I was thinking about how to describe my frustration and dis-belief with the Euro-zone financial shenanigans. Lucky for me, Fly had already written just about everything I was thinking.
The action of the past few days reminds me a lot of what happened after September 18, 2008, when Paulson and Bernanke met with members of congress to propose the 700 Billion Bailout (which eventually became TARP). The next day, SPY gapped up over 5.5% but reversed to close up 3.4%. After that day, SPY began falling and almost never stopped until it found a temporary bottom in November.
I’m not saying that is what is going to happen now, but I am very very suspicious of this Germany-Bails out-Europe solution. The mess in Europe seems worse to me than the American credit crisis, and I have a hard time believing that the S&P 500 has found a bottom amidst all the uncertainty. If anything the recent bounce has given professionals one last time to lighten up before new lows are made.
Yes, my gut still says we will see new lows. While the Nasdaq chart is not terrible, the S&P 500 and the Russell 2000 both look awful, like they are just going to fall off a cliff, any day now. There is now strong resistance overhead on both charts, and the falling 50 day average seems to be acting like a lid on price.
Anyway, the last three days closed higher, and gained more than 4%. Lets look at what happened in the past after this setup.
The Rules:
Buy SPY at the Close If:
- It has made 3 consecutive higher close
- The MA50 is < MA200 and the Close is beneath both moving averages
- The 3 day Rate of Change > 4%
No commissions or slippage included. All SPY history used.
The Results:
As we would expect, the results show some reversion to the mean over the next week. In fact, during high volatility environments, it works very very well to sell the rips. I fully expect a pullback here, unless the Europeans are able to pull a rabbit out of their silly little bag of magic tricks.
Weird Omen Alert: Anyone notice that the chart above looks almost exactly like the last 2 months of the S&P 500 and Russell 2000?
nice work
haha great call it rlly does
Top notch. Went 50% in today via TVIX, FAZ, and ERY. Sell the rips indeed. Did the ROC indicator cross?
Thanks. Not yet on the ROC. Still very close. Need a little more downside, and then a big bear market rally and I believe it will cross.
Timely and appreciated
Loaded up on TZA at the close, without even looking at the market.
“respectin’ the PPT!”
_______
wig
Thanks Wood.
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