I am short the SPY, via SDS, as well as the Russell 2K, via TWM. Tomorrow I will add QID (more on that in a future post).
It has not been psychologically easy to initiate these positions, but the setup is money. In order for this setup to fail, the indexes will have to prove they have the strength and resilience to push through resistance and maintain an overbought status for more than a day or two.
If my index shorts stop out, it will have been different this time.
Here is what I’m seeing:
RSI(2): the chart shows that when it reaches this level, a reversal is typically soon to follow. If it does not reverse soon, RSI(2) may float in the overbought area, which would be bullish.
Resistance: the chart shows the SPY (the Dow Jones and Nasdaq are similar) closed Friday just above resistance. However, the close was not significantly above resistance, and volume has been weakening. Confirmation is necessary.
Volatility: If the indexes begin to pullback, it is likely that volatility will increase again. Volatility in November has been hovering in a tight range. A continued decrease in volatility, as measured by ATR(10), will be bullish, in my estimation. Should the indexes consolidate here, trading sideways, or continue to wedge higher, this will likely cause ATR(10) to continue falling off.
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Obviously, I’m a little nervous here as the indexes have yet another chance to put in an intermediate-term technical bottom. The worst case scenario (for me) is that the indexes continue melting up, hit my stops, and then reverse.
There will be a pullback, soon. If volatility increases during the pullback, my positions will profit. A quick, short pullback, or consolidation on decreasing volatility will make me very very nervous that an intermediate-term bottom is in place, and I will likely seek to exit my short positions with small losses, or at break-even.
Seems logical. Let’s see if Santa Fly agrees.
That’s a falling wedge. No?
STFU.
Good looking analysis.
It looks like a larger descending triangle in a downtrend and that has me leaning more to the Bear camp. The only wild card to the triangle theory is that potential bear trap under short term support. Is it a lower low? Bear trap? Don’t know. Next few weeks/month could resolve that is suppose.
Do you think the divergence between price and the MACD has played out fully?
Woodshedder is my hero. He is the wind beneath my wings.
Xio Pang, could be a falling wedge. Looks more to me as if the SPY might be stuck in a declining channel.
Japan is giving us a nice start…
“Japan stocks declined after condominium builder Morimoto Co. became the second-largest bankruptcy case in Japan this year and U.S. retailers had the smallest gain for “Black Friday†holiday sales in three years.”
I am a little surprised they are reporting a yoy gain in sales but the bigger picture hasn’t changed. Have to wait and see if the market continues to jolly itself until christmas.
S&P E-minis gapped down 1% at the open this evening.
Also, I want into Dicks everyday this weekend and every time the place was virtually empty. They didn’t seem to have much that resembled any kind of big sale or discounts. I will look to short some Dicks if it continues higher with the market.
Anyone else care to comment on their Dicks?
The declining channel is what Tim Knight sees as well.
But the possibility of a protracted counter-trend rally after a 5-wave down is very real.
Xiao, I do not follow wave theory.
However, I would rather enjoy a protracted counter-trend rally. Especially if it comes after a nice pullback! 😉
I went shopping on Sat. all over downtown Charleston S.C., in the historic distric. Hit the Omni, as well as dozens of boutique shops. There was traffic, and people were buying things, but it didn’t have the crowded, manic, rushed feel that I recall used to emerge this time of year, when I lived there.
There were many stores with a few people in them, but I do not recall any place being packed. Granted, the weather was overcast with a little drizzle.
Experienced the same thing in my outings in Seattle & San Francisco. Especially SF…you could actually walk & breathe normally! Craziness…
Yeah, my sector indicators are all reading blood red (with the notable exception of some random energy and some smaller portion of financials). However, I think that indicators won’t mean as much this week, as the automaker rescue plan decision will probably overshadow everything else.
Whoops, made a mistake. I updated my platform, and had my 24 hour settings incorrect. The e-minis did not gap down, but did sell off steadily to where we are now…down just over 1%. Volume is miniscule.
Shedder-
I agree with your sentiment on the slow pace in the limited retail environment of Pinehurst. Here’s a good resource on real estate and the economy in Charleston, SC. I was down on King Street a month ago and things seemed as busy as always. I looked at a couple properties last weekend in Pawleys, and was shocked by the price drops, that HELOC money must be drying up.
Here’s that link:
http://charlestonmarketreport.com/default.aspx
Thanks Cheese!
You forgot one thing in your analysis: volume – declining on the rise.
Wife was out shopping as well – she was able to park right up front at a major retailer. Unheard of 12m ago on a day like Friday. I’m reporting from MA.
Dskills, I noticed the volume declining, but the volume at the low was so great, that I feel that comparisons are a bit skewed.
That is another reason I’m looking for a pullback, but I didn’t feel as confident about that as the other variables.
Looks like it still isn’t different this time.
My elliott wave stuff says the bottom is in (at least for now) and we are in rally mode. we’ll retrace to 820 – 780 on the SP500 and similar levels on the Dow and Nasdaq which is normal and by next year we should be at 1200 max for the SP.
After that it depends on who you listen to. This could just be a 1 year bear or if it’s a 3 year bear we’ll probably fall to 600 for the SP before it’s over and i’ve read that some people have 400 as a downside target for the SP
Looks like it turned out to be an excellent trade. 🙂
Keith, today was a really really good day for the account!