Today’s low caused me to adjust my lower trendline slightly, but the pennant is still very much intact.
When the market was trading at new lows, we didn’t see the high volume or spike in volatility usually associated with new market lows. These were signals a bounce was coming. Today’s rally was the start of a 3-wave move that should take us to the pennant’s resistance near 975/985. If today’s marlet taught us anything, traders cannot be too precise with support and resistance levels. Give the pennant some room on the upside, perhaps as high as 1010. I’m expecting a big move lower, so a fake break to the upside would not surprise me. The more longs that get suckered in, the stronger the selloff will be. If I have the chance, I’ll be looking to scale into a short position when we break above the 970 level. Until then, my bias is to the long side.
Craig,
Thanks for posting updates at night. This is at least a way that we can stay in tune with your general view for the market. I hope all is well.
Also, have you seen the bullish engulfing candle on the ES daily? Very long tail too…
I have 3 things to say, Craig:
1) thanks for your dedication to this website in the past and on whatever basis you can continue to contribute
2) congratulations on your new project
3) Baby come back… our community of traders can see, that we just can’t live without you!
Comments from GS
NY ROUNDUP – Thursday, November 13, 2008
HIGHLIGHTS
US President Bush: Defends free market system, G20 summit will lay foundations for reforms
US Budget deficit in October: Record $237.18B – much larger than expected
US weekly jobless claims jump to 516,000 back to 9/11 levels – worse than expected
US September trade deficit narrows to $56.47 bn – near expectations
GS changes forecast for UK rates: Expect an additional 100bp cut in December and a further 50bp cut to 1.5% in Q1
COMMENTS
Today’s range for the S+P was a staggering 11.6%. When we think of 11.6%, we think of long dated Mexican interest rates or 1-month USDJPY riskies but we certainly don’t think of a daily range on an index on an otherwise quiet Thursday. So what happened today to cause such a massive squeeze in stocks (S+P up 6.9%, the DOW up 6.7%, and the NASDAQ up 6.5%)? Interestingly most of the news flow today was quite negative – German GDP printed a worse than expected -0.5%, USD LIBOR fixed higher for the first time in a month, US swap spreads widened 8-10 bps in the front end, the US printed a record $237bn budget deficit, weekly jobless claims printed 7 year highs, and the US bond auction tailed an incredible 10 basis points. In addition, Soros was on the tapes saying “a deep recession is now inevitable and the possibility of a depression cannot be ruled out” while many of his contemporaries sounded comparably bearish during their testimony. However, we suspect the most important event of the day was the Stern speech where he reminded investors that the Fed still has quantitative easing in its tool kit. Perhaps not new news, but in otherwise quiet session with S+P’s hovering near their 840 lows, the Stern speech appears to be the straw the broke the camel’s back, sending the shorts running for cover. Interestingly, volume in the cash markets was up materially over their 10 day moving averages, suggesting that it was more than just the day-traders stopping themselves out. However, it is also worth bearing in mind that we are still 10 handles below where we closed Monday so it hard to chalk up today to anything more than an aggressive bear market squeeze. FX tracked equities very closely again today with charts of the EUR, EURJPY, GBP, and most EM all interchangeable with that of the S+P. We also wanted to mention the changes to our UK forecast — we are now looking for a 100 bp ease in December and another 50 bps in Feb 09. Tomorrow brings Eurozone GDP, as well as retail sales and University of Michigan data in the US before the G20 meeting this weekend.
“we didn’t see the high volume or spike in volatility usually associated with new market lows”
I guess we have gotten so used to your commentary throughout the day that this significant info was missed by some. Typically you point out things like that on your intraday trends, but alas you were not there today.
Craig:
Do you have a time-frame in mind for the up move to 980-1000 ?
Thanks for everything.
Over the next week or two. Not very precise.
Just what kind of volatility? I watched and noted all the moves in the VIX that i could. I would like for you to explain what happened on the VIX today – It looked like it shot out the end of a rising wedge. Like a surfer popping out of the curl. It spit out and then reformed the lower trendline to finally break down. It was cool. Can you drop me a note to explain if it is possible for something just to shoot out the end of a formation?
Volums today smoked recent days and only 8 days had more on the ES this year. We noticed volume as well.
Boy did we miss you today. Thanks for the post above – glad you were vindicated. You better keep us posted thru the bottom or I’ll fly my ass up to Bean Town and light you up. You’ve got too much skin in this game to quit now. It would be like Belecheat quitting after game 14. you can’t leave mid season.
I second Shanky’s comments that you are sorely missed. Please keep us updated as much as your time allows, Craig. That being said, is there any chance that we break out of the pennant on the long side? I don’t want to be pollyanna, but at some point shouldn’t we visit at least the level of about 115 on the SPY? I had some great buys today QLD at 24.02 and UYG at 5 and change. I don’t want to sell too soon, as that is a big problem for me.
I don’t think so, but I am keeping an open mind. Daneric40′s post today certainly made a lot of sense and I am open to the possibility.
You could take a scaling out approach to your longs. Don’t try to dump everything at the top. It won’t happen!
i took short oil at the close after riding that puppy up. im wondering… the oil chart is so broken… can it continue to rally with the market? it seem to stand still as the market made new lows… so what do the oil charts tell us about the reaction to this pennant formation? like the market, the clear trend is lower. but can it bounce back to $70+ again like it did on the Obama Rally?
Please check Tony C’s youtube video on the “Expanding Triangle” Theory…
Cause this sure isn’t a pennant anymore.. pennant are higher lows and lower highs contracting before a final selloff at the edge..
The expanding triangle makes much more sense.. But that means we could go as high as 1020..