Update (Nov 13, 5:50 PM):
I bought more SSO this morning when DOW was basically flat. I also bough calls on oversold ESLR for a scalp trade. Despite the midday scare about pennant being breached, I held on to all my long positions as I noticed that the sell off was not broadbased like it was on Oct 10. Today’s sell off through midday can be attributed to two things: a) a perfect bear trap b) a run on the stop-loss orders;
Decline through 1:30 PM was on relatively light volume and the reversal was on extremely strong volume. My take on markets two days ago (Max Pain Alert) is now officially in play.
Also, I mentioned yesterday that it was one of the worst days in terms of timing. In terms of losses, it was not one of my worst. In retrospect, yesterday was one of the best days for me in terms of timing.
What a difference one day makes.
The original post:
In my yesterday’s post (Max Pain Alert) I opined that we can expect a short-term rally till the end of next week. A more seasoned investor than me, Mr. Tony C. has identical take to mine. (click here to view his video).
After the close today Intel threw a bombshell. Their revenue is expected to be down 10% from expectations. Ouch. Futures continue to be weak.This would mean that October lows will likely be tested tomorrow.
Now what?
Two possibilities.
- A break of Tony C’s pennant to the downside could occur tomorrow itself and cause relentless selling into Friday with a significant bounce form the mid to low 700s next week; OR
- An “in your face rally” after initial dumping tomorrow morning. 9If the pennant is still in place).
Fundamentals favor the first, short-term bearish sentiment favors the second. But given that I am caught flat-footed on this, it is more likely first scenario will play out.
(Update: I just noticed that Craig weighed in with a comment that pennant is still in place. If it is, expect a bounce. If the pennant is decisively breached, expect a steep sell off)
A note on my own trading
As of yesterday I was holding 80% bearish bets. After watching Tony’s video, I got boldly confident and bought a lot of my own advice. As of this afternoon I am 90% bullish mostly via SSO and UYM. I publicized in the comments section of intraday commentary today that I will exit my SSO trade when S&P cash prints 858. Unfortunately I didn’t completely exit from those positions.
I am usually a contrarian investor. But in this down cycle I decided to trade with with the primary trend. Currently my strongest conviction is that market will crash 15% or more on a single day to give one big jolt to all the people. With really dire news from Intel afte the close, I have this nagging feeling that my yesterday’s prediction is a toast.
With the exception of a few scalp long trades, I stayed short this market since mid August. My returns in this period are decent. I have a strong conviction that the final sell off in the market will be a single day 15% or more washout. One reason I didn’t go long even when I though a significant bounce was ahead is that I always feared that I will be caught holding the bag on
that big down day. That is one of my worst fears, which may have come true.
Please note that I will do whatever necessary to cut my losses and take bearish bets in the morning as the situation presents. That is how I will stay in the game for a few more days.
Please chip-in with your comments.
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November 12th, 2008 at 6:59 pm
Pick up some SDS and hedge after hours dude, or just sell. You will sleep a lot better and be able to react to the charts instead of emotion..
I am long holding vix calls in case we gap down huge, I ran the numbers and I acually think i will make more money if we gap down huge than up given my calls.
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November 12th, 2008 at 7:10 pm
This market is funny in the what we expect & what actually happens. I had this same feeling when they eventually froze the futures & every market was down. I was expecting capitulation but the market rebounded nicely. It won’t surprise me if we get capitulation on a day when no one expects it. Personally Intel’s news was not a shocker, it was somewhat already reflected in its stock price.
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November 12th, 2008 at 7:35 pm
I’m in the same boat. Bought in anticipation of the wave up today. A very painful afternoon. I am grasping, but at least Dow futures are “only” down 48 at 7:35pm EST even after the brick that Intel threw out after the bell.
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November 12th, 2008 at 7:38 pm
Over the past 4 trading days I have gone from 60% bearish to 60% bullish and have made about 2% return over that time. I’m not fretting the 20% return I would have gotton if I was 100% bearish the whole time. By the time tomorrow ends I will be 70% bullish and will stay that way and lose November option money on the reversal if the plunge continues past Thursday. In this market, to exceed 70% either way is suicide.
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November 12th, 2008 at 8:34 pm
Personally I think some new will come out that will give support to the market. Like I said is Intel news really a shocker?
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November 12th, 2008 at 8:46 pm
Mohan - Sorry for your tough day and stressful night.
There’s no telling what actually happens tomorrow, you well-know how stubborn the bulls can be! If it ends up being bad, then that’s how it goes and every honest trader, no matter how skilled, has been there at some point this year (in most cases, many times).
If you’re like me though, once your out of the position, you’ll feel much better. Don’t get trapped by that medieval torture device known as hope and don’t fear selling at the bottom. It’s possible to sell at the bottom, but in my experience its unlikely. Almost every time that I cut my losses, I end up being thankful I did shortly thereafter.
Again though, you never know. The bulls may think this was all priced in and it’s their last chance to get in. I certainly would hate to place a bet calling the close tomorrow, there’s just no telling.
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November 12th, 2008 at 8:59 pm
Tony C’s new video: “The Pennant is Still Waving”
http://www.youtube.com/watch?v=6o6YnpUub1M
He says SPX ~840 Must hold for pennant to remain intact.
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November 12th, 2008 at 9:10 pm
I’m not a conspiracy theorist, but if the PPT exists, then they know the importance of keeping the market above certain key technical levels.
More on the case of the missing $2 trillion :
http://www.bloomberg.com/apps/news?pid=20601087&sid=axpH4Qil0NT8&refer=home
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November 12th, 2008 at 10:40 pm
I might be totally juvenile, but I love the title of this article: Boehner Demands Fed Identify Recipients of Loans, That’s almost as good as the Mushroom joke Mark Haines made on Squawk this morning…. “Don’t keep me in the dark and feed me bovine fecal.”
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November 12th, 2008 at 9:21 pm
The end of January is going to be quite interesting. When Obama’s people get in there and start looking under the covers at what Bernanke and Paulson have been doing the past 8 months, the sh*t is going to hit the fan. Why else would they refuse to disclose the details. Obama will have nothing to gain by covering this up and a lot to lose when it eventually comes out if he covers up.
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November 12th, 2008 at 9:30 pm
Thats a really good point. A new administration does have incentive to reveal and flush the garbage ASAP.
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November 12th, 2008 at 9:40 pm
im long as end of the day in both sp and oil. im not going to cover and chase. that is a dangerous game. im staying in until we test the Oct 10 lows. if we get down there ill be out and watching the action. im amazed im long since im extremely bearish and have been shorting every rally for the past 6 months. but ill give it a small shot. however, for sure, i wont be chasing the short side if the market begins falling rapidly. futures are holding up as of 10pm so looks promising to the long side.
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November 12th, 2008 at 9:42 pm
FWIW
The WSJ Money Flow Leaders for Selling on Strength(largest outflow of money): I’ve never seen this many ultrashort etfs on it
SRS,QID,TWM,SKF, DUG, SDS, EEV
http://online.wsj.com/mdc/public/page/2_3022-mflppg-moneyflow.html?mod=mdc_h_usshl
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November 12th, 2008 at 9:55 pm
BT310:
I reference this, and the Buying on Weakness, intraday and compare against my positions. These do seem to have some predictive value though I have not been systematic in evaluating them. EWZ is close to the top of today’s Buying on Weakness category.
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November 13th, 2008 at 12:18 am
good chance we bounce in am…..but it will not be sustained……expect the rally to be faded same day……unless there is strong volume…sustained…buying….reload some shorts ….not heavy…….gl
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November 13th, 2008 at 5:14 pm
Mohan,
You must be feeling better. I told you that the market is funny that way, everyone was expecting the shoe to drop after Intel’s news & jobs news. It turned on a dime, sounds like you came out ahead.
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November 13th, 2008 at 5:58 pm
Good timing. Yes, I am feeling better. I updated the post just now.
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