Wednesday, May 19, 2010


Here is a 30 minute bar chart showing day session e-mini trading.

Whenever the market becomes unusually volatile and then calms down I like to mentally put my thumb over the unusual activity to see if I can make sense of the rest. In the current situation it seems clear that the Black Thursday collapse and then the big up move the following Monday identifies the activity in the black dash oval as a possible aberration, a kind of mistake made by the market.

One clue that this interpretation makes sense is that the market has otherwise traded in well defined trend channels which I have drawn on the chart. As you can see the lower boundaries of these channels today are around the 1100 level. I also think it is worth noting that at 1104 the e-minis have dropped 9.2% from the 1216 high on April 26. Recall that the June-July 2009 and the January-February 2010 reactions each amounted to 9.2%.

Given these facts I think it makes sense to think of the drop from 1216 as a normal decline which is just reaching the limits established by previous declines in the bull market. So I think the ES is establishing what Elliotteers will eventually identify as the "orthodox" low of the correction.

The market is scraping bottom and the next big move from here will be upward.


spycharter said...

Totally agree with you. SPY has a gaps to fill at 115.2, 119.15, and 121.3. It's headed all the way back up as long as it holds a higher low than 105-108. I'm not sure if 105 really counts as the low

Kishore said...

When a major move is missed, up or down, does it hurt?

Based on own experience, I am sure it hurts, those who are watching. But then, that is when we are most vulnerable to making big mistakes, like falling in love with the current trend. All trends are temporary, only the durations vary!

I agree with Carl that we will eventually, or maybe soon, go up again, but I have no idea when.

Moreover, I WILL NOT take another short position without looking at the completion of a reaction or retracement of the current down move.

DMA Trader said...

Thanks for the update.

I would like to see a capitulation move when weak players are taken out and the followed buy bargain hunters/investor for the long scenario to take place.

Narayana said...

Supply shock this morning.

ajgreene said...


I admire your convictions, however I'd like to know why you're not buying down here if you truly believe we're scraping the bottom. Also, what would you have to see to admit that you were wrong and that the bull market is over for now.



MaverickUK said...

I think there will be a reaction from the 1100 level to about 1123-24 before a move down to 1088 before the next bounce.

What that major move a couple of weeks ago show is the direction where the markets are heading. It was no blip - in fact for days before the markets were very weak. There is absolutely no strength in this market.

Further, at what point have the markets calmed down? Europe was off between 2-3% today alone.

I am not having a go Carl because several times I have thought you were wrong but you turned out to be right - I am simply giving my opinion.

You try to find any scrap of evidence that supports your bullish view and in so doing ignore what is staring at you.

Adsense said...

Hi carl
the advance decline line on the nyse as flawed as it is has some merrit . the hourly chart made a low on may 6th on a close only chart at -2883 and a higher low
on may 14th at -2563 and this morning made a 3rd higher low at
-2480 . typically it is the 2nd or 3rd divergence that counts . that said todays lows now matter for be
i did take a small bullish trade on the qqqq at 45.76 this morning
and while i dont feel comfortable
i tend to think it is more about tomorrow and next weeks action that matters once option expiration is out of the way. that said the market could close down on the day today and then open up with a gap tomorrow , this happens enough times around expiration that it is worth paying attention to . either way my cycles are turning upwards there is enough bullish divergences setting up for a run higher the 10 day advance decline line is in its lower range .the opurtunity for a rally is here . ill let the market prove me wrong or right .i still favor a meaniningful top in early august followed by a downtrend into march - may 2011
good luck joe

andi said...

agreed, carl..
i been buying the dip..not being chicken little...

Harry said...

The CBOE Put/Call ratio was the highest since 1987 this morning at 2.44 (overly bearish)

Kishore said...

What happened to the PPT?

They should be here right now at 3:30pm EST, to jack up a sick market.

Rob said...

The boat is now probably too crowded with Bears. Time for the professionals to toss most of them overboard.

spycharter said...

open interest on May puts expiring friday is ~150k-200k. Open interest on May calls is ~50-100k. And the stock market is holding a higher low. Guess who's gonna get jacked on Friday?

Atrader said...

nice one spycharter.

We are going to 1155 by May 24 and maybe 1170. Come June 4th should be at 1202/1214 area and then July 15-Aug 10...1275-1320.

Its ' Buy in May and go away."

They already played the seasonal "

Sell in May and go away" to get everybody primed short.

Lets see.

Where is Sandy Allered?

Adsense said...

hi carl
last nore for a while .
jan 19 to feb 11 was 23 calendar days april 26 to may 19 was 23 calendar days . using a 30 minute
chart and counting a move up as plus 1 and a move down as minus 1
the decline was 23 more consecutive 30 minute down bars then up bars from jan 19 to feb 11
using the same formuala the high of april 26 to todays low has 22 consecutive more down bars then up bars . this is just another arguement that time is being satisfied at this juncture .

Kishore said...

Based on a theory of repetition of an immediately prior fractal, ES should have a 30 point drop from around 1120, down to about 1090.

What happens next will depend upon the actual nature and extent of the above-mentioned drop and the subsequent reaction.

The market can be played step by step, instead of accepting far-out estimates as the one and only true gospel. But then, let us face it, much of the world does run on blind faith!

E said...

I like the thumb over the chart idea.

Kind of like a do-over, a Mulligan.

From a Psychology perspective, "the mistake" wipes out the weak shorts (Stop run), and then potentially can trap over zealous shorts who can't shed their bias.

Time will tell...taking it one day at a time for now.

Great posts here :)

Thanks all.

marketmaker said...

Another supply shock..and the line in the sand is now the flash crash lows. Unfortunately, with the massive buying spree that the Fed went on to make the drop "just a mistake" has made all of the technicals bearish until the lows have been taken out.

Being the lows are the NEW line in the sand for the now panicing 1300 hopefulls, when it is taken ready for the next flash crash that has the spx trading below 1000.

From there, we could see 3 weeks of non stop selling with minor 20-30 point pops higher, that will be sold off hard.

The economy is growing and the fundamentals are still strong-is being shouted from the talking heads that were doing their best to convince the general public that "everything is better" jump into the markets now while you can.

How do they know fundamentals are good if they are only basing it off of 1/2 a picture? Yes, the banks look strong and are strong if they can make the trillions of worthless papaer they are aloud to keep off their books..actually go away. But they can't and that makes just about EVERY major bank out there..worth zero!!

So the talking heads are now preaching good fundamentals and the sp low PE..if they were to factor in the banks trading 200-300times their book value..that sp PE gets a little

Buy in June and wait for 960-900 and only IF we are not in a complete meltdown. There is an outside chance we take out the 600 sp points that took trillions of tax payers money to float-by October..yes 1 1/2 years to get it there and only 5 months to take it away.

Good luck and I would be very careful with higher level outlooks.