Tuesday’s Trading
While Apple got the bulk of the attention on Monday, American Express dropped a major bomb on the market. Take a look at this post from Calculated Risk.
This recession just ain’t going away.
Debka reports that the US, UK, and France are preparing a naval blockade of Iran. Debka makes it look like Operation Brimstone is taking place in the Persian Gulf, but it is actually taking place in the USA. Nevertheless, it looks like a naval blockade will be the next step in the Iran conflict.
The big question for Tuesday is, will the QQQQ hold its low from July 15th; only a week ago. There was quite a lot of volume on that day, so there should be some support there. However, with the best-of-breed Google and Apple getting slaughtered, the group looks helpless.
By time the Q’s get to $43.30, they will be short-term over-sold. So, I’m thinking they bounce at the July 15 low, flop over and proceed to test the March low at $41. What do you think?
Note to readers: I didn’t have time to respond to many comments today, but I did read them all. The comments are very helpful to me, so keep them coming.
UPDATE: Oil plunged and helped stocks to reverse their plunge from last night. So, my prediction was spoiled. However, I traded through it very nicely and finished the day with a large profit. I took profits on my puts in the morning, and went long IWM and SPY calls in the afternoon.
July 22nd, 2008 at 2:04 am
You’re doing well Matt, in a somewhat difficult market.
And the credit-bubble-induced recession is definitely coming. People start to talk about alt-a, credit cards, auto loans. They even talk about commercial real estate. They have forgotten Private Equity. That’s the big one next year.
I’m sitting out for a few weeks, except for a tiny long position. Preserving cash-mode.
July 22nd, 2008 at 5:01 am
Vodafone down 13%. For some reason everything else is holding up well in Europe.
I am not joining this rally. Going short again. And this time I will sit for 12 months
Even if this is a bear-market rally.
July 22nd, 2008 at 6:07 am
Massive surge in McClellan Oscillator
http://www.stockcharts.com/charts/indices/McSumNYSE.html
Market clearly very overbought short-term.
July 22nd, 2008 at 6:11 am
Vodafone down 14% now after 3 hours trading. They guided at lower end of forecast.
Maybe this market is ready to panick again? Europe down 1.4%.
No signs of panick, but that might change if more bad news comes out.
July 22nd, 2008 at 8:48 am
Hi Larry, yes, it has been a very difficult market. Yesterday was an incredibly difficult day to trade.
Crimson Ghost, that chart probably doesn’t take into account the after-hours action yesterday which was substantial, so the market is likely to be quite a bit less over-bought this morning.
The IWM is holding up very well in the pre-market. In fact, it is still well within yesterday’s trading range. Though there isn’t much trading volume, this is a bit surprising.
Matt
July 22nd, 2008 at 8:52 am
The dollar is rallying again this morning despite more bad news overnight.
The failure of the buck to break decisively is good news for the bulls and bad news for the bears. The odds of a stock crash are minuscule unless the buck joins stocks on the downside.
Still looks like this rally has further to run once the markets’s short-term overbought condition is corrected.
July 22nd, 2008 at 9:12 am
Well I know what that smell in the finacials was: WB and AXP. WB news seems expected, but AXP was a surprise. Oil is moving down as well: people are moving to Gold.
I don’t think QQQQ will reach $41 today: that’s 100 stocks ALL dropping an average of 8%. That’s pretty harsh, especially when GOOG and MSFT have already taken a large haircut. They will reach $43.30, which would be a 3.3% decline, probably ending the day near that value.
July 22nd, 2008 at 9:56 am
This market is very strong considering it is one of the worst earnings days I have seen in years. If this would have happened 2 weeks ago the Dow would be down 300 points. Time to sit back and observe the action.
July 22nd, 2008 at 9:57 am
The market has bounced back on strong volume this morning, so I have taken profits on my QQQQ and XLF puts. Apple appears to be making a bear flag, so I am keeping my Apple puts. That is now my only position, and am about 97% in cash.
July 22nd, 2008 at 9:57 am
I guess it’s all oil
July 22nd, 2008 at 10:03 am
Plunging oil still still key factor.
Bad news will be pretty much ignored as long as oil is dropping IMHO.
Can be cost;ly to the wallet to buy Debka propaganda about an upcoming blockade of Iran. Those boys are confusing the wish with the reality.
The oil market obviously thinks this is pure BS.
July 22nd, 2008 at 10:04 am
I guess I went short early, but oslo down quite a lot on oil. I got lucky.
In general there’s a bit more fear than yesterday. The numbers are so bad this rally will falter.
July 22nd, 2008 at 10:04 am
Hi Crash,
Yep, it’s all oil - again. But the bulls will take whatever they can get.
Matt
July 22nd, 2008 at 10:14 am
Matt, is this the rumored oil to gold we’re seeing?
July 22nd, 2008 at 10:22 am
Gold is also down, VIX is barely up. There’s no panic here, especially considering the news.
July 22nd, 2008 at 10:23 am
Plunging oil is boosting even Apple this morning, so I have taken profits on my puts. I made a 40% return in one day. I may remount the short if oil stabilizes.
July 22nd, 2008 at 10:31 am
Let’s see if SPX 1250-53 holds on any additional pullback here.
If so, we could be setting up a big wave up to above 1300.
If not, the next prospective ST target is the 1220s.
With the XOI AND BKX weakening, it is possible (not probable yet) that we are setting up for another dip lower.
July 22nd, 2008 at 10:35 am
Matt, at this point in the cycle, notwithstanding the maniacal Neocons/Zionists/Bushies attacking Iran, the higher price of oil will become less of a catalyst for lower stock prices and slower earnings and real GDP growth; therefore, I would caution against perceiving lower oil as bullish for stocks (and vice versa) at this point in the business (Kitchin), commodities, and stock market cycles.
July 22nd, 2008 at 10:37 am
if oil can get past its 50 day and hold i will reshort in size. i just don’t see how the mkt can stay positive in light of the terrible earnings reports. if oil spikes up, the mkt will fall over.
July 22nd, 2008 at 11:09 am
Bears beware.
SPX 1240s support has held with ST bullish divergences emerging.
SPX 1280s-1310s to 1320s-30s, here we come.
July 22nd, 2008 at 11:14 am
Tony G,
I think the oil chart will develop like the UNG chart, which means another 10% down from here. If I knew what the Iranians were going to do, I would short USO.
Matt
July 22nd, 2008 at 11:16 am
Larry,
I don’t pay too much attention to the gold bugs because they will always make your outlook too negative.
Matt
July 22nd, 2008 at 11:21 am
With oil down $4.50, and the market barely flat, this is not an impressive showing for stocks. Nevertheless, internals have been steadily improving over the past week.
I don’t regard this as a good time to go long or short. Of course, the economy is going over a cliff, and I’m not so sure that is priced in. If the BLS gives us a jobs report that is even close to reality, the market will definitely not like it.
July 22nd, 2008 at 11:24 am
Matt, if you believe oil is heading down 10% from here, shouldn’t you be long for the time being, as oil seems to be driving the mkt. Btw, I can’t believe XLF is positive right now.
July 22nd, 2008 at 11:30 am
I think that I’ll wait for oil at $120 and then go buy calls 30-60 days out. I won’t buy gold because it really doesn’t have that much of an inherent value in terms of supply and demand.
The main basis for oil’s drop today is not the storm waning (storms are expected), but the fear that the FED will raise rates.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aXzLcq31PuJ8&refer=home
However, until the first rate hike, I won’t believe it.
July 22nd, 2008 at 11:35 am
I’m long Exxon (XOM) since they will make tons of money as long as oil is above $90, and long Merck because of limited downside given the 15-20% 2-day haircut they are taking and because they are in a defensive field. I think MSFT at $25 will be very strong since they have piles of cash and never had a huge PE ratio like AAPL and GOOG
July 22nd, 2008 at 11:37 am
Yesterday I mentioned that I was thinking about shorting the XLE, and today it looks like the XLE’s bear-flag rally is over. So I just pulled the trigger on a small number of XLE puts (XBTTX). This is now my only position and am 98% in cash.
The XLE has been under distribution for quite a while now, so I don’t think it will do well even if oil catches a bounce. The past six sessions have painted a classic bear-flag pattern on the chart: a rapid, high-volume decline, a lower volume snap-back, and today a complete loss of the upside momentum.
If this pattern continues to evolve in textbook fashion, the next drop should equal the initial drop from $83 to $74. So, that would be to about $70, which would be a test of the XLE’s March low.
July 22nd, 2008 at 12:42 pm
Agree w you Matt on gold.
This market is way too difficult for me to trade. Shorting oslo/sydney to the bottom. Let the eventual rally come.
The emerging market bubble will soon pop. From boom to bust in credit.
July 22nd, 2008 at 12:45 pm
Tony G,
Iran has a lot of power over oil. So does Israel. I cannot predict what they will do, so I am happy to stay mostly in cash for now.
Matt
July 22nd, 2008 at 12:48 pm
SPY is getting totally slapped around by USO again today. The i-banks will turn off their sell-oil-buy-stocks programs when oil settles at 2:30pm EST, so we will see if stocks can stand on their own. They did so yesterday, but we’ve had a good deal of bad earnings news since then, so today is a jump ball.
July 22nd, 2008 at 12:56 pm
While large stocks are flat today, the IWM is up 1%. The volume may come in below average, but it is an impressive move nonetheless.
July 22nd, 2008 at 1:10 pm
Semgroup bankrupt because of drop in oil. This should cool speculation and move prices lower.
June killed amex’ q2. Are people blind?
July 22nd, 2008 at 1:10 pm
Whoops…looks like I jinxed the IWM. It is now falling back on heavy volume, and has made a potentially dangerous rounding-top pattern on its intra-day chart.
July 22nd, 2008 at 1:20 pm
Larry, the Reuters story says that Semgroup was short.
July 22nd, 2008 at 1:51 pm
The IWM has survived, and stocks are now defying oil. Since 1pm, USO has moved up, but so has SPY. I’m thinking the market will finish solidly in the green today.
July 22nd, 2008 at 1:54 pm
i agree. DIA will not go below its 200 day MA. bounces off of it hard every time. i have no idea why the mkt is so strong today. oil is on sale for $4.20/gallon i guess.
July 22nd, 2008 at 2:17 pm
“. . . i have no idea why the mkt is so strong today.”
Gentlemen,
The US banking system has $10T+ in liabilities and less than $300B in cash in reserves; this does not count the off-balance-sheet toxic garbage and the impending losses from credit cards, alt-A and prime RE loans, home-equity, commercial RE, loans, small business loans, etc.
In response to this slow-motion meltdown in bank “assets”, the Fed has lent nearly half a trillion dollars of its Treasury assets to banks to paper over their imploding balance sheets.
Bottom line: The US banking system is insolvent, period.
Therefore, the NY Fed, Treasury, SEC, and every principal federal gov’t elected official are in full panic mode and eager to do literally “whatever it takes” to prevent a 1893- and 1931-like, cascading collapse of the global financial system.
In this context, don’t rule out the NY Fed and primary dealers directly levering up to buy SPX futures and the equities and debt of financials to squeeze shorts at every optimal technical juncture.
July 22nd, 2008 at 2:20 pm
I just bought some IWM calls (DIWHS). The IWM is clearly the leader of this rally and has a nice bull-flag on its 60-minute chart today. So, now I have two small positions: the IWM calls, and the XLE puts. I may add to the XLE puts if the XLE bounces up.
July 22nd, 2008 at 2:44 pm
Today’s drama is that SPY is attempting to close above the intra-day March low of $126.07. SPY has been eating away at the resistance at that level for four days now, and will probably break through.
July 22nd, 2008 at 2:48 pm
SPY just popped to a new daily high on heavy volume. I am playing along with a large number of August calls (SPYHW).
July 22nd, 2008 at 2:56 pm
SPY and IWM are now making bull-flag patterns, breadth is continuing to strengthen, and the market will almost certainly move higher.
July 22nd, 2008 at 3:01 pm
Matt, do you ever buy VIX calls ?
July 22nd, 2008 at 3:02 pm
SPY’s volume now exceeds yesterday’s, and IWM’s far exceeds yesterday’s. This is a pretty convincing breakout.
July 22nd, 2008 at 3:03 pm
Hi after,
No, I don’t. I like to keep things as simple as possible. Why do you like them?
Matt
July 22nd, 2008 at 3:14 pm
Hi Matt.
Re the VIX, I sometimes think that if things really unravel, maybe vix gets to 50? If so, and if I could get calls at the 25 strike price a couple months out for a dollar, well, do the math -g-
but there are likely better approaches, as the spreads on those calls can be large on a % basis
July 22nd, 2008 at 3:16 pm
SPY is now trying to fight through yesterday morning’s high. It is holding its bull-flag pattern, and the tape is staying strong, so I think it will break through.
July 22nd, 2008 at 3:35 pm
The short-term model that I use is getting close to giving an overbought signal for the S&P 500, so I have taken profits on my IWM and SPY calls. So, I am back to 99% cash. My only position now is the XLE puts that I bought earlier. I have 9% loss on them so far, but I made ten times that on my calls today, so I am happy.
Looks like I took profits too early, but I did well catching the breakout, and if I keep taking profits too early like this, I will still end up very rich. I also haven’t forgotten what happened with the earnings reports after hours yesterday. This is still a nasty recession, and just because the market is in the mood to ignore bad news, that doesn’t mean that the bad news will stop coming.
July 22nd, 2008 at 3:39 pm
Those of you who are long energy stocks might want to notice how the XLE is totally failing to take part in SPY’s big breakout.
July 22nd, 2008 at 3:47 pm
Thanks to your great blog I successfully completed my first 2 day trades
at friday `s close . I have been watching and listening since then.
Everyone has been very helpfull.
July 22nd, 2008 at 3:48 pm
The trades were in energy
July 22nd, 2008 at 3:53 pm
You’re welcome Average guy.
Matt
July 22nd, 2008 at 3:56 pm
First target area reached at SPX 1273-78, which could be the extent of the rally bear rally.
However, after a pullback that holds 1228-48, there are potential targets in the 1280s to 1300s-30s.
Break below 1226-28 and the ST bullish trend fails.
Bullish divergences and volume imply the bullish outcome.
July 22nd, 2008 at 4:13 pm
Matt, great call on the end of day action. i didn’t make money on it but i prevented myself from losing more money. i was long a painful amount of skf and dxd, but took the trade off before the last leg of this rally.
July 22nd, 2008 at 4:18 pm
I wonder how long before the market remembers that losing $8.9 billion is not really a good reason for a stock to rally 20%… I’ll be watching KRE (regional banks). While the KBW index contains banks “too big to fail,” KRE contains banks “too small to care.”
after,
VIX fast approaching the worry-free teenage years. VIX options exercise european style, so there’s not much time-premium. Best way to play the VIX, buy deep-in-the-money with plenty of time (at least two months). I would wait until the rally death is over and confirmed. Do not trade VIX options unless you watch them for a few weeks first to understand how they are priced (european-style options behave quite differently than American-style)
July 22nd, 2008 at 4:24 pm
Hi Tony G,
Glad you dodged that bullet, or maybe I should say cannon ball!
Matt
July 22nd, 2008 at 4:33 pm
Also a laggard in this big rally, along with the XLE, are the Q’s, which closed at “Zero, Point, Zero” - just like in Animal House. Apple staged a spectacular comeback, but once the excitement dies down, it will be a short once again.
July 22nd, 2008 at 4:49 pm
Matt, do you do this full time? I must say that today’s rally took me by surprise which is why i held my shorts so long. i kept telling myself the mkt would sell off by end of day. do you think the rally was driven by shorts getting squeezed? thanks for all the insight btw. i tend to agree with 99% of your thoughts but i’m not as good with the tech analysis so your sight has been very helpful. i’ve been following your blog the past few wks and you have an excellent track record.
July 22nd, 2008 at 5:07 pm
Why would the q’s close unchanged if the nas was up big?
July 22nd, 2008 at 5:14 pm
McClellan Osc surged again today and now equals the levels reached at a number of previous rally peaks.
http://www.stockcharts.com/charts/indices/McSumNYSE.html
Market overbought is an understatment here.
July 22nd, 2008 at 5:34 pm
Mat, nice call on the Monday crash!
July 22nd, 2008 at 5:46 pm
Matt,
Good call flipping long.
When the situation changes, I change. What do you do?” –John Maynard Keynes
July 22nd, 2008 at 8:14 pm
After,
The Q’s are a proxy for the Nasdaq 100 - the top 100 stocks in the Nasd. So today’s action means that the stocks that make up the Nasd 100 struggled today. The stocks outside the Nasd 100 did very well.
July 22nd, 2008 at 9:27 pm
Brand,
The market closed with a sickening thud in after-hours trading on Monday, and was only saved by a plunge in oil Tuesday morning. My prediction was accurate enough for me to make a lot of money with XLF, QQQQ, and Apple puts on Monday/Tuesday morning. In the stock market, predictions that are accurate in the short-term are more than enough to make good money.
Matt
July 22nd, 2008 at 9:31 pm
Tony G,
Yes, I trade full-time now. I also study the market for a few more hours after it closes each day.
There is a large contingent of traders, including Jim Cramer, that does not believe in technical chart analysis. They are crazy; and the source of all the money that I am making.
Matt
July 22nd, 2008 at 9:34 pm
Thanks Robo. And I think I may have discovered a new indicator that will help me switch sides faster next time.
Matt