A third bearish rising wedge pattern has formed on SPY’s 60-minute chart since the October 10th low. See my last post on the subject for further details. Click chart to enlarge:
I made a lot of money shorting wedge “B”, so I am shorting wedge “C” as we speak.
This next chart is from “the” bottom in October 2002:
It has the shape of a rising wedge, but the two break-away gaps on the 11th and the 15th gave the heads-up that something very bullish was happening.
Our current wedge has no such impressive gaps, and in fact, the futures have been very saggy in the morning. This gives me the feeling that the market doesn’t really want to rally and is being frog-marched by the big mutual funds who are running a month-end window-dressing short squeeze just like they did with wedge “B” at the end of October.
But, even if this is “the” bottom, I am comfortable shorting this wedge because prices will almost certainly correct back to this level in the near future. At that point, I could admit defeat and get out even. Of course, I think the chances of this being “the” bottom are about 0.00% because the economy is contracting hard and there is no sign that the Fed’s stimulus is able to escape the gravitational pull of the black hole that we call the banking system. In October 2002, the economy was actually getting better, so the fundamental background is dramatically different here in 2008.
So, I will be watching for gaps, and evaluating the nature of the selling on the first down day. If volume is light when the market corrects, then I may admit defeat at start looking for an exit.
Matt,
Good points all.
I would add two points:
The value of any market push to enhnace Black Friday ended on Wednesday.
The bottom for Wedge B was lower than for A. A trend likely to continue for Wedge C. A 6 handle on the SPX seems quite possible.
Matt,
Concur. Re “the gravitational pull of the black hole that we call the banking system”–yes, and we are nearing (or have already crossed) the “event horizon” where all matter is torn apart. I’d rather be short than long.
Matt and Troops – been reading along but to time-strapped with an engagement to chime in. Taking the holiday opp to catchup and my readings on the econ situation are that we’ve still got a long ways to go with credit unraveling and de-leveraging. Hopefully we’ll be able to keep the wheels on the wagon while that process works itself out. BUT despite the horrendous economic news we’re really just headed into a downturn that’ll be at least as bad as ’74 and ’81 and go on longer and recover slower than most expect.
Those realities are slowly being reflected in talking head land IMHO but not fully. So FWIW that’s what I’m seeing.
p.s. – traveling around on the engagement it’s ugly out there and getting worse.
Mr. Trivisonno,
I’ve been surfing the net for months tryng to figure out what was going to happen. This blog is really the richest in “good sense analysis”.
I firmly believe your short will work out well: listening to people’s discussion all around is easy to understand that worst is yet to come.
Matt,
It is certainly not “THE” bottom as this is wave (4).
The question is whether or not this Zig Zag (your wedge) is the entire wave (4) rally, or it pulls back after topping and goes on to make another high possibly around the 1000 area. In any case, it is likely that this rally gives back half first. Bullishness has creeped up very fast on this rally and this makes a case for this rally being IT before (5) down, but as far as time for an intermediate term rally to work off bearishness this would be odd.
After (5) we expect a decent bull run perhaps = A B C, but it may just be a retracement before making new lows below (5). These can go on for a while as the entire 2003-2007 was really just the B portion of an A B C with A being 2000 to 2003 and B being 2003 to 2007. We are in C now. C is the nastiest part.
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