I think the bears were little over-zealous in their celebrations on Friday. Regardless, my strategy has me leaning short or in cash on a failed test of the 50 day average. It is important to note that the moving averages should not be taken literally, to the penny. The latest closes are just beneath the average. If, over the next day or two, the indexes regain the averages, this might be considered a successful test. We’ll just have to see what happens.
I want to note that the Nasdaq is not yet oversold, and had weak volume on Friday. Curiously, the [[QQQQ]] is still above the 50 day average. I’m not sure whether this means there is more downside coming or whether it should be interpreted as strength.
RSI(2) on the SPY leads me to believe there will be some stabilization or even a bounce, soon. Do note, as I’ve highlighted before, in a bear market, the indexes stay oversold for longer than they stay over bought. RSI(2) could stay at this level or lower for a day or more.
The Dow Jones is the most interesting to me as volume grew significantly. RSI(2) is near reversal levels. My first thoughts were that this level of volume is bad sign, on the move down. However, I’m now considering a different scenario.
Here is what we know:
- According to IBD, NYSE short interest is at a 5 year high.
- VIX closed right at its trendline.
- The indexes are near short-term oversold levels.
- 1 month trendline was broken Friday.
- Indexes are beneath the 20, 50, and 200 day averages.
While I still have my downside hedges in place from last week, I’m not looking to add to any inverse etfs or establish any new short positions, just yet. As I alluded to in the beginning, I think the bulls might have some surprises in store for the bears. If nothing else, I do not think we will see a return to the high volatility like we saw in the 1st Quarter, at least not next week.
I think the bears were little over-zealous in their celebrations on Friday.
Translation:
Fuck me!
terrific analysis, woodrow – dank you
Once again, Wood is out trying to under think the market.
Fly wins again.
Hey, loosers [sic]. My account was up .5% Friday.
“Under think?” Once again? I can’t recall the last time I was accused of such a discretion.
the ‘diptera’ will lose this week. mighty extensive bearish centamint(sic). viz fuckfaces.
I am accusing you now, Sir.
Fly, you should read “Busting Vegas,” by Mezrich, if you haven’t already. Damn fine well-written non-fiction.
As Abelson said this weekend in Barrons:
The refusekees continue to hope that the light at the end of the tunnel isn’t really a camp fire to warm the recently homeless guy whose unemployment ran out weeks ago.
Head complete, should start the right shoulder of the H&S reversal soon.
Aside from being freaked out that Wood is reading the same books I do (Busting Vegas) I have to disagree with his analysis.
I’m still showing a Bear Flag on the S&P since Feb 25 and Friday’s action should not be construed as a turn around point for longer than perhaps the morning.
Based on the early morning news I’m seeing perhaps not even that.
The PPT convened over the weekend. Look for them to make a move before the wednesday open. A rally off a tuesday low could be very sharp. It also could be another one day wonder. If we we go down into Tuesday, I’ll be looking for some calls to play a sharp 24-48 hour spike.
Cuervo, that is a fantastic book. Want to put a team together?
It got me thinking that there has got to be similar vulnerabilities in the markets to be exploited. I’m curious if you agree with me on that.
The only math I can do is via either a spreadsheet or R http://www.r-project.org/
And I don’t like gambling. I lose every time. Even at those stupid key chain fob game things.
I like what Van Tharp says about the market being flexible enough so that anyone who has a system with a verifiable edge can beat it. What those guys did in the book wouldn’t correlate to the market.
My reading list starts here:
Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula (fourth version)
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1012075
The Very Game
http://www.causascientia.org/math_stat/Tutorial.pdf
Extreme Value Theory Can Save Your Neck
http://www.approximity.com/papers/evt_wp.pdf
Nah. I suck at gambling.
I do have some other reading material for you to digest though.
1. The Very Game (a tutorial on Mathematical Modeling)
http://www.causascientia.org/math_stat/Tutorial.pdf
2. Why We Have Never Used the Black-Scholes-Merton Option Pricing Formula (N Taleb)
http://papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1081233_code150825.pdf?abstractid=1012075&mirid=1
3. Extreme Value Theory can save your neck
http://www.approximity.com/papers/evt_wp.pdf
Great software for mathematical modeling
http://www.r-project.org/
Hit the cubes again, today I did.
For you and your bullshitting, the reason was.