Friday, November 9, 2007

Where’s Waldo?

The markets have not been a lot of fun and games for the past couple of days, so I thought this might be a good time to play ‘Where’s Waldo?’

For the sake of argument, instead of that trademark red and white sweater and cap that often gives him away, imagine that Waldo is a long red candlestick followed by anything that looks like a strong bounce back week immediately thereafter. Can you find a Waldo that looks like this? While there are many long red candlesticks, I can’t find one Waldo – at least looking at the NASDAQ weekly chart going back six years. Don’t forget that almost the entire period covered in this chart is a raging bull market, so the bias should be bullish and there should be a bunch of Waldos.

How many longs will be brave enough to hold over the weekend? My sense of the current market is that the ugliness continues at least into the first half of Monday’s session, at which point the bulls will have their first chance to show what sort of firepower they still have left.

Disclaimer: I am short Waldo as this goes to press.


Mike G said...

I see your point, and it's a good one. I do wonder about one point on the chart - August 04 - is there a strong upside reversal there two weeks after the big red bar, or no? I could be wrong, just thinking out loud.

Bill Luby said...

Yes, that's what happened in August 2004. After the big red bar, there is another small red candle that coincides with the near-term bottom and the 1750.80 on the chart. This is then followed by two big up weeks and a bull leg that is uninterrupted until the end of 2004.

Agustin said...

Bill. You were bearish on the market, and bullish on the VIX. Well done! Now, could you please translate your last post into plain English? Thanks in advance. Agustin @

Bill Luby said...

Hi Agustin,

It's nice to know that VIX and More had a global following, but sometimes that means some of my cultural references fall on deaf ears.

So I checked Wikipedia and learned that Where's Waldo? is also translated as Where's Wally/Walter/Charlie/Willie/etc. in a number of different languages (I don't know what his name might be in Dutch.) It is essentially a picture book for a younger audience which challenges the reader by putting the likeness of the same Waldo figure in a variety of visually complicated images and asks the reader to find him.

The point of my post was that whenever there is a long red candle in the weekly NASDAQ chart (I only went back 6 years) I could not find a subsequent candle where there was a bounce back rally (the metaphorical Waldos) the following (contrary to what I had expected to find), recent history argues against a bounce back rally.

I'm still bearish and will be looking closely to see if the bulls are able to make any headway in the coming week.



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