"I suspect we will see a sharp upside move taking out shorts and breaking above obvious resistance like 200-day moving averages and top trendlines as well as the August lows, remember these moves HAVE to be convincing, it doesn't mean there's a real change in character so if and when the time comes to start shorting in to that strength, it's a gift, although you can bookmark this post, I promise you , you will not feel it is safe to short in to strength as the market moves higher on a bounce like you do now, the moves are that convincing, which is all the better for entering new or adding to existing shorts."
I posted these trades from October 10th to October 16th..
October 10:
Cleaning Up some older positions, Closing a FAZ long which saved a loss of 21%
October 14th:
Closing UGLD Trading Position for now Since then, UGLD has lost -22%
Trade Ideas: (Swing+) UPRO / FAS Long Since then (if you held them through today's close-I didn't for my reasons you are aware of), UPRO would be at a +26.08% gain and FAS would be at a +25.60% gain
October 16th:
Trade Idea (Speculaltive Options Call position) QQQ Since then as of today's close, you'd have a +322% gain
And just as you know what the current analysis and expectations are, I think it's helpful to put you back in the seat of doubt with this post from October 15th, the low of the move before the upside started on 10/17...
October 15th 1:04 p.m. Important Update ...
In this post we deal with:
- Leading indicators NOT being as strong as usual, vs how strong they are now.
-The Sharp upside reversal vs the normal reversal process, an event rather than a process
-Nothing having changed in the underlying bearish trend which is still true
-My 99% belief that after the move up we'd make a severe new low
-Sentiment extremes (bearish) making for strong reversals (vs the current bullish sentiment extreme)
-The speed and strength of counter trend rallies in a bearish environment and why
-What the sentiment extreme was on that day
-How Wall Street reacts to these extremes (like we are in again now) and why
-How Strong of a move we expected
-How HYG was used to support the rally (vs its trend now)
-The "unpredictable factor" at strong extremes (which comes along with increased volatility)...think "V" reversal.
-How the charts could literally change in hours giving us a strong buy signal
-The 3C concept of price surpassing the initial divegrence & the minimum IWM target
-Anchoring expectations and using strength to sell short in to and the emotional difficulty
-The rally being a means and not an end...What it's job really was...
From the October 15th Important Update...
"As I've recently been saying, I have a feeling we are going to see a sharp reversal that happens quickly with a strong upside move, this isn't a change in the underlying bearish trend as I believe 99% that as soon as it's done, we make a severe new lower low, however there are a lot of indications piling up now that make this scenario look more and more probable....Sentiment is extreme which makes for sharp, strong reversals, this is part of the reason bear market counter trend rallies are some of the strongest you'll ever see.... with all averages negative on the year, this is a selling and short selling massive sentiment environment, ripe for sharp , fast moves. The Fear and Greed Index is at zero, the most bearish it can be, Wall Street often flips the script when there are too many people on the same side of the trade, you can't make money like that in a zero sum game...The VIX Term Structure is inverted, the last time that happened was at the base of the August rally as you can see in white, although this time the structure is more inverted for a longer period, suggesting a stronger move...Leading Indicators are not performing as usual, this may be a shift in market sentiment and we may need to adjust the way we look at them as we are clearly in a different market than just a month ago, however HYG continues to get near term 3C support and has been leading the SPX, even though it's not flying....The danger here is the short term divergences have accrued on the long term charts, in essence the rocket booster is there and fueled, it just needs the spark which is the intraday charts which have and can flip to strong leading signals in hours...as we have seen so many times before, price almost always significantly surpasses the area in which the positive divegrence first began, lets call that the 2nd and around IWM $109 , this tends to be the minimum upside target and is often far surpassed....I'm not worried about the size of the move, I'm worried about how fast it can flip and that's why I'm spending most of my day flipping back and forth between about 20 assets looking for those signals as I suspect this is a move we don't want to miss....Also I want to post this to anchor expectations as this gives us another chance to sell short in to strength, but it will be emotionally difficult which is why I bring it up now before there's any upside or emotions that come in the way of your emotions and making the trade, the market will make a lower low, but look at the 1929 breakdown and the first counter trend rally of about 50% shortly after, they are strong, impressive and their job is to be convincing, you just have to know it's not going to last."
That's when the market looked like this...
The very candlestick itself was representative of mass psychology, but that didn't mean much to traders who were at bearish sentiment extremes...
October 15th fear levels hit the maximum fear reading at ZERO, the biggest sentiment swing over the last 3 years (either bearish or bullish) and the most bearish over at least the past 3 years. Thus the reason for the challenge to book mark the post...
"you can bookmark this post, I promise you , you will not feel it is safe to short in to strength as the market moves higher on a bounce like you do now"
On the same day, the Russell 2000 had a high to low swing of -12.11%...
And the Dow...
And today? According to Market Watch...
"the most recent investor-sentiment survey from The American Association of Individual Investors indicates that optimism is at its highest level since Dec. 26, 2013, while pessimism fell to a nine-year low."
THT BIG OF A SENTIMENT SWING IN A MERE 3 WEEKS? YEP, but based on what? Have internals of the market changed? No. Have leading indicators gone positive? No, they're at more extreme levels now than they were at the October 15th lows. Has the F_E_D become uber-dovish? No, in fact the last F_O_M_C was one of the most confident, fairly hawkish assessments from the F_E_D all year... no punch in the bowl so long as they are confident.
Many of the concepts we have picked up over the years (even as simple as the UNG/XLF example in this post today, UNG Fundamentals (Oil-WTI as well) fall under "Head Fake", but in a much larger sense, while we do get objective signals warning us in advance of such moves, they are easily predictable using Mass Psychology which is really the category they best fit, not fundamental, not technical.
I think this post is important if you can do one of the most difficult things in market analysis and return yourself to the emotional moment of that time period. If you can put yourself in the emotional moment, looking back at historical charts will be one of your greatest teachers.
I think to understand our current analysis, you have to go back to our previous analysis after you have seen what happened and that may give you a different perspective on our current analysis.
Emotions are not your friend in trading, ironically they are one of your greatest tools in understanding the market. To say emotions are a reverse indicator is far too simple a statement, while true, just like overbought/oversold, everyone has a different tolerance or threshold. Just know the market will always move to the most extreme whether that be in an assault against your emotions or with oversold/overbought indicators.
No comments:
Post a Comment