The red-hot poker that stabbed the bears Friday and Monday afternoons was missing-in-action today. But it’s not like they didn’t try! Take a look at this minute chart of the S&P 500 futures showing the action around 3pm (click to enlarge):
At 2:55pm, a surge of buying began that was 3 or 4 times the previous volume average. The previous chart pattern did not look like a breakout was coming and there was no news at the time. So, this was very likely somebody trying to run another last-hour squeeze play.
They got the futes up to 860, but could not spark another giant rally. Why not? Because the crowd is leaning long and they are fresh out of shorts to squeeze. I’ll bet that they don’t try again tomorrow.
I am not long or short Citigroup, or any financial ETF’s, but I find the chart amusing:
Citi is up huge this week, yet all of the candles on its chart are red indicating constant selling pressure. How does it do that? All of its gains have been made on opening gaps. Once the stock is open, the selling resumes. I’m thinking that somebody big does not want to be in the stock. Mutual funds are probably exiting it.
Citi’s crazy chart seems appropriate for the premier zombie corporation leading America into its very own, Japanese-style Lost Decade.
Monday registered the second lowest put/call ratio so far this year. Definitely not bullish.
Volume slacked off from Friday in the big-four ETF’s during Monday’s rally. SPY, QQQQ, and XLF all exhibited waning buying interest, and the IWM’s volume plunged from 161 million on Friday to 97 million on Monday.
Lots More Hedge Funds Will Die
So says this hedge fund manager. The only reason why they are not blowing up now is because they are “gating” – refusing redemptions – and imagine how angry that is making their clients. Rallies will be sold, because they must be.
The three-day TRIN average is flashing a major overbought condition for the first time since the big crash began in late September (click chart to enlarge):
The bottom panel of the chart is the S&P 500. The blue line in the top panel is the three-day average of the TRIN. The red line is where the TRIN is very overbought. The green line is where it is oversold.
In a normal market, this indicator flashes good buy signals at the green line. However, in this historic bear market, prices plunge even while deeply oversold, so I have not been relying upon the TRIN for buy signals lately.
Notice that the current reading of 0.71 (in blue at the right) is the most overbought condition we have seen since September 18th, which was not exactly a great time to be getting all giddy about the market.
I have used this indicator to print money here and here, for example. I put on some short positions this afternoon, and am looking to add more into any further strength.
Also, notice that the three-day candlestick pattern from September 17, 18, and 19 (blue arrows) is exactly the same as the pattern of the last three trading days.
I enjoy “level drama” like we had on Friday with the S&P 500 trying to break back above the October 2002 intra-day low of 768.67, which it did in the afternoon after some trouble in the morning. However, this sort of level drama should not be a main focus on days where the market is likely to be rigged such as Friday’s options-expiration, month-end window dressing, or things like the presidential election earlier this month. 768.67 will matter again – maybe early this week, or early next week after the month-end window dressing is done.
Here is an hourly chart of the S&P 500 futures (click to enlarge):
The blue lines bound the November downtrend channel. Note that prices were able to hang near the upper blue line (above the red line) for a few days last week before plunging below. Friday’s last-hour geyser shot prices back above the red line, and that may presage another test of the upper blue line.
The purple line is a resistance line and starts with point “A” which was a price probe down below the October support line. Note that point A served as resistance for point B a few days later. I have the feeling that there are a lot of trapped bulls at point B around 820 who thought that they were catching a ride on a geyser.
And so, if the market rallies Monday, it should hit strong resistance around 820 from both the blue line and the purple line. The market is still on the oversold side technically, but I’m not sure that there are many more weak-handed shorts to squeeze after Friday’s traditional “burning of the puts.”
The big funds will do their best to support the market this week for month-end mark-up. But the tidal wave of bad news just keeps coming, so they have their work cut out for them once again.
Above 820, 840 should be the next resistance level.
On Monday, I’m going to add point-and-figure charts to my trading system. What I find most appealing about them is that they eliminate a lot of noise, and make it very easy to see when prices reverse. For example, on a daily P&F chart, SPY did not register a reversal on Friday.
After being defeated by Brock “Lightening” Lesnar at UFC 91, Randy Couture said that there is nothing that he would have done differently and his game plan worked very well, but he “got caught.” That’s what a fighter says when he takes one on the chin and gets knocked out.
Any fighter can get knocked out because a shot to the chin sends a shock wave into your brain that pushes your “off” button. You can juice your muscles up as big as you want, but you can’t juice up your chin. And sometimes a lesser fighter can knock out a better opponent by throwing lots of punches with one getting lucky and landing just right.
But Couture didn’t get hit on the chin. Lesnar hit him on the side of the head, a strike that requires more power for a KO than a shot to the chin. Also, Lesnar’s previous two UFC opponents, Frank Mir and Heath Hearing both saw stars after Lesnar right hands.
Lesnar did not get lucky.
Lesnar’s right hand is powerful, but it is also fast as lightening. It’s like having bricks shot out of a cannon coming at you. It’s going to be a problem for a lot of fighters.
I would also say that Lesnar out-wrestled Couture, if not by much. And Lesnar had better stamina. It was a clean and decisive victory any way you slice it.
…will be a potential attempt by the S&P 500 to regain the October 2002 intra-day low of 768.67. (I predicted that we would fall through that level on October 15th in 768.67 – Coming Soon to a Screen Near You – yet another one of my fulfilled prophecies.)
Failure to recapture 768.67 would likely lead to despair amongst investors, and more aggressive shorting by technical traders.
A lot of bulls got trapped up around 820 on Thursday and I’m sure that they are just itching to get out even, so that will be a strong resistance area if the market can get that high.
Don’t Forget Iran
We are now in the “window of opportunity” period where many analysts have speculated that Israel would strike Iran: After the election and before the Democrats take over in January. And now Iran has enough uranium for a bomb. Shorting oil seems easy now, but it isn’t without risks.
Wagoner to Pull a “Fuld”?
Will Rick Wagoner blow up GM just like Dick Fuld blew up Lehman in an attempt to extort money from the government? As you may recall, Fuld had the chance to sell his company to some suckers in Korea. He turned down the offer and went the extortion route, suicide-bombing the financial world in the process.
Wagoner says that he has “no plans” for a bankruptcy filing, which is equivalent to vowing to burn through his remaining cash as fast as possible. That’s very Fuldian.
Cramer says that GM has issued a multitude of bonds. I didn’t think there were that many clown college endowment funds in the world, but I never actually counted them up. Who else would have bought a GM bond? In any case, GM is a tentacled company like Lehman, so this could be much uglier than simple plant-and-dealer closings and layoffs.
One possibility is that the SPX will drop to the 775 area, the 2002 low, and then bounce back up and back-test 840.
Don’t Bet on Seasonality
The days leading up to Thanksgiving are usually a cheerful time for the market. But seasonality is only one factor – and small one at that. After all, we’re not growing crops here, right? To stay long through Thanksgiving, you need a much stronger catalyst. A small statistical edge is nothing in the face of GM and Citigroup exploding, right? Not to mention the commercial real estate bust taking the XLF down to zero as the USA goes belly up… (I might be exaggerating a little, but you get the idea, right?)
Talking heads on CNBC were surprised to discover that India had a navy after news hit that an Indian vessel had sunk the pirate “mother ship.” India has a long naval tradition and a well-regarded, highly-competent navy. CNBC should do a story on the Indian Navy as penance.
These pirates should realize that the more the world goes broke, the angrier it gets. People are just itching for things to blow up and sink. Might not be the best time to be a pirate…