NASDAQ Way Oversold
As kevin mentioned yesterday, the three-day moving average of the TRINQ shows that NASDAQ stocks are dramatically oversold. If you missed the post where I discussed this technical indicator, you can read it here. In that post, I used the TRIN and SPY, but of course, you can do the same thing with the TRINQ and QQQQ as kevin has done.
Wednesday afternoon, the market shrugged off some terrible auto-sales numbers, and an unpleasant Beige Book. So, it looks like the technical oversold bounce should continue today.
Hovnanian Takes a Hit
Homebuilder Hovnanian (HOV) took a hit in the after-market after reporting a bad quarter. Let’s see how well the XHB holds up today as the “turn” in housing that Jim Cramer keeps shrieking about remains somewhat elusive. HOV’s conference call is at 11:00am this morning.
Speaking of the XHB, it came in at #5 on Bespoke’s most overbought ETF list.
BB&T Rocket
George’s BB&T (BBT) pick jumped in the after-market when Cramer touted it on his TV show. George is on a hot streak, to say the least! BBT even shrugged off news of problems with construction loans yesterday. Though the construction loan problem looks to worsen.
Cramer’s “Early Cycle” Idea
Cramer thinks that financials (XLF), homebuilders (XHB), and retailers (XRT) are strong because they are “early cycle” plays. That means that they are sectors that typically do well when the business cycles begins to turn upward. I don’t believe that the cycle is turning up. In fact, I think we are only about halfway to the bottom, and we are experiencing a bear-market rally.
Strong Dollar Already Punishing Stocks
Companies with lots of overseas operations are already getting hit by the strong dollar. Take a look at Bespoke’s chart.
What if Oil Bounces?
We now have two days in a row of falling oil and falling stocks. We have seen oil and stocks fall together before, but as I recall, it was only when stocks were overbought. On Wednesday, stocks were oversold and still couldn’t rally on falling oil. That is very ominous. The Super Spike in oil contributed greatly to the end of the March-to-May bear-market rally, and now the current bear-market rally looks vulnerable to a retracement upward in oil.
Watch the comments section for updates throughout the day.
Oops, I was looking at my chart wrong. Still a ways to go to the July low. SPY bounced at $123.50 on July 29th, so that’s a potential support area.
The reality of a bear market WITH deflation. History is being made boys. We have only just begun.
TRINQ is over 4! That’s double what is considered an extreme oversold reading.
Matt, loved the comment at 1:24
- Holding XHB puts, TWM, SKF, and SDS at the begining of today: $$$
- Listening to Cramer’s explanation later on: Priceless
Matt, et al
What do you consider the July low? The SPX actually hit 1,200 or are you looking at a close basis? Or the SPY at $123.50 as you mentioned?
this is an interesting site
http://smartstops.net/Default.aspx
Looks like bear flags setting up again on the SPY and Q’s 5 min intraday chart.
My VIX reading is off the chart. This is going to be a hella capitulation soon.
The VIX is reading like it did at the capitulation in January. And it hasn’t even cycled back on this move yet.
I don’t remember when the VIX was up 10% before 2pm…
Target for VIX is 35. But today is wild.
eli,
I was miss-reading my chart earlier. SPY $120 is the July low, though SPY bounced at $123.50 on July 28th, so that may be the last support area between here and $120.
Matt
The really scary thing is, you can’t really have capitulation after such a short down leg (1 wk).
I expect a strong bounce at SPY 120, but we are falling so fast, the final destination is a lot lower. It looks like SPY will test 120 before XLF tests 17, so perhaps they will bottom out at the same time.
lets see were our 1:00 bounce takes us
CNBC (Erin): “Is oil’s drop the problem?”
Of course it isn’t. That’s rediculous. It’s a symptom of the problem: slowing global economy + deflation.
There’s some lieing jack*ss on TV (Bill something, not Bill Gross):
“There’s no anxiety in the market” VIX anyone?
“Homebuilders are outperforming the tape” XHB down 6%
This is why I listen to CNBC but don’t value the actual opinions much (except Rick Santelli, Jeff Macke and a few others)
$43.30 key support level for Q’s
Bill Gross just crashed the XLF on CNBC.
Thanks Matt, that $123.50 may be just around the corner.
Maybe the jobs number drops us there tommorrow and then we bounce.
first he crushed them on bloomberg now on CNBC.
if only i hadn’t bought apple today i’d be making big.
QQQQ testing its July low, though that was a higher low than the March low.
Gross has big power, like him or not.
What did Bill say?
Gross said that he wasn’t interested in putting any more money into banks. He said that Wells Fargo came to him with an offering and he rejected it. He basically said that he was tired of losing money by investing in banks. Lehman took a dive too.
I’m charting $43.86 and a line in the sand for the Q’s. May be broken as I type this?
Wow, it looks like it’s my turn to say that my portfolio is having its best day in a while.
Cramer is funny. He was talking with Gross who said he doesn’t want anything the banks and GSEs have to offer (at the current prices), and he whined that the Treasury has to do something (I guess now it Paulson that “knows nothing” instead of Bernanke now), yet he still ended with financials are in a bull market. Let’s be clear: financials are not in a bull market, but Cramer wants the Treasury to create an artificial bull market for the financials at the expense of the USD and everyone else.
lol.. Bill is so funny. Kick them in the nuts while they are down.
Are you guys locking in any of your short profits today? Looks very ugly out there with multiple supports across multiple indexes broken today.
Wondering it there is a chance for a bounce so I can get more short than I am now.
Hi Larry
Wondering if you can give me some feedback on how you maitain your discipline in maintaing a long-term position when you see the market moving against you short-term?
My problem is getting tempted in to short term gyrations sometimes rather than just staying pat, e.g. went out of my short positions (thought market would re-test highs) at late 1260s but didn’t re-enter until market broke 1260 (came back in at 1258ish) so actually paid more for the same position! Are you never tempted to trade in and out? Even today I’m thinking this thing has to bounce!!
thanks
Charlie,
I will probably hold most of my positions until October (unless we see to bottom earlier). If I was a better timer, I could get in and out. As it is, I don’t see much upside to the market. As long as the market goes lower sometime (doesn’t matter when), I can hold the ultras inverses. Most of my option positons are long Oct puts and short Sep puts, so near term rallies don’t hurt as much. If we are rallying 3-weeks from now, I may change my tune.
I think we should bounce, but who will do the buying? Shorts covering maybe.
Taking profits on shorts here is probably not a bad idea for short-term trading. If the jobs number doesn’t disappoint tomorrow, the market can bounce hard. I’m sure that the jobs situation has not improved, but of course, that’s not what the report is about. It’s really about what crazy birth/death number they will come up with and how many phantom jobs will be manufactured. I won’t be making any bets in front of such BS.
I cashed all my shorts and will reload if I get the chance
I’m keeping all my puts. The next 4 months show nothing but gloom on my radar.
Also, as a side note, there is value to buying an ultrainverse (SKF) rather than shorting the ETF (XLF). However, if you want to leverage your gains, options on the ultrainverse are not a good idea. I ran the numbers and you get more bang for your buck buying Puts on the XLF rather than buying Calls on the SKF.
2:00 rally attempt
The only buyers in the rally attempt will be shorts taking profits. I predict it closes at the lows for the day, especially with the payroll number tomorrow. That will be at 7:30am CDT, Pooch.
The TRIN and TRINQ may be rolling over, so the selling pressure may be receding. It might just be daytrading shorts ringing the register, but the tape has improved since the Bill-Gross storm.
Matt are you closing your positions before close rather than hold through jobs number?
Paul F, my current thinking is that the market has broken major support and is headed down, so I am sitting on my hands and not giving up my position (still won’t make it any the more likeable when the market rallies a bit from here and, as Matt said earlier, may even go back to test its breakpoint around 1260).
Alex, I have a busy day job and I’m terrible on trading and timing. But I’m learning a lot in here. Thanks to Matt&Co.
My rules are:
1. Austrian economics and narrow money supply, M1. Bernanke is still not inflating the world reserve currency so the credit crunch created by Alan G and ‘his fractional reserve banks’ is giving us a global recession.
2. In a bear market take profit when VIX hit above 30. This time I’ll wait for 35.
I am short in ETF in Oslo now (obxbear), but volatility in USA guides all markets.
I’m really a novice with only 4 years experience in the market. Find a system and stick to it. Even then I will get humiliated, e.g. israel attacking iran next week, or an oil embargo from Opec or Goldman screaming oil to 150.
With Gross’s comments, the next market rally will probably be driven by the Fed and/or the Treasury giving into his mild rant.
“Ain’t too proud to beg…”
I’m kinda liking this slight rebound off the lows of the day. It gives the market more room to fall
Any other thoughts?
Everyone (yours truly included) seems to be hyper-focused on the strength of the financials. If XLE and the Q’s get a little bounce here then that could trigger the market back up to test broken support.
Bill Gross wants to demolish houses and for gov’t to bail him out. It’s Keynesian madness.
Alex,
I’m back in cash ahead of the jobs number. Like I mentioned earlier, there is no way to predict that number.
Matt
That was a nasty close.
I know I’m not the only one who frequents this board that cleaned up hard today. Matt your commentary has been spot on. Thanks again.
nice day today.. Love the action!
The last time Qs saw 200M volume was July 15.
Why does that date ring a bell?
Spy hit 335M: July 17
DIA: 35M July 15
This, my friends, is volume. Do not get that confused with capitulation, as this down leg is < 1 week old. We will be going far and deep, IMHO.
The jobs number will not be good, but it may “beat expectations.” If it does, I think the market will go down anyway, and CNBC will comment how the birth/death model added extra jobs (~100k). I could be wrong, but this has happenned before this year.
Alex,
the question you’ve asked Larry that’s a good one… I do it by keeping two portfolios. My intraday trading ranges from perfect to disaster so I commit only some funds to it. I was stopped out of two long positions today (I’m still upset that these moderated markets did not go up to 1320). Mid- to long-term I build up positions following the market trend. Timingwise I don’t care much when I enter (see intraday performance). I see something and then sit it out. I got a BAC put this morning because I don’t see the bottom in that stock yet the same time I was expecting the market to rise… Kind of split personality approach I guess, but it helps with ignoring the losses ;-o
Larry,
Bill Gross (and the Fed / Greenspan) are perfectly aware of Austrian economies and bubbles. It is just that they are not in a position to short the system. And hope can only come from the government and trying to sit out the mess.
Matt:
Well said
I seriously hope for a bounce b/c the downtrend is confirmed.
FYI, explanation of the job birth/death model:
http://www.bls.gov/web/cesbd.htm
You’re welcome Danny.
Paul, I agree with you. mkt sentiment is so bad that even if the number is better than expectations, the mkt will still go down. I do hope for a bounce but i dont have much confidence.
Paul,
Congratulations on your day. I’m sure it wasn’t easy being short the XLF and XHB recently, but they lead the way down today.
Matt
Today was another all-sectors-red day. I think this is the third that we’ve had recently. Does anybody recall how the market did on the following day of the previous such days? I should have kept a list of the days because it’s a bit of a pain to go back and find them.
hi all, still staying with 9 % allo to QID, and a smidge of SKF. i have an order to sell the skf somewhere ‘ween 122,123 or so…
i did buy some gold stock etf shares tdoay (iif they aren’t at 52 week lows they gotta be pretty close to that), but fearing further short term declines i hedged them by selling oct calls…
Thanks, Matt. Tuesday morning was the worst, but I decided to wait until the end of the day before adjusting my positions and by then the bears put the smack down (so I left them open).
In terms of all-sectors-red days, why don’t you just check all of the 2.5% down days? That should limit your search.
Good trading tomorrow, guys (and gals?), and have a good weekend. I’ll have to miss the action.
after,
I think UNG will outperform gold in the near term. It is near (or at) a 52-wk low, I think it will work better as an inflation hedge. If we have DEflation, then I’ll simply point out that gold was down today… I think I’ve ranted about industrial commodities vs. gold before.
Good luck, though.
Everybody needs to check out TWM. It is the 2x inverse ETF for the Russell 2000. The Russell has been the strongest index lately and is hanging on to support. If TWM is purchased at $70, there is 36% upside if it hits its prior high of $95. Year to date, TWM has not traded below $62 so your downside is 11% with a stop in place. We have seen what has happend to each index as they break support (see QQQQ, SPY, and the Semiconductor index)
The S&P futures just dropped about 8 points. Anybody know why?
Let me float another idea from the fundamentalist wacko corner for somebody here to poke at. If you look at a 6Mo chart of some key sector ETFs, say XLF, XLP, XLY, XLI, XLE, XLK a couple of things strike me. It appears that only the Financials have really been the action. Everybody else’s flat…ish. If you believe an economic recovery is around the corner o.k. pass on. If you believe we’re just starting into the real downturn then the reat of the market’s not reflecting that, whatever the strength of the downturn. You can tell stories: XLE/XLB – worldwide slowdown discovered = demand destruction. Works for me. Ditto XLI. XLK – oops, technology’s not immune and currency conversion gone. XLP, XLY, XLV – this is a downturn. Strikes me there’s some other trading opportunities that ought to be hoving over the horizon for you guys. Whaddyathink ?
….oops, that was supposed to be “THIS is a downturn ???”
fat fingers, slow keyboard, network response time….
Re: futures. Interesting. I’m not seeing any news. Somebody thinks tomorrow is going to be scary. Bill Gross & PIMCO is the big news today. If PIMCO is saying they are backing away from the market, that could cause other big players to back away as well. A liquidity implosion? The odds of Crash getting his crash are growing.
Tomorrow will be interesting, not so much for the employment numbers but for a continuation of the PIMCO theme. I feel sorry for Hank Paulson. January 20th cannot come soon enough. He’s had time to look under the hood of Fannie and Freddie and I suspect he has found a lot more nasty stuff. He’s got nothing but crappie choices and now Bill Gross is going to force his hand. I suspect Paulson intends to do exactly nothing until the markets close the liquidity window on the GSE. We live in interesting times.
Matt, I have your answer about all sectors down here
The September NASDAQ 100 closed sharply lower on Thursday as it extends this week’s decline. The low-range close sets the
stage for a steady to lower opening on Friday. Stochastics and the RSI are oversold but remain bearish signaling that sideways
to lower prices are possible near-term. If September extends this week’s decline, July’s low crossing at 1765.25 is the next
downside target. Closes above the 20-day moving average crossing near 1905.80 are needed to confirm that a short-term low
has been posted.
The September S&P 500 index closed sharply lower on Thursday and below the reaction low crossing at 1261.00 confirming a
downside breakout below August’s trading range. The low-range close sets the stage for a steady to lower opening on Friday.
Stochastics and the RSI a bearish signaling that sideways to lower prices are possible near-term. If September extends today’s
decline, the reaction low crossing at 1231.60 is the next downside target. Closes above the 20-day moving average crossing at
1282.37 are needed to confirm that a short-term low has been posted.
The Dow closed sharply lower on Thursday and below the reaction low crossing at 11,290 thereby renewing the decline off
July’s high. Today’s bearish economic data sent the Dow into a tailspin as traders see further slowdown in the economy as a
real possibility. The low-range close sets the stage for a steady to lower opening on Friday. Stochastics and the RSI are turning
bearish signaling that sideways to lower prices are possible near-term. If the Dow extends today’s decline, the reaction low
crossing at 11,128 is the next downside target. Closes above the 20-day moving average crossing at 11,525 are needed to
confirm that a short-term low has been posted.
Danny,
Beautiful work.
Since the market peaked back on August 11th, we can probably expect a replay of the “two days of rest and then more losses” pattern. So, it looks like shorting bounces will be the thing to do at this point.
Thanks,
Matt
Don’t know if i have the guts to roll puts into calls on a bounce,because of the debockle that actually was a blessing in disguise.So at this point I may just sell puts hold cash and look for a re entry point.Hat is off to Rich were ever he is,his call for this week was awesome,last night I thought the chances were nil to none,maybe we need to take up a collection for him to buy a lap top when he is vacationing.
For some strange reason days when the McClellan Osc. shows little change are almost always followed big market moves the next day.
With the Oscillator virtually flat today despite the big jump in the averages the odds are at least 10 to one that another big move is coming tomorrow. With the Osc still somewhat depressed the odds favor another big rally rather than a big drop IMHO.