Wednesday, March 25, 2009

Who really needs to sell?

Well yesterday worked out great yet again based on the scenarios we had provided. We had retraced towards the 808 range as anticipated, held it twice and then setup for a suckers rally to fail, both high and low were on target with price and time. However, the definition of a suckers rally normally means breaking into new highs before falling over, we did not quite see that yesterday. We had sold off into the close but still managed a close above the important 800 range.

Now someone had asked about the big players. Let me take a minute and explain something else here that will give you even more information on the past 2 weeks. Out of all the market participants who are the ones that really are pressured to sell? .... You? me? Day Traders whether bear or bull? .... nope its institutions that have huge inventories of equities that need to be sold. As you know you cannot just push the sell button so you do not have a choice but to slowly exit out whatever it is you are holding. Now all of that makes sense and we knew that, however those institutions are out there having to compete with day traders, swing traders, the MANY bears, and other personal type investors. So if all of those groups are selling the institutions are not getting a great deal on their positions.

So what do they do? What would work best for them? - If they were the only one in the market that is trying to sell - now then it would be the best case scenario for them. So to be able to get into a situation like this what do you need to do? First you need to get rid of the bears, what better way to do this then shake them out and show even the most committed bears that they are wrong. One could say this is exactly what happened here - bring them over the last mental boundary where any bear would say this is it. Bears are now split into 2 groups of bears, the sucker bears that were now converted into bulls, and the real bears that have no choice now but to remain on the sidelines and stay light after such a big beat this month.

But this is not enough, you need new bulls as well. So what do you do? The many investors that have been in cash waiting on the sidelines have seen the most extreme rally this recession - its time to put your money back in because this is the bottom. Just take a look at CNBC and read what analysts are saying. For some reason, magically, everything is better, and a hint of news that is not horrendous is wrapped in a nice package and presented as a great move into the right direction.

So now that those institutions are in a position where they are the only ones with a desire to sell what happens next? Even the strongest bears are taking it easy at the moment and are waiting for major comfirmations before going in short strong. Many have scaled out and taken the loss so they need some more time to build up the position again. Overall the institutions got exactly what they wanted now. All I know is I want to be on the train once they make the decisions "ok here is where I will start pushing the sell button". I do not think that train starts at 825, I think we have a bit more room to go on the upside.

Ok enough of this for now, sometimes I have a tendancy to just go on without stopping.

While we sold off pretty hard into the close yesterday we are still above the 800 line. Similar to yesterday we have a few scenarios yet again. But lets talk about some numbers first.

798-802 this right here needs to hold for the bulls, if we overshoot it needs to reverse quickly. A break of this range and I am confident we are going to see the 779-780 range again.

808 the turning point I had mentioned yesterday

817-818 this could be the top from here if we are unable to rally

824-828 again upper ranges at the moment. While we had this range approached yesterday it could be considered a double top and mere test of the previous close. So it did not quite get to what I was looking for personally (though it was off by less then half a point lol)

Scenario wise its a bit more difficult, we had our indecision yesterday on low volume. We have to watch fundamental news very carefully at the moment, the bulls are a bit scared and any piece of bad news could throw them off guard and cause a bit of a sell off. So watch fundamentals carefully, on the flip side any good news should confirm the bulls position but not be the reason for another rally. Again I still feel this is our current upper range here at the 800-820 range and we will need to retrace down unless we can continue sideways above the 800 for another 2 days.

Lets hope I will get my computer back up and running today =)


  1. Simply Brilliant analysis! Thanks. Good luck with the computer.

  2. This is great analysis. We already made it to the range. Here is a blurb from other proprietary blog that confirms your thinking. Institution are accumualting.

    "Institutions were in increasing Accumulation with their Buy/Sell SPREAD decreasing a little. Buying decreased, with selling increasing. Institutions are still in accumulation ... this is not a condition to short against. Do note the Alert Watch showing that Institutional buying may be fatiguing. Remain in cash on the short side.
    If the toxic asset plan does not erase the lending bottleneck, then this will be a negative shock to the market as investors will wonder what the Fed and Government have left in their bag of tricks to breakup this financial log jam. Our sources tell us that it won't be until this Friday that the Fed starts to buy some of the toxic assets. This means that will we not get the test for whether or not banks will open the lending spigots, until next week."

  3. what do you think now? breakdown to 790?

  4. still some computer problems here, but I feel we will hold this range and get at least a rally towards the 812 range. Here we can turn around and drop to break, or continue to stay around the 817 which is an important point. If we manage to close above 817 today the bulls are in good shape.

  5. Wow! The 5-min and 60-min bars on SPY are crazy!

  6. yeah its quite scary looking. Remember yesterday I had mentioned that once we break into this 824-828 we could be seeing quite a sell of that leads towards a major retracement down to 760. Its definitly looking like this may be occuring here. I do not think the train has left the station yet for this to be the start to a major downturn.

  7. Yeah that 824-828 was a great call... filled the gap from Feb 17.

    "any piece of bad news could throw them off guard and cause a bit of a sell off... good news should confirm the bulls position but not be the reason for another rally."

    Tomorrow's jobless claims and GDP numbers could be the cause?

  8. also remember, trading above 800 and trading below 800, never around 800. Keep that in mind now for the rest of the day. If we break 800 on the downside we could very well see quite a bit more to go there before breaking 800 on the upside again.

    On the same token, 800 had to be retested properly as support. Though I would like to see a lot more buying down here now.

  9. George, remember today durable goods orders. Much better then expected but we did not see a crazy rally, we confirmed the bulls position.

    Any piece of fundamental data will cause great overreaction in the market and of course unemployment is one of the key drivers. It has driven the market MANY times in the past for at least a 3 day trend.

  10. Thanks, very logical. Durable goods really did blow away the estimates this morning, and economic data has been better than expected the last 2 weeks. Just can't trust gov't numbers though.

    I agree, we should be seeing buying at these levels. The bulls have been buying the dips pretty consistently until now. Maybe out of steam.

    This market never ceases to amaze to me!

  11. 796 wow. you think a retrace bounce or keep going down

  12. I would consider a 795 with a v-bottom recovery an acceptable violation, but not 792. Of course there is no need to chase it now, it SHOULD give us a chance to get back to 800 to retest it as resistance but it could also be the big drop towards a major retracement from here.

    Difficult to make a trade from here, if you are out stay out, if you short stay short, if you long you hit your stop.

  13. Bulls need to make it back above 800. There is some support in 790-793 range (50dma as well). Break that and chaugner's 779-780 is in play imo.

  14. moving averages are normally great signs, but not when its around MAJOR points such as the 800 here. I think around those major market points you need to scratch the indicators and purely look at price, time and volume. All of those are giving is a sell sign, not a buy sign at the moment.

  15. but then again, the month of march has humbled me quite a bit. So take whatever I say with a grain of salt lol

  16. Lol. I'm not going long off the 50dma, but it's there. Actually I'm very short, but I'm thinking maybe a little hedge here if we see any buying. :)

  17. Thanks Chauger. I just got out of SPG put with 20% gain. It can go either way. I smell bounce just a gut feeling. No technicals.

  18. you smelled correctly ;) George as well =)

  19. close above 800? now that would be something I would NOT have expected. as george said "the market never ceases to amaze me"

  20. Volume is light, especially considering the size of the move. Seems like the last shorts were squeezed on Monday, recent longs were stopped out today, but the bulls who got in early are holding on. People waiting to see where we go from here before putting money to work.

    Interesting post from the xtrends blog:

    With rampant discussions on the legitimacy of this rally (since March 10), we decided to tap the massive UBS network to gauge who is doing the buying. Our data is based on the 450 million shares per day ($7bn notional value) that we execute for our wealth management network and all of Charles Schwab's order flow. Here is what we have seen:

    1 - Retail flow turned better-to-buy on March 9th and has not wavered in it's conviction since then

    2- Institutional investors joined the rally for the first 2 days of the rally, then spent the next 5 selling into strength.

    3 - The last five days have seen PM's, money managers, and institutional traders dipping their toes into the market, unsure of the dangers. This is evidenced by the light volumes and broad market participation.

    CONCLUSION: Surprising as it may be, this rally has been initiated by retail investors and the follow through has come form institutional investors. Typically it is the other way around.

    Source UBS Securities

  21. yeah xtrends has a lot of sharp guys over there. Was quite impressed and would have loved to have found it a bit sooner. One of my biggest problems in the past has been finding someone to bounce ideas around with. Seems xtrends has a great network, many bears but also some people that try to remain objective.

  22. Many many bears and a lot of garbage to sift through, but good ideas are there. Like you said, "grain of salt".

    I really enjoy your blog bc of the lack of noise. Great analysis as well. :)

    Decision time market!

  23. another sign I use for mid term swing trades, something that I have not seen very often is a 120 minute chart. See if your software supports changing those intervals. I normally look for a change in direction of the 50unit moving average. You can see today we have been FLAT all day on that average. Once this turns in the opposite direction its a swing trade waiting to happen.

  24. Glad I picked up a little hedge... this market is crazy! Wow, just wow.

  25. oh yeah ... wow just wow. There is nothing more to say here.

    In summary though, some real volume today, a second spinning top that I would consider bullish at this point as the reversal was followed through with some NICE volume here.

    And I guess technicals with the 50dma did hold up here and acted as strong support. Closing up after such a big drop is quite an accomplisment.

    50 point range today. Quite nuts.

  26. It looks like bulls are back. One more test to to 830--850 and then fail down?

  27. What a circus. Just waiting for the monkey with the grinder to walk by so I can throw him a peanut.

  28. Now if institutions need to sell, but before they can sell they need to engineer a rally by feverishly buying, this would seemingly be a very risky maneuver (guess that has never stopped them before) and it would apparently suggest that they will need to sell all of their previous inventory in addition to the inventory accumulated to manufacture the rally once they had enough investors/traders...suckers... to buy the inventory they would be distributing at what they hope/intend will be much higher prices

    This seems fairly logical and consistent with what most of what i understand the 'smart' blogosphere to be espousing.

    The (rough) spx 940 --> 1000 --> 1050 targets appear to be where this multi week/month suckers rally is headed in either an abc zigzag, or more likely a more-complex corrective pattern such as abc-x-abc or something of the sort.

    Thanks for your excellent insight!

    I have found to provide some pretty decent insight, perhaps as a supplement to yours. And like you said, its generally good to have intelligent opinions to compare to your own.