Friday, December 11, 2009

Still in the box

Here is an hourly chart of day session e-mini trading. There are two quite unusual feature visible. First, the market has been trading in roughly a 30 point range for nearly four weeks now. This is an unusually long time for a narrow trading range like this. Secondly, it seems that the only people with convictions about U.S. stock prices live in Europe and the far east. Witness the fact that virtually all of the up and down swings occurred primarily while pit trading was closed in Chicago - hence the many gaps visible on this chart.

What does it all mean? My working hypothesis is that U.S. based traders and money managers have had a good year. And they don't want to muck up their results for 2009 after they put in such bad results in 2008. They are probably waiting for 2010 to dawn before getting aggressive again.

But this is only a guess on my part. Looking only at the market's action during the past few days I see that the move up from this week's low at 1080 has been a low volume, low activity affair. The past two days have been especially dull. This to me has a bearish implication, but I don't yet see any reason to act on such implications given my basically bullish expectations for 2010.

So I will continue to try to be long this rally unless and until I see a high volume downside breakout from the past two days' ranges. In particular I still think that the market will emerge from the 4 week range on the upside before it breaks below its lower limits.


myshortpencil said...

For what it's worth, Carl, it appears to me that when you've been going long and struggling, you've been going against a rising dollar--which has tended to put a damper on the market. When you went short for a good gain, the dollar was rising then, too. If you consider today's action--up .32%--in the context of the UUP--up .82%--the value of the market rose to approximately the top of your predicted range. Another way of saying this is that the market reached your 1112 level, discounted by the rise in the value of the dollar.

Kishore said...

With all the good news that the market had this week, including expansion of war in Afghanistan and Obama getting the Peace Prize, the market did not move up much. Well, that is the bad news!

tapped out said...

A rising btm channel line from the Mar 09 low will be crossing the decending upper line from the Oct 07 high sometime next week at the 1100 level on the $INX. That could be reason enough for this lengthy tight range as things have been getting squished. The close at the 1106.40 level today was right at that decending upper line. Direction of market movement from here is anybody's guess.

TradingNuggets said...


Thanks. I've been commenting on the same theme that most Money Managers have taken profit and are out of the market for the rest of 09.

jeff said...


Being a leading indicator, I think it's important to understand that oil, the Euro, and the dollar started their respective moves roughly 2-3 weeks before equties bottomed in March and here we find ourselves over the past couple weeks witnesses major trend changes in eachd.

Aside from the other stats(investor intellgence for bears was sub 20%), it stands reason to conclude that equities are not far behind from falling as well. Starting in September, we have seen many asset classes make 'tops' and head down. To illustrate, housing stocks topped in mid-September, the Russell 2000, financials, and most commodities topped in October, the euro toped on November, and gold and silver topped in December.

One by one, these chess pieces are falling by the wayside and it's only a matter of time when the Queen("S&P") and King ("Dow") fall as well. We're getting close to calling 'check mate' to this rally and starting the resumption of the bear market that will find new market lows in 2010/2011. Per the monthly charts, I think the S&P will fall to 400.

Adsense said...

Hi Carl
im hoping you find my thoughts interesting enough to research for your own opinion yet if you do find it interesting id be interested in some feed back , after all it is all about what is the next probable outcome short term as well as longer term .
from the november lows at 9678 on the dow is it possible we are not seeing a small 3 peaks domed house pattern tracing out and the 60 minute cash dow chart ???
if so then we should be completing point 10 id be curious to see if you see that ?

Adsense said...

one last note in regards to the 60 min 3 peaks domed house pattern
im seeing it in a daily chart also
which again heading up to pt 11
to add to this we have had a compact top formation if i remember correctly we would count
107 calander days from the nov 27 low and look for a high then ( point 15 perhaps ? )

jeff said...

Carl and others,

Regardless of what happens, I think we're about to see a big move shortly as the bollinger bands are becoming very narrow. And when bands get this tight, the volatility squeezes tends to be aggressive in nature.

I don't profess to know whether this will result in a large upswing or downswing in the short-run, but on the intermediate term, this is still nothing more than a bear market rally. The charts are crystal clear that starting from late 2007, we saw a 5 wave down motion and since March 2009, we have seen an ABC retracement. Wave theory dictates another 5 wave down will occur next. The question that remains is how far we go down.

E said...

I noticed the same "box" using the oex as a proxy. We can "guess" all we want, but lately range traders have made money in both directions.

Thanks for your insights into "why" this may be happening.

All I know is the market has been bouncing, and probably won't rollover until the last short capitulates.

Bear Market bounces can be hard to time, and often a majority of their action can be seen in a plunge of a few weeks. (Look at weekly bars end of September 08 and first two in Oct.)We seem to be at the symmetry point retesting that breakdown zone.

Jeff has nicely articulated the wave pattern, and when we finally retrace the March leg the question we will then be facing is what is the response of the profit taking bounce of that downdraft?

Step by step is all we can do, in my opinion.

Great comments here at your site.

Thanks to all and Happy Holidays.