The Case for Getting Short 23 comments
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Ok, I think there's an argument for it here - getting short, that is.
Here's the general setup (click to enlarge):
That's three channels, each at a higher slope. This is the marker of a parabolic blow-off top.
There is the time factor - about two months since the bottom at 666, roughly the maximum expected for a bear market rally.
There is the fact that in general, new bull markets don't start with a parabolic blow-off after the initial reflex move off the bottom, and yet we got one here - the original move off the bottom, but again here.
Those are characteristics of a blow-off parabolic top - or a bear rally, as people are sucked into being forced to cover as the market rises and the Margin Monster comes knocking.
The setup is not quite complete tho - here's the one-hour (click to enlarge):
Notice that we're sitting right on the second (less parabolic) channel top. That must fall, and the danger is that it does, you short, and the trendline you're using for a stop runs away from you.
So the gambit here is to do it on the break downward but be prepared to stop out at whatever your predetermined pain threshold is, enter that as a mechanical stop in case you're wrong and do not move it.
You have to accept the risk of a pip, because you might get one.
You also have to watch the bottom of the final parabolic channel and then the second level one under it. Either could hold, and if it does, you want out.
In the first case you probably get a big fat nothing out of the short position by the time you react. In the second, however, you get a decent profit.
If the second channel goes down then the odds are good we're headed back into the mid 800s near the confluence of that diagonal down around 860.
That's a damn nice trade and you can reassess there.
Daily stochastics are supportive of this if the break comes; trying to front-run it is dangerous as the market can (and sometimes does!) stay overbought or oversold for an insane amount of time, so being "early" can be very expensive (click to enlarge).
Disclosure: Short small the /ES futures; if we get cranking I will likely add.
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This article has 23 comments:
The economical recovery may have started but I still believe the market needs to test again the 700-750 level.
On May 07 06:45 PM Cetin Hakimoglu wrote:
> Futures surging due to benign stress test results. I hope no one
> heded the author's advice. The crisis has been fixed by printing
> a trillion dollars
On May 07 06:45 PM Cetin Hakimoglu wrote:
> Futures surging due to benign stress test results. I hope no one
> heded the author's advice. The crisis has been fixed by printing
> a trillion dollars
What's the Onion article title about how we now want to be lied to? Let me check. "Nation Ready To Be Lied To About Economy Again."
Sometimes the Onion makes more sense than "real" news.
On May 07 06:45 PM Cetin Hakimoglu wrote:
> Futures surging due to benign stress test results. I hope no one
> heded the author's advice. The crisis has been fixed by printing
> a trillion dollars
Trotsky +10
Remember, lots of people said that last spring too, after Bear Stearns and Fraudie and Fhoney were taken under.
Anyone remember what came next?
On May 07 06:45 PM Cetin Hakimoglu wrote:
> Futures surging due to benign stress test results. I hope no one
> heded the author's advice. The crisis has been fixed by printing
> a trillion dollars
If you didn't, as long as you got it halfway down or more you stil have a safe stop with no or very little loss.
Post-close tonight the update on this is that tomorrow is a critical day; a number of indices and big individual names posted outside reversals, which are usually valid. The SPX did not, and requires confirmation as a result.
Again, this is a short-term trade setup - I don't think this rally is done, but it is vastly overextended in the short term. There are other parts of my regular analysis (fib relationships) that suggest we are due for a significant turn in polarity right around OpEx; if we were to tank now, that would likely be a local bottom with the final leg of this retracement coming post expiration.
Then as we get further into the summer, watch out when it starts to sink in that the economy really ISN'T improving.
It'd be nice if they could, but its not reality. If it "worked" we wouldn't still be seeing credit demand collapse and home prices continue to fall, but they are.
BTW see my morning entries - Fannie is doing some truth-telling on the latter point.
On May 08 06:45 AM Iconoclast421 wrote:
> Why bet against the printing press now that we're so close to the
> 200dma? They ran SPX up this far, they'll probably run it up to 955
> at least.
And besides, if the Fed buys 2 trillion in residential MBS, that by my guess is at least a trillion of "new" money minted out of thin air from the Fed overpaying. So the banks get to book a bunch more profits. They wont do it all at once, because that would be too greedy. But they will use that money to write off the MBS that they still hold. If everything goes as planned, the banks get their balance sheets cleaned. No one cares if the taxpayer gets screwed in the end, even the taxpayer, apparently. The Fed is just going to keep loading up its balance sheet with crap and exchanging that crap for money. Banks will profit, the money will flow out of wall street into commodities, the resulting inflation will be factored out of CPI, GDP will be fudged upwards, millions will flow into tent cities, and the media will report all of this as great news! And Wall Street will soar! I want to know specifically why you dont see that happening. They are criminals, and they have control over all the levers now. They've thrown down the gauntlet, its all out in the open now, and like Carlin said, no one really seems to care. I have my own theories as to why, but it doesnt really matter at this point.
looking at the pattern, it smells like a stinky normal a-b-c corrective pattern and if it really is, it will top out either at 1000 (SPX) or 1100 (SPX). likley, it vwill be 1.050 in the sp500.
longer term, this market will likely revisit the match lows and go lower - 400-500 would be my best guess.
that being said, you still could make money in individual stocks and corporate bonds without shorting anything.
However, I will scale into spome otm shorts here for protection.
remember, the heaviest rally off the 1932 lows went 75-80% that's tmhe maximum upside that i give this market off the march 09 lows and if it gets near to 60% i will sell 80% of my stocks and take 50% of the proceeds to go short the overall market
i am of the belief that the average recovery period from a 45%+ decline in the last 100 years lasted for 200+ trading days. and the up move averaged 60%. these are facts not tea leave revelations.