Playable bounce coming, or a trap?

[tsptalk]

Can we get a few days of rally here, or do we head south on Monday again - or even late Friday?

I decided to buy this morning, but will look to bail if we approach the new declining resistance line, currently 1120-1130, depending on how quickly it gets there. The low today was 1056. The 200-day EMA could act as resistance aslo (1102) on a closing basis.

http://www.tsptalk.com/images/mb/052110a.gif

[tsptalk]

Looks like sell the rumor (financial reform) buy the news is playing out.

[fedgolfer]

Looks like sell the rumor (financial reform) buy the news is playing out.

agreed, maybe a little of the German rush-job on Euro-leg too. If you look at the $tran chart and when the bounces have come off the 200 EMA, a key piece of legislation has been stuffed through. This backs my opinion that Govt's and Central Banks know how to find a counter-party and use fear and when there's this much manipulation integral to the world economy's success, creating fear and finding a counter-party is synonomous... at some point they will have to engineer a soft landing.

http://stockcharts.com/h-sc/ui?s=$TRAN&p=D&yr=0&mn=10&dy=0&id=p55217204500

[tsptalk]

http://stockcharts.com/h-sc/ui?s=$TRAN&p=D&yr=0&mn=10&dy=0&id=p55217204500
Nice chart - I had to post it...

http://www.tsptalk.com/images/mb/052110b.gif

[crws]

been watching- vix still next to 40.
Looking for options info after reading- The market has rallied on huge volume caused by owners of put options that are closing out their potential short positions. Monday will be a down day after this false floor goes away.

I don't know what is high volume or not- care to comment?
http://www.cboe.com/data/IntraDayVol.aspx

found this on alpha: -Liked the article, too long to post.
http://seekingalpha.com/article/206259-down-does-not-equal-oversold?source=hp_wc

"We may well have a chance to buy cheap equities. Remember, Richard Russell has warned that stocks trading where they are now could be a precursor to a “major crash.” Nouriel Roubini, always a cheerful chap, says we are going down another 20% (which isn’t too bad given how much we have rallied over the last year). The Senate is moving to a final vote on financial regulatory reform. Coincidence? Sure.

[tsptalk]

Yeah, options expiration will push volume, particularly after a week like this week.

We are seeing the signs point toward a rare crash - but that's just it - they are rare. More often then not you get an oversold rally. That is why we must be nimble here. Lock in profits quickly if you can get them on rallies. I am still not ruling out new highs in the coming weeks / months, but I probably won't play it that way. I will take profits quickly.

[crws]

Hmmmm. Know anything about this guy?

http://www.benzinga.com/trading-ideas/long-ideas/10/05/294339/james-altucher-says-time-to-load-up-on-this-market-spy-qqqq-xl

Posted on 05/21/10 at 8:48am by Jason Raznick (http://www.benzinga.com/users/jason-raznick) http://cdn.benzinga.com/files/imagecache/article_page/altucher1_1.gif (http://cdn.benzinga.com/files/altucher1_1.gif)


James Altucher, stockpickr founder and Managing Director at Formula Capital, made a significant long call on twitter this morning.
Mr. Altucher said he is looking to buy stocks today. James Altucher said (http://twitter.com/jaltucher/status/14424265212), "My prediction for today. The day looks like 9/21/01. bottom by 10am then up for next 3 months. Going to put my money on this."
James continued, "Europe has to take forceful QE action today or this wkend : straight buying of sovereigns, stocks, whatever, w/out sterilizing on back end $$*."
If James' prediction is correct, a good way to follow James into this long trade would be to look at the SPDR S&P 500 ETF (NYSE: SPY (http://www.benzinga.com/stock/spy#NYSE)), PowerShares QQQ Trust (Nasdaq: QQQQ (http://www.benzinga.com/stock/qqqq#Nasdaq)) or the beaten up Financial Select Sector SPDR (NYSE: XLF (http://www.benzinga.com/stock/xlf#NYSE)).
James Altucher is a successful hedge fund manager and was once recruited by several funds for his many prescient calls. However, he never had a chance to work for arguably the best trader on the planet, James Simons of Renassiance Technologies as Altucher never finished his PhD degree (Simons only hires scientists and PhDs). Simons is smart so you can't criticize his hiring processes, but in this case, he lost out on some significant alpha.
On a personal note, I prefer PhD's, but rather of the poor, hungry and driven type (hat tip Dan Gilbert).
*The '$$' is a tag that Howard Lindzon's stocktwits uses to tag twitter posts to the stocktwits feed.
Disclosure: I have an investment in stocktwits.

http://blogs.wsj.com/financial-adviser/2010/03/25/go-ahead-hate-me-ill-still-help-you-make-money/

[FAB1]

Its a trap.

[tsptalk]

I don't know if anyone read my May 10 market commentary (http://www.tsptalk.com/comments_archive/comments_5_10_10.html), but everything I was looking for has happened. I have to ignore the emotions and stick with the plan. :sick:

[crws]

I looked at charts of that era, I'm no expert by any means, but this drop is way sharper than that time by far
-I mean over the immediate term. There were months of decline in 2001 before the bottom fell out.

[tsptalk]

I just added this to today's commentary (http://www.tsptalk.com/comments_archive/comments_5_21_10.html) (5/21)...

"How could I have forgotten to mention the 0.38 bulls (25%) to bears (66%) ratio from yesterday's Sentiment Survey (http://www.tsptalk.com/sentiment.php)? That is the lowest (most bearish) ratio since June of 2005, and the 2nd most bearish reading since we have been doing these surveys. It is trying to tell us a bounce is coming."

http://www.tsptalk.com/images/mb/052110c.gif

[crws]

2005... ahhh the days of wine and glory, when housing values around here were 25% higher year over year.

[fedgolfer]

Nice chart - I had to post it...

http://www.tsptalk.com/images/mb/052110b.gif

... Tom, I find it troublesome that the volume is just 28.6 million at 3:30 pm EST... SPX is the only main index showing more volume on today's candle vs yesterday's -- and it's waffling at unchanged. If the big boys don't show up in big volume by the close or by mon/tuesday... maybe it is different this time!

[tsptalk]

They say it was quiet on the floor today, but I think it is tough to judge volume vs. S&P on expiration day. We'll have to see what the closing volume is like.

[fedgolfer]

They say it was quiet on the floor today, but I think it is tough to judge volume vs. S&P on expiration day. We'll have to see what the closing volume is like.

Institutional buyers must be reading TSPTalk... as if on queue.

[crws]

Well, thanks to Tom and this site spurring me to investigate market activity, I now know what happens on option Friday- http://www.cboe.com/data/IntraDayVol.aspx
unbelievable. The market rose and fell exactly inline with options volume. Thanks are also in order to the random poster on yahoo that called it from the get-go this am.
Waiting for the final minutes dump...
http://poliwogs.com/CBOE5.21.10.jpg
http://poliwogs.com/CBOEDOW5.21.10.jpg
The highest volume periods corresponded exactly when the Dow peaked during the day. At the end of the day, VIX went back over 44 before settling at 42 +/-.
Of course the folks a CNBC are spouting their usual about a great buying opportunity. I'm sure Cramer will be gungho too.
http://www.cnbc.com/id/37276310

What can you tell by the final put to call ratio of 1.33?

3rd Friday of the month- I won't forget! Amazing!

[fedgolfer]

Well, thanks to Tom and this site spurring me to investigate market activity, I now know what happens on option Friday- http://www.cboe.com/data/IntraDayVol.aspx
unbelievable. The market rose and fell exactly inline with options volume. Thanks are also in order to the random poster on yahoo that called it from the get-go this am.
Waiting for the final minutes dump...The highest volume periods corresponded exactly when the Dow peaked during the day. At the end of the day, VIX went back over 44 before settling at 42 +/-.
Of course the folks a CNBC are spouting their usual bull about a great buying opportunity.
http://m.cnbc.com/us_news/37276310

What can you tell by the final put to call ratio of 1.33?

3rd Friday of the month- I won't forget! Amazing!

crws, am I misreading you? put/call ratio is a contrarian indicator, when there are that many puts, it usually signals a bottom.

[Bullitt]

CRWS- Don't worry about PC ratios on options expiration.

Volume was good today on all majors but I suspect most was just the selling of bullish calls that blew up and selling of puts for tonight's beer money. Up volume to down on NYSE was about 8 to 1. What else can you expect on an options expiration day during a crisis?

ISEE came in at 64, lots of retail investors buying puts today. Wow. That's a very low number.

I rebalanced today as my allocations were off by 2-3% after the drop. Sold winners (F) to buy losers (CSI).

[crws]

on a speed learning tear... thanks for the info, still watching, reading, and learning.
No matter the fundamentals, good though they may be, I am still concerned that the Euro issue was brought to the abrupt forefront on May 1 by this New York Times blatantly obvious graphic- and after a flash May 6 it took 2 weeks to come to this... What does that say for the entire Gulf of Mexico economy and the havoc it will wreak when the oil really hits? It's obvious right?? Like Greece....right?
I remain highly suspect that ill winds have only shifted and not to our backs. We'll see what pans out this weekend. I'm not giving up my post 12/2008 gains lightly.
http://graphics8.nytimes.com/images/2010/05/02/weekinreview/02marsh-image/02marsh-image-custom1-v3.gif

crws, am I misreading you? put/call ratio is a contrarian indicator, when there are that many puts, it usually signals a bottom.

[crws]

CRWS- Don't worry about PC ratios on options expiration.

yea, I was more thinking that the price trend cycle seemed to follow the options volume throughout the day, and that I have never known about options Friday. Heh. Well, given the VIX ended at 40 after bumping to 44 late in the day, I decided to turn to my trusted google to dig up some insight.
http://www.reuters.com/article/idUSTRE64K4Q620100521?type=globalMarketsNews

says in part:
As of Thursday's close, the number of call options across the board that were worthless jumped to 53.7 percent compared with 47.1 percent at Wednesday's close, said Scott Fullman, director of derivatives investment strategy at broker-dealer WJB Capital Group.
By contrast, put options that were worthless fell to 35.5 percent from 36.8 percent during the same period, he said.
"A look in trading in overseas markets and today's expiration leaves us to believe that increased volatility is possible with the potential to exceed yesterday's levels in stocks and options," Fullman said.
A total of 12.8 million calls and 17.4 million puts traded on Thursday, the second highest volume day ever, according to the Options Clearing Corp. Thursday's put activity might have been the single largest put volume traded daily in option history, Fullman said.
"This shows that investors and traders have been actively seeking hedges for portfolios as the market has declined," Fullman said. "We believe that investors are more proactive in managing risk than they were in 2008 during the financial crisis."
The strong volume comes two weeks after the dramatic "flash crash" badly rattled markets on May 6 and sent U.S. option volume to a record 30.8 million options traded, which included 17 million puts, OCC data show.


That would mean most institutional puts would have been bought Thursday? to expire in June?

[crws]

This article seems to address my thoughts and concerns going forward

http://www.usnews.com/money/blogs/flowchart/2010/05/21/how-the-markets-outran-the-economy

(excerpt)
The stock market is supposed to lead the economy (http://www.usnews.com/money/blogs/flowchart/2010/05/21/how-the-markets-outran-the-economy#) out of recession, according to the old adage. But what if the economy doesn't want to follow?
Gloom has settled over Wall Street, as the huge rally that ran from March 2009 to April 2010 has turned the other way. From bottom to top, stocks rose by about 83 percent, giving hope to battered investors and repairing some of the damage from the brutal recession we all know about. But now the markets are in decline again, crossing the 10 percent threshold that signals a correction. Manic traders now worry about global contagion spreading out from Greece, the demise of the eurozone and the dreaded double-dip recession.
[See what's going right and wrong with the economy (http://www.usnews.com/money/business-economy/slideshows/economy-scorecard).]
Okay, maybe. But it's also possible that the markets simply got too far ahead of the actual recovery and are now adjusting to more realistic expectations.
First, it's worth pointing out that stock market indexes like the Dow, NASDAQ, and S&P 500 may not be as oracular as they once were. Markets these days are dominated by hedge funds (http://www.usnews.com/money/blogs/flowchart/2010/05/21/how-the-markets-outran-the-economy#) and high-volume traders that account for the majority of all trades. These are not long-term investors who buy because they're encouraged about the future prospects of certain companies or the overall economy. These in-and-outers trade on short-term advantages that are often minuscule, but significant if multiplied by millions of shares or leveraged to magnify their value (and risk). Computers make many of the decisions, looking for price differentials in the decimal points. What matters to these traders is the price of something now, compared with the price a few seconds ago or the price a few seconds in the future. The stock indexes don't really tell us what investors think of the overall economy anymore. They tell us what frantic traders think is going up or down in the chaotic present.

(addendum from one of the links inside the article comparing US to Greece)
Washington's inaction also creates a chorus of disgust among opinion leaders able to influence global investors. "What worries me most is that a $10 trillion debt is unsustainable and the two parties are completely divided," says economist Nouriel Roubini (http://www.milkeninstitute.org/events/gcprogram.taf?function=detail&EvID=2122&eventid=GC10) of New York University's Stern School of Business. "It's not like the problems is unresolvable. There are solutions. The problem is political. There's no willingness in Washington to do anything." Business leaders in particular are appalled by elected officials who face a clearly defined problem, and basically stick their fingers in their ears and run away.

[Bullitt]

My vote: Trap.

[tsptalk]

My vote: Trap.
I guess it depends on the definition of playable bounce. Are you thinking we are going to go straight down with no tests of the new resistance?

[Bullitt]

TSP wise- Trap.

Regular account, possible, but they're probably going to follow through on Monday with a big gap up so unless you're in already, it's not feasible. The way shorts got annihilated in the last 15 minutes on Friday shows how people fear the weekend news and Sunday night gassing of the futures.

Here's my thing. I believe it's over, the cyclical bull. 4% up day rallies don't happen in bull markets as we had how many during the crash phase of 2008; each one luring in more and more hopeful bulls. I see may 2-3% up days in the months ahead as interventions by the apparatchiks force more shorts to cover.

[crws]

I got this following a recent post from XL-entLady: -Looks dicey to me

http://www.etfrewind.com/members/Ponzo.png

[Bullitt]

Doesn't look like it's a gap up day, anybody playing for the bounce in their outside accounts?

[tsptalk]

... anybody playing for the bounce in their outside accounts?Some. I have about 12% of my account in SSO, which I bought 1/2 Thursday, 1/2 Friday. Sold all my SDS, so I have 88% cash.

[fedgolfer]

Doesn't look like it's a gap up day, anybody playing for the bounce in their outside accounts?

increased some TNA... $tran looks like it will have a slow stoch bullish crossover on the daily and the 30 min intraday are about to put in a punch. Vix is going to take out Friday's low. Shanghai looking like they ate some good dim sum this weekend and have an appetite for risk.

[Bullitt]

That gap is probably going to fill in the Nasdaq. Volume is pretty low today.

[Bullitt]

I still think that gap will fill on the Nasdaq, but I have no idea when. I think yesterday also marked a turning point in "Big Easy Money Monday". You had stagnant volume all day as everyone held their 'dead cat bounce tickets' until the close where reality set in and people started to sell. They knew the run-up wasn't happening this Monday, but I'm amazed yet again about the calls for market manipulation on the drop in the last 15 minutes. Where are the calls for manipulation when the market is up every single Monday?

[tsptalk]

Some. I have about 12% of my account in SSO, which I bought 1/2 Thursday, 1/2 Friday. Sold all my SDS, so I have 88% cash.
Trying to catch a falling knife... I'm going to buy SSO near the open with some of that cash, for a trade. :worried:

From sentimentrader.com. 2% gaps down with pessimism this high...

http://www.tsptalk.com/images/mb/052510a.gif

This data takes out 1 date out of last 25 incidences, which was an anomaly in 2008. The data is a little worse with that date.

Update: Filled @ 33.50. I still have about 40% cash, just in case.

[nnuut]

I'm not PLAYING anything, too much politics and economic problems overseas, If I miss something I miss it. I don't think this thing is close to over.:cool:

[fedgolfer]

Trying to catch a falling knife... I'm going to buy SSO near the open with some of that cash, for a trade. :worried:

From sentimentrader.com. 2% gaps down with pessimism this high...

http://www.tsptalk.com/images/mb/052510a.gif

This data takes out 1 date out of last 25 incidences, which was an anomaly in 2008. The data is a little worse with that date.

Update: Filled @ 33.50. I still have about 40% cash, just in case.

I bought more fear... lot's of it. Set a stop though 1% below this AM's low in case this is a bear flag in a larger retreat. Gotta be able to step up to the plate at crunch time and bail if it's not meant to be.

[fedgolfer]

I bought more fear... lot's of it. Set a stop though 1% below this AM's low in case this is a bear flag in a larger retreat. Gotta be able to step up to the plate at crunch time and bail if it's not meant to be.

FWIW, there are two falling wedge scenarios playing out in $tran. The larger one intersects at 3742 which is the Feb low and looks like a H&S could form. We could go straight down there or rally and then go back. All I can say is I/we have to be nimble.

[Bullitt]

Fedgolfer, just wondering. You seem to post a lot about the Dow Transports. Any particular reason?

[fedgolfer]

Fedgolfer, just wondering. You seem to post a lot about the Dow Transports. Any particular reason?

In my experience, it has proved as the most reliable chart for swing trading and gives clues when they aren't apparent on the spy/q's/dia. Also, the 30 min candles on the intraday seem more calm than the qqqq's which have pre/post market candles.... which sometimes are right, but in times of panic are usually noise.

[tsptalk]

Trying to catch a falling knife... I'm going to buy SSO near the open with some of that cash, for a trade. :worried:

Update: Filled @ 33.50. I still have about 40% cash, just in case.
I would love to sell some of my SSO here near the close @ 37.00, but if I do I risk one of those 3-day "free ride" trading warnings, so I have to wait until the morning. I sure hope we don't gap down in the a.m.

[Intrepid_Timer]

I would love to sell some of my SSO here near the close @ 37.00, but if I do I risk one of those 3-day "free ride" trading warnings, so I have to wait until the morning. I sure hope we don't gap down in the a.m.

Yeah, Scottrade suspended me from being able to trade with unsettled funds for 3 months. This was last year. I just did it again yesterday but haven't heard from them yet..................yet!!!!!! :blink:

[fedgolfer]

Congrats, Tom :) I was 2 cents shy of triggering my TNA sell at $50 flat. Not worried. Could get a freebie pop tomorrow pre-market.

BTW, that's why I like margin. Not to leverage up the wazoo, but you never get the freeride warnings. And you can be nimble as you want.

[Intrepid_Timer]

BTW, I'm pretty sure the shares I sold were settled if you use the "first in, first out" rule, so maybe they won't say anything. Might have just gotten an automated warning since I had shares that I "shouldn't" sell also.

[tsptalk]

BTW, that's why I like margin. Not to leverage up the wazoo, but you never get the freeride warnings. And you can be nimble as you want.
I wish they would let you use margin in IRA's, but I guess that can get dangerous.

[fedgolfer]

Ah... I see. Yeah, I've received one of those in Vanguard (in my wife's SEP-IRAs). That's almost as bad as waiting around for an IFT :)

[fedgolfer]

Oh, and thanks Tom for the Sentiment Trader stats... they have been on the money. Once I failed to adhere (Jason Goepfort's symetry to re-test of the flash crash warning)... and also for the Gap Down of 2% or more in the futures... that i did take to heart.

[Birchtree]

Boys, I'm so far out on margin I needed a life jacket - that's why I bought myself a sacrificial account to help cover any margin calls - so far my luck is holding. Now if this bull starts to stampede again I'll move even further out on margin because the more you have in the bigger the win. A 10% correction I found out will swing my oceanic account to the tune of $500K and I'm still standing with all my assets intact and ready for the next ride higher. The lesson I learned is that I'm graduating to the big time and can handle the pain that comes along with asset growth. I suspect we've seen the bottom at Dow intraday 9774.

[fedgolfer]

Awesome, can you buy me a DB9? I always wanted to pull into work like James Bond.

Oh and VIX is under 30, more importantly under the mid-bolly (20 dma).

[Bullitt]

I was 2 cents shy of triggering my TNA sell at $50 flat.

Maybe you could unload some at a premium in the AH.