Thursday’s Trading
The unemployment number was another nasty surprise as I expected. So now we want to watch the volume as the market falls this morning. Light volume is bullish; heavy volume is bearish.
Watch the comments for updates.
The unemployment number was another nasty surprise as I expected. So now we want to watch the volume as the market falls this morning. Light volume is bullish; heavy volume is bearish.
Watch the comments for updates.
July 31st, 2008 at 8:55 am
I can’t find the link, but yesterday Jim Cramer was worried that the economy might be adding too many jobs and that the Fed might have to quickly raise rates to keep the economy from overheating. He had the same worry a couple of months ago.
Cramer swallows the headline BLS numbers without the slightest reservation.
You have to pay attention to Cramer because a lot of fool hedge funds follow his lead. But he is so wildly, insanely, and comically wrong about the jobs situation that you have to wonder what planet he is from.
July 31st, 2008 at 9:05 am
Haha.
Baltic Dry Index down another 0.6%. Down 15 days in a row.
July 31st, 2008 at 9:12 am
Hi Larry,
Yep, that BDI is really something. I think US Steel’s (X) gigantic earnings may prove to be a peak that lasts for quite a while.
Matt
July 31st, 2008 at 9:13 am
“Jim Cramer was worried that the economy might be adding too many jobs.” It is amazing what short memory CNBC and finacial reporters/cheerleaders have. I read that the only profitable way to trade Cramer is to wait a 2 days after his advice moves the stocks - and then trade counter to his advice.
I didn’t know what would happen Friday, Monday, or Tuesday, but I’ve been saying today would be a down day. The question is how far down (I’m hoping 100 to 170) and, as you mentioned, at what volume. Several people have mentioned that the jobless number would disappoint.
July 31st, 2008 at 9:14 am
Larry,
The BDI was mentioned during CNBC yesterday (FastMoney?), noting the downward trend. Maybe someone want to see if the cargo shippers’ stocks have taken a hit yet.
July 31st, 2008 at 9:21 am
Gold (GLD) up 1.8%, oil (USO) up 0.8%, Euro up vs USD 0.7% (FXE), and you can be sure the VIX will be up at the open.
XLF down 2% *pre market-open*.
GOOG down 1.6% *pre market-open* on NO significant news.
July 31st, 2008 at 9:21 am
Hi Paul,
It’s still a month-end markup day and there are some big players with incentive to buy, so maybe the market doesn’t fall quite so hard as the negative data this morning would normally imply. But so far, your call for a down-day today is right on the money.
And yes, Google is a chart to watch today.
Matt
July 31st, 2008 at 9:29 am
I’m inclined to go short at the open, but I’m worried that Matt may be right about the mkt not falling quite so hard as big players get involved on long side. Bottom line, you can’t fudge the jobless claims — they are one of the only reliable indicators of job losses. i’m curious to see what kind of BS the BlS reports tomor.
July 31st, 2008 at 9:39 am
Tony,
The market has dallen hard at the open: I think the easy short trade is gone for today. It could go 70 points either way from here, but I don’t think much further. Where it goes from here is more significant than where it goes from yesterday’s close, IMHO.
CNBC flashed a Cramer clip from yesterday where he is yelling (no surprise) and patting himself on the back from calling the bottom. If Cramer said July was the bottom, than that is a strong contrarian play that we haven’t reached the bottom
July 31st, 2008 at 9:50 am
i actually went long spy at 127.67 after seeing how well the mkt has held up after awful econ data.
July 31st, 2008 at 9:56 am
Tony,
You may be on the right track. XHB up 1.1%. How do you buy a house with no job? XLF is flat.
July 31st, 2008 at 9:59 am
The market has held up well with an assist from falling oil so far. However, USO looks like it is in a bull-flag pattern on its hourly chart, and could reverse higher.
July 31st, 2008 at 10:07 am
SPY’s volume in the first 30 minutes was lower than the same period yesterday, so that’s bullish.
July 31st, 2008 at 10:08 am
USO’s volume is picking up, so it’s bull-flag pattern may fall apart.
July 31st, 2008 at 10:11 am
Good Morning.
3 things:
My technical guy said last night that the Naz could rally big thru next week. I saw that it was flat with the Dow down 90. That could be a good call.
There was a guy on one of the channels this morning talking about the jobs report for tomorrow. (I only caught a part of it so please clarify if I misinterpreted). He said that July’s Birth Death number could actually be negative tomorrow due to seasonal adjustments.
When they get a profile of Erin Burnett, her nose doesn’t do it for me.
Crash
July 31st, 2008 at 10:12 am
After the first 30 minutes of trading, the TICK count was 213. After the bad unemployment-claims number last Thursday, it was at -488. Regardless of how today turns out, there are a lot of traders willing to shrug off the weakening jobs situation.
July 31st, 2008 at 10:22 am
Treasury bonds have rallied along with stocks the last few days.
This is highly unusual and bullish since treasuries usually drop when stocks surge.
July 31st, 2008 at 10:32 am
QQQQs have broke above $46.00
July 31st, 2008 at 10:35 am
The market is pushing right up against the top of my ascending-triangle. I would be surprised to see it burst through in front of the jobs report, but who knows?
Often, the market will come to a critical point like this and then just go sideways until the Big Event (jobs report) is out of the way. We haven’t had many narrow-range days lately, but they are still a possibility.
July 31st, 2008 at 10:39 am
Crimson Ghost, yes, I’ve been watching the bonds this morning. Very interesting.
eli, yes they did. But as the Q’s ran up, volume declined. So maybe we will have to wait a while for a breakout.
July 31st, 2008 at 10:40 am
USO held at $100 and is on the bounce.
July 31st, 2008 at 10:45 am
You guys may be right about a strong tape during weak news.
I usually like to hold positions for a few days, so I’ll still continue to watch. I would go long from here, but…:
I don’t want to go long into a Friday.
I don’t want to hold long positions over the weekend.
I don’t want to hold long positions ahead of the FED’s Tuesday meeting.
I do have some open postions, but these are option spreads that I’m mainly benefitting from through time-decay
Also, I still think Erin is easy on the eyes. Of course, Rebecca Jarvis has her beat in that department.
Crimson Ghost,
Intersting observation. I guess there’s two ways of viewing that:
1) Treasuries rising in the face of rising stock means that treasury investors expect stocks to drop (bearish for stocks)
2) Treasury rising shows more confidence in the USD, which is (IMHO) short-to-mid-term bullish (<6 months), long-term (1 year) bearish (will hurt export earnings), and really long term (5 years) bullish (weak currency = weak country).
July 31st, 2008 at 10:55 am
Bottom line: We broke technical resistance, setting up a c wave to SPX 1305-10, a pullback to 1265-80, and then likely to the 1370s-80s area, all of this move by Aug. 8 or 11. A possible bullish flag projects the SPX 1370s-80s.
(SPX 1307-08 could be the top on Aug. 5 (next Tues.) IF the EW pattern is a = c, which can happen.)
Remember, SPX 1280 is monthly resistance/support (???) for today’s close, and SPX 1257 is weekly resistance/support (???) for tomorrow’s close, both of which I suspect will hold now as ST, corrective bullish support.
From the 1320s-40s to 1370s-80s, we are likely to commence a crash wave to the 1160s-70s, a rally back to recent resistance, and then a final seasonal decline into Oct.-Nov. to the 900s-1000s. A large cyclical H&S pattern implies a target of the 930s-1000 area (for an A of A-B-C . . .?).
Without the gov’t borrowing from the Chinese, Arabs, and the top 10% of US households to refund money to US households to spend, the US real GDP would have contracted ~1.2% annualized in Q2. “Structures” (hotels, resorts, high-rise condos, etc., still under construction from the RE bubble) are keeping overall private non-residential construction from collapsing and dragging the GDP even lower; this trend is clearly headed much lower into ‘09 and thereafter.
Watch XOI to see if it can hold the 1324-31 area for the weekly close and 1337-38 for the monthly close. The large XOI cyclical H&S/broadening top is still in play. Again, the prospective first target low for the XOI is in the 1000s (1100s on a closing basis).
More later . . .
July 31st, 2008 at 11:13 am
A lot of support at 128.35 on SPY. there was an ascending triangle formation that peaked around 128.55. i bought some more SPY at 128.25. The pattern has broken down but still holding support. wish i would’ve sold some at 128.55
July 31st, 2008 at 11:13 am
Paul
Treasury and GSE bonds are being supported by HUGE foreign central bank purchases week after week regardless of yield.
Without this subsidy bond yields would be MUCH higher and stock prices MUCH LOWER.
The real reason for the GSE bailout is that the boys knew that failure to do so would end this foreign support for US financial assets.
July 31st, 2008 at 11:14 am
Historically I think bonds and stocks moved together, it is only in the recent 10 - 15 years that they haven’t. John Murphy seems to think they are in the process of recoupling (or at least he said that a month or two back).
July 31st, 2008 at 11:26 am
Rich,
Thanks. Love this call:
“From the 1320s-40s to 1370s-80s, we are likely to commence a crash wave to the 1160s-70s, a rally back to recent resistance, and then a final seasonal decline into Oct.-Nov. to the 900s-1000s. A large cyclical H&S pattern implies a target of the 930s-1000 area (for an A of A-B-C . . .?). “
July 31st, 2008 at 11:41 am
Erin Burnett in a skin-tight cricket outfit:
http://www.cnbc.com/id/15840232?video=743333776&play=1
July 31st, 2008 at 11:50 am
The hourly TICK count has fallen way below its recent uptrend channel. It was the lowest reading since July 25th. It is only one hourly reading, but today’s uptrend since the gap down is likely broken.
SPY is still running on light volume, so the overall setup is still bullish. However, the ascending-triangle can take a few more days to resolve.
July 31st, 2008 at 12:09 pm
Until now, the short-term model that I use was showing the S&P as overbought, but not the NASDAQ. But now, the naz is more overbought than it has been since the big rally on July 16th.
July 31st, 2008 at 12:19 pm
Crimson Ghost,
Treasuries trade based on two factors: fuutre interest rates and the strength of the USD (you may know this, but I’m just thinking out loud). If future interest rates are predicted higher, then of course today’s bonds’ lower yeild rates (relative to the future) would lower the price of them. If the USD goes lower, then foreign investors get a “bonus” on their investment, relative to their home currency (650 Euros + 5% -> 700 Euros + 5%). Supply and demand (vs other investments) is also a factor.
So for treasuries to go up, the buyers would have to think that one or more of the following:
1) The FED would lower interest rates (or would raise them farther out in the future than current expectations). This line of FED action would take place in a weak economy: bad for stocks.
2) USD would strenghten. This is another sign of a stronger US economy. In this environment, this is short term bullish, but bearish for exports, which is currently driving corporate earnings.
3) Demand vs other investents. Generally, this is investors turning away from stocks and towards treasuries.
So basically, the treasury strength must be due to the dollar rally. I view a dollar rally as bad for stocks 4-8 months out, as exports/foreign sales weaken and US sales stay flat-to-down.
CNBC is really pumping Cramer today.
July 31st, 2008 at 12:20 pm
Rich,
Thanks for the tips. I’ll be watching those levels… On the next leg down, I’ll be going short consumer discretionary/retail. If we are talking about legs up, then I would definitely be going long on Rebecca.
July 31st, 2008 at 12:25 pm
Matt, what’s your read on the spy chart? biggest volume at the day’s low at 12:18.
July 31st, 2008 at 12:35 pm
The VIX was up 5% at the open, but steadily dropped again until just above even. It is now back up 4.2%.
I think an overly enthusiastic, “easy” rally is a weak rally that won’t last. A higher VIX during the rally shows that investors are still concerned about the downside risk. That is why I think that a 100 to 170 point drop occurs. That is big enough that investors aren’t behaing like Cramer, but not so big that the “sell the rallies” mantra is still in effect.
Uh-oh: S&P is making ratings noise on automakers. Wow, product mix moving away from high-margin trucks? You don’t say! Talk about behind the curve.
Matt, so we had a bigger hourly down tick today than anytime Monday?
July 31st, 2008 at 12:48 pm
The TICK count has moved up sharply over the past 30 minutes.
July 31st, 2008 at 12:51 pm
Tony G,
Yes, that is strong support, but I still don’t think the market will be able to build up a lot of enthusiasim in front of the jobs report.
Matt
July 31st, 2008 at 1:04 pm
I think if the QQQQ’s take out the HOD, we could be off to the races on the NAZ. Be a good time to buy that Hummer I’ve had my eyes on
July 31st, 2008 at 1:15 pm
The TICK count has just racked up its strongest upside momentum of the day.
July 31st, 2008 at 1:28 pm
SPY hit heavy resistance at $128, and the surge of momentum has ended.
July 31st, 2008 at 1:33 pm
Possible decline coming to 1250s-60s in the next 2-2 1/2 hrs.
Stay tuned . . .
July 31st, 2008 at 1:34 pm
Paul,
Yes the hourly TICK was very low. You have to go all the way back to July 24th for a lower reading. I’m not sure what to make of it. It could be considered a negative divergence since prices are higher now. Or it might be an air pocket warning of a forthcoming drop. I have only been watching this indicator for a short time, so I’m not sure.
Matt
July 31st, 2008 at 1:45 pm
With USO down 2%, SPY should have been able to rally better than it has. So, stocks look tired and in need of a correction. However, it is a markup day and there is a bid underneath, which we saw when SPY dove toward $127.
So, I’m thinking the market goes out flat, but perhaps sells-off on the jobs report, or maybe even in the futures overnight. Even if the report is “good”, maybe we will get a sell-the-news-reaction.
Once the over-bought condition is worked-off, the market would be set-up to break to new highs. This way the market gets what it wants: new highs, but while punishing everybody in the process.
July 31st, 2008 at 1:48 pm
Meanwhile, the TICK just made a new daily high, though it was on the 5-minute chart rather than the 60-minute chart that I like to use. The market looks mostly flat, but there is quite a lot of drama in the internals.
July 31st, 2008 at 2:01 pm
SPY’s volume is still running light today, so the larger ascending-triangle pattern is still in very bullish shape. Short term, you would have to put a gun to my head to get me to buy into an overbought, and marked-up market such as this.
July 31st, 2008 at 2:04 pm
Google is still in Paul’s bear-pennant formation. If you think of Google as an advertising company, it makes sense.
Apple is trying to break above its recent downtrend line, though the intermediate downtrend line from the peak in June is still far above.
July 31st, 2008 at 2:11 pm
I see a negative divergence on SPY’s daily chart. MACD was much higher at today’s peak than it was at the peak on July 23rd, yet a new peak has not been made.
July 31st, 2008 at 2:14 pm
I’m not nearly as bearish today. Everything looks to be consolidating to trendlines. Look at the hourly XLF, the houly IWM, etc. etc. I think the long side finally looks good.
But that’s just my two cents
July 31st, 2008 at 2:17 pm
SPY can fall to $125 and still hold its uptrend line. The Q’s can only fall to $45, and the IWM has practically no wiggle room and needs to hold $71 or so. I’m not sure what to make of this.
July 31st, 2008 at 2:19 pm
Hi Zen,
Yes, I agree that’s what it looks like. However, it also looked like that on June 30th. Then on July 1st, the market opened on a huge gap down. The big funds can paint the tape when they have the incentive, as they do today at the end of the month.
Matt
July 31st, 2008 at 2:20 pm
I agree… we may just not see SPY get to its trendline. Or maybe this is a false move. However, things seem to look good today, especially after the economic data being a little softer than expected. Plus there are some pretty solid earnings reports rolling in.
July 31st, 2008 at 2:25 pm
USO just dove and SPY barely moved. Stocks look even more tired.
July 31st, 2008 at 2:27 pm
Zen,
You’re right; there is no law saying that SPY has to go down to its trendline.
I think a lot of traders might be waiting for that though as a good entry point.
Matt
July 31st, 2008 at 2:33 pm
USO just snapped back up and SPY barely blinked. The mark-up bid under the market could embolden traders as it did yesterday afternoon, but I am staying in cash ahead of the jobs report.
July 31st, 2008 at 2:36 pm
Internals have been on an uptrend for three hours now, though the momentum has weakened.
July 31st, 2008 at 2:59 pm
USO looks to want to go possibly up to the $104 level.
July 31st, 2008 at 2:59 pm
SPY is holding the the 127.9 level pretty well. i’m going to test the waters with an end of day trade protected with a stop loss at 127.85.
July 31st, 2008 at 3:23 pm
Tony G,
Looks like Greenspan torpedoed you.
Matt
July 31st, 2008 at 3:31 pm
I just bought some SPY puts (SPYTW at 3:25pm). I said that I wouldn’t short the market here, but I just can’t resist. The market is way overbought, obviously being marked-up, and facing a got-to-be-bad jobs report. However, since the intermediate pattern, the ascending triangle, is so strong, this is a very, very small trade. It’s good to practice selling overbought conditions, so I do it partly as an exercise in discipline, and this is a stricktly short-term play.
The internals are also now in a downtrend.
July 31st, 2008 at 3:32 pm
SPY headed back toward $127. Let’s see if the markup elves are still there.
July 31st, 2008 at 3:40 pm
The big funds have marked-up their stocks nicely, so they don’t need to support the market into the close. If it is going to cost them too much money, they might just step aside.
July 31st, 2008 at 3:58 pm
I just took profits on my puts. I made about 25% and caught that move almost perfectly. I think I have a new methodology that is going to be worth a lot of money.
July 31st, 2008 at 4:01 pm
The afternoon sell-off was a low-volume affair. So, SPY, QQQQ, and IWM’s ascending-triangle patterns are still intact. If the jobs report gives us another low-volume decline tomorrow, we will have a fantastic long-side entry point.
July 31st, 2008 at 4:05 pm
#$%@…i got run over by Greenspan the same way he ran over the housing market. unfortunately i didn’t reverse direction and go short even tho everything indicates the NFP number should be horrible (Mish thinks -175k).
July 31st, 2008 at 4:10 pm
Rich,
Your calls are scarily accurate…
Matt,
Yours are as well…
July 31st, 2008 at 4:19 pm
Tony G,
The NFP number should be huge, but I’m back to cash now because there is no way of knowing what our government will do with their purposely fuzzy indicators.
Matt
July 31st, 2008 at 4:20 pm
Thanks VY.
July 31st, 2008 at 4:21 pm
Lots of folks now projecting a strong runnup the next week or two followed by a collapse.
Too much company for me.
July 31st, 2008 at 4:39 pm
Crimson Ghost,
That was indeed the case this morning, but I’ll bet a lot of those projections are going up in smoke now. Once we get some more downside and everybody is leaning bearish again, then the market will be able to spring higher.
Matt
July 31st, 2008 at 6:02 pm
Thanks, VY.
Actually, it is not I but standard Elliott Wave (EW), so thanks goes to Mr. Elliott and the self-reinforcing dynamic of so many futures and options traders using EW. Most traders “believe” EW works because the majority of traders use various versions of EW, thus creating a self-fulfilling/self-validating feedback for participant-observer perceptions and expectations.
The minimal correction to SPX ~1264-65 was achieved with the setup now for 3 of C to the 1330s (pausing at ~1300), a 4th-wave correction back to the low to mid-1290s, and the 5th wave to the mid-1340s, which could complete by no later than Aug. 8 or 11.
The bullish pattern would be invalidated with a break below ~1252-53.
Of course, there is the potential for futures overnight to be down equiv. to cash SPX of ~1253-54, which would be the lower band of EW support, again, setting up a post-employment report rally to begin after the lower open.
The monthly close of 1% below June’s 1280 close is marginally bearish; however, a close below 1257 tomorrow would need to occur to make the monthly close more significant.
To see a more bearish weekly confirmation, we would need to close tomorrow below 1239-40 (28 pts. or 2.2%+ below today’s close), which is certainly possible with a break below 1252 in response to a grim “employment” report.
Although I suspect that there must be an alternative bearish count one could discern, so far the implicit direction is still higher for a corrective move in an ongoing bear; that could all change in a few hours.
More at the open tomorrow after the “employment” report.