A quick update on our 2011 v 2007/8 comparison chart:
Here's a close-up. On Feb 27, 2008,SPX had climbed 120 points off the bottom (24 days) and was 8 points away from establishing a new higher high. Instead, it fell 131 points over the next 13 trading days.
As of this past Friday, we have climbed 120 points off the bottom (27 days) and are 10 points away from establishing a new higher high. If this doesn't mean anything to you, go back up and read the last paragraph again.
A 130 point drop from here, BTW, would take us to 1090. All we need is 1145, however, to complete the head and shoulders pattern discussed below with a 1040-1050 target.
And my last chart for the weekend -- the comparison between the past 5 weeks and the overall 2011 topping pattern. Eerily similar.
Some believe that Greece and EUR problems are baked into current prices, that we've seen the bottom. I say the problems are just beginning to get much worse. I think the only thing baked into prices is the belief that the Fed can wave its magic wand and bring back the bull. I believe there will be a lot of disappointment in the weeks ahead.
I think the huge rally engineered over the past 5 weeks was a do or die effort by market makers to salvage their books after massive losses sustained in the 250-point plunge. They got through OPEX alive, and will position themselves better in the coming leg down.
ONE LAST COMPARISON...
Sorry, couldn't resist this one. Maybe it's nothing, but the bearish Bat pattern we completed Friday reminded me of similar patterns I'd seen on dates I consider equivalent. The pattern shapes vary, but they all end with a .886 Fib retracement. You decide.
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| Bat completed 9/16/2011 |
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| Bat completed Feb 26, 2008 |
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| Bat completed July 21, 2011 |
FRIDAY - EOD:
Long, long week for us bears. But, the day went well. And, next week should be a lot more fun.
As someone recently told me, you can't make this stuff up (no matter how often I try.) For instance, check out the 2 standard deviation regression channel from the Aug 9 low.
The 2nd line from the top is the +1 std dev line. It landed at 1220 today. As in...the high of the day. This would be easy to ignore if not for the fact that such a channel guided the Feb - Jul 2011 top. A final touch at the +1 std dev line on July 7 marked the beginning of the end.
If I'm right, and we get a strong reversal off this 1220 high that takes us back to 1145, we'll complete a nice 100-point Head & Shoulders pattern that has potential to 1040-1050.
Here's a view of the big picture. I like this chart, also, because it does a good job of showing the Big Red Line that's being backtested right now (along with Trend Line X.)
It made a couple of pretty important stops in Apr and Nov 2010. Fan Line E (from Oct 2007 through the Apr 2010 high) might play an important role in the near future. I'm drawn to the intersection of E and a horizontal TL marking May, Jun and Aug 2010 lows -- wondering if this might be the terminus of the wave 5 unfolding (pure speculation.)
But, notice what happens if we connect with the neckline (Fan Line 5) at 1145. The H&S completed over the past month becomes the right shoulder in a larger H&S pattern that has potential to 860.
But, why stop there? If we first get a nice bounce at 1040, say a Intermediate Wave 2 of 100 points or more that backtests Fan Line 5, the trip down to 860 would complete an even bigger H&S pattern (neckline = Trend Line at E) that targets 710.
That's a lot of "what if's" and "once upon a time's." Could it happen? It certainly fits with my view of the world economy over the next few years. Will it happen? Stay tuned.
ADDENDUM...
Thanks to "Just Me" for bringing a very cool chart to my attention. In the past 20 years, there hasn't been a serious incursion through the SMA 500 that didn't "take." In other words, no false signals.
Someone would have done pretty darned well just buying and selling on the crossovers. The current crossover doesn't hold much hope of a return to 1370 anytime soon.
Pebble, the commercials are heavily long ES futures AND SP futures. This is a very different setup than Feb/March 2008 when they were flat to short. The hedge funds AND the retail are heavily short. This does not resemble a setup for an immediate drop. I think the short interest has to be removed first. It looks a lot more like the first week of 2007 in that respect! I think you should research this for yourself....use softwarenorth.com
ReplyDeleteWouldn't have it any other way.
ReplyDeleteAll I am saying is the hedge funds and retail were LONG in Feb 2008, and in late Sept and Oct 2008. Now they are SHORT. We don't usually have crashes in that condition. Aug 2007 was the exception, and then we went to new highs. Now the retail and hedge funds are short AFTER the crash in August.
ReplyDeleteI meant to say it looks like the first week of September 2007...which began a big rally.
ReplyDeleteThanks for the link. Good site.
ReplyDeleteNot to be flip about it, but the commercials scaled their shorts way back in early July, right when I called for a sharp reversal and beginning of the bear market. Check the numbers for 7/7 and 7/21. They then started skewing long on Aug 2, when the market hit 1250, thinking we'd bounce back up as usual. I was max short. We fell another 140 points instead.
The commercials are great at joining the party in force. But, they're not good at getting out in front of turns. Look at Feb 2011, for instance. They were barely short when the 2/18 crack first appeared.
Look, I'm not always right. Not even close. But, I have a different agenda than the commercials, who have to manage a book differently than a half-wit speculator like me.
As far as the current picture, a high bullish percentage like we have now is just great for being a bear. I'll enjoy having them jump on board the short bus when the market finally cracks.
http://snalaska.net/cot/current/charts/SP.png
ReplyDeletePlease see that commercials ramped up their short position (red bars) in SP throughout July as small specs amped up their massive long position (yellow bars). 7/19 and 7/26, small specs got longer and longer -- retail and small funds...waiting for the debt ceiling raise rally which never came...and commercials took the other side..as they must. They don't initiate the risk position, they take the trade the specs open.
In fact, they reduced their short position before the market rallied in mid to late June.
As for 2/18, the commercials were SHORT, now they are the longest in YEARS and getting LONGER.
And they were short (specs were long) for the Feb 2008 and October 2008 declines.
What are you looking at?
Furthermore, they did not skew long till the 8/16 report -- the bottom!
ReplyDeleteI see you are looking at the minor ES positons. Watch the big contract. The cars tell the tale. You also need to add them together to get the big picture. The specs are on the wrong side of the trade. Sorry.
ReplyDeleteI also want to say you have done a wonderful job navigating thru the summer and the crash...just trying to show you that it is WHO, not what which drives the action. WSJ buying on strength is individual stocks is also almost $20B so far this month while short interest is the highest since July 2009. Please be careful.
ReplyDeleteHook, the commercials were short almost every week since Sep 2010. But, as you can see, they reigned in their shorts in the weeks 6/28, 7/5 and 7/12. That's when they should have become more short if they'd correctly anticipated the coming decline. Same on 2/15: they had been scaling back shorts since Dec 28, and were at their "least short" position since Sep 2010 when the market cracked. If they correctly anticipated sudden, big turns in the markets, they would have expanded their shorts just prior to the reversals, instead of adding to them afterwards. They did a good job of going long in August (depending on trade dates) but I think they've missed the boat on this one, just like they did from Sep to Dec of 2010 when they quadrupled their shorts in the midst of a 150 point SPX rally. They're reactive, and they have books to hedge. I try to be proactive, as that's where I've made most of my money, and I'm not about hedging. Let's see what the next couple of weeks brings. If I'm wrong, I'll be the first to admit it.
ReplyDeleteAll the specs are betting on a crash and the shorts are the shortest in individual stocks since July 2009. They will get taken out before the next big leg down, just like in Feb 2008 and Oct 2008 -- these are the relevant comparisons not a bull market like Jan 2011.
ReplyDeleteEven though I don't agree and we are damn close to a MACD bullish cross on the weekly................damn fine work and charts. Well done.
ReplyDeleteIs anyone else out there watching the 500 day sma of the SP500?
ReplyDeleteWe've only dropped below the 500 day sma three times since the first Greenspan easy money equity bubble started to build in 1995.
The first crossing was October-ish 2000 followed by a slide from 1500-ish to 800-ish over the next two years.
The second crossing was January-ish 2008 followed by a slide from 1500-ish to 700, 1-1/2 years later.
The third crossing was 5 weeks ago. That would seem to make the 200 day sma (currently 1284 and trying to roll over and fall) our new lid at the most optimistic with something lower more likely and pointing back down to 7-800 in a year or so.
You do a nice job here. My cousin was a medevac pilot in Vietnam, WO1 - 57 Med Det - so your writeup on Dustoff is also a nice piece.
Wow! Never looked at the SMA 500 before. That's a nice one. No false signals, either, that I can see going back 20 years. When it crosses, it crosses and stays crossed for a while. Hope you don't mind if I steal it and post it above.
ReplyDeleteWhat's your cousin's name? When was he in Vietnam? Where was he stationed? I did a lot of research on the different units in the course of developing the story as a film project, would be curious if I came across his name. Thanks.
Line 23Nov69 ...
ReplyDeletehttp://www.armyaircrews.com/huey_nam_69.html
I was only 9. His parents passed away several years ago but he still has two brothers in town. I remember his parents traveling to the hospital in Hawaii for a month but I was too small to know what was going on.
I don't remember seeing anyone using anything beyond 50-200 days but maybe I don't read enough. I was playing with different moving averages the other night trying to find a magic cross that might mean something. Stretching out to 500 days seemed kind of interesting.
Nice...looks like it poked its head above the 200 both times. 200 flattening out and now...
ReplyDeleteLike your thinking here Pebble. Most people should avoid these markets like the plague but if you must trade, setting yourself apart from the herd and holding well reasoned convictions will improve your odds of success I think. Unfortunately far too much faith has been placed in the false religion of the Fed and I fear a Jonestown type event cannot be far off. Now I'm not a trader and while I certainly enjoy reading technical analysis such as yours, the reason that I have a somewhat different take than the 'Captain' about all this boils down to human nature. I'm a contrarian and the barometer I've been relying upon of late is what I've been reading and hearing from the bearish commentariat. First and foremost is the sound of a towel hitting the floor which does not seem to me to reflect the supposedly quantitative notion that everyone and his brother is short. Unlike several years back (say about the summer of '09) when every bear oriented blog on the planet was chock full of wave analysis citing imminent further catastrophic decline and stratagems to profit from it. Contrast the then uber bearishness with the almost universal absence of this sentiment approximately eight to twelve months earlier (summer '08). Nowadays we have tons of analysis supporting and justifying, dare I say it, further catastrophic upside. Wasn't it only several weeks ago (following the July drop no less) Goldman was still calling for 1450? I like to follow the oil and Dollar market and I remember the balls to the walls long view that prevailed in the former and all the extreme negativity surrounding the latter on or around your Independence Day '08. I also recall that more than a few of the 'pros' got their asses handed to them in several unrecognizable pieces shortly thereafter. The lesson being the so called professionals, including the current crop of policy wonks are about as far from infallible as you can get and occasionally the little guy gets it right.
ReplyDeleteCheers!
Thanks for the terrific commentary, Hetty. There was an article in Zerohedge recently talking about the highest short interest since 2009; I think that got everyone all excited about excessive bearishness.
ReplyDeleteBut, short interest and P/C ratio are nowhere near where they were during the comparable period in Feb 2008. (SPY short interest was down 6.1% from 8/15 to 8/31, despite an 85-pt SPX dip in between.) BofA short interest rose 50%, but only to 2.1%. Across the NDX, it's still only 3.3%. Frankly, I'm shocked it's not higher, given that we lost 250 SPX points scarcely five weeks ago.
I completely agree re the Fed. They keep coming up with new gimmicks, but one day soon they'll have to actually DO something, rather than just talking the markets up. And, investors will realize their ability to influence the overall direction is more limited today than in 2008. At least then, central banks had plenty of ammunition. Now, a few trillion in debt later, we're finding out it merely delayed the inevitable.
Yawwwnnnnn....Nice to see the bears are up late/early...
ReplyDeleteKnow many folks who have wished to have played this call as pebble said... Good job to whom ever linked to 500XOver... "Best/First warning signal telling you to get short or buy a pair of long shorts"... :D
0530 EST and S*P bouncing 1188/1194...
Precious Metals Steady w close...
Dollar showing strength...
Slew of broth out of Europe mainly Greece...
Protest hitting Wall St....
Hmmmmm....
Anyone smell collapse?
ZH : " The Hopium has run out; Stressium, however, is plentiful " End Quote....
Big contract short interest is multiples higher than the comparable period in 2008. That is the main difference. Destination is as you note. Only question is timing and when the massive short interest will be relived first.
ReplyDeletedata?
ReplyDeleteClick on the SP link at Software North above and see that specs are short almost 80,000 contracts vs 5000 in Feb 2008 for example.
ReplyDeleteApparently they correctly anticipated this downturn.
ReplyDeleteNope, commercials were short until August 9 because small specs were massively long the SP. Click the link.
ReplyDelete