Short/Intermediate Term Top

Discussion in 'Trading' started by bbraunstein, Aug 16, 2002.

  1. Looks like we may have put in a short to intermediate term top today.

    --equity put/call is ridiculously low
    --vix is very very far away from its 10day MA
    --ticks in the 1200-1300 area
    --double-top on the spoos today
    --key resistance levels overhead
    --60min macd rolled into a sell
    --extremely overbought status on all time-frames

    Anyone else have an opinion?
  2. gordo


    Also looks like we may be tracing a wedge formation in the SPX daily charts, IMHO.

    Have a great weekend all!
  3. One of my trading buddies is a great EW analyst and junkie. He says we are putting in a bearish rising wedge and it is going to get really ugly.

    Kind of scary, but it is a bear market.

    Funny how complacent people get after only a few weeks and a small rally....
  4. dis


  5. The past is littered with the carcasses of well known and successful traders who refused to recognize a change in the financial landscape, and instead stubbornly resisted the obvious to their detriment. Folks, there are bids under these stocks, a cursory price/volume analysis of charts reveals this. IMHO, we should at least get a rally of the magnitude of last Sept. This mkt is correcting internally as it rises and will give only one day shakeouts to keep the shorts in play. Tip your charts upside down if it helps to BUY.
  6. short the sh!t out of everything til it's clear that we're not in a downtrend.......bye bye
  7. dis


    We may get a retest of the Dec.2001 - Jan.2002 highs (SP500 @ ~1500). However, all we know for a fact is that SP500 and NASDAQ100 have run into resistance at their declining 50-day MA's, and that the volume have been fairly light over the past few days. Where do we go from here is a open question. :confused:
  8. In other news, NASDAQ dumps Japan, leading one trader to speculate whether the bottom is therefore in.
  9. tntneo

    tntneo Moderator

    The market is bid up. that's true.
    and a recent break out obvious. it may go higher.

    HOWEVER, the trend is still down long term and that explains the rising wedge we can see for SPX and Dow.
    it is consistent with EW too.

    trading is a probability game, not a certainty. I think what we are seeing is sometimes referred to as 'turtle soup' : a break out which will fail (not continuing into a trend).
    In other words, it's a dangerous place. if you short you are anticipating a little too much (and might get drawn down). if you go long well, you are one of the last foul. A rewarding (sometimes) but risky proposition since you may be buying the top.

    As usual, it is better to have a plan which includes a confirmation that things are going the way you bet before placing a trade on this time frame (shorter more active trading, we don't care anyway).

    if you are buying now (you are not yet in) it's quite a bet to go long and expect the market to continue much higher (OK it was bid up the past week. but that's not reason enough. a break out needs these bids. not all break outs continue long however...).

  10. dis


    Chart Guys Say a Retest
    Is Imminent for Stocks


    It's August. It's -- what? -- 95 degrees? There's already a lot of hot air blowing around out there.

    So this week, rather than wallow in complex macroeconomic explanations for the stock market's actions, we're going to the charts and their masters, the technical analysts.

    Chartists, unlike fundamental stock strategists, don't give a flying fig about p/e ratios, earnings, revenue growth or rumors of, say, bankruptcy filings.

    Instead, technical analysts study the trading and price history for particular stocks, sectors or indexes and try to pick out patterns. Certain patterns occur over and over as a stock rises or falls (chartists have all sorts of funny names for them, like "bump and run," "rising wedge" and "cup with handle,") and they watch for these patterns in order to predict what will happen next in the market.

    It's not all that complicated, but there's a certain comfort in clarity. And that might explain why chartists, despite an approach that scoffers deem as so much hocus-pocus, remain popular among investors.

    While technicians and the fundamentalists use wildly different approaches, it turns out they're feeling the same way: grim, at least for the time being. Technicians say their charts indicate another big dip in the stock market is coming, and soon.

    In the last three weeks, the S&P 500 index rose 8.9%, while the Dow industrials climbed 6.2% and the Nasdaq composite jumped 7.8%, but chartists say it was something of a head-fake, typical in bear-market bottoms.

    While it's natural that chartists who look for the same thing find the same patterns -- after all, a line is a line and there's not fundamental gray area to debate -- there is some disagreement about what shape the retesting might take. Some question whether July was the final low, and others quibble over whether the selloff will be an easy, gentle descent or something more abrupt.

    Art Huprich, technical analyst for Raymond James, looked at more than 50 years of market history and saw a very decisive trend he thinks will be repeated.

    "Going back to 1949, most bear markets ended following a series of events -- a 'low, rally, retest' sequence that occurred over a period of time," Mr. Huprich says. "With the exception of one, every bottom needed that."

    Currently, the market's still in a bottoming process, Mr. Huprich says, and it hit what he considers a low on July 24. Lows typically have huge volume and high volatility. On that day, the NYSE set a record for trading volume and the CBOE market volatility index surged to 56.74, very near where it was at the market's lows set in September. Any number above 40 is considered to indicate lots of shaky knees on Wall Street.

    The Dow industrial average hit an intraday low of 7489.53 on July 24; the S&P 500 fell to 775.68 at one point that day.

    "We saw a low, which is a function of price. A bottom is a function of price and time. We've set a low, we're in the rally mode, and what I would like to happen over the next month, month and a half is that the market come on back down to around 8,000," Mr. Huprich says.

    That's about a 9% retracement.

    So why, praytell, are these double bottoms necessary anyway? Why do we need two lows, instead of just one?

    "When you have people who have bought on the way down, some of those will sell when it starts to rally back to limit losses," says Price Headley, president of "It feels like a gift to some of those people, and that's why the first rally is sold into. When it gets back close to their break-even level, they'll sell and be relieved."

    • See a calendar of upcoming earnings reports.

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    Mr. Headle believes the current rally will hold for a bit -- as long as the Nasdaq holds above its 20-day moving average of 1300. "The market can make some more upside progress in the short term -- probably another month or so of rally and then a potential retest of 3% or so on either side" of the old low.

    However, the tenor of a possible market decline should be quite a bit different from the blow-your-hair-back drop in July. Technical analysts say retests typically have lighter volume and are more controlled, and normally a retest sends major indexes near where they were, but not below.

    According to Andrew Burkly, technical analyst for Brown Brothers Harriman, the second low won't be as "intense" as the first low, in many different aspects.

    For instance, the percentage of NYSE stocks trading above the 10-week moving average during July's low point tumbled to a scant 3%; in bull markets that number is around 70%. Right now, it's at 40%, and it shouldn't get that bad again. The number of stocks dropping to new 52-week lows shouldn't be as big the second time around either, he says.

    Intensity also takes into account volatility. Mr. Burkly also looks at advancers versus decliners, and the ratio of NYSE volume to Nasdaq volume. Typically, when hitting a new market low, Big Board trading picks up to match that of the Nasdaq, which is normally heavier. During late July, there were a string of days where NYSE volume outweighed Nasdaq volume. The second bottom will likely have lighter volume.

    And most likely, major indexes won't fall quite as far (thank goodness).

    "You get within a couple of percent, but since 1949, we only found one instance where [the second low] broke through," Mr. Burkly says.

    Opinions about how long we'll get to enjoy a relatively calm market until the retest vary. Mr. Burkly says retests normally come in six weeks or less. Mr. Huprich says that in bear markets he studied, the shortest time period to reach a retest of lows was about a month, and the longest was five.

    Whatever the time frame, technicians caution investors not to expect any miraculous leapfrog over the second low.

    "Most bottoms are processes, they're not events," says John Roque, a technical analyst at Arnhold & S. Bleichroeder. "They take time to form.

    "I believe the bottom will involve a long rebuilding process. If [July 24] was indeed a low, I think we'll revisit it. Most bottoms are not V-bottom varieties, and given the amount of damage we sustained, it's likely that more repair is necessary."
    #10     Aug 17, 2002