises would be paid in persistently increasing inflation rates. This was the macroeconomic, moral hazard associated with the so-called “Fed put” which financial institutions may think prevents them from taking serious losses on long-dated assets.
But Minsky’s prediction was only half right. Yes, financial crises have continued to recur periodically and the Fed did act as lender of last resort. After Minsky’s book we saw crises in 1987, 1990, 1998, 2000-2002, and now 2008. In each instance the Fed acted to provide enough liquidity to prevent a debt-deflation spiral. But the upward spiral of inflation which Minsky predicted did not happen. In fact, just the opposite occurred. From 13.5% in 1980 the rate of inflation dropped to 1.6% in 2002 before rebounding slightly during the past six years. Thus an inflationary spiral is not a necessary consequence of the Fed’s actions as lender of last resort.
Let me close this short essay with a few remarks about the often heard assertion that better regulation would eliminate the need for these so-called bailouts by the Fed. In a word, this is nonsense. Does anyone really think that a bureaucrat in
Hindsight is always 20-20, but it is foresight that is needed to prevent financial crises. Sadly, foresight is in short supply and for good reason. To understand this we can look to Minsky's theory.
Minsky believed that financial innovations play a central role in creating financial crises. New assets are created and new portfolio strategies implemented to exploit profitable niches for financial intermediation. But these innovations, precisely because they are new elements in an evolving financial structure, will interact with the economy’s balance sheet in ways nobody can anticipate. Regulators are necessarily behind the curve when it comes to innovative financial products. So if Minsky is right, and I think he is, it is hopeless to expect that new layers of regulation can or will prevent the next financial crisis. No one, let alone a government bureaucrat, can foresee the future well enough to do this properly.
I think we all should be grateful that public servants like Bernanke and Paulson have taken their responsibilities seriously. In doing so they show the courage to endure the misguided criticisms of people who see their actions as either immoral, as benefiting only “the rich”, or as "bankrupting" the U.S. and its taxpayers. These men are saving us from an economic depression whose consequences would be terrible to contemplate.
Right and Wrong?
Here is a comment from Catherine which she posted earlier today. Below her comment is my reply.
This is going to sound critical and I wouldnt want to write a blog and be subject to all the abuse you get so it is meant to be constructive.
Were you right? No I dont think you were. I started looking at this blog about 4 months ago and repeatedly said we were going lower.
I also looked back to your reports in Dec at 1500 and you were bullish then. I was bearish and have been since last August after Northern rock - too early yes. I was wrong then.
If I had followed your predictions then, I would have lost my shirt rather than having a v good year.
Now yes you will be right for a while. Between 2 weeks and 2 months. If it goes through 1250, it will be the later BUT this is still a bear market and there is a long way down on housing yet to come and on stocks at a later date.
Watch Marc Faber on Bloomberg tonight (and he knows what he is talking about. He has a great track record)
'Those who think we are in a new bull market are in fantasy land.'
Regards
Catherine
Catherine:
I always enjoy reading your comments! Thanks for joining the discussion.
The principal conclusion I have drawn from my forty years in the markets is this. The name of the game we play is profit. To be a winner in this game you have to learn the art of survival, of losing only a little when you are “wrong”. And you have to learn how to make as much money as is reasonable when you are “right”.
I might add that the mistake made by most people in the market is to think in terms of good or bad, right or wrong, and then to identify these polar opposites with profit or loss. This is psychological poison. For it limits that person’s ability to deal with adverse situations by taking losses appropriately and by adjusting his or her views in response to changing situations.
The famous speculator Bernard Baruch is known for prospering during the great bear market of 1929-32 when the stock market in the
As you say, I did not see this bear market coming. With this in mind it is interesting to examine the results of the trades I have posted to this blog. The first trade was posted on October 22, 2007, just 11 days after the top of the bull market. During the subsequent 11 months I have traded 54 units and made profits on 25 of them. Most of these trades were on the long side of the market. Net result? A profit of 157 points on 54 units. This works out to a 52% profit in 11 months trading the e-minis in a $15,000 account with a single unit being one e-mini contract.
My retirement accounts are intended for longer term investing. As I write this, with the S&P at 1260, these accounts are down 3% vs. a drop in the S&P of 20% from its bull market high.
So, as you say, I was “wrong” because I didn’t see the bear market coming. But most people would be happy to have the results I have achieved during the past 11 months.
I believe that thinking of your results in terms of "right" or "wrong" is what philosophers call a category mistake. Right and wrong have literally nothing to do with the markets. All that is relevant is profit or loss.
Guesstimates on September 19, 2008
Spiders - September S&P E-mini Futures: I think that yesterday’s low is a very important one and in all likelihood is the end or very close to the end of this bear market. The rally which started yesterday will probably carry the S&P to 1400 over the next couple of months. Today I think the market shall find resistance in the 1260-65 range. Support stands at 1200-10.
QQQ: A big rally is underway. The 45.00 level is initial resistance.
TLT - December Bonds: I think a big drop has begun in the bonds. It should carry the market back to 111 or lower.
December 10 Year Notes: The notes are now headed for the 110-111 zone.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 147.50.
Dollar-Yen: The market is headed for 98.00.
XLE - OIH - USO – October Crude: Crude has resistance at 102.50. Next downside target is 88.
GLD - December Gold: Gold still has resistance at 935, but my guess now is that yesterday’s 925 high marked the end of the rally. I think gold will soon drop to 600.
SLV - December Silver: Resistance is at 1330. Next downside target is 900.
Google: I am not very sure about Google’ technical position. I still think it has a good shot at 375 before it resumes its long term bullish trend.
Thursday, September 18, 2008
Out
I just sold my one long unit at 1199.
I think today's market action is very bullish and that the 1225 level will be seen before a break of as much as 50-60 points develops. I think the odds are very good that today's e-mini low at 1136.25 will hold for quite a while. We have a very definite bullish divergence in the daily advancing issues numbers. Against the the background of strong long term support, very high volume, and panic newspaper headlines I'd say this is a very bullish indication.
Long Second Unit
I just bought my second unit at 1162 but will abandon the whole position if the market shows a preference for trading below 1162.
Long
I just bought one unit of the e-minis at 1138 but I will run fast if the market shows a preference for trading below 1135.
Comments Posting
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Running For The Exits
Here are today's front pages from The New York Times and the Chicago Tribune. Investors are scared and running for the exits. Headlines like these generally appear on or a day or two before the day of an important low.
Guesstimates on September 18, 2008
Spiders - September S&P E-mini Futures: Panic is in the headlines of today’s newspapers. Volume has been very high the past two days but the futures will probably open today about where they opened on Tuesday. The daily advancing issues number has developed a bullish divergence while its 5 and 10 day moving averages are extremely oversold. All these factors combine to make me think today will be a bullish day and that a substantial rally is about to start. We may get an early drop to support which today stands at 1150, but the rest of the day should be upward.
QQQ: The market blew through 41.50 support yesterday on panic selling, but should hold the 39.90 level and then rally significantly.
TLT - December Bonds: The market has reached and exceeded the 123 target. Yesterday the bonds failed to make it back to Tuesday’s high of 123-27 in the face of stock market panic. This is a bearish indication and I think the next big move will be downward.
December 10 Year Notes: The notes stopped just shy of the 120 target. I think the next big move from here will be downward.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 147.50.
Dollar-Yen: The market is headed for 98.00.
XLE - OIH - USO – October Crude: Crude has rallied more than $10 but should stop near resistance at 102.50. After that a drop to 88 will be in the cards.
GLD - December Gold: Gold rallied on panic buying yesterday and now has a good shot at the 935 level. That should be it however and from there I think gold will drop below 700.
SLV - December Silver: Resistance is at 1390. Next downside target is 900.
Google: Google is probably now headed for 375.
Wednesday, September 17, 2008
Out
I was looking for a close above 1180 but the market started to show weakness below there so I sold my longs at 1176. I think tomorrow will be a bullish day.
Flat
I got out of my long at 1173.00. I think we either have seen the low of the day or are very close to it so I am thinking in terms of looking for a buy spot.
Added Second Unit
I just bought a second unit at 1179.00 for an average on 2 units of 1183.50. If I see a 1173 print I'll sell the whole position.
Long
I just bought one unit of the e-minis at 1188.00, a little ahead of 1186 support. If this trade is any good we should not see a print below 1176.
Guesstimates on September 17, 2008
Spiders - September S&P E-mini Futures: I think yesterday’s 1163 low marked the start of a substantial rally. First upside target is 1250 but I expect higher prices than that in a week or two. Support today is 1186.
QQQ: Support is at 41.50 and resistance above the market is at 44.25.
TLT - December Bonds: The market has reached and exceeded the 123 target. I think the next big move will be downward. market will reach 123 before it heads lower.
December 10 Year Notes: The notes stopped just shy of the 120 target. I think the next big move from here will be downward.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 145.00.
Dollar-Yen: The market is headed for 98.00.
XLE - OIH - USO – October Crude: Crude has reached the 91 level and a rally of $10-15 is imminent.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Resistance is at 1390 and I think we shall see a drop below 1000 before silver can start a big rally.
Google: Google is probably now headed for 375.
Tuesday, September 16, 2008
Volume
Volume yesterday and today has been at record setting levels. The significant thing about this is that the markets have not made much if any progress below the July lows despite all this activity. In my experience this sort of thing is associated with lows that stand up for quite a long time. This high volume coupled with little net downside progress and very bearish headlines is a very bullish combination.
Out!
Yikes, this market just went up 20 points in a couple of minutes. I just sold my e-minis at 1201 and am now flat. I am very bullish but am also very wary of this kind of volatility.
Long
I just bought one unit of the e-minis at 1179. I am expecting the market to close above 1180 today.
Comments on Comments
Oh dear, where to begin?
First of all, I want to remind all my readers that what you see on this blog is only a small fraction of my market activities. I am not new to "day trading" as some of you seem to think, but recent volatility has made it imperative to go with the intraday swings until things settle down. So I put my day trades on this blog in an effort to be helpful to you.
But I also trade in multi-day, multi-week, and multi-month time frames depending on the opportunities available and the time I have to devote to monitoring the markets. I have not abandoned my longer term bullish views as some of you seem to think. In fact I think this market is a screaming buy right now for anyone with a holding period of more than one month. My Lindsay studies have not been abandoned, but for the moment I don't see how they add value to the views I have already clearly expressed.
One thing that has changed in this blog is the frequency of graphics and charts. I just don't have the time to post charts with my posts. Given the choice between more posts but with few charts, and fewer posts with more charts, I chose to go the "more posts, fewer charts" route.
Those of you who aren't sure about the value of my posts regarding newspaper headlines and magazine covers are invited to take a look at all my contrary opinion posts which are indexed here.
I think the general tenor of the comments on this blog, including some which I have refused to publish, has been sufficiently negative to indicate that a big, big rally is imminent.
Bullish Divergences
I just updated my public chart page on StockCharts.com. I highlighted a number of developing bullish divergences in the advancing issues numbers and in the number of S&P issues trading above their 50 and 200 day moving averages. All of these are at higher levels than they were at the July 15 low point while the averages have fallen below those lows.
I don't think these indications are actionable just yet. I first would like to see a short term bullish divergence develop in the 5 day moving average of the advancing issues numbers and in the daily numbers themselves.
Day's Low Is In
Just before today's pit open the e-minis dropped as low as 1163. After opening at 1168 the market proceeded to rally on very high volume. I think this means we have seen the low of the day, and quite possibly a low that will hold for a much longer time than that.
In any case I think the market will soon bounce off the 1199 level, but I expect to be a buyer on any reaction from there.
The End is Near
Here is an image of the front page of The New York Times. It is worth noting that headlines like these generally occurs within a few days of a very important low.
Guesstimates on September 16, 2008
Spiders - September S&P E-mini Futures: The market reached the 1175 level last night and since has been trading sideways. The financial crisis is on the front pages this morning. Support is at 1165 today. I think this drop is just about over.
QQQ: Support is at 41.50 and resistance above the market is at 44.25.
TLT - December Bonds: The market has reached and exceeded the 123 target. I think the next big move will be downward. market will reach 123 before it heads lower.
December 10 Year Notes: The notes are just shy of the 120 target. I think the next big move from here will be downward.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 145.00.
Dollar-Yen: The market should reach the 112.00 target. Support is at 106.00. Added Later: I missed the break of 106.00 support yesterday. Its failure means that the yen is headed for 99.00.
XLE - OIH - USO – October Crude: Crude has reached the 91 level and a rally of $10-15 is imminent.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Resistance is at 1390 and I think we shall see a drop below 1000 before silver can start a big rally.
Google: Google is probably now headed for 375.
Monday, September 15, 2008
Who Is Buying?
We all know that in the stock, bond, and commodities markets there is always a buyer for every seller. On a day like today, a day with bad news everywhere I look, I like to spend my spare time wondering about who would have the courage to buy stocks in these circumstances.
The way I see it, the averages are down about 25% from their October highs and the news has been uniformly bad for nine months now. Yet, compared with their January lows, both the Dow and the S&P are only down about 5% despite this nine month torrent of bad news.
I think people who buy in these circumstances are not likely to be shaken out of their positions if the averages drop from here. They are probably investors with very long time horizons and with confidence in the ability of the U.S. economy to recover quickly from the current credit crisis. Buyers like these strengthen the condition of the market and set the stage for a big run up in prices once the bad news has been digested.
For this reason I am confident that the market is very close to its ultimate low and that the next big move from current levels will be upward.
Out
I just sold my one unit long at 1224.75. The market briefly looked like it was about to move up to 1250 but since has fallen back. Since I have no positive result after sitting with this position for 90 minutes I am out and flat.
E-mini Update
The e-minis just retraced more that 50% of the drop from Friday's high at 1259.50 to today's early morning low at 1203.25. The volume still appears to be increasing on the rallies so I am now thinking that the 1203.25 low will hold and that the market should head upward for at least a few days. If I am right in this diagnosis then the 1220-22 zone should be support for the rest of the day.
Covered
I just covered my 1 unit short at 1223.75. The volume so far today has been increasing on the rallies and decreasing on the reactions. This pattern could change quickly but my policy is always better safe than sorry.
Short
I just shorted one unit of the e-minis at 1220.75. I am expecting a drop below 1200 today, but strength above the 1230 level will change my mind about this.
Guesstimates on September 15, 2008
Spiders - September S&P E-mini Futures: The financial crisis is on the front pages again. I think we shall see an 1175 print before a big rally can begin. Meantime the 1233 level is resistance above the market today.
QQQ: Support is at 41.50 and resistance above the market is at 44.25.
TLT - December Bonds: I think the market will reach 123 before it heads lower.
December 10 Year Notes: I think the market will reach 120 before it heads lower.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 145.00.
Dollar-Yen: The market should reach the 112.00 target. Support is at 106.00.
XLE - OIH - USO – October Crude: The target at 98 has been reached and crude has dropped as low as 94.15 this morning. I think we’ll see the 91.00 before a rally of $10-15 begins.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Resistance is at 1390 and I think we shall see a drop below 1000 before silver can start a big rally.
Google: Google is probably now headed for 375.
Friday, September 12, 2008
Flat
The market has stalled for 30 minutes right at the day's earlier high so I just sold my 2 units long at 1253. I think this market will start out higher on Monday. I am expecting the chance to sell an early rally near or above the 1260 level.
Added a Second Unit
I just bought a second unit at 1244.50 also. I am looking for 1260+ later today.
Flat
The market has rallied to yesterday's close so I just sold my long 2 units at 1253. I am still bullish but reactions often begin once the previous day's close is reached after a substantial move from the open.
Added One Unit
I just added a second unit to my long position at 1243.00 on the breakout above the first 30 minutes trading range. My average on 2 units is 1240.50. I think the market has a good shot at 1260-65 today.
Guesstimates on September 12, 2008
Spiders - September S&P E-mini Futures: The e-minis will probably continue yesterday’s rally and move into the 1270-75 zone. Support today is 1235. Once the rally from yesterday’s low is complete the market should drop to 1175 or so.
QQQ: Support is at 41.50 and resistance above the market is at 44.25.
TLT - December Bonds: I think the market will reach 123 before it heads lower.
December 10 Year Notes: I think the market will reach 120 before it heads lower.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 142.50.
Dollar-Yen: The market should reach the 112.00 target. Support is at 106.00.
XLE - OIH - USO – October Crude: I think that the market is headed for 98. The 112 level is resistance.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Resistance is at 1390 and I think we shall see a drop below 1000 before silver can start a big rally.
Google: Google is probably now headed for 375.
Thursday, September 11, 2008
Flat
I just sold my 1 unit long at 1240.25. The market has now rallied from today's low an amount equal to its biggest rally on the way down from 1282. While things still look bullish for the rest of the day I don't want to overstay my welcome.
Stop Loss Procedures
A lot of nonsense is written about stop loss orders. I don't use them unless I am away from my desk and can't watch the market.
Every trader has to have a way of knowing when a trade has gone bad. Generally this is not just a matter of how much the market moves against the position. In my case I have a precise idea of where support or resistance is and try to initiate positions near these levels. After that the market should not go too far past my support or resistance or spend too much time on the wrong side of that level.
The basic way you know a trade has gone bad is to "clock" your successful trades. In other words, know the market's typical action after you have put on a profitable trade in the past. Then you will know a trade has gone bad when, after you put it on, the market deviates in some significant way from its normal action during a successful trade.
Reversed Postion
I just covered my 1 unit short at 1230.25 and bought a second unit at the same price making me 1 unit long. Why? The market hit 1238.50 earlier, above yesterday's close and 8 points above my entry, not normal behavior for a weak market. Then the subsequent break was accompanied by low volume on the downside, with one very high volume burst to the upside.
I am now expecting a move back to yesterday's high at 1245 and possibly higher than that tomorrow.
Short
I just shorted 1 unit of the December e-minis at my lower target price of 1230. The volume of the rally was ok but not really strong, so I am betting that the market will not show strength today above yesterday's close at 1234.
Up to 1230-32, then ?
The last three days each saw a substantial early break from the opening price. Today the market opened down 17. I think today we are in the process of rallying from the open, but at the moment I think the best the market can do is reach the 1230-32 zone. After that I'll take a look at the volume to see what will follow. In any case I am sticking with 1195 as a likely downside target for today or tomorrow.
Guesstimates on September 11, 2008
Spiders - September S&P E-mini Futures: The e-minis have dropped below last week’s low early this morning so I think the next stop will be 1195. From there we should get a substantial rally of say 30-40 points before going lower again.
QQQ: Support is at 41.50 and resistance above the market is at 45.00.
TLT - December Bonds: I think the market will reach 123 before it heads lower.
December 10 Year Notes: I think the market will reach 120 before it heads lower.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 146.00.
Dollar-Yen: The market should reach the 112.00 target soon. Support is at 106.00.
XLE - OIH - USO – October Crude: I think that the market is headed for 98. The 112 level is resistance.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Silver has reached its downside target at 1100. Resistance is at 1390 and I think we shall see a drop below 1000 before silver can start a big rally.
Google: Google is probably now headed for 375.
Wednesday, September 10, 2008
Time Zone Note
In response to a number of comments I have reset this blog's time stamp for my posts to show New York time, Eastern time zone, instead of Central time.
At The Close - flat
The late break in the e-minis from 1245 to 1230 is not something I had expected. Consequently I just sold my 2 units long at 1232.25. I still think we are likely to go up tomorrow, but I prefer not to stay overnight with a loss in these volatile markets.
Tomorrow the December contract becomes the most active and I expect to try to get long again in the Decembers early in the day.
Bought More
I just bought a second unit of e-minis at 1239.50, giving me two units long at an average 1235.75.
Long
I just bought 1 unit of the e-minis at 1232. If I am reading things correctly the market should not trade below 1225.
Another Thought on Volume
One of the fundamental principles of tape-reading is that after a substantial advance or decline, high volume with little net progress is a sign of imminent reversal.
In the e-minis today the initial drop from the early high at 1237.50 showed persistently high volume - normally a sign of continuation down. But once the even-higher volume reversal off of 1221.50 occurred the whole picture was of high volume but no net progress relative to this morning's low at 1220.25 and yesterday's close at 1226.75.
All in all, the evidence so far today is that the market is now on its way to above the 1260 level.
Big Volume- Going Up!
After my last post the e-minis dropped only to 1221.50. At that point some big buyers came into the market and within a few minutes the minis were trading at 1229. The volume was unusually large and I think this means that the low of the day is in.
Down to 1210
I write this with the e-minis trading around 1224. From the day's high at 1237.50 the market has declined steadily on high volume. I think this means that the 1216.50 low will be taken out today. My best guess is that the market will stop above the July low, say at 1210 or so. Then I will be looking for a move back to today's high and eventually up close to 1280.
Guesstimates on September 10, 8:20 am ET
Spiders - September S&P E-mini Futures: I think this market will take another trip up near or a bit past the 1282 level before dropping decisively below 1200. Support today is at 1210 while resistance above the market is at 1242.
QQQ: Support is at 41.50 and resistance above the market is at 45.00.
TLT - December Bonds: I think the market will reach 123 before it heads lower.
December 10 Year Notes: I think the market will reach 120 before it heads lower.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 146.00.
Dollar-Yen: The market should reach the 112.00 target soon. Support is now at 106.00.
XLE - OIH - USO – October Crude: I think that the market is headed for 98. The 112 level is resistance.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Silver has reached its downside target at 1100. Resistance is at 1390 and I think we shall see a drop below 1000 before silver can start a big rally.
Google: Google is probably now headed for 375.
Tuesday, September 09, 2008
What's Next?
Today's price action turned out to be even weaker than I had expected. Perversely, this tells me that we are likely to stay in this 1216-1282 trading range for at least a few more days. Tomorrow we will probably see some early weakness, perhaps enough to send the market down into the 1200-1215 range, but then I think we shall see another big rally which should last a few days and may even approach or take out Monday's high at 1282.
However, whether I'm right about this or not, I still think we are going to see a 1175 print before any multi-week rally can start. I am also sticking by my longer term view that this bear market is nearly over.
Shorted Second Unit
I just shorted my second unit of the ES at 1253.00 for an average price on 2 units short of 1256.75. I am expecting a drop below 1240 later today.
Fourth Time at 1250
Yesterday the e-minis dropped to 1250 or a little below on three separate occasions. Each of these times the market rallied at least 10 points from its low in 30 minutes and was trading well above the low at the 30 minute mark. Today we made a low at 1245.50 which was a little below yesterday's three lows. This time, 30 minutes later the market had in the interim rallied only 9 point and was again trading below 1250 at the 30 minute mark.
I see this as a sign of weakness and think it means that today's low will be below the 1240 level.
Short
I again shorted 1 unit of the E-minis at 1260.50. If I am reading this correctly we have already seen the high for the day.
Guesstimates on September 9, 8:15 am ET
Spiders - September S&P E-mini Futures: A close today above 1285 will tell me that last week’s downside action was a massive shakeout and that the market will be headed much higher. In the meantime I again see 1283 as resistance above the market today and 1250 is still support.
QQQ: Support is at 41.50 and resistance above the market is at 45.00.
TLT - December Bonds: I think the market will reach 123 before it heads lower.
December 10 Year Notes: I think the market will reach 120 before it heads lower.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 150.00.
Dollar-Yen: The market should reach the 112.00 target soon. Support is now at 106.00.
XLE - OIH - USO – October Crude: I think that the market is headed for 98. The 112 level is resistance.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Resistance is at 1390 and the next downside target is 1100.
Google: Google is probably now headed for 375.
Monday, September 08, 2008
Advancing Issues
Here is a link to my chart list on StockCharts.com. Take a look at the line chart of the daily advancing issues number. Right now it stands at 1850 or so, well below the 2100 or 2200 level I would regard as bullish. And this even thought the S&P is still up about 15 points on the day.
All in all I think this is yet another sign that the downtrend which has been interrupted by the bailout news will soon resume.
After the close: According to Yahoo we finished the day with 2200 advancing issue on the NYSE, a definite improvement over the reading for most of the day. I would grade today as solidly bullish, but I still think it will take a close above 1285 to indicate that last week's downside action was a terminal shakeout.
Update
The market has fallen back near the 1250 level and this is a very bearish development. If we had had a real rejection of 1250 earlier the e-minis would have stayed above 1256 once they traded at 1265. Instead they are trading at the lows of the day. I think this action is telling us that the rally on the bailout news has not changed the direction of the downward trend which was established last week.
Flat
Whew! The e-minis dropped 10 points in 2 minutes after my sale, but since then have rallied 14 points in 8 minutes after a bounce off of 1250 support. I covered my 1 unit short at 1264 and am waiting to see what develops. The very fast and decisive rejection of the 1250 level normally means a trip back to the 1283 resistance is in progress.
Added Later: Apparently the fast drop was a response to a rumor that UAL was about to declare bankruptcy. UAL stock dropped from $12 to $.01 before trading was halted in it. UAL said that the rumor was completely untrue.
Short
I shorted 1 unit of e-minis at 1260.75 on the break below the first hour's low. If this is a good trade I don't think the market will spend time above 1263.
Guesstimates on September 8, 8:15 am ET
Spiders - September S&P E-mini Futures: I really don’t know what to make of the sharp rally which has occurred in response to the Fannie and Freddie bailout news. Here is how I am going to play it. A close today above 1285 will tell me that last week’s downside action was a massive shakeout and that the market will be headed much higher. In the meantime I see 1283 as resistance above the market today and 1250 as support.
QQQ: Support is at 41.50 and resistance above the market is at 45.00.
TLT - December Bonds: I now think the market will reach 123 before it heads lower.
December 10 Year Notes: I now think the market will reach 120 before it heads lower.
Euro-US Dollar: The trend in the euro is downward and I think the market is headed for 135. Resistance above the market is at 150.00.
Dollar-Yen: The market should reach the 112.00 target soon. Support is now at 106.00.
XLE - OIH - USO – October Crude: I think that the market is headed for 98. The 112 level is resistance.
GLD - December Gold: Gold is headed for 700. Resistance above the market is at 840.
SLV - December Silver: Resistance is at 1390 and the next downside target is 1100.
Google: Google is probably now headed for 375.
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