Here is a chart of the bearish rising-wedge pattern on the SPY intra-day chart that I mentioned earlier (click to enlarge):
The wedge is bounded by the purple lines, and began to form Monday afternoon around 3pm. Notice that volume picked up dramatically before the close Tuesday. That is a potentially bullish development since it might indicate that the upper boundary of the wedge will be pushed upward.
However, notice that that surge in volume was absorbed in the resistance area bounded by the blue lines on the chart. Quite a lot of buying was absorbed, so there were quite a lot of sellers. That area marks the cliff that the market fell off of when the House shot down the TARP. So, the traders that were betting on the TARP passing, and were instead treated to an historic plunge, were selling furiously into Tuesday’s rally, no doubt with great relief to get out even.
The surge in buying at the end of the day was triggered by news reports that the FASB mark-to-market accounting rules were in play. Some Republicans have said that if such changes had been part of the TARP, it would have passed the House. Mark everything up and save the taxpayers some money, right?
I think that the buying on Tuesday afternoon reflected way too much hope, just like on Friday afternoon. This FASB discussion says to me that the TARP is still DOA and our leaders are instead cooking up new crazy schemes. I see disarray.
So, the market is full of hope, has rallied on no real good news, has hit a resistance area, is overbought (short-term), will no longer benefit from quarter-end mark-up, will probably get hit by a wave of hedge-fund redemption selling, and Congress seems intent on doing nothing at all.
The only thing that the market has going for it was the momentum at the end of the day. However, the futures immediately sold off on heavy volume after the bell, so that momentum is likely gone too.
One more thing to consider: even though a lot of systems have messed up data and you might not be able to see it on your chart, the two-day candlestick pattern for SPY is a bullish Harami. I think there is a good chance that this bullish pattern will be broken since it is coming on the first day of the month when the big funds are likely to pull their bids.
Gun-to-head, I would be short.
Thanks for the analysis Matt. The question is: will you be shorting? The 5 day MA is at 117.87 (195 SMA on the 10-min) and the 61.8% retracement I have is there, too.
makes me feel better that i still got SKF and not a long position. even tho short SPX would have been a wiser choice
http://ap.google.com/article/ALeqM5guhIv6DCrkFF-7IKNRm8lbfxCyqwD93HBV480
I think i see google down tomorrow with people pissed off.
That’s very pretty…thanks.
Also Matt how do you like Tradestation? Is that what you use in your trading?
I have added a paragraph to the bottom of the post above, so make sure to read it if you haven’t already done so.
lol
Thanks for predicting the outcome of: The S&P 500 has experienced unprecedented volatility in recent weeks. Where will the index close on Friday, September 26th?
Your Prediction: 1200
Actual Outcome: 1213.27
I predicted Sept 21’st.
the poll opened the 19th. i feel good about it hehe used technicals
also dow on the same day…
i just love low risk predicting
Dow Industrials – Close on 09/26/08
Your Prediction: 11150
Actual Outcome: 11143.13
ok sorry it’s irrelevant. this is on predictify.com
Nice to see you back to blogging on what you seem to know best.
Trading
I missed you charts, Matt
I wanted to use Tuesday to get out of XLV: but it barely moved! So now I am still long XLV, but short SPY going into tomorrow.
In terms of the Harami, I think that charting has to be viewed in it’s context: a failed bill on Monday, optimism for a new bill today, and mark ups, so I don’t buy it. If this had occurred with a 300 pint drop on day 1 and a 200 point rise on day two with no specific events, then the candles would hold more meaning for me. But waht do I know about candles
This has to be said: a raise in the FDIC protection limit from $100k to $250k is a bad idea.
1) It encourages people to concentrate their wealth in fewer banks
2) Smaller banks will suffer more, while I would argue that the smaller banks have invested in less high-risk products (CDOs). Their weakness is their size, not their solvency.
3) This is yet another transfer of wealth from the poor to the rich. Very few people have $250k, and – as I mentioned before – any FDIC payouts are taken out of the current US budget; there is no FDIC savings account, only Treasury IOUs. More bank failures -> higher taxes for everyone. Once this crisis is over, then the FDIC can raise the limit since then it will have time to collect more insurance premiums from the banks to make up for future failures.
I would be willing to accept this if this limit applied only to bank accounts of small businesses (those with at least 5 employees).
Oh, I forgot: I think the rest of your analysis is right on the money, Matt.
well… http://www.cnn.com/video/#/video/us/2008/09/30/moos.rate.your.fear.cnn they want people to feel safer but nahhh
Matt;
Thanks for that chart and link. I would have asked why that was bearish, now I see.
Dblwyo;
Nice chart link. I see how you did that. That definately paints a picture of price movement.
Thanks
One note on the harami…. candle patterns don’t give price targets, so it just means that tomorrow probably will have some bullish movement. Well I guess tomorrow would *technically* be a confirmation candle and then Thursday could be the extent of the candle reversal.
house is supposed to reach an agreement by thursday they said. or so i heard on that talking box.
K,
Here’s something funny:
Last week, House Democrats rejected a bill (AMT and other tax cuts) heavily favored by the Senate (both parties) because it is fiscally irresponsible: massive tax cuts with no offsetting spending decrease.
This week, House Republicans rejected a bill (Wall Street bailout) heavily favored by the Senate (both parties) because it is fiscally irresponsible.
So now the Senate combined both bills into something that everyone in the House has something to like but also something to really hate, in order to get something passed?
http://news.yahoo.com/s/ap/20080929/ap_on_go_co/tax_breaks
Even if this works, the House (both parties) will be pissed off at the Senate (both parties).
George Nubert, your are not giving up. I admire your perseverance.
“Not only are you a shithead, but you are a stupid shithead.” by Matt.
Guys, could you please stop the bickering. The world outside is far more entertaining:
Seems like the limits of central bank intervention are getting reached as banks deposit the cash with the central bank:
“Mr Redeker said the latest alarming twist is a move by banks to deposit €28bn in funds at the European Central Bank in a panic flight to safety. This has jammed the mechanism used by the authorities to shore up the financial system in a crisis.”
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/3104666/Banking-crash-hits-Europe-as-ECB-loses-traction.html
Oh, Karl Denninger has stumbled over something which could (and if he is correct should by all means) kill the bail-out bill. The whole global toxic mess to be dumped on the US tax payer…
“You are going to have $700 billion … put on your personal credit card (via taxes forever) in order to bail out foreign investors. Oh, and the best part of it is that the underlying assets involved do not even have to be in the United States!”
http://market-ticker.denninger.net/archives/596-The-TRUTH-About-The-Bailout.html
@Yerk: You wanna quote more old news?
Be patient with those who are behind the curve and try to catch up. Let’s see, what else do I find in the closet…
haha am sorry guys you have to watch this potential VP.
http://www.youtube.com/watch?v=xRkWebP2Q0Y
K;
If I was asked that question, I’d say “none” – to physical media. I cancelled all of my newspaper and magazine subscriptions years ago. I now get my news and other information from the Internet and some from TV.
Local news? Online, and TV when I can stand the sensationalism. Most local news stations are “bad news” hours. Hell, they’ll even cover a story about an overturned bus with 2 deaths in China.
Newspapers have too many human interest stories injected to take up space. Plus all of the other things I don’t care about.
Government antics? Right on TV. My local city shows all meetings – the whole thing in case I miss one in person. Fed? Same thing, or go on the Internet.
BTW, many national newspapers are beginning to adopt a “free” with advertisement model. Even WSJ is going to that model.
All of this will be great until the lawmakers put a tax on Internet usage.
Yerk
great link
the UK link
other not so much
Nice link, Yerk (the UK one). I wish the US would socilize bank gains judt like this. Also notice how “too big to fail” does not mean “too big to bail and grab a chunk of and liquify shareholdersa.” JPM, I’m talking to you and your buddies Citi and BoA!
As a reminder, Enron was the 7th largest US company before they failed due to derivatives losses covered by mark-to-market accounting,
Latest CNBC poll asked whether “you’ve had problems getting credit recently?” 68% said “no”.
Did CNBC ask banks?
)
Compare the five day chart of xli and xlf. Today we are having the same divergence as last Friday. As long as xli is not going up with xlf I don’t think any move up will have legs. Market is beginning to price in the next quarter.
George,
Thanks. I did have some help from the ISM number at 10am. That was a big miss.
Matt
Yerk,
This is an on-going website poll, so am sure they didn’t ask the banks. Plus, those responding may not have had trouble getting credit because they’re too damned scared to ask and can’t afford more debt anyway.