I’ve posted the chart in order to illustrate a few ideas:
1. The market is still solidly downtrending over the long-term, but solidly up trending over the intermediate term and (especially) the short term. I hesitate to call the bear market over until I see a break above the upper channel line.
2. It appears that a narrative can be created which would see October and November as a reaction to the (now erroneous) belief that corporate America was circling the drain, and going bankrupt, in a few weeks. As that was not the case, it appears that SPY has re-entered the long-term declining channel, placing its progress not to far from where we might project it would be had the Armageddon trade not occurred.
3. If there is a trade here, it may be to position for a run to the upper channel boundary. From today’s close to the upper boundary is roughly 15%. A run to that level would validate the prediction from Goldman Sachs Group, Inc. [[GS]] and put the market up approximately 20% for the year. From where I sit, it would also make a great place to take profits. Keep in mind that the upper boundary is declining, and so the longer it takes for SPY to reach the boundary, the lower the percentage gain once it gets there.
4. Note the different volume levels across July 07, July 08, and the present. Current 50 day average volume is about 75 million shares lower than last July.
Do bear markets historically have less volume than bull markets?
Well, that’s a good question Goldie, but I haven’t studied it enough to give you a firm answer. A quick look across a few bear markets certainly makes me want to say yes, but there is a more scientific way to calculate it.
It would probably be more accurate to say that periods of greater than average volatility probably have higher volume than periods with lower than avg. volatility.
If the chart were to be extended back another 6 months, you would be able to see the HUGE volume increases/spikes during the recent bear market.
interesting…
Woodshedder –
I’ve been paying attention to your short SPY trade drama (and own a piece of the same myself). Are you still in it or shaken out?
TES
TES, still in the trade.
I will be in it until I get (at the very least) a down day, an exit signal, or I get stopped out.
My stop is based on volatility, and therefore it actually moved up a little bit higher today. It is now about 6 SPX points higher than today’s close. If tomorrow the index closes above it, I will cover Friday a.m.
I’ve gotta say, I can’t wait for this trade to be over.
I should cover, take the loss. But I can’t believe in the rally. Shorted oil a couple weeks ago exited a day before the 10% drop began. I’d gouge out my and shitcan my computer if I do that again.
Nice.
I updated the chart so now it will pop out and expand.
The overnight futures look like they are really going to try and rip my head off.
Asia xJapan is blowing a monster bubble. I think the Taiwan P/E is pushing 60 right now w/ Korea around 30. (I know P/Es are relatively unimportant over there,…)
Wood – Any thoughts on the impending cross of the 20 DMA through the 50 DMA?
Funny you should ask that. I was just studying that, but haven’t put the post up yet. The results show that there is really no entry edge there, meaning that over time, the cross produces net gains, but that is primarily due to the market’s tendency to trend up over time. As far as the cross itself, I do not expect it to affect anything immediately.
Yogi, awesome question that I had been wondering about myself. Thanks for the reply wood.
The SPX has exceeded my stop. If it closes at this level or above (961) then I will be covering Friday morning.
ARrrrgggggggg…..
Wow…what a short-squeeze…
SPX 1050 next stop?
We are soo overbought, yet the market keeps marching higher… Aren’t we up 12 days in a row for NAZ?
I might have to cover here, yet at the same time, I always ask myself “Would I buy at these levels?”
I will cover tomorrow a.m. (assuming no reversal today..righhhhhtttt) because that is how I’ve backtested my trades.
My backtesting shows that this move can continue, although I will not be getting long until there is a pullback.
this is absolutely crazy? I wouldn’t want to buy here! I might have to follow wood on this one, and then come back after a ma cross or bowtie. That is, I just want to see some momentum down before I get committed to the short again.
Wood,
If you you were out now, would you still wait for some kind of pullback or treat this as a breakout and just jump in.
5-0, difficult decision, I know.
There is no doubt the market can go higher from here, without a pullback. There have been times in history when it has.
There have been more times when it has pulled back.
Still, very difficult to know what to do here. However, the fact that we are confused is in itself a signal.
Thanks Wood,
Always good to hear your thoughts.
Both of my trend following systems would have had me in at 940, but I have beat them before by waiting for pullbacks.
Probably not this time though. However, I will probably wait a little longer for some kind of pullback.
looks as if there is a probable pullback tomorrow… after hour shorts movin on up
Looks like MSFT missed big time.
I have an engagement tonight, and will be back late, and then will attempt to update, if I’m not drunk.
Hey Wood,
Here’s a chart I thought I’d share.
It seems the 10 day ema is pretty good at generating long term signals on the monthly and has just recently turned to a buy
http://stockcharts.com/c-sc/sc?s=$SPX&p=M&st=1994-09-23&en=2009-12-30&i=p20630762907&a=173252851&r=52
Fixed.
http://img291.imageshack.us/img291/3453/47091318.png
Ketchup, you MUST read this research. Long story short, the 10 month simple moving average can be very effective at a long term timing strategy. In fact, I’m using it on my retirement portfolio. Here is the research:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=962461
To both of you, this is just what I was looking for. Thanks!!
Dumas, imo, that paper is the single most important paper to me, of 09, to date.
You should visit the author’s blog- mebanefaber.com
Thanks again Wood. I will certainly do that.
This looks great, but I can’t open the file. What do you open it with?
Also, on Ketchups chart above, what’s crossing what for the signals?
adobe reader –> adobe.com
see the chart key — in the top left
??
Sorry,
I see S&P crossing over the 200 or 400 day ma. Although it looks like it at least touched on it a few times in the wrong direction. I guess I got to get that paper open.
Thanks again Wood. This does indeed look like an important paper and I do believe I’m going long!!
Open the link, and then click on the Download tab.
Feel free to ask any questions. I’ve read the paper numerous times.
To be clear, the research is based on monthly charts, using a 10 month moving average. In terms of daily charts, this would be a 200 day moving average.
However, the signals are only acted on (the portfolio is rebalanced) once a month, at the end of the month, as that is when you know if the monthly bar has crossed (or not) the 10 month moving average.
Computer goes to adobe and says it can’t open an rsi file. Do you know how that’s done.
H 5-0, when I click the link, the page opens, then I click “download.” Then I choose the location, choosing “New York, USA.” AFter that, firefox opens a window which asks me how I want to open it, and offers adobe. I click okay, and everything goes okay. Do you have adobe?
I’m going to try emailing it to you, if the email address you’ve provided is correct. Should be to you in a second.
Woodshedder,
This is the single most important chart I’ve seen in the the past few weeks, since it puts into perspective what has been going on and confirms some of my amateurish hunches, which I haven’t been able to confirm and back up. Thanks!
Yeah, that’s what I meant to say. I completely agree. Very important chart. If CA did this chart, I certainly missed it.
Spooky, I’m honored, and glad to have helped! Thanks for your feedback.
Wood,
Not trying to put you on the spot but you believe we are in a new bull market then?
It seems it would be logical to assume at the time given the performance of the 10 month ema
Crossing the 20 month will only reinforce this
This would mean we stayed below the 10 month only around half as much time as the last but we can always fall back below
Ketchup, I really have no idea. If you follow the research presented in the article I posted, you were 40% long on July 1st- 20% VTI (Domestic) and 20% VEU (global/international). Keep in mind this research has you diversified across 5 asset classes- domestics, foreign, reits, commodities, and bonds based on the asset class being above or below the 10 month simple moving average.
Technically, like I said above, I believe we are still in a long term downtrend until the upper channel line is broken.
My honest to goodness gut feeling is that we are seeing one heck of a bear market rally. But that is all it is, a gut feeling.
I’ve written several times that I didn’t think the bear would be over until every last retail/mutual fund/401K investor completely gave up. I wrote that there would be a rally that would suck everyone back in, before the final dump.
Whether that is happening now, who knows, but it feels like it to me.