Posted on October 30th, 2008 by
Mojo
Have you noticed recently all of these afternoon sell offs? Like yesterday (Wed) we were up into the close and in the last 10 minutes managed to drop 300 points. Take a look at the 10 minute chart from yesterday:
Why is this happening? A few reasons really:
- Mutual funds, hedge funds, and institutional investors have been collecting ‘redemption requests’ all day from their investors and must sell off stocks (since most of their positions are long) to raise cash by 4pm. The easiest place for them to raise cash from is from highly stocks such at the DOW components and S&P 100 companies.
- Each time we are able to make some progress in the upward direction everyone rushing in to pick up their small gains and lock in their profits.
- No one wants to hold positions overnight because of the huge “news event” risk government intervention in this country and others.
- Since this pattern starting appearing a couple of weeks ago other traders are looking for it and will drop to the downside at the first sign of weakness.
How long will it last? Not very long. Once most patterns like this become obvious they will self extinguish shortly thereafter. I think everyone is going to be pretty hesistant to establish any new positions for the next few days. You have Halloween coming up on Friday and the election on Tuesday so look for some light volume crazy movements between now and Wednesday.
Mojo
- No one wants to hold overnight.
- Liquidation requests. Which stocks are harmed the most? Liquid stocks. Big names.
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Posted on October 29th, 2008 by
Mojo
My thoughts on the S&P and overall market (SPX)
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This daily video shows what’s happened in the SPX for the past couple of weeks and what I expect to see moving forward. |
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Posted on October 28th, 2008 by
Mojo
Its Tuesday morning and the media around the world is in a frenzy of euphoria over the ‘Asian miracle’. Oh what was the ‘Asian miracle’?? It was the fact that the Asian markets reached a 26 year low only to catch a 6% bounce overnight.
I think a 26 year low with a bounce (can anyone say Dead Cat?) is clearly a bullish market and we should all buy (NOT). Of course only after watching many, many more hours of the (whats that word again? No, not wealthy people. No, not the doctors, attorneys, accountants, or engineers. No, not the business school grads or financiers. No what’s the word for all of the folks that wanted to do that but weren’t smart enough?? Oh yeah, now I remember!) JOURNALISTS spill forth more dead brain ideas and analysis that passes for news. Then and only then will you be smart enough to load up on hundreds of bullish positions just to be impaled on the rocks below.
So, what am I doing this morning? Using this time to capture some profits on my bullish positions, selling out-of-the-money covered calls on long positions, and looking for new bearish positions on sale cheap (ie. bear hunting).
Here’s the only big question:
Is the Obama election (oops, sorry I meant the “Presidential Election”) so obviously lopsided as to have become a fait accompli leading to a sustained rally starting today?
Hmmm…. I don’t think so. But what do you think?
Mojo
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Posted on October 24th, 2008 by
Mojo
Frankly, I’m running out of scary words to use to describe the mess of the global economy. I still believe that we will have a nice post election bounce (or maybe a bit pre-election if the outcome becomes obvious) that could run as long as a few months. And then, the real selling will start. DOW 5,000 in short order.
Are you prepared?
Mojo
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Posted on October 22nd, 2008 by
Mojo
I got asked this question:
“If there is one lesson you could teach a beginning trader what would it be?”
It would be to understand the psychology of the market. I really resisted learning that lesson because it was boring, I couldn’t draw a connection to profitability, and it just wasn’t sexy.
So, let’s talk about George. George is your average father and husband working at a job he’s not too happy with, concerned about life, and being careful to save enough to put his kids through college.
Richard (who is an occasional friend of yours that you secretly envy because he has more money than you) whispers to you at a dinner party that he is killing it; absolutely killing it, investing in tulips. “Tulips??” you ask. He says “yes” and goes on to explain how there is limited good land, the market is growing at 10% a month (which you quickly extrapolate and note smugly that its doubling every 8 months), and that he (and only he) has a good inside connection if your interested. You reply “Nothing can grow at 10% a month for long. This must be a fad. I invested in roses 6 years ago and lost a bundle.” “Yeah, but this time its different.” You walk away promising to take a look at it the market and do something about it.
Three months later you see Richard again at a soccer field but only this time he’s got a nice tan, new watch, and a new BMW. You cringed and try to hide but he spots you and comes over just to say “hello”. He somehow works into the conversation (6 or 7 times) that he is doing extremely well and “Gee did you ever get into tulips??”. In truth you forgot about Richard and his damn tulips but you say “No, I didn’t have time to look at the market”. “That’s a shame. Our growth rate is now 20% month!!” You walk away mad at yourself for not doing anything and wondering how the world can be so unjust as to award a butthead like Richard when you are clearly smarter, harder working, more noble, etc.
Six months after that you are at birthday party with your son talking to another Dad (who is a good person because he isn’t tan, isn’t wearing an $80,000 watch, and doesn’t drive a BMW) and he says “Did you see on CNBC Smart Money how they were talking about the emerging markets in tulips? Apparently all of the hedge funds and private equity guys (ie. “the smart guys”) are just printing money! I called my mutual fund manager to see if they have a tulip fund opening up soon. I want in but I just don’t have enough money to be an investor outside of mutual funds.” On the way home you talk with you wife about what a jerk Richard is (you’re still mad!) and whether or not you should invest in tulips. She shrugs non-committally and says “If you think its a good investment we sure could use those extra returns in the kid’s college funds to make up for those losses six years ago.” You cringe, knowing that these funds are down, college costs are up, and she’s talking about the money you lost in roses.
A couple of weeks later you are running late for work, stressed out, just heard on the radio that there is a 45 minute backup and as you are sprinting through the living room what do you see on Today show? Yep, Matt Laurer talking about the extraordinary investment returns in tulips!!! Complete with a spokeswoman from the TPSA (Tulip Processing and Shipping Association) fawning all over Matt talking about how with the limited good land, fast growth demand, and limited investment opportunities that this time its different.
“GEEEZ!!!! Alright, when I get to work I’m calling my broker…” You get to work, call your broker, liquidate your Blue Chips and buy in $100 a share. At lunch you mention it to one of your co-workers named Bob.
For the next few weeks you continue to see different hard hitting journalistic shops (like the Today Show, CNN Money, CNBC, Suze Orman, even NPR) doing essentially the same puff pieces on tulips. The share price moves up to $110 which you casually mention to your wife at dinner. “That’s great honey! How high will you let it go before you sell some?”
“Well, we need to reach $132 in order to make up for the past losses so I’ll probably sell some at that point, lock in some profits, and move my stop up.”
“That’s a good idea. Where’s your stop right now?” she says remembering your rule to ALWAYS USE STOPS.
“Its at $90″ you lie and pledge to put it in.
Several weeks later the price is at $135 and Bob (your co-worker) tells you that he finally got in and thanks for the great tip! Everyone is talking about tulips. Heck, tulips are even on the front page of Time and you’ve seen several recent college dropouts who are now 22 year old multi-millionaires obnoxiousnessly derided the “old school” thinking of Blue Chips and dividends wondering why the waiting list for a custom Bently is 8 months long. You haven’t sold any yet or put in a stop loss but you are thinking about being able to send your son to an Ivy League school instead of state (all but ignoring his grades and lack of academic potential).
The price moves up to $140 a share on news that a large broker came out with an upgrade and a new target price of $162 (and they should know since they underwrote the original IPO and their clients hold the most shares).
You are absolutely estatic and calculating that, at $162 a share, you could send both kids to Ivy League schools. You mention the price to your wife and she asks you “How much have you sold?”
“Nothing yet. I put in my order (above the market) but it wasn’t hit yet. I’ll do it tomorrow.”
“OK, honey, I love you. Thanks for doing such a good job taking care of us.”
She kisses you good night…
[The end of part 1. Any ideas where this is going? Do you see yourself in George? Shoot me some comments.]
Mojo
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Posted on October 16th, 2008 by
Mojo
Its Thursday morning and last night during our trading team meeting we were talking about market internals. One of the market internal measurements I use throughout the day to measure sentiment (along with $TICK and price action) is the $TRIN or ARMS Index. The TRIN is a measurement of the relative rate of volume of declining stocks divided by the relative rate of volume volume of advancing stocks. This is an inverse indicator so a high reading (above 1.50) is generally considered bearish and a low reading (below 1.0) is generally considered bullish. A good place to read more about the TRIN and more importantly about to properly read the TRIN can be found in the excellent John Carter book “Master the Market” (sorry his website is Trade the Markets). Its a great book for many things so I recommend it!
One of the items that John Carter talks about is that if the TRIN closes above 2.0 at the end of the day, there is an 80% chance that the market will rally the next day. Last night we closed at a TRIN reading of 3.34. I’m not sure how valid that is for this market and during expiration week but its usually pretty accurate. He goes on to say that if we don’t get a rally (even a small one) after a high reading like this then look out below!!
One final item, three times in the past six months the Fed has made some crazy announcement that dramatically moved the market Thursday evening all but screwing anyone holding expiring positions in the RUT, SPX, NDX, etc. So be sure to close your October positions before the market closes today.
All the best,
Mojo
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Posted on October 13th, 2008 by
Mojo
I was off a day on my “acceleration lane” article but we finally hit the fast lane and took off like a rocket. Just like the situation I described on Thursday once we took out the previous day’s high we ZOOM’d on up. Here’s the chart and setup from Thursday:
Take a look at the SPX today:
The reversal zone is between 1,025 and 1,065 on the SPX. This is the area where professional will look for weakness and start to short the market. Watch out here if you are long without protection.
Fantastic run up but I didn’t do a good enough job to take advantage of it. I hate it when I get the direction right and the trade wrong.
Mojo
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