05/12/2012 Weekend Discussion

[nightlyhawk]

For those who are still sticking to a bear camp, be extremely careful with your short positions. Market pulse is showing more positive strengths on the upside for short-term time frame.

[DRL]

I have been looking at alternative ETFs for various reasons. I found that RSP (equal weight S&P) has a very interesting pattern over a longer term. There may be a significant message in this for all. I found the chart insightful and suggests the top is in (may get revisited, however). But whether we go sideways or down longer term is still an open question.

Cobra uses RSP as an indicator in daily trading. I am wondering now whether RSP is not a better market indicator than other markets indexes.......

[Cobra]

Institutions are in distribution. Liquidity inflow is trending down.

[Cobra]

Latest AAII and II.

[Cobra]

smart money is covering from huge short.

[sloth]

Seems like many E-wavers are calling this down move off 1400 level as a wave 4 and accordingly, a wave 5 should commence soon, last through the summer and take us to the election. This also fits the three peaks and domed house pattern, with point 23 (approx. 1576) coming up around last half of July 2012.

The central bankers continue to accommodate wall st., this will not change until after the election. The only real question is how low they allow the markets to drop before this wave 5 begins. My guess is this wave 4 ends once we dip to 1316-1333 range.
Then a blast off of 250 points to 1576 !!

[Cobra]

Paging Dr AI, I asked Jason from Sentimentrader, the screenshot below is why he said now CPCE (CBOE Equities Put Call Ratio) includes SPY, besides this he has no other official document back him up. Personally, I think CBOE didn't change CPCE definition, the SPY or other ETFs are always included in the CPCE.

[ClarkW]

Interestingly, Friday's P-bar hits right at the top of a possible bear flag.

[grachu]

can you post a chart ?

[Al_Dente]

Paging Dr AI, I asked Jason from Sentimentrader, the screenshot below is why he said now CPCE (CBOE Equities Put Call Ratio) includes SPY, besides this he has no other official document back him up. Personally, I think CBOE didn't change CPCE definition, the SPY or other ETFs are always included in the CPCE.

Thanks cobra
I spent way tooooo long last night trolling around the net and cboe.com.
Couldn’t find a single thing about them changing the composition of the CPCE.
Seriously, that would be BIG NEWS if they changed that !!!

THANKS AGAIN, I REALLY APPRECIATE ALL YOUR HARD WORK

[ClarkW]

$SILVER Daily with sma's using fibs. It's bumping up against the 600 sma which has provided support at important bottoms. 3rd time the charm to break through or provide support again?

[grachu]

COBRA what are your thoughts about re visiting the highs 142 ?

[ClarkW]

Playing around with VolumeZoneOscillator through ToS. At extreme lows for SLV. Vertical lines represents last time it was this extreme

[KeiZai]

CPCies

1288.88 is key number for me, below is bears world...I think lower purple line will be at least tested soon, if not broken (with grexit)
Everyone is expecting bounce next week, including me but I always get nervous when too many technicians are on the same page

symmetrical picture

[taggard]

As to JPM: the 2 bil loss might not be threatening for JPM, but loss shows that the big banks cannot manage risk, mechanical algos and human systems just don't work (on the long run). Incident will speed up the Dodd-Frank reform law, which would curtail "speculative" trading with the banks’ own capital. Most of all it would reduce profits. Analyst's forecasts for bank earnings would be adjusted. Don't know precisely the importance/percentage of bank earnings in SPX, but banks are good money makers and I guess Dodd-Frank would slice 2 to 5 percent from the index.

i agree with uempel that that the issue with jpm is political. in fact i think the impact is larger than just banks. there is a general world wide shift going on that is different than the last 30 years. and everything i see implies it is gaining speed and force. the reason for this change is in part the unemployment figs for people under 25 in spain that figure is about 50%

--- Bulgaria ... 32.8% ... up from 26.7%
--- Portugal ... 36.1% ... up from 27.6%
--- Denmark ... 15.1% ... up from 13.7%
--- Ireland ... 30.3% ... up from 28.7%
--- Cyprus ... 28.8% ... up from 18.8%
--- Hungary ... 28.8% ... up from 25.4%
--- Netherlands ... 9.3% ... up from 6.9%
--- Poland ... 26.7% ... up from 25.7%
--- Slovenia ... 16.5% ... up from 16.3%

headlines in the nyt this week went (sun) Markets to Give France a Grace Period, Analyst Say (mon) Austerity Faces Sharper Debate After European Elections (thur) Data Signals Economic Trouble in China (fri)Germany Signals It Will Permit Small Steps to Promote Growth in Europe.

what we are seeing is two absurd sides of the same economic thinking blowing up--and being proven wrong in the real world. So in this context any energy that makes banks look stupid corrupt or incompetent is an issue. the real thing to wonder about is how hot it gets if youth unemployment goes to high numbers world wide and sits there for a while--this is going to produce change period.

the trick to triggering change is setting up a situation were huge numbers of people have nothing to lose--and everything to gain by it. and this is egg-xatly what is going on and that the concentration of financial tools over a fairly small number of players is causing.

The thing that is larger than HFT Banks etc is the derivatives market which is someplace between 600 trillion and 1000 trillion notational value. the "real" value of this is something more like 1-3x world gdp call it 60-180 trillion. and it is this monster under the surface (along with some derivatives we all know about namely futures and options) that are really running things. the issue here is 3 fold--(1) there is no agreed upon accounting for derivatives. (2) there is no absolute way to even know we are measuring them all as they are often only agreements between two parties. (3) in addition to the "accounting issue" is the problem that they are not marked to market and there is no clear way to measure counter party risk.

it is not that easy to just stop this monster because of it's existing size. what is the real risk? nobody knows--but my guess would be in real terms between 6-30 trillion. the market cap of spx is about ball park 12 trillion.

Given (1) old economic ideas in the USA and EuroZone starting to change. (2) the close to extreme unemployment in youth esp (younger less to lose easier to get pissed) (3) the absurdly dangerous derivatives stuff. we should see more trouble soon. i am actually not one of the dire types who is buying physical gold--but it's absurd to suggest that all this will amount to nothing. and that there will not be some "bumps" along the way/

given this the possible 2-5% loss in spx earnings is far less important that the whole issue of change which moments like jpm build slowly to trigger. the attitude towards banking regulation in this country does not really seem thoughtful enough yet to me--but one more serious crunch and it will likely get so very fast. you can never know what is going to trigger stuff. in one week germany went from being absolute (this was just after the election (sunday) where merkle said she was glad to discuss things but there would be no changes (in plans obviously not working) to fridays piece where it was suggested in the last line of the story on germany offering slack on growth "she will even explain it was her idea".

stuff is hugely fluid--and tiny events like jpm sooner or later are going to cause some sort of massive shift. having said that as uempel has pointed out--we are short term traders and timing is everything.

ps it was amusing to see last weekend how this "challenge to austerity" was going to be a disaster for the markets. eventually it may be--but before that you will see them printing money again and any serious crunch as a result of the last stupid ideas being trashed to whatever degree will just create some sort of whack of liquidity. we are getting closer to the point where this stuff is simply not going to work--and maybe i am wrong and we are there now--but i think it's a bit further out. when they start selling the actions (the next liquidity infusion or the one after that) in a big way--we might be closer.

pss amusingly for soros the idea that markets tend towards distortion as opposed to rational valuation is being proven. there is a lesson here for all of us. if you think you are a rational thoughtful guy who sees things fairly clearly--you are in trouble--it's just a matter of how and when. so sadly i join cobra's clueless camp. in the end all there is are the charts and the value of a thing is defined as what it will sell or cost in a micro second--in a currency with a basis solely in belief and changing every instant in at least 5-10 parameters. in a world that simply cannot be understood in terms of a delusional single dimension single mode economic model that attempts to describe human behavior in terms we know it is not able to be understood namely starting with the assumption that people are rational.

as they say in shooter (c+ action movie)

"The world ain’t what it seems is it gunny—you keep that in mind—the moment you think you got it figured out—you wrong"

have a good weekend all and good luck with the trades (we make our own luck)

[Al_Dente]

Banks have taken quite a drubbing; most are in their oversold zones; some show positive divergence.
The bears can argue that it’s rare to see only one single day of catastrophe selling (JPM), and the bulls can say that even dead cats bounce.….
http://screencast.com/t/8wWyenBOBN

[Attention newbies who subscribe to stockcharts.com. Get ready-made charts:
At the top bar >free charts, and under “candle glance groups” just click anything you want.
At the bottom, customize by typing in your favorites on the “symbol” line, and adjust the “duration” and “indicator” etc.]
http://stockcharts.com/freecharts/candl ... B,CS|B|D10

Last week I posted an article noting that Canadian banks were the world’s strongest, and only three U.S. banks made it into the top ten:
JPM, PNC, BBT (overlay):

[PS: thanks taggard: great GREAT stuff]

[Cobra]

Paging Dr AI, I asked Jason from Sentimentrader, the screenshot below is why he said now CPCE (CBOE Equities Put Call Ratio) includes SPY, besides this he has no other official document back him up. Personally, I think CBOE didn't change CPCE definition, the SPY or other ETFs are always included in the CPCE.

Thanks cobra
I spent way tooooo long last night trolling around the net and cboe.com.
Couldn’t find a single thing about them changing the composition of the CPCE.
Seriously, that would be BIG NEWS if they changed that !!!

THANKS AGAIN, I REALLY APPRECIATE ALL YOUR HARD WORK

Yes, that's exactly what I think: If any big changes in definition, CBOE would have announced that. I did search a lot on the Internet too and found nothing. So I'd assume the CPCE still is the old CPCE.

[Al_Dente]

COBRA: Agree, I couldn’t even find a “white paper”… the CBOE likes to get comments from everybody (meaning GS) before making a significant change.
I recall (memory only) that when they changed VIX from old methodology to the new, it was GS quants that “worked on it with” the cboe,
and they made a BIG news splash about it and gave it a BRAND NEW symbol, etc.
[ps luv u]

[cougar]

Good morning!
Here is IWM for BullBear:

On my daily chart, IWM is in a box. Until it gets out of it, I would not take any directional unhedged positions. If it breaks down, it becomes more interesting… because after breaking the old-fashioned 50% extension (75.1) it should stop only at the top of the lower stack of harmonic extensions ~73.7. Such extensions are right now validated since the BOX (yellow) "established itself" between 2 such levels. [1].
Altogether, the daily mode is still SELL.

So…how am I trading it? Let’s go to the next 5 min chart [2].
I do one of my tricks, explained many times in the past: on SELL signals I go long “back-month puts” and on BUY(if I am substantially in the green) I sell to open front-week puts - preferably on Thu morning, when that combo is in backwardation. Right now I am long IWM Jun 78P and short May 79P. This time spread has a bias: ratio = 4 longs / 3 shorts. I am well in the green.

=====

Exercise Q for “nubies“: Why do I often keep such a bias overnight?

[Al_Dente]

Color studies:
There was a lot of red last August, Sept and Nov, and not so much red today.
So we should have plenty of time to exit before a BIG red party, right?
The dynamic of the high/low indicators is that after so many stocks keep hitting new highs, it takes a lot of bloodletting for them to reverse and go all the way down to start hitting new 52 week lows. So many “analysts” draw a danger “line in the sand” indicating a bear zone, before it gets toooo red.
On the $NYLOW, Cabot uses 40 as that line; Stocktiming uses 60 [edit: 50] (blue lines).
Whichever line you use, the LOWS indicator is in a bear zone, suggesting caution.

On the bottom panel $NYHL Net New Highs never recovered its 2010 and 2011 highs, as SPY continued its climb.
That’s a frustrating MULTI YEAR divergence failure, which is why I don’t pay much attention to its signals.