IF we head back down below 8000...

Discussion in 'Trading' started by S2007S, Nov 15, 2008.

  1. S2007S


    Seems to be plenty of nice support around 7800-8000 area, however I think if this area is reached once again we will see EXTREME SELLING where the markets will break all support and fall to new lows. I think this time around there will not be any 500 or 1000 point rally off these lows this time the opposite is going to happen where we see probably the markets totally break down. The bottom is not in yet, its going to take more than just a 40%+ off the top of the markets to mark any kind of bottom, this week we could see the dow below 7800.
  2. awesome
  3. Suppose you are next to a solid door that you want to break with a shoulders push/hit.

    What is then the one/first thing that must be done in order to break that door? (A: take some distance/steps away from the door, and then head towards it with increasing speed) .

    Comparison is borrowed from RFT's blog (financialtraders blog), where other analogies are used (in addition to mathematical analysis) to help traders concretely understand markets, and nail tops and bottoms almost without fail.

    The latest anology relates to "back dark alleys" such as the one where we took the bears (in daylight) at around 1PM on November 13 to take their money, after administering on them some white candles and some hits on their nuts because we informed them the day before that we will take them to the back dark alley to take their money. And they still came!

  4. and they came indeed!

    what are your thoughts on the last 10 min sell-off on friday?
  5. I will post a question, make some remarks, and apply the observations to answer your question:

    1. Let us pose a question: who are the most reliable sellers (buyers) at a given price?

    Answer: men who have a losing position, and particularly men who established a position at the worst price, at the most recent time. Wounds, how recent they are, and their severity cause certainty in action among market particicpants.

    2. Application of the above observations to bears and price action on Friday: Short Position

    The bears who made the mistake on November 13 are (in case of nasdaq 100) at level 1177, and below. That is why the low of Friday (Bov. 14) was at 1179. Bears were ready to cover even ahead of breakeven, and smart money was ahead of them to make their task even more urgent! They complied as they had no choice.

    3. Answer to your question (Shortie's question):

    Let us look at those who bought NDX at close on Nov 13 (Thursday). Close was at 1241. They bought from smart money (folks like you, I and the readers of RFT's blog) at close on Thursday.

    The next day (or even the evening) those folks felt reality sinking it, and realized during the course of Friday morning that they made a mistake.

    Decision is already made for this people. Get out as soon as price goes back to where they bought, and never try the same thing again (until they forget).

    What do you think they did: they spent their day praying that if NDX goes back to 1240 area (or close) they will uncover the mistake and never do it again (until they forget).

    Otherw have learned from the mistake of the end of day buyers of Thursday and were not going to do it, as it is too recent and blatant.. Therefore they would not do the same mistake the next day (Friday), as it is too recent to be repeat it. But there are always those who did not participate in either day, and were ready to participate as they did not want to be left out.

    Add to this the smart money (RFT blog crowd is one) who understand the game, and planned to offload in 1230 (below the 1240 area).

    Since the price went the 1235 area, and you had two groups of convinced sellers in addition to the smart money, the number of dumb buyers left was too small to meet the hungry supply of stock. If if you add the smart short sellers, the market broke down simply because there is not enough number of buyers to meet the convinced losers, and the profitable traders who had to offload.

    Where did the price fall? Exactly where the first bleeing bears lie (who are in 1177 level and below for NDX).

    With time, one of the two reliable groups among sellers and buyers will be exhausted. When the first of them will be exhausted, the price will run away from the remaining losers because that is the only direction it must go to. The market will then act as if it wants to maximize the loss of losers, some of whom will fulfill the market wishes as they will cover while the market is running awy from them which typically will cause the market to run even faster (not to mention away from them).

    When it slows down, the smart money will be there to ride the market in the reverse direction.

    It is the same game repeatly for as long as there are markets!

    Sorry about the long speech, but I just want to have a bit more people to my side as smart money is lonely money.

    RFT likes to write about these things in his blog!
  6. RFT, if i understood your correctly (and maybe i am reading too much into your fine explanation) we should expect the following scenario:

    1. possible trading range 1180-1240 (NDX)
    2. conclusive breakthrough one way or the other (too punish the persistent losers)
    3. ONLY to quickly turn around and swing the other way to test or even breach the other level.
  7. People facing margin calls at that price.
  8. Yes - either rangebound or not rangebound is a very good bet as it covers all possibilities. Unfortunately there's not much edge in it. That long post can be boiled to a simple statement: market is going to move a bunch in both directions.

    And you owe me a beer for saving you a trip to yet another market blog.
  9. no you missed #3 that #2 breakout will be actually a fakeout.
  10. That is correct, but useless. Why? because unlike knowing where losers reside, one cannot tell where margin calls were made. In addition traders with margin calls are marginals except for larger hedge funds, which are also of no positive use to individual traders as useful information about such funds is always in other hands first.

    Conclusion: RC: do not take this negatively, but you should think things out first before concluding in a hurry. For that you need to write out your thoughts to expand them so that you see the holes.

    It is fine that you think highly of yourself.

    Just know that I have read every single book written on trading since 1700.
    #10     Nov 16, 2008