This is the pattern that I mentioned in the comments yesterday. When SPY fell from its February peak, it left behind a large un-filled gap on the 17th. It made three attempts to fill the gap over the next three days, failed, and rolled over (click chart to enlarge):
SPY just repeated the same pattern:
SPY tried to fill Wednesday’s gap three times, failed, and rolled over today. Wednesday’s gap wasn’t as large as the February 17th gap, but SPY has left behind an addition, sizable gap this time. Monday’s gap is un-filled also.
This is very bearish behavior. Don’t forget, it was many weeks before the February 17th gap was filled. Let’s see if history continues to repeat. On the fourth day of the sequence in February, the 20th, the market opened down on another large gap.
Three days of fighting to close a gap, and failing, is very disheartening for the bulls. Without a positive catalyst popping up over the weekend, the bulls likely won’t have much fight in them next week.
Matt,
I agree, the market looks tired after its historic rally.
Hi all,
Weekend commodities report:
Kool Aid is in short supply
Round Up (herbicide) supply is now up to levels sufficient to kill the green shoots.
Things are getting worse more slowly, not the kind of environment for a $100 SPY.
I am 10% short SPY at $88.9 Show me $92.1 and I’ll be 30% short.
My SMH short is almost green.
Have a good weekend.
Matt,
I wasn’t aware of those gaps on SPY. Thanks for pointing them out. One wonders if they will be filled before the next drop.
I like price gaps. They are about the only “predictive” trading indicator (I say that tongue-in-cheek).
Perusing the hourly on SKF, it has a couple of doozies since its peak in March. One is at $238-$222; then $124-$121; and my favorite, $88-$77.
Can’t wait.
As Promised..
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Hope you enjoy. and Have a great weekend.
The sp futures had a gap down on Sunday May 10 and still remains open at 923. The spx cash had the “additional gap” down on Monday May 11. The sp futures are trying to hold 880 and had a small spring on Friday. I’d prefer to see a good break on Monday that gets below the 877 area and an uptrend line.
http://tinyurl.com/orxpme
There is also a gap above the last swing high on May 8 that goes back to Jan. 7 I call the “Gap Down of Doom.” The sp futures filled that gap.
Good example for an imminent second order improvement, maybe even first order:
http://2.bp.blogspot.com/_H2DePAZe2gA/Sg40XzkGCaI/AAAAAAAAJF8/4r8nmbxBxws/s1600-h/20090515.gif
Comments from Marty Chenard (from right here in Asheville, NC) about the bond market with Fed intervention:
http://www.stocktiming.com/Friday-DailyMarketUpdate.htm
K,
Are those colored lines on your SPX chart MAs or Fibs? You’re using SD by the looks of that chart. I don’t see that indicator in the list.
I wish I was techie enough to make this thing do what I want. All this manual labor…
George:
Marty Chenard seems interesting. On another note – Julie posted the website for lbr.com. Threre’s a trader over there that wrote about “trying” to lose money if paper trading 100k. He says if one trys to lose it’s just as hard as trying to win in trading. I can think of several many times that would have been true for me.
MKB,
That may be the ticket… try to lose. I often put myself in a shorts position as to when to cover.
I saw a fellow once on an Internet seminar who took stock recommendations from 5 or 6 people. He told them to give him their worst picks. He traded them the next day and overall made a profit. All he did was buy each one long and put a STOP-LOSS on each. Those are the “odds” plays, the mechanical systems I was mentioning yesterday.
Needless to say, his seminar was about using stop-losses.
Yerk,
Your post caught my attention for the obvious and silly reason that the guy has my name. I looked at his chart and his call. Assuming he’s right, that the Fed will cause a bond bubble to keep yields and mortgage rates low, why would such a bubble have disastrous consequences? We know that bonds have been in a long-term bull for 30 years, and this would send them higher, but how far would they fall, and how would that affect the real economy? Is it the sudden rise in interest rates? I see this argument being made, but I’d love to understand the longer term thinking. Sorry for being such a poor economist.
I read a trading blog this week that argued that it’s better to short the inverses rather than buy them long. E.g. sell SSO to short and sell SDS to go long the market. And this because of the decay factor in the leveraged ETFs. Has anyone here tried this? Just curious.
Thanks to all for such a useful site.
BDI is showing strength.
http://www.investmenttools.com/futures/bdi_baltic_dry_index.htm
Copper is showing weakness after a major run. But stockpiles are down.
http://www.kitcometals.com/charts/copper_historical_large.html#5years
The M1 Multiplier might be bottoming? Wishful thinking?
http://research.stlouisfed.org/fred2/series/MULT
Is this the final end game?
http://research.stlouisfed.org/fred2/series/FF
Happy weekend,
Heavy long
Matt,
Great work! Cycles show this down trend if not sideway move will last until 6/8. It correctly predicted top on 5/7 – I told the forum here last Thurs when I saw big vol move on the Nas.
george the orange is an MA and the others are BB’s with 2 different deviations.
btw george got your comment up there.
will include them next time
shared the strategy with a good friend and now he wants to test out a subscription method for it lol hmm good way of raising capital?
Remember us little people when you’re rich and famous K.
Just sayin’
George I got your email now so i’ll remember you for all your help. We’ll see if it works out. I give the system 6 months of life before i need to make changes to it.
Don’t worry it won’t happen overnight if it even happens
K,
I suspect you have your system down real well by now. May need tweaking, but all do.
It will only get better.
K, cool stuff. Do you have stop-loss limits or do you exit at next open when the signal is reversed?
http://tinyurl.com/qq2epb – Stocks George might be happy to trade on the 1 min or even shorter timeframe
This post is interesting
http://zerohedge.blogspot.com/2009/05/exuberance-glut-or-dollar-euro-short.html
imo no one has a clue where we are heading – the measures Larry has posted above relate only to the lower two levels of the pyramid. I do not agree with counting derivatives’ notional as liquidity – but counterparty risk suddenly liquidfies the notional. As long as the upper levels of the pyramid stay quiet, inflationary green weeds will grow below.
Yerk I exit when i get the next signal. like right now most stocks are sells so i would exit.
it’s worked really well with most stocks.
I have only tested with real money on around half a dozen stocks and all in green so far. closed 1 which is MOV and made a post about it on my blog.
rest.
K, thanks – and enjoy the ride
Marty, do you refer to George’s post? I think he is hinting at inflation going wild but the sentence is not introduced very well so one is left guessing. There are only poor economists btw.
Oops, yes. It was George’s post. Sorry about that. You’re right about poor economists–but you know, as with the rich, there’s poor, and there’s poor;)
I guess my thought is this. So what happens with a severe dollar collapse (i.e. what a bond collapse would produce)? In the short term, it would be disastrous, as it would hike inflation for imported goods. Commodities and precious metals go higher. How much higher? I don’t know. I’d take a stab at $1200 for gold. I think people thinking it’s going to hit $2000 are dreaming. That’s hyperinflation territory that would most likely bring on Federal action.
Longer-term, a controlled, measured, inflation, though, would be the prerequisite for a rebalancing of global trade–and that’s what has produced this financial crisis in the first place, right? I’m referring to the tremendous foreign dollar reserves that produced the cheap-money economy. Inflation is also a pre-requisite to paying off the deficit. At this point, this seems like a foregone conclusion to me that we’re going to see elevated inflation for the next 10 years–somewhere in the 4-8% range. I think this level is politically difficult, but manageable. If anyone has any other ideas about how we’ll pay our debts, I’d like to hear them.
Yerk, first of all let’s assume that all CB’s follow FED like a shadow.
Secondly, let’s stay at the lower level of the pyramid (for this discussion) where we touch upon real people and their actions.
According to Chicago School (Fisher) there will be no inflation, due to the low velocity of money. As such, the doubling of the monetary base has no impact and we are moving into a deflationary spiral.
The Keynesians argument also says deflation due to the ‘output gap between actual and potential GDP.’
Mish also calls for deflation as the amount of available credit is shrinking rapidly. Most Austrians agree with him on the dire prospects for any renewed growth. (At least in real terms). They might disagree with him on inflation/deflation.
So then we have to go back to von Mises. He said look at the Monetary Base and forget the rest. Lower growth rate in Base will give a bust of the boom (Bernanke in 2007/08).
According to von Mises we should now experience inflation. Money printed will be money spent.
I think the main difference here is that the other camps think in aggregate, while von Mises said you need to look at the people who receive the money first. What do they do with the money?
Do Banks need to lend to make money? Yes.
Will the 5-10% of population who gets money/cheaper credit through changes of FED/Gov’t policy start to spend the money? I think yes.
This is my interpretation of the theory of the different schools. I might be wrong.
Yerk,
You don’t have to worry about inflation. The
U.S. Govt. knows how to cook the numbers.
Our current budget tells us that the current
CPI numbers have been cooked to over
done…and we don’t think that will change.
Relax…take the market for a $Million or so.
Trading is a zero sum game…go with the
flow.
Have a great week.
Larry, thanks for sharing your view. I’m currently most interested how much surplus money is there for a next bubble…
This is the longer term view: http://tinyurl.com/pf242w
So what can be done to mitigate things in this setting? The fastest way to improve sentiment is imo a rise in stock prices. Besides popping shorts and forcing long-only bulls on the train, get oil & commodities up and the dollar down. CRE can be bailed out as well, housing credits actually are guaranteed by FRE/FNM/FHA, foreclosures get postponed – all is about playing for time.
Large bull runs like the one we have seen / are seeing(?) reverse hard – not 23%, historically you get 62-100% retracements. I’m not sure we are already at the point to go into full reverse – above 875/868 I’m neutral. Below the flow might turn into a vortex.
Larry:
>>Secondly, let’s stay at the lower level of the pyramid (for this discussion) where we touch upon real people and their actions.
Expectations, expectations, expectations.
George
This backtest info is not what we are after. It is just a way to get started on a discussion. Put the Entry and Exit info in and click test every 1 minute inside the interval bar. Also make sure the interval on the Strategy Setup is set to 15. Run the backtest on SRS only and just look back to MAY 12. Let me know what you get as a result. This is just a real simple example of what happened with SRS, and I doubt that it is repeated with any frequency on other stocks. It test for a STO 20 cross up on the daily in the last 2-3 days, and then looks for a 9MA to cross up the Mid BB on the 15. After we get on the same page with this we could discuss what we are really shooting for.
String
ENTRY
Stochastic[StocK,14,3,3,D,2] > 20 AND Stochastic[StocK,14,3,3,D,3] 20 AND Stochastic[StocK,14,3,3,D,4] BollingerBands[Basis,Close,21,2,15,1] AND
MovingAverage[MA,Close,9,0,15,2] < BollingerBands[Basis,Close,21,2,15,2]
EXIT
Stochastic[StocK,14,3,1,15,] 80
Well that did not work. What I had in the comments box did not turn out on the post. Do I need to use Word press and cut and paste? I will try again later.
Hey String:
It looks as if it shows up and as long as the lines are segregated the spacing on the lines shouldn’t matter.
EXIT Should read
Stochastic[StocK,14,3,1,15,1] 80
I don’t get it, it looks fine when I type it in then it get mutilated.
Yerk and MKB. Understand.
String,
Try posting your code again using HTML code tags. Take a look at this page for an explanation:
http://www.quackit.com/html/tags/html_code_tag.cfm
Matt
String,
It should look like this:
<code>
Type your code in here.
</code>
ENTRY
Stochastic[StocK,14,3,3,D,2] > 20 AND Stochastic[StocK,14,3,3,D,3] < 20 OR
Stochastic[StocK,14,3,3,D,3] > 20 AND Stochastic[StocK,14,3,3,D,4] < 20 AND
MovingAverage[MA,Close,9,0,15,1] > BollingerBands[Basis,Close,21,2,15,1] AND
MovingAverage[MA,Close,9,0,15,2] < BollingerBands[Basis,Close,21,2,15,2]
EXIT
Stochastic[StocK,14,3,1,15,1] < 80 AND
Stochastic[StocK,14,3,1,15,2] > 80
Matt
You are a gentleman and a scholar ! There it is George!
String
One big trader we consult with has forgot
more about waves than we will be able to
learn thinks that the SPX move from 826
to 930 was an extended wave and extended
waves return to the start point quickly…she
is looking for a quick SPX drop to 826…but
is keeping a close eye on money flow into/out
of the NYSE.
Stringm.
i kinda don’t see any signals on SRS except 1B &1S and backtested to april 1st.
I just wanted to see what was up with it hmm
K, nope that was all you would get. I just wanted something to get George and I on the same page. Notice the Daily STO braking 20 is the limiting factor. I am playing with his 9/36 cross right now I will post later. There are a bunch of trades and some surprising results.
String
ENTRY
MovingAverage[MA,Close,9,0,15,1] >MovingAverage[MA,Close,36,0,15,1] AND
MovingAverage[MA,Close,36,0,15,2] >MovingAverage[MA,Close,9,0,15,2]
EXIT
Bar[Close,15] - EntryPrice > .20
K
Run this on SSO from 1/15/09 to present and then from 1/1/09 to present. It just enters on a 9/36 cross on the 15. Gets out with 20 cent profit. No stop loss, get the .20 or stay until you do. Exit at end of test. There has to be something on a higher chart that is controlling the success.
String
March 6 to May 15 = 45 days, per WD Gann analysis we are entering the Zone of Death (usually 49 days) where a market reversal can be expected.
“Most moves run out in six to seven weeks. Seven days in a week, and seven times seven making 49 days, a fatal turning point”
ndx100 1286 will be a tough nut. 38.2 retracement and old highs. That’s about 840 on the spx or a bit less if ndx outperforms again.
Matt, do you think the bottom “box of banks” is still resistance? 873 is close by, although we didn’t hit the top of the box.
Larry,
here is the follow up on M2 et al. – and the Austrians of course. http://zerohedge.blogspot.com/2009/05/chasing-shadow-of-money.html
“… it merely demonstrates that the administration finally grasps the severity of the problem, and the need for confidence to rematerialize, even if it is through the current meme of Green Shoots.” GS did move up on Friday, tarp money will be repaid early next week – why not squeeze some more shorts to further “rematerialize” confidence?
Yerk, I can see how wrong I could be.
I thought looking at the Base was the signal to go short last year. Remember how Rogers and Schiff missed the boat by arguing M3 and inflation?
The Base might not be a useful tool after the Mother of all Crashes.
And, I won’t confuse a bull run with brains.
Yerk,
Yes, that level should be support, though there is no way of knowing for how long.
Matt
Who is gonna employ all the infantry returning from Iraqi?
“U.S. Marine and construction worker Simon Todt, 27, a combat-arms specialist who returned from three tours in Iraq only to be laid off from his construction job in December. He smiles wanly as he sums up his situation: “There’s not a big calling in the civilian world for explosives.”