Luna $ Ticks

November 22, 2008

Absolutely No Evidence

Filed under: Trading SPX SPY — moontrader @ 9:53 am

Of a bottom yet. Friday’s late minutes rally means nothing as it didn’t breach Wednesday low, it was just a recovery from Thursday’s fall, and it makes for lower lows, lower highs: the trend remains down down down. Here’s the visual approach:

spx-211108

tnx-211108

vix-211108

util-211108

And this chart I believe to be extremely important in the very short run, as it shows a market quickly deteriorating:

spy-h-211108

So, for those that think Friday’s rally is a sign of a bottom, I advise you to look closely at the above chart. If you still think problems are over, then read this article by Paul Krugman. Here’s an excerpt:

Consider how much darker the economic picture has grown since the failure of Lehman Brothers, which took place just over two months ago. And the pace of deterioration seems to be accelerating.

Most obviously, we’re in the midst of the worst stock market crash since the Great Depression: the Standard & Poor’s 500-stock index has now fallen more than 50 percent from its peak. Other indicators are arguably even more disturbing: unemployment claims are surging, manufacturing production is plunging, interest rates on corporate bonds — which reflect investor fears of default — are soaring, which will almost surely lead to a sharp fall in business spending. The prospects for the economy look much grimmer now than they did as little as a week or two ago.

Yet economic policy, rather than responding to the threat, seems to have gone on vacation. In particular, panic has returned to the credit markets, yet no new rescue plan is in sight. On the contrary, Henry Paulson, the Treasury secretary, has announced that he won’t even go back to Congress for the second half of the $700 billion already approved for financial bailouts. And financial aid for the beleaguered auto industry is being stalled by a political standoff.

Just a final reminder: the last chart I showed, this one, points to a window this week. It shows that this whole correction (or the first part of it) might converge during the days between Monday and Wednesday. I know I’ve tried to do this sort of projection before, but this last chart covers the whole correction from the very top last year until the next couple of days, with a clear, consistent recurring pattern in time. The other charts I presented did not had this sort of consistency. I’m looking forward to see what happens this week.

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33 Comments »

  1. really appreciate your blog and updates. will be checking in this week with great interest. thanks again for sharing your work and analysis.

    Comment by almost44 — November 22, 2008 @ 10:02 am | Reply

  2. HUMONGOUS RALLY IS COMING!
    Legacy Trade of the Century!
    Do not miss out!
    Donations are welcome!
    http://www.forkoholic.com/LegacyTrade08.htm

    Comment by Forkoholic Serge — November 22, 2008 @ 10:09 am | Reply

  3. Awesome, thanks for putting your thoughts out there for us to read.

    Comment by Greg — November 22, 2008 @ 10:25 am | Reply

  4. I am holding on to a nervous short on Energy.

    My contributions.
    http://snpmonster.blogspot.com/2008/11/spy-possible-scenarios-22-nov-2008.html

    moontrader, I find the loading of your images slow….I think your picture images will load faster if you resort to gif/jpeg format.

    Comment by snpmonster — November 22, 2008 @ 10:44 am | Reply

  5. Moon,

    Please don’t short DJ Utilities. They were following energy which obviously money flowed in on Friday.

    Up or down that’s a question. I need more time to think about it, particularly the timing window is so short. And I am feeling government is going to do something if market goes down.

    Comment by David YZ — November 22, 2008 @ 11:37 am | Reply

  6. Moon,

    I really like your thoughts. I always read your analysis from Brazil. But, 2 trading days… It’s a very short window for another new market low, isn’t it? And how about the margin error you have always applied to it? But, it´s a bear market, I know…Anyway thanks for sharing your analysis and let’s see what happens next great week.

    Comment by Wanessa — November 22, 2008 @ 11:56 am | Reply

  7. David, I short Utilities on Friday’s close, easily manageable trade. Monday we should have a clear view of the situation.

    Comment by moontrader — November 22, 2008 @ 11:57 am | Reply

  8. Thanks for the update, moon.

    So, what targets are we talking about for the 11/24-11/26 window? 650?
    Thanks.

    PS: My only concern is $TNX which might reverse.

    Comment by DalalStreetKing — November 22, 2008 @ 12:01 pm | Reply

  9. I interpret the fact that the countertrend rallies are getting weaker as that a bottom is in the near future (1 month). Or maybe next week… somewheres around 500 on S&P…

    Comment by TraderTamas — November 22, 2008 @ 12:50 pm | Reply

  10. It would be interesting to see, if it’s not too much trouble, your “Eureka” chart (i.e. the one you posted on the 14th & 17th) with this week’s data in it.

    Interesting stuff as always!

    Comment by Scott — November 22, 2008 @ 1:39 pm | Reply

  11. Hey Moon,
    Any chance that the Monday after Thxgiving would work in your analysis? Tues/Wed seems dubious to me for a bottom due to likely light holiday volume – bottoms usually occur on heavy trading. First days back after a holiday are much more likely to see panic bottoms as people have a long holiday weekend to fret over their positions. (I suppose this Monday could work, but that would have to be one heck of a drop).

    Also this move down from Nov. 5 appears to be a fractal of the move from 8/29 to 10/10 which, if it plays out would mean a gap down from around 750 to somewhere around 600 early the week following thanksgiving.

    Comment by tradingaces — November 22, 2008 @ 2:35 pm | Reply

  12. I have created a chart with the spiral calendar dates counting backwards from 11/25/2008 at:

    Most (although not all) of these dates coincide to the day with significant highs or lows since the all time top. This is kind a of a corollary chart to the one posted on the Eureka post.
    So more evidence of something significant early next week.

    Comment by Dave — November 22, 2008 @ 4:23 pm | Reply

  13. Hi Moon,

    I have the same question as Tradingaces. Would you please answer the question? Thanks

    Comment by David YZ — November 22, 2008 @ 4:32 pm | Reply

  14. Hey Moony
    I have bunch of dates coming in next 3 weeks
    let’s figure out which once are tops and which are bottoms

    Comment by Forkoholic Serge — November 22, 2008 @ 6:00 pm | Reply

  15. moon, I’ ve got a problem with the whole picture which is too bearish IMO for a bottom so close as 26th Nov. Could it be a short term low ? Unless the indexes loose 10% in two days which is always possible, it seems to me there’s too much room to the downside for just a remaining two days to go down. I tend to be confident on your time window ………..but some doubts it may be THE BOTTOM …….and thinking it could be ……….a short term low. To tell the truth on stockcharts there’s another guy who has elaborated a mathematical model and has your same date for the bottom. That’s why I’ m in any case alerted. Best to you.

    Comment by giorgio — November 23, 2008 @ 3:23 am | Reply

  16. Giorgio,
    I think Moon has already explained his projection in previous posts that this low from now until Thanksgiving is a projected yearly low and not ‘The Bottom’ that so many people are looking for. ‘The Bottom’ is not expected to arrive for quite some time although we will probably only know it in hindsight. Hope this helps. JD

    Comment by Stksgt — November 23, 2008 @ 9:01 am | Reply

  17. have a look at this!

    http://blog.afraidtotrade.com/

    Comment by krach — November 23, 2008 @ 9:46 am | Reply

  18. Moon,

    IMHO, the yearly bottom was reached on Fri.

    Comment by bullnbear87 — November 23, 2008 @ 12:33 pm | Reply

  19. Sorry all if I can only answer your questions today. I usually try to stay away from the computer during the weekend, just to refresh my mind from the market.

    David YZ, regarding your comment about government trying to do something, I try not to think that way for many reasons. First because it’s misleading, governments always try to do something during difficult times, and that is incorporated in Technical Analysis – i.e., governments do something when market is oversold, the market rebounds and people tend to attribute it to the government action. And that’s not necessarily true. Second, governments all over the world have been struggling to do something in the last two months, with absolutely no success. Are governments stronger than the market? In an small economy that could be, but not in the case of the US and the world largest’s economies. Third, I really don’t trade based on news expectations. My analysis is based on charts and sometimes I show a good economist (like Paul Krugman) take on the situation just to check if my TA aligns with some sort of fundaments. Which is the case of this post.

    Comment by moontrader — November 23, 2008 @ 12:55 pm | Reply

  20. Dalal, if TNX reverses and market still goes down, that’s a disaster: it means that people have lost confidence in the stock market (they did already) plus they have lost confidence in the safest papers on the money, the Treasury Notes.

    Comment by moontrader — November 23, 2008 @ 12:57 pm | Reply

  21. Tradingaces, I see your point. In that case, I would have to find another date projection window, because the one I have wouldn’t work for the following Monday. The date projection I showed in the Eureka chart works only for this week, between Monday and Wednesday (since Thursday is Thanksgiving). Let’s see what happens tomorrow (Monday) and, in case the market continues to rally we’ll reassess the situation.

    Comment by moontrader — November 23, 2008 @ 1:10 pm | Reply

  22. Dave, thanks for the chart, I can see that next week coincides with some tops and bottoms, plus the structure I pointed out in the Eureka chart. It would be nice to have some sort of chart tool that automatically draws those lines. Thanks for that.

    Comment by moontrader — November 23, 2008 @ 1:13 pm | Reply

  23. Giorgio, thanks for the comment. TA is more than anything based on probabilities. You trade according to the odds that a recognized pattern will result in a specific movement, and so you adjust your risk to these odds. As I said before, I’m trading small to keep my mind fresh and rational. I once heard that a good trader is able to keep more or less a constant flow of profits no matter how volatile the market is. That means in volatile times like this, he reduces the risk exposure. I’ve been thinking a lot about it and how to deal with probabilities.
    Thinking in probabilities and adjusting your risk according to it: that’s important. Most novice traders see only profits, they don’t deal with the opposite case scenario. When the worst happens, they don’t know how to deal with it. It’s all about probabilities and risk.

    Comment by moontrader — November 23, 2008 @ 1:26 pm | Reply

  24. Krach, Serge, and Bullnbear87, thanks for the links and charts. We should have a better picture of what is going on by early Monday trading. As I said, in case we continue to rally, then I would have to understand better what is going on. My indicators are all pointing down so far, therefore – IMO – we still haven’t seen the evidence of a bottom. It could be in, it could be not. The odds according to my TA are against a bottom in place.

    Comment by moontrader — November 23, 2008 @ 1:31 pm | Reply

  25. stksgt………….I meant THE BOTTOM not as the end of the bear from Oct 2007 and the beginning of a new multi-year bull trend. Just the bottom of this first part of the polar bear that started in Oct 2007. I’ ve got projections for the whole picture….but don’ t want to influence anyone.

    Comment by giorgio — November 23, 2008 @ 1:56 pm | Reply

  26. Thanks Giorgio,
    After I wrote that that, I actually expected a whiplash because it seemed a little ‘smart-alecky’ although that was not my intent.
    I have posted the following chart before because I thought it might apply to today’s situation ; It is the DOW vs Gold standard. I keep it saved and constantly refer back to it as the days go by. Like you, I don’t want to cause an influence that would result in someone losing money. However, I would like to see what others have to say about it.
    http://www.financialsense.com/fsu/editorials/2008/0307.html is the address. Just copy and paste in your address bar.
    Regards,JD

    Comment by stksgt — November 23, 2008 @ 4:01 pm | Reply

  27. Thanks Moon.
    I’m going to keep my shorts on at least until at least new lows or Monday close and then reassess based on market internals and price. I think we should know by Monday close whether we’re likely to get a drop this week.

    Comment by tradingaces — November 23, 2008 @ 4:31 pm | Reply

  28. I’m just waiting for the S&P to move back to its EMA’s (20,50). See what happens then.

    Comment by eighty4proof — November 24, 2008 @ 9:30 am | Reply

  29. Moon, what a rally…! are U going tio short s&p at 870-900?

    Comment by krach — November 24, 2008 @ 3:36 pm | Reply

  30. Krach, sure, huge rally. I’m going to post later tonight.

    Comment by moontrader — November 24, 2008 @ 4:48 pm | Reply

  31. Moon,

    Are you willing to agree to my comment (#19 above) that the low was put in on Fri? No big deal, the window was off by one day! Great call otherwise. Now, please give us a new window of a lower low. IMHO we are going down to 690 area by mid Dec. I went short today and plan to ride it till then. Waiting to read your post tonight

    Comment by bullnbear87 — November 24, 2008 @ 5:26 pm | Reply

  32. Moon,

    How about VIX? And also about the margin error you get used to apply in your analysis? Thanks. Sorry for my english.

    Comment by Wanessa — November 24, 2008 @ 6:24 pm | Reply


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