Luna $ Ticks

September 22, 2008

Trend Still Well Down

Filed under: Trading SPX SPY — moontrader @ 5:57 pm

That’s basically what I have to say, despite the huge rally we saw from the end of the day last Thursday into the opening next day. Here’s the chart for today, with a couple of important things to notice:

First thing, MACD is still in sell mode and in negative territory. Although it’s a hair line from giving a buy signal, the lines are almost parallel, which doesn’t make for a convincing buy signal in case it does so. If you check the same chart on July 15th, you’ll see the signal crossing the MACD with a steep angle. Stochastics is positive, but I’d fade it for now. The second thing is that today’s close was back below DMA 7×5. So, this is definitely a down trend.

Many probably noticed today’s low volume and I’d like to remind you that on Friday there was an important change of a rule: no more short-selling. Which means that a huge part of the volume on Friday was due to a forced short covering and therefore I wouldn’t draw many conclusions based on volume.

But I would take a look at VIX, which has something interesting:

This time I added a study to it, MACD, and, as you can clearly see, it’s well well positive: VIX is in an uptrend. Notice how DMA 3×3 is holding the trend up and, after Thursday spike, VIX’s bottomed exactly on the dotted trendline. My conclusion here is that a pessimistic sentiment is gaining momentum despite the huge government bailout plan. Which, by the way, will cost around 2,000 dollar per each american taxpayer, and the money will go basically to save investment banks, which in turn have little to do with low and middle classes. I’m just mentioning this fact because it seems that the Congress won’t pass the plan so easily as many thought before.

Another extremely important thing to notice is today’s spike in 10-year Treasury Notes, and yet the market headed lower:

See MACD? That’s what I call a steep crossing angle. The Treasury notes are definitely in an uptrend. Read again Paul Krugman’s article and you’ll have a better idea why this is happening and why this isn’t a good sign for the market.

Another bad sign is gold and dollar:

And oil is stepping on the market callus again:

We’re definitely in a bearish scenario and I wouldn’t bet to the upside in the medium long term. A 700$ billion plan will help the financial system, but for how long will the Fed be able to hold prices at the current levels?

In terms of dates, I have a window beginning next week for a bottom, but I still need to work on it.

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10 Comments »

  1. I thought the dates of 9/19 and 9/22 were going to be major reversal dates. And with 1134 hitting on 9/18, I thought the low has been hit and we have reversed. Are you now saying there is another new bottom coming up next week! How much more should we puke before we see the end?

    Comment by Adam — September 22, 2008 @ 7:47 pm | Reply

  2. You flip flop more than McCain. I thought we had hit an important bottom last week? Now we’re going down further? Get your story straight!

    Comment by David — September 22, 2008 @ 7:52 pm | Reply

  3. Boys, there’s a lot more bottom left in this market. Had natural market forces been allowed to play out, we very likely would have headed into the abyss.

    Moonie, see how Sept. 29 fits into your calendar.

    Comment by nctrader — September 22, 2008 @ 8:02 pm | Reply

  4. Thanks Moontrader, excellent work. If you can’t access the Krugman article at the times (Crisis Endgame), then try this link:

    http://www.iht.com/articles/2008/09/19/opinion/edkrugman.php

    Also this article points out how close we came to market meltdown last week. It is claimed that the market was 500 trades away from Armageddon on Thursday:

    http://www.nypost.com/seven/09212008/business/almost_armageddon_130110.htm

    Comment by Hansons — September 22, 2008 @ 9:31 pm | Reply

  5. David, usually when these dates play out they are quite precise. July 15th was dead on target, and it was followed by a clear indication of a reversal: MACD gave a buy signal the next day. Same thing with May 19th. As I said before, these dates are an accessory to the analysis, not the main tool. If the government hasn’t come with the first intervention in more that 70 years in the financial market, announcing it would disburse 700 billion dollars to save a rotten financial system and it hadn’t changed the rules of the market, we would have probably seen a bottom today, well below last Thursday’s. I’m pointing out in this post that what we saw on Friday was an artificial rally, an illusion the government created to avoid panic and a collapse. It’s important to keep the mind open. In a normal situation, I would have seen Friday’s rally as an indication of a reversal. July 15th was followed by a much smaller rally that convinced me of a reversal, but I have to say what I think and I don’t think we have a clear indication of a reversal yet. Many are calling the bottom: it might be there, it might be not. I need to see the evidence in my charts, and I still didn’t see it. That’s it.

    Comment by moontrader — September 22, 2008 @ 9:37 pm | Reply

  6. Hansons, great article! thanks a lot!

    Comment by moontrader — September 22, 2008 @ 9:43 pm | Reply

  7. It is you yesterday’s analysis let me re-think, and finally I covered my shouts and in the end of today in stead of the morning. Thanks for you perfect job yesterday.
    I believe the market will try to bounce some tomorrow.
    I have two questions about the charts. I use stockcharts. There is only “simple Mov. Avg.”, is it the same as “DMA”? If I enter (3, 3) for example, I get different result from yours. Also I get quite different results of DPO(3) and DPO(7) from yours. Would you please let me know?

    Comment by David YZ — September 23, 2008 @ 3:02 am | Reply

  8. How about 25th or 26th? I have many forks crossing that day at the same point

    Comment by Fork_Master_Serg — September 23, 2008 @ 8:25 am | Reply

  9. David YZ, I don’t use stockcharts because they don’t have the tools I use, especially DMA, which stands for Displaced Moving Average: it’s a simple moving average displaced forward or backward in time.
    The DPO is very simple: it’s the close (or high or low) minus a simple moving average. I use the close with two simple moving averages, 3 and 7.

    Comment by moontrader — September 23, 2008 @ 9:04 am | Reply

  10. Serg and NCTrader, I have another date around the 2nd. However that date comes from an “even” series and this whole correction from the top of last year’s October 11th has been producing quite reliable turning points in the “odd” series.

    Comment by moontrader — September 23, 2008 @ 9:30 am | Reply


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