One more chart to finish up on my weekend research...and I promise this is the last one, cross my heart and hope to die. <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1582174> This, for those who have never looked at one, is called a "point and figure" chart. They are only used by old farts. The idea of a P&F chart is that it shows pure price movement independent of time. This particular one is of the S&P cash index, and it's a "10x10" chart. That means that each of the green X's and red O's represent a 10-point move in the spooz, and each vertical column of X's or O's represents at least a 100-point move. Note the double top, just like what we saw on the ordinary monthly chart. Also note the price pattern in the 2000 timeframe preceding the last bear market. Notice all the 100-plus-point re-tests of the high before the bear market got underway in earnest. I suspect that we can expect the same thing if a new bear market is in the offing. In other words, even if we wind up dropping a couple of hundred points, there will almost certainly be several re-tests of the highs before the bottom drops out. So if you get caught short with a lot of money in equities, don't panic -- the market will probably give you another chance to get out with your hide intact. But if you don't take your second chance, there might not be a third (at least for a decade or so). All in all, it's been an interesting weekend.
Gosh, do you think they'll let you on the airplane without shorts? Those Homeland Security folks have no sense of humor at all. When you said you were going to Italy to buy a new wardrobe, I had no idea it had gotten so bad that you had no shorts. Have a great trip. We'll try to hold down the fort without you.
Great Posts mbusch! I appreciate you posting your macro point-of-view here. Since most of this thread is about the smaller moves its a nice step-back to look at the bigger picture.
I'm not sure that "nice" is the right word. Frankly, I find the monthly chart terrifying. But better to be prepared than surprised.
Why terrifying? Just trade what the market gives you whether up or down. A strong up move is just as profitable as a strong down move and neither is terrifying
go long es or spy or dia at 50 day weekly moving average, go short or hedge with puts when 50 day weekly moving average is crossed to the negative, or build a black box for several million. Notice lots of pain in black box world for the last few months except for those short the sub prime, those guys are looking real smart at the moment. I guess computers don't understand crowded trades. http://www.informationarbitrage.com/2006/11/black_box_tradi.html