Tuesday, January 26, 2010

Momentum appears to be waning

Stock Market Heading for Black Monday Crash?

On Friday Goldman Sachs and J P Morgan broke down decisively from their Head-and-Shoulders tops, a development that we predicted before the open based in large part on the huge downside volume in these stocks on Thursday. The Put options that we bought in the early trade in GS and JPM soared, some contracts rising by about 50% by the close. This bearish development caused shockwaves to spread through the market which accelerated to the downside late in the day. After 2 days of heavy losses the Precious Metals stocks indices stopped for a breather just above their 200-day moving averages, and closed virtually unchanged on the day.

Posted by freemanphil @ 12:46 AM (1396 views)
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16 thoughts on “Momentum appears to be waning

  • Actually, gold is at its 100 day average. Gold’s 200 day moving average just breached $1000/ounce around the 10th of January.
    This is actually very bullish for gold. It could correct to $1000/ounce in a stock market crash, but that should provide a new resistance level.

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  • Freeman – just got out of some S&P shorts. (was actually looking for 1080 but im not greedy). Still have a short position just in case but dont think its going much lower without the Bulls buying “on the cheap”. As for reasons why :

    http://2.bp.blogspot.com/_TwUS3GyHKsQ/S14w_Prp6JI/AAAAAAAADss/qSr1BxZW9mU/s1600-h/spx.png

    Its a 5 min chart, a breach back above 1100, will run the stops of the bears and give the right feel to the 1115 level. But the alternative is yes your crash scenario, or maybe the crash scenario after the 1115 level. That would be pretty typical in my book.

    As for Gold, i said on this blog to look as a trade to 1150 from about 1080 at the time – i didnt do it myself as i was already fully loaded with other goodies. But now i just dont have a strong feeling for it – thats not to say i think you are wrong, but if anything the fact it didnt stay above 1150 for very long makes me err on the bearish side (unless and until that 1150 is broken). So i wont be trading it for a while, unless perhaps to hedge a physical.

    And as for a new resistance, surely you mean a new support?

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  • As for the charts the breakline of the H&S neck, is typically accompanied with a pullback to the neckline and the RSI on the S&P Dailies havent been this low since last March.

    Sort of mis-read your Gold comment where you are basically saying that the market could fall to $1,000 and THEN bounce back.

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  • mountain goat says:

    TM from the blog you mention “What really catches your eye is that it only took the market about 1/3rd the time it took to rally to get back toward the market lows of 1929. That would imply in less than 3 months time, we could be sub-900 SPX. Thats the potential power of P3 – The Ponzi wave]”

    It’s the speed that has people thinking about a crash.

    I am enjoying the action but still scratching my head about what happened on the 18th, 19th and 20th when things whipsawed just prior to the plunge. Were the big boys messing with the shorts or was this some other typical technical formation?

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  • Hi MG – well technically you just have to remember that most of the time the market will do everything to get you out of your position. [thats why most people give up].

    Sometimes you will be right to get out and other times wrong. I personally was a little short and caught on those days. And really was expecting to be stopped out, particularly as one of the days it closed on the highs. I will tell you my stop was at 1154, so i was holding my breath, as i was short at 1130 ish, for a reasonable amount. And also short of FTSE @ 5568.

    The key was that in after hours on the 19th the dow came off 30 points straight after the closing bell and had gone down further by the following morning. At that time i knew it was probably a suck in and i would be ok, again so long as it didnt breach that high. So i actually sold a bit more!

    I think really they were messing with the Bulls. This incidentially is why its so difficult to sell off the top without any real confirmation. We hadnt broken an average or anything so it was really just a hunch that made me say “thats enough”. However the FTSE 5600 was technically perfect – i did wait for some confirmation that day but only on an hourly chart.

    When it comes off the bulls will be looking to buy the dips. This is why i think we will see a retracement when the bulls take us back up, most of them will think that retracement is on its way to new highs, so if that doesnt happen (and to be fair it might) its time to look out below. Of course that is why i have elected to take some profits off the table. If i was sure that there would be aa retracement i would liquidate all of it …. but of course you are never sure!!!

    Of course the people that did wait for the confirmation on say the 10 and 20 day MAs would have been whipsawed and because of prior moves they may very well have thrown in the towel – especially when the market closed at 1114 with a big move down on the day they got in – of course if they had reversed to the long side too that would have been worse and if now it does retrace to around 1115 on a close, they will probably reverse… again! And if i am right they will get another whipsaw.

    Thats just often the way it works… which is why you have to often think the opposite to what you would normally think!!

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  • MG i actually think his blog is very good and for the equity markets probably all you need to stay safe. As we have said before eventually it will be time to buy this market and go in guns blazing but at the moment i think its the other way. Essentially what he says is that we are about to enter P3. If thats right you really dont want to try and finesse by trying to be too clever… looking for a bottom to then re-short higher up, but really just hold shorts (which i assume you have) and decide now how much pain you are willing to accept, and then stick to it.

    Basically if this whole move breaks the prior high i will be at b/even and look for another sensible place to short. Really i have shorted a couple of times on the way up, because the points up were zig zag, double zig zag abnd triple zig zag. As things stand there is no retracement move than the triple zz, so if it was to go to a new high it would just have to have an extension in one of the zzs. That just doesnt fit right, although nothing is impossible..

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  • @5 “I will tell you my stop was at 1154, so i was holding my breath, as i was short at 1130 ish”

    Techieman, you trade with a 24 point stop on the S&P!!?!?….*Wow*

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  • mountain goat says:

    TM thanks for the reply. Even Mr P got confused and messed with those days it seemed from his interim reports. I found it dramatic how the S&P ended a few pips above the high of the previous day (but short of your stop), and fell straight back down the next morning. So you think it was the bulls getting sucked in. I have concluded I am really not cut out for the short-term trading. Don’t have the bottle or knowledge. Just using Mr P to help me with the big picture and timing, holding my shorts and taken the pain so far. Prepared to take more if I have to. If the speed of falls of last week are anything to go by P3 should be terrifying. Of course you need to stay open to the facts but currently I think I will start getting twitchy when we break March’s low. Then I worry about getting paid, like the mess with AIG ETF’s in 2008. “Return of capital” rather than “return on capital”. If Obama wants a fight with Wall Street (which is what US voters probably want) things could get very messy.

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  • Hi estrader …. yep but only when im coming off the top, which is why i hardly ever do it!!! :-). I can tell you that the trade was half my normal size, and yes that would have cost me a fair few bob had it been hit!

    But thats what a position trader does, if i am looking for a big reward, clearly i dont want to get stopped out and am probably going to have a big risk. Of course for whats left its not 1154 now!! I respect your position that you trade in small timeframes and dont take them home, but you have to appreciate there is more than one way to skin a cat. Actually generally i think its incredibly difficult to trade short term, without any advantage (such as seeing orders) – but if that’s how your system is then good luck, i am full of admiration. Personally i am much more relaxed doing it this way – i have traded your way before and it really doesn’t suit my personality. [each to their own, i am really not being critical].

    That FTSE for example i actually got in right at the top of the retracement on that day, but the stop was at around 5630 (because if it went further up as you know the prior high would be a red flag to the bulls to run the stops a bit). And yes i did get out of most of that just above 5200.

    I know that you think this is just a shakeout from the top, before new highs per your prior post. So it will be interesting to see what happens when we get near (what i think will be the retracement level). We have 1093 as i type which means its [mis]behaving as expected :-). Lets see what happens when they come in from the other side of the pond.

    Someone i follow says that the high will only be in “for sure” – his words not mine – (i am never sure) if we break 1075, i said i was looking for 1080 – which i was but i got a little bit greedy so i paid the mid 1080s – but 50 points is not to be sneezed at – not to mention the shorts left some in the mid 40s.

    I know the general rule – i.e. make yr profits three times your losses, but in reality this shorting off the top isnt really what i do, so yes the big stop isnt what i normally do. As for when to get out, i dont have a prescribed view on targets because it just to me depends on the patterns. So for say the FTSE one day the target might be 100points another 300. I wouldnt generally take a trade unless i thought it could move 100 points in the FTSE, or 100 pips in Forex minimum.

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  • MG – personally i cant see IG (who i trade with mostly because of the tax) running out of money – i know what Flash says re spreads and he is right of course, the spreads with them are pretty bad, so if i wanted to be a short-term trader i probably would look elsewhere. EStrader who do you use??

    But generally people are bullish – so i would actually be more worried about being paid out if we were in the reverse position and having some massive spikes up. I personally know someone who made £3m on one position and closed his account with IG (tax free).

    I suppose they could lose out if they were covering within the spread and their counter parties went t*ts up. But again i think thats more likely on the Bull side. Not many people do actually short the market.

    “when we break March’s low” dont you mean IF??? :-). Even i have said this is only currently a 55% probability… and im a “perma bear” ;-).

    Yes Mr P did c0ck up a bit didnt he! Tried to lower the stop too quick really (ive always found that to be a mistake) and as i said hes always a bit early. Nice call though on his additional position (assuming you didnt get stopped!). I can tell you now he wont be looking to get out unless he sees DSI through the floor, and a fall below March. But you probably know that. A sell and hold position!!

    As for the short term stuff – yes i think you are right – as i said re finesseing. Emotionally its hard to go short on a retracement…if it is one …. especially because they will generally be very fast and you think its gonna plough straight through. Thats when you need to see some confirmation on the shorter timeframes, and maybe have more than one bite at the cherry.

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  • @9 Techieman, I am not making a guess about the ‘shakeout’, I was merely speaking from experience. Every day makes the picture clearer, as you know. My target for the ESH, speaking from experience and if my figuring is correct, should be 1104 by or before the close today. But as always, do your won research!

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  • Thanks for the response. Estrader, yep the platform looks good but at the end of the day i suppose you have to balance the advantages of the spread betting platforms, (IG . City, tradefair etc) i.e. no tax, with the “proper” platforms – good execution, lower spreads. What spreads do they have on S&P and Dow for H/ U/ Z etc.

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  • ” My target for the ESH, speaking from experience and if my figuring is correct, should be 1104 by or before the close today.” I dont know about by the end of today, but i do hope you are right!! BTW i dont think you need to bother with “do your own research” – its an opinion, i think if the powers that be thought that you or i were giving advice, the posts would be deleted pdq!.

    In other words do your own research is a given!.

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  • mountain goat says:

    TM – . “when we break March’s low” dont you mean IF??? 🙂

    No I meant that’s when I get twitchy, as opposed to deciding more calmly when to go to cash. But yes that would be my most favourable outcome and nothing is guaranteed.

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  • @14 – Techie, the spread on the ES contract is 0.25 points, not sure about the YM because I don’t trade it. I also have A/C’s with IG index and IG markets.

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