Luna $ Ticks

November 25, 2008

Farewell to our Friend, the Bear

Filed under: Trading SPX SPY — moontrader @ 7:23 pm

This post is more or less a follow-up to the previous one, which I published during the day. Although I said that the possibility of new lows were not to be discarded, after today’s close I find it difficult for the SPX to plunge this week below last Friday’s low. This rally has been holding pretty well and I think it’s arrived the sad moment to say farewell to our friend: the Bear.

This morning the market opened in a pretty weird way: SPX gapping up, TNX gapping down. I quickly asked around to understand what was going on and our friend Evil Speculator showed me an interesting article, which I strongly recommend you all to read. It talks about a monetary strategy to fight moments like this, which was employed by Japan in 1990. It basically consists in flooding the market with credit and money, to keep interest rates close to zero in order to artificially heat up the economy and fight the greatest financial villain: deflation. Although this is a quite efficient strategy in the short and medium terms, on the long run it drags down the whole economy, as it happened with Japan. But let’s forget the long term and let’s focus on the short one. More money in the markets means more consumption, more jobs, higher prices, higher profits, higher dividends and… higher stock prices. What we saw today are the first effects of the “Quantitative Easing” strategy. Check this out:

tnx-112508

Notice in the chart above that Treasury Notes yield are at historic lows. The chart covers 46 years!

If that’s not enough, look at this:

irx-112508

This means, the market is being flooded with money and credit as you read this.

Now, the conclusion. I still think we’ll have a retracement in the next one or two trading sessions:

spy-112508

If you’re short I wouldn’t wait too long. Tomorrow SPY will probably head towards DMA 3×3, which stands at 78.3 (80 on Friday) but it’s not guaranteed it’s going to go below it (nothing is ever guaranteed). In any case, I will close my short positions (which are few) tomorrow and start thinking on… my wedding and honeymoon! I think we’ll have quite an opportunity to go long this week.

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13 Comments »

  1. Moon, first of all, congratulations.

    But, I feel really sad. I had been short all the way up, waiting for the bottom. That’s ok, small position. I’d better take some vacation. Thanks a lot.

    Comment by Wanessa — November 25, 2008 @ 7:49 pm | Reply

  2. Are you suggesting that we will go to 800 and rebound?

    Comment by Moontrader fan — November 25, 2008 @ 8:07 pm | Reply

  3. Moon, thanks for the updates. I disagree though that the bear is over. Any rally now is probably just a bear-market rally as we are likely in a secular bear market. And a nasty one at that.

    Comment by traderchrispy — November 25, 2008 @ 8:41 pm | Reply

  4. Moon, are you calling the bottom? I like the analysis especially on the Treasuries. I told myself I would stay short until we either reached a 60% decrease in the S&P or the gov’t whipped out the Keynesian jobs programs, which was a critical factor in exiting the Great One. And this weekend I read about the Obama Job stimulus package and that qualifies…..so I’m out….they need to spend sooooooo much.

    I’m not sure I would use the Japan example as a sucessful model to exit the Bear Market….I don’t think they ever emerged….I think we need to keep that in mind.

    But I have missed selling puts (its my favorite) …….I’ll sell a 735 on the next dip to test your theory. If I go underwater can I get a “bailout”.

    Congrats on your marriage and have a great honeymoon.

    Comment by RoughMath — November 25, 2008 @ 9:17 pm | Reply

  5. RoughMath,

    I don’t think you are going to see 735 for a long time. Probably not until 2009. A massive shift in thinking occurred today. Most Bear oriented traders I follow like Moontrader, Evil, and Tim Knight are of the opinion, and I agree, that a temporary bottom maybe in until 2009. I think the last best chance to get out of may be Wednesday and it won’t be at 735. You don’t want to be the caboose of this train. Remember don’t fight the trend. This will be a strong bear rally to close out the New Year.

    Comment by Christian — November 25, 2008 @ 9:50 pm | Reply

  6. you stated that MACD with buy signals is now there, you forgot to mention the most important thing about it…a huge bullish divergence. Buy dips is the soup du jour for awhile.

    Comment by Tom — November 25, 2008 @ 10:05 pm | Reply

  7. Christian, selling puts is going long. If it never gets there to 735, I keep the cash.

    Comment by RoughMath — November 25, 2008 @ 11:38 pm | Reply

  8. Moon,

    I am glad you are now agreeing to my comment #19 of 11/22 that the yearly was in on Fri 11/21. I feel relieved and plan to add to my longs on a pull back to DMA 3×3 of 78.3 today or 80 on Fri. In the mean time, wish you the best as you enter a new phase of your life. I hope you will continue to post your thoughts as usual.

    Comment by bullnbear87 — November 26, 2008 @ 6:10 am | Reply

  9. Moon,

    I really enjoy your insight and I’ve learned a lot from reading your analysis.

    The best of luck to you and your bride.

    Comment by Tom — November 26, 2008 @ 7:58 am | Reply

  10. traderchrispy, I’m referring to this first leg down. I think it’s over. I agree with you, we are in a historic bear market, there’ll be plenty of opportunities to go short.

    Wanessa, I feel sad as well, but what can I do? I’m just trying to read the market, not fighting it.

    Comment by moontrader — November 26, 2008 @ 8:05 am | Reply

  11. RoughMath, I used the Japan example because in a first moment, the strategy works. Then – long term – it dumps the whole country in a completely stagnation. But you know what, Volcker will side with Obama, and he’s against such strategy. I bet Obama will clean the credit excess first thing when he gets in the Oval Office.

    Comment by moontrader — November 26, 2008 @ 8:10 am | Reply

  12. Christian, I agree. I’m in defensive mode so, whatever the market gives me in this moment, I take. I trade small, and I care for all my babies. No man left behind. :-)

    Comment by moontrader — November 26, 2008 @ 8:13 am | Reply

  13. Market refuses to go down, I’m closing my shorts, will sit and watch.

    Comment by moontrader — November 26, 2008 @ 12:00 pm | Reply


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