If you put Bollinger Bands onto a 60-minute chart over the past few days for QQQQ and IWM, you will see that prices are coiling up. This usually means that prices will soon break sharply lower or higher. Gun-to-head, I would bet on lower.
If you put a MACD onto a 60-minute SPY chart, you will see that Wednesday morning’s low came after heavier selling pressure than the last low set on August 7th. That’s a negative divergence.
SPY, QQQQ, and IWM are not technically broken yet. However, they are starting to look shaky. I will be watching very closely for cracks in this rally. XLF has a couple of cracks already and does indeed appear poised to lead the market down again.
At the end of the March-to-May bear-market rally, the bell was rung at the top on May 21st when SPY broke its uptrend line on heavy volume. It’s time to start listening for the bell again. It could happen this week.
Jim Cramer, in a piece today, used Goldman Sachs and Toll Brothers as evidence that Wednesday was a bullish day. Cramer is as insane as ever. GS is an eyelash away from taking out its July low, and I can’t hear anything positive in this CNBC interview with Bob Toll. In fact, I heard Toll say that we might be in a housing depression, that his customer traffic is still at a record low, and that he can’t lower prices further because they are already cut to the bone. This is the 93rd bottom in housing that Cramer has called over the past two years.
Rev Shark at RealMoney.com was baffled Wednesday:
“The market bounced strongly this afternoon on no obvious catalyst.”
To me, the sharp intra-day rally was very obvious. When the market is short-term oversold or overbought, the spring has been wound tight – just like a jack-in-the-box. The jack is going to pop out sooner or later. Normally, there will be some news event that triggers it, but that is not required. Wednesday was a textbook example of an oversold pop. If you don’t pay attention to a price oscillator you will be constantly surprised by these moves.
Jim Cramer thinks that the tightening of credit reported by the Fed this weak is bullish:
“I say terrific!”
Yes, it is a good thing that banks are no longer lending to dummies, but I wonder if Cramer entertains the possibility that the banks can’t lend because they blew all their assets in a giant Ponzi Scheme.
Watch the comments section for updates throughout the day.
Morning all. I decided I will add more QID (1 % more) if I can get it for 39.80 or less today.
Jim Cramer thinks tightening credit is good? That is like say getting chemotherapy is good: sure it will help, but you only need it if you have a life-threatening disease.
XLF, XHB, and SPY down 1/2 percent already (premarket). So are XLE, USO, and GLD. Who you’re gonna call? The credit-crunch-busters! I don’t think this will be a down market for everything. Puts are sure to gain in value…
Jim Cramer says that this morning’s drop will be a great buying opportunity. There is no need to rush in on the short side because dip-buyers like Cramer will ensure that there will be some good shortable bounces coming.
Europe is now ‘officially’ in a recession. Joining USA. Japan and Australia to follow.
The credit crunch is working its way around the globe.
SPY is struggling to hold above yesterday’s intra-day low. If it pierces that, it will likely test its rally uptrend line, which according to the way I have my line drawn would be about $127.25 today.
The problem is that XLF can’t even reach the $21 resistance level, much less breach it.
Larry-
Russia plus China VS USA…who wins???
Also I’m sorry about yesterday. I answered
your DOW 9300 question, but for some
strange reason that answer plus all of my
additional comments ended up in the
second Tuesday’s set of comments instead
of Wednesday’s set of comments which is
where I thought I was posting.
MEB
i haven’t seen this in a while but stocks are moving with positive correlation to the price of oil.
This entire one month rally has been technical. I wouldn’t overanalyze anything that is going on. Sit back, give it another week and listen for the ‘bell’ at the top that Matt posted in BOLD above. Maybe even take a few days off to get rested up because the rest of the year is going to be wild.
Hey Paul,
looks like XLF is kissing the $21 mark now.
There is more open interest at the XLF $21 calls, so lets see if XLF gets pinned there.
Tony G, take a look at the open interest for SPY options. It looks like SPY should get pinned to $130, which would explain why it is not being affected by oil today.
Watching the option open-interest is a good way to judge the strength of the market. If the big players holding all those SPY $130 calls can’t push SPY up there to make themselves right, then that is a sign that there are even bigger players leaning short.
The NYSE TICK hit a pretty dramatic momentum peak at 10:45, yet SPY fell short of yesterday’s intra-day high. So far, SPY is making an “inside day” – being contained within yesterday’s range. Not bullish.
qqqq’s seem awfully bullish here
Matt,
Concerning big players holding $130 calls: isn’t it more likely that the big players sold those calls to smaller players?
XLF is up today on less vol than yesterdays selloff.
The 20 EMA comes in at $21. 28 and the 50 MA at $21.24. I will be reentering my short there with a tight stop, if it gets there. If it passes that, $22 is the next level to take a shot at a short.
Also, SPX needs to take out yesterdays high 1294 to get thing going here, IMHO.
eli,
I’m a bit confused.
So you are shorting at $21.24, “with a tight stop.” So if it goes to $22 (another 4%), is that your tight stop or will you add to your position “to take a shot at a short.”
Paul,
That could be true, but I think the pinning phenomena is better explained by large hedge funds pushing their large options positions into the green. For example, if the large players were short those SPY $130 calls, you would think that they would do their best to lean on the market and make sure that they go out worthless. But instead, SPY is grinding up toward $130 on a day where there has been a lot of bad news.
Matt
It’s entertaining to see SPY and QQQQ rise in the face of bad news across the board — inflation is up, jobs are down, our major trading partner is in recession. This rally looks shaky; we may already have seen the top.
Yes,what a weird market
VIX down 4% vs yesterday. The news this morning on recession in the rest of the developed world, jobless claims and foreclosures calmed the markets down.
As options expiration approaches, the market will often simply not respond to the outside world. This is when the market is like a dimly-lit casino where there are no clocks or windows and the outside world is shut out as the players hyper-focus on their gambling.
Kailash, Pooch. That’s what I said from March to May, when I “lost” tons of money on my positions. Luckily I added to those positions almost at the top.
If you follow Matt’s advice you can even go long during these bear market rallies. Or stay out of it.
Options pinning levels:
SPY – $130
XLF – $21
IWM – $75
QQQQ – $48
If the large funds had new money pouring in, these levels could be blown away. So, if prices get pinned there at Friday’s close, then I would consider it a sign of a rally lacking luster.
Larry,
I noticed the VIX is down, too. I’ll probably get some Oct calls at the end of the day if it keeps dropping.
For potential option pinning levels, you can check here:
http://www.optionpain.com/MaxPain/Max-Pain-CBOE.php
It calculates what the call and put open interests would be worth at different prices, although it is currently giving buggy results for August.
Thanks for the link Paul. Has it worked better in the past? Right now, it’s giving $14 for XLF, which doesn’t seem possible.
Paul
My stop for XLF if in at $21.24 would be $21. 34. I usually go half of 1% if there is no Support or Resistance area immediately nearby. Then I would consider a short at $22.00, depending on where the market is at that point ie the SPX.
Ironically, my brokerage has no shares of XLF to short, so I am looking at Wachovia at it’s 50MA at $16.22. I feel they are one of the weakest of the financials.
USO has been nose-diving since 11:00, and stocks have been almost perfectly flat. That’s a pretty dramatic demonstration of options pinning. Who knew there could be something more powerful than oil?
One note on the VIX: it usually drops during expiration week. This is becuase the VIX isn’t a direct measure of volatility: it is a measure of SP500 option implied volatility.
Implied volatility goes up when options are in demand and down when options are being sold. During expiration week, people close out their option positions so there is higher selling pressure, hence lower implied volatility.
Kailash, Pooch. I didn’t mean to imply that you’re as green to the trading game as I am. In case you wondered.
I am just a good student of Austrian Economics, making good money being short commodity companies now.
Paul/Crash: Yes, the technicians have decided to run this rally. Fight this too hard and you go broke.
Matt and Larry — good points. I’ve been staying out since the last bottom and am just waiting to short again. Around 1350 would have been nice, but it’s looking unlikely now.
Matt,
as the casino has closed its doors can we expect a downswing as soon as the doors open again?
The whole “rally” – well we have been trading sideways since July 23rd – was started by outside intervention which reversed market momentum. These forces at play would send a most unwelcome signal for their aims if this rallye fizzled without even reaching 1330…
Yerk
Matt,
Yes, it has worked in the past, so I don’t know what is wrong. You can use it to check forward months (Sep) and the results make more sense. I checked QQQQ and XLF Aug, and the results look very suspect. You can always just look at the monthly open interests in Yahoo and ballpark it.
Matt, what will it take for you to begin building another longer-term short position?
XLF
With the SPX appearing to be heading up it’s channel again, maybe a buy with a stop below $21.00 might be in order as a short term trade for the XLF.
Just trying to keep nimble here..
The tidal wave of panicky oil money has finally swamped the big options traders, though stocks aren’t moving up as much as you would expect.
Tony G, I want to see a crack in SPY first. There really is no way to gauge how long this falling-commodities rally will go.
Yerk, sometimes there is an “expiration hangover” affect the Monday after expiration. But these days, it is critical to watch how stocks behave in relation to oil before placing any bets.
It looks to me like SPY has to close above 128 tomorrow to keep the trend. The bulls better build up a good cusion today; Fridays haven’t been pretty.
I’m looking into some GS puts: it is still underperforming. Hopefully it will reach $170. Also, I never really liked JPM, and they are approaching resistance at $38.50. The XLFs peaked before SPY in May, so I’m looking for a repeat.
On the other side, I’m kicking myself for not picking up JNJ below $71.
MATT…….since your post last nite ..i took your advice…since i felt dow was going down….bought 400 ddm at 62.20 this am……..ijust blew them out at 64.29….. ….thanks matt!!!!!!!!!!!
Remember that this is a technical rally in options expiration week. That makes it even more strange.
The Thursday of options expiration week the last few months has been strong. If the markets stay strong I’m going to add a PUT or 2 at the end of the day. Then I’m driving to CNBC to punch Dennis Kneales’ lights out. What a dick.
crash………..you have made a fatal mistake……you are watching cnbc……that is ok…..BUT you have the SOUND turned on…that is the mistake……
The bounce in commodities didn’t last long.
Target for peak in this bear rally still is:
Oil at 100 usd, vix at 18.
Crash
Your being way too kind to Kneale…..
Rick Santelli (bond market) and Jeff Macke (Fast Money) are straight shooters, even going 180 degrees vs their co-hosts. Other than that, CNBC is a good measurement of market sentiment and is quick with the news flashes (although the spin on the news may be wrong).
Looks like the XLF 5-minute is showing a bull flag. Maybe pair an XLF long positon at $21 with an end-of-day GS short at whatever it happens to be.
My time frame is longer, so I won’t go long XLF myself.
paul………..how do u think cnbc is a good measure of market sentiment?????all most of them do is CHEERLEAD the market all day long…..dont you hear them????..thats why i turn the sound off
PAUL…….. cramer …….caption just now ……..HAPPIER DAYS ARE ON THE HORIZON……THE WORST IS BEHIND…… oh my god………..that must be a good sell signal eh??????
phil,
Nice job on the DDM trade.
Fading your emotions is very difficult, but very lucrative if you can master it. I am pretty good at it, but I have found that once you get the knack, it will fade away if you don’t deliberately cultivate it. It goes against your human nature, so it requires constant discipline to continue behaving more like a robot than a human.
Matt
Actually, I find Michelle Cabrera even more of an idiot than Kneale. She neeeds to be censored or relegated to the CNBS Asia desk ..
Max Pain:
http://nexalogic.com/maxpain.html
Matt,
It looks like the Nasdaq & Rut have got a double top while the Ndx100 has a higher high. Are they topping out?
-Kevin
phil,
Cramer isn’t always a cheerleader. Don’t you remember his rant last year about Bernanke and the FED? Cramer is more like a dart-throwing monkey in terms of reliability.
afternoon all..i was filled on the qid @ 39.80 and mid-day added 1 ndy 1700 nasdaq 100 put @ 12.50, that for october…
that’s 4 % allo to the qid, i’ve had as high as 15 % a couple months back.
Paul,
Good point on XLF cracking before SPY. XLF had its high-volume crack on May 8th – two weeks before SPY’s on May 21st.
Yesterday, XLF had its highest selling volume in three weeks, though it was only slightly above the recent daily average. I’d like to see a higher-volume selling day for XLF.
Matt
spy really wants to retest 130 right now.
The railroads have cracked this week. BNI, CSX, NSC, and UNP all have high-volume breaks of their uptrend lines, and are now making classic bear-flag patterns – floating up on light volume. I’m trying to pick one out to short. Anybody have any insight on the rails?
Matt I think it’s all oil.
eli……..michel caruso cabrera may be an idiot…….but she is one SMOKIN HOT idiot………
michelle…typo
I was thinking about railroads as well: their runup was commodity driven, particularly coal, if I remember. They all look very similar in terms of cash flow, debt, balance sheets.
Checking here:
http://finance.yahoo.com/q/co?s=CSX
I would look into NSC. They have the highest profit margins. It depends on whether their margin is mainly due to efficiency (strong stock) or to higher prices charged to customers (weakening stock).
Brian,
Thanks for the max-pain link.
Matt
Dow is cracking down…
Kevin,
I don’t know if the NASDAQ and Russell 2000 are topping out. I want to see a high-volume crack first.
Matt
Thanks Paul. With the fall in coal prices, it stands to reason that the railroads might not be able to maintain their shipping rates. Maybe that’s what the stocks are telling us.
Why is MBIA up 20%?
Paul
The auction rate settlements apparently will help the bond companies.
eli,
Thanks, I just found that. Still seems overdone.
Does it matter how far MBIA ends up in the hole? I bought some puts at the $10.50 resistance. Who is still buying their stock? And the GSE’s stocks? Even if they don’t go bankrupt, how will they make any money in the future?
If you think financials are bottoming … just have a look at the charts. #2 and #3 show the speed of the next dropping shoe (CRE).
http://market-ticker.denninger.net/archives/541-Theyre-Picking-up-Fish;-Tsunami-Curling-Over.html
Ugly. But amazing.
Yerk,
Thanks for the link.
Matt
matt, a while back i asked why you use the options instead of the etfs. i’ve been using the at the money options lately and my profits have dramatically increased. its easier to hold the option and i’m less inclined to sell on unfavorable price movements, which happens quite often in this mkt and in my case, would usually result in the security going in my direction right after selling it.
Options pinning makes for boring action.
Yerk,
Thanks for pointing out the commercial real estate data. Everybody seems to be questioning whether CRE will fail or not, and as you pointed out, the smart money seems to have already decided.
I’m a link collector. Here is the source for the charts:
http://www.markit.com/information/products/category/indices/abx.html
Tony G,
I’m glad to hear that you are doing so well. If your timing is good, at-the-money options are a lot of fun.
Matt
Volume was extremely light today and the end of day price action was not encouraging. at this point it seems like the mkt really depends on the direction of commodities. the bottom callers appear to be out in full force right now.
BTW, another problem with the financials is that people are trying to figure out only what is currently on their books. When the public pension funds realize what the “AAA” stuff they were conned into buying is really worth, you can bet they will sue or force the brokers to purchase them back. If you look at articles in the last month (including today), you will see that this is what is happening: brokers forced to buy back the trash. The hope is that this will happen slowly before it reaches front page. However, it will further hamper earnings for the financials.
Back in March, the FED got their staff to research sub-prime mortgage MBS’s and CDOs: http://www.newyorkfed.org/research/staff_reports/sr318.html
At the end of the report (p 62), you can see an an example of how Goldman Sachs screwed the Ohio Police & Fire Pension Fund by switching from their gov’t backed ABS to “A-” MBS with no backing.
This is the big reason why Fitch, Moody, S&P can’t downgrade that junk. Most pension funds (especially public ones) aren’t allowed to purchase junk bonds. If the bonds get downgraded to true value, the pensions funds will be forced to sell. Forced selling = crash.
Dont short UNP Matt. Warren Buffet just doubled his stake to 8.9MM shares.
Hi Hedgehog,
Yes, I saw that, and UNP got a little bounce in the after-market. It will be very telling to see how the rails react tomorrow. Buffets trades aren’t always winners. I tried to ride along with him on USG in late 2006 and got a beating. He was WAY too early to be bottom fishing in the house-building sector.
Two years later, and USG still hasn’t bottomed!
Matt
Paul,
Thanks for the link to the Fed report. This financial crisis just won’t quit.
Matt
XLF closed below both 20 and 50 MA, and with 20 day MA now about to actually turn down directionally, all we need is another 1% down close to get a pretty clear sell signal…
DIA and SPY are both still hugging the 20MA and could go either way at this point, looking purely at the chart though looks like tomorrow could be a big
IWM and QQQQ have a lot of air under them, in my book that’s a bit dangerous….
*big decision day… SPY closes up above 131 and we got another rally on the way up to 1340-50, down and we are going back to 1250….
Tony G,
Yes, the volume was light – especially for XLF. Not a lot of buying enthusiasm there!
Matt
VY,
If we get more expiration pinning tomorrow, the big decision day may have to wait until Monday.
While I did make some money shorting IWM yesterday morning, I think that I’m going to stick to SPY and XLF. While QQQQ and IWM do indeed have a lot of air under them, if large funds are rotating into small caps and tech, then they could remain relatively strong. The strong dollar should also be hurting the large caps more.
Matt
no volume because of manipulation to pin XLF and SPY. 21 and 129 max pain. guess who drove it up this morning then held it back.
Matt,
Where did you get your option pinning numbers? I have some different but some the same.
thanks!
Hi Zen,
I just looked at where there was the most open interest. It’s simplistic, but it worked pretty well today.
Matt