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StockTock.com discusses today’s great daytrading action and what to expect tomorrow on Options Expiration Friday. We look at two tradable inverse head and shoulders patterns on today’s intraday chart. We look at a longer-term chart of the Dow Jones Transports ($DJT) where I’m expecting more downside. There is a possible double bottom formation on the 6-month chart of the KBW Bank Sector Index ($BKX), but its too early to tell. And we look at the VIX and the possible double top formation that formed today. However, this is still likely Wave 3(3) and calling a bottom is a fool’s errand. I expect more weakness and probably new lows early next week.
Craig – Glad you mentioned DanEric’s EW analysis, he has been right on, almost uncanny. DanEric is calling for Black Monday and a plunge to new lows next week, you seem a little less pessimistic, why?
October 17th, 2008 at 12:40 am
See post 5.
I explain why I am not as pessimistic as DanEric. We will probably make new lows, but I don’t think it will be worse than last week.
I would have to agree with DanEric on that one.
Craig… I notice on my 55 minute chart of the qqqq that we just got thru the 50MA and will soon approach the top of the channel that you have drawn on your 60 minute chart…this would coincide with more upside tomorrow and would serve as resistance there forward.
My next chart I trade qqqq on is 21 minute chart and it’s coming up to the 200MA at 33.48…goog’s move should push it close to those levels…but it’s not broken this level since 9/19
thoughts on qqqq?
ps…on earlier qqqq comment… I had +100% gain on October 32 call at end of Wednesday’s sell off to sell at 3:58 today…did not want to go thru goog earnings
October 17th, 2008 at 12:41 am
Excellent trade. Good discipline.
Thanks Craig! Yeah I am waffling on what to call the wave counts, you may be correct with wave iv and v. I had it marked like that too but am not sure.
Maybe the powerful daily moves is an indicator that both forces are playing now at the same time. The waves of iv and (4) of 3 have “conjoined” perhaps and that is the reason for the powerful moves. Force multiplier.
weird stuff yes. But I cannot offer any other explanation of moving this market 15% every other day.
At this stage, it might not matter a whole lot. If we have another bottom capitulation day soon, then we can go from there. Something will be revealed. They may actually be conjoined at this stage. Nothing says they cannot be.
I’ll be looking for break above 971 SPX for starters tomorrow.
I know I will be going SHORT LMT tomorrow, I have to hedge my 401K LOL cause I cant move it for 26 more days and I bought it at $87 on Friday, (I forgot I couldnt move it – grrrr)
October 17th, 2008 at 12:35 am
Dan,
I’m thinking 3(3) v will be more tame than 3(3) iii. The fifth wave should be less severe than the third and perhaps the worst of 3(3) is over. We might make new lows but there will probably be bullish divergences and the VIX may not make a new high.
I’m thinking 3(4) may take its time, and we will have several days of renewed optimism. People will celebrate the selloff in gold and marginal improvements in the credit markets as signs the worst is behind us. But the volume will be on the light side. It will probably move more sideways than up. The smart money will probably stay short and use the rally to get more short.
What do you think?
A couple bullish points:
1. Paul Desmond’s (Lowry’s reports) research tells us that a major characteristic of bottoms is a series of 90% Downside days and then a 90% Upside day. Last week, we had 3 90% Downside days and Monday was a 90% Upside day. Not infallable, but it is a positive sign. Notably, there was no 90% Upside day in the period following the July 15 low.
2. Yesterday’s 9% decline on the S&P was on the lowest volume of the past two weeks. One wouldn’t expect the biggest down day in the past 20 years to take place on declining volume. In my opinion, that made the move a bit suspect.
3. Today, we finally had a classic reversal day. Last Friday was a reversal, but on a Friday it was just impossible to carry it into the close, since traders are scared to carry positions home for the weekend. Also, markets don’t typically bottom on Fridays. Thursdays on the other hand….. Look at today, it was a classic mid-day reversal, closed on its highs and saw an increase in volume. This could be thought of as a confirmation of the 90% Upside day on Monday.
4. The VIX also had a reversal day. The VIX’s new high that was not matched by a new low in the market may have been a key tell.
5. As an anecdote, the differential between the bears and the bulls in Investor’s Intelligence show the heaviest weighting of bears relative to bulls since 1970.
6. Another anecdote: During the Great Depression, there were bull cycles that averaged a 92% gain on the S&P. Problems and new lows can lie ahead, but that doesn’t preclude big rallies in stocks just to keep everyone on their toes.
October 17th, 2008 at 12:43 am
Great post! Thanks a lot.