This morning's break to 887.75 so far in the e-minis occurred on the highest volume we have yet seen during the new year. I like to call fast, high volume breaks like this one supply shocks. In a supply shock longer time frame traders suddenly dump (or short) big positions with little regard for the price they are getting because they think the market will move much lower during their own trading time frame. Just how much lower is something the rest of us have to figure out. You already know my answer: the 875 level. But this kind of action suggests that 865 is in the picture too. My downside targets are no doubt much more optimistic than those expected by this morning's sellers.
The point is that supply shocks like this one tell you that the market must go lower over the next day or so to attract buyers whose time frames are comparable to those of the sellers we saw operating this morning. In this kind of situation one wants to be a seller on rallies. I doubt that we shall see the market trade above 900 for the rest of today.
8 comments:
Carl
Excellent call on your unfolding senario!
Brent
With so many participants having turned bullish at the end of 2008 and this week, this move must come as a punch to the gut. I think many have yet to throw in the towel, believing that we'll get back above 900 by the close today. They are in for a real surprise as this market is likely to grind lower throughout the day.
Carl, great stuff on your blog.
As for your "supply sock", can one not conclude that if market holds here and rallies that all the supply couldn't bring this market down? Meaning, how do you determine high volume here is negative?
Thanks.
Hi Carl,
Yesterday's sell signal never occurred. A close today below 894.50 will give me a confirmed sell signal, and it looks like we may have it this time.
Thanks.
Kindest regards,
PM
I think the same as you Carl, we go lower today/monday, and the buy is tuesday, we still can make a new high during next 2 weeks
Carl:
What about the VIX though? It hasn't signified by moving up with momentum that a lot of downside is likely or am I misreading this?
Gosh Carl, I hope you are wrong. Friday is typically an up day. PPT will be back in force by 2-3PM EST.
i think the market behaved quite well despite the shock dump. i say we are on the way to 1000 already. last chance to buy!
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