Thursday, July 30, 2009

Waiting for a Line in the Sand

The rocket-fueled rally continues this morning, with today’s rally marked by very strong breadth and advancing volume ahead of declining volume by more than 10-1 as I write this.

Sooner or later, the bulls will run out of steam, the bears will get tired of retreating and we will have some semblance of a top. With SPX 1000 just around the corner, tomorrow the last trading day of the month and a number of overbought signals being pushed to extremes, today or tomorrow looks like a good place for any bears left alive to make their stand.

The chart below shows that since the March lows, five of the major indices have rallied from 43% (Dow Jones Industrial Average) to 64% (Russell 2000 small cap index).

In addition to being a nice round number and source of psychological support and resistance, SPX 1000 also marks exactly a 50% rally from the March bottom. If the bears cannot keep the SPX under 1010, then there is very little in the way of resistance on the way up to 1050.

I expect a line in the sand soon – and I expect it will have some staying power.


Bill Luby said...

A quick comment on the NDX (NASDAQ-100 index.) While I have listed the March 2009 low here, it actually bottomed in November at 1018.86 and with today's high, is up 60.3% from the November bottom.

Chandra said...

Well put, Bill. Market stays at current level and range bound till we see any sign of meaningful uptick in house prices and consumer spending, which may very well be around the corner due to "back to school" spending.
Tomorrow's 2nd quarter GDP should bring in some volatility and S&P may touch 1000 on better than expected GDP. Don't be surprised to see positive annualized GDP tomorrow due to surge in US exports in 2nd quarter.
Another significant development lately has been in the fx market where USD has been stronger against EUR inspire of risk taking in equities - a reversal in trend since yesterday.

Eric said...

I really should just stop trading. Getting stopped out of all my shorts.

I cannot get behind this market with the unemployment numbers and funny earnings numbers due to one-time cost cuts. I almost think we will have to wait until next earnings cycle for everyone to realize that one-time means one-time and that these companies have ultimately hurt their own growth engines.

stonebat said...

im ignoring the fundamentals. the early jumpers r still enjoying the rally. the late waders r jumping in, and more will jump in. the shorts r screaming to cover. no sign of dollar strength. consequently energy sector showing strength. there is no way i short the current market. but when it ends, it will turn very ugly. i need to see the dollar strength before shorting anything.

Chandra said...

Dollar has strengthened against EUR since yesterday from 1.428 to 1.408 even after seeing significant rally in equity market. This has been a reversal of trend since yesterday. On the other hand, USD-Yen trend is intact (where USD has been rallying with the equity market).
This just may be a good time for covered calls especially after the surge in SPX long calls.

Eric said...

stonebat, i thought we were gonna see that dollar strength yesterday. that is exactly what i am looking at. i was also seeing pullback in asia, but i was thrown for a loop.
i play the EUR:USD and saw that we were bumping up against some prior highs that haven't been broken. June 2 at 1.4335. Dec 18 at 1.4421.

I am looking at 1.397 to 1.425. Any breakout and I will open substantial positions.

stonebat said...

why make a trading decision based on only a few days of dollar strength?

based on the intermediate chart since this march, it looks like dollar is gonna make another leg down to complete the elliott wave.

i expect the market to make the final leg up as the dollar marks new low for this year.

Eric said...

stonebat, i think elliott wave is pointing to only a minor leg up. i really don't think it will have a daily close above 1.425. the elliott wave oscillator is indicating a downward trend.

EyeDoc said...

There was an article a few weeks ago about how parents aren't going to be spending much on back to school stuff, so I wouldn't count on that adding much to consumer spending. I don't know, we've gone up so far so fast I can't believe we're not heading for a significant correction very soon. I wouldn't do anything about it until it starts though.

stonebat said...

specific currency pairs? i just cannot analyze multiple signs from multiple pairs.

currently gold price is neither free falling nor skyrocketing when the dollar's intermediate trend is still down. so i expect the dollar rally to resume later this year. will it be late august? september? Q4? i dont know. im gonna wait for VERY strong dollar bullish sign that can stop this rally train.

Anonymous said...

you may want to look at that move in the dollar as a "Bear trap"

Today there was all this BS about dollar weakness, and a move from 1.40 to 1.405 doesn't exactly count, When the market ignored the move from 1.42 to 1.40... but it is good sentiment.

Bill... Sorry to do this but going to have to fade you. Many of the bears finally Gave up today, and you were one of the hold outs. If I could get doug Kass to give it up, we could make a Generational Top. LOL....

Because I respect the hell out of you, I felt I needed to give you the heads up.

and Certainly all the Punters gave up .... Again... hopefully they went long...

Anonymous said...

You've been saying this for weeks. Sooner or later, you'll be right about the line in the sand, but thus far you've been dead wrong.

Anonymous said...

Come on: July 2009 is just July 2007 deja vu. Remember there was a ferocious rally -- a head fake -- in July 2007 after the SEC abolished the uptick rule? The big guys first lifted the market all throughout July to suck in retail investors' money and then they started shorting the market on July 31, 2007 as their first "test" of the lethal power of shorting without the uptick rule. Look how ugly August 2007 was.

That's what we are heading into, folks.

History ALWAYS repeats on Wall Street. It's just whether you remember it or not.

Eric said...

EUR:USD is flying today. I thought the market would be up more. When the EUR:USD broke down yesterday toward the close, I opened some BGZ position for a quick buck. Good thing I haven't been trading the same today.

stonebat said...

this blog's comments are turning into... something like yahoo message boards.

i like data driven blogs... no opinion... just data and basic analysis. e.g. short-term overbought. retesting vix support. dollar trend down. usually thats what i tell people if they ask me about the market. usual responses are


then i tell them exact same thing again. short term overbought. vix blah blah. dollar blah blah. rate spread blah blah. nothing more. you know... one needs to learn how to analyze a set of data... and determine the chance of getting it right. i could be either wrong or right. but what is the chance that i get it right? how do i determine it? after i learn it, how to explain it to others who cannot analyze the data? impossible. so whats the point of spending one's time and effort to reveal his market opinion and getting dumb fxxx comments? pointless...

Anonymous said...


I'm the guy who made the "deja vu" comment. Thank you for your insightful comment. I won't argue with you. However, I'd like to remind you this is a "fakeroo" market and the big players constantly -- and purposely -- release false signals to mislead people and confuse their technical analysis. Just look at how often Rob (Quantifiable Edges), Frank (Trading the Odds), Cobra etc. are wrong and you know what I'm talking about.

Not only that, many technical analysts change their opinion based on their feeling and the direction of "momentum" in the market because TA is SO subjective and you can analyze the market from SO many different angles to validate your subjective opinion. That's why if you rely on TA alone to trade this market, you are gonna have a hard time.

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