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Market analysis week of 10-06-08


Yet another week of high volitility, and much lower prices.The govt. has begun to interfear in the free market process in a last ditch effort to halt the bear. Short selling of many financials was being blamed so the rules were changed to stem the 'wicked' traders from 'causing' the demise of aig, merril,lehman and others. It makes me chuckle as i remeber back in 1987 it was the 'program traders' who caused the crash and the rules were modified to 'protect' us all! Unfortunatly, the bear of 2000 still happened and this one too!The market is going to do what the market is going to do.
This chart , along with the 15 min. one are why i bought calls near the close fri., with the es around 1104
Having said all that, the vix and intraday ticks are hitting levels seen at intermediate term bottoms. New 52 week lows on the nyse are at 658. On mon. they were over 1100. These levels indicate we will be soon starting a tradable rally, which will be retested or exceeded in the future. Advances divided by advances plus declines was around 13 lasrt Mon. whenevever it gets this low we have a significant rally then a retest or new low roughly 6 weeks later. Oct. 1987; Aug.1990; Aug.1998; and April 2000 are a few examples. In each case we had a strong rally only to hit new lows 4-6 weeks later. Volume on Mon.was also at extremes indicating a high likly hood of an eventual retest. The point is that we are due a rally which should be sufficient to entice bulls back into the fray. The bear is likely to return,however, crushing their hopes once again.
My cycle work seems to indicate a low coming up around the 15th. Shorter term hourly cycles may be botomming soon. Cycle proj. are almost , but not quite fullfilled from the aug. high. At any rate, i am becoming short term bullish down here. For me to change my opinion we would have to decline quickly for several more weeks and probably break 1000 on the s&p, since the last leg of a bear market is usually the 'fastest' getting everyone to throw in the towel and give up! This would signal the end of the bear market. I just dont think we're there yet. Keep these historical facts in mind on the rally which will surely come soon. Time will tell.
Now to the very short term; if trading hadnt stopped at 4:15 fri. i would have been looking to buy in the next 5-20 min. of trading. This could happen on globex sun. nite or MON. open. Not sure, just have to watch the action. The hourly chart shown seems to want 1198.50 or so, hit by the cash, but not the futures. In a nutshell my 5,15 30 and 60 min charts are oversold or very very close to it. Only the 1 min has room to move on the down side yet. So im looking for a buy (probably below 1102.50 which should last into early tues?) Numbers to keep in mind might be: 1198.50,spx cash 1096.36, 1088-89, 1084.50, and 1068 on the downside. watch 1115, 1125, and 1157 areas on the upside. There are vol. spikes around 1106-7, 1118.75, and 1138 areas. The danger here as pointed out above is a continued 'fast' move down to much lower prices which is supported by the high closing tick values of the last several days. (not over 800, but very high regardless). This would certainly imply continuation of the down move! Amove below 1188 would have me favoring this scenerio. In closing,these comments are simply a view on how my twisted brain thinks ...feel free to comment or disagree! Certainly, I am not always right, especially on longer term predictions. Use your own analysis for your trades and keep in mind i am a very short term scalper by nature.Good trading all!
UPDATE: Still looking for a major low between fri. and tues. Reviewing the above comments they look to be fairly accurate except for my typo of " a move below 1188..." of course i meant 1088. The number im looking at now is 886-889. if this area doesnt hold then the ' crash' could continue to test the 02 low(768-800) by tues. A lot may have to do with what happens this weekend,when the g7 meets. At any rate , declining to the 02 lows while certainly possible, i still rate as a low probability. The vix is near an alltime closing high, and thankfully, the closing ticks on the nyse finally eased up! They had been correctly forecasting a continuation of the decline for quite a while now! OF COURSE,CAUTION IS THE WATCHWORD HERE.
Well, we made our low, had a 230 point rally as expected, and are now in the process of heading down to test and probably pierce it. The only surprise here is its happening in a few days time, not several weeks! Thank the internet for that!
UPDATE for 10-18-08: Another crazy week, most technical indicators at historic levels. So what happens next? Lets look at history for some clues.we all now realize we are in a bear market and a recession. The avg. bear lasts 20 months. Although they vary wildly,in the 2000 bear, the spx declined 50% with 3 bear rallies averaging around 18%. The 73-74 bear declined 45.2% interrupted by two rallies averaging over 15%. The 2008 bear has been much more volatile than any previous bear, and 80- 100 handle ranges in the spx seem commonplace. That would lead to the conclusion that the rallies might be even greater than the aforementioned bear examples and that seems to be the case. Already we have declined from 1576 spx cash to 840 or 46.7%. We have rallied from es 837 to 1067 or about 27.47%. So what inference can we draw? The bear market is not over, and likely has 8-12 months to go.There will be one or 2 more substantial rallies in the meantime of around 30%. Is the bottom in? Cetainly possible, given historical standards, but i doubt it. I think we go lower before all is said and done and FWIW my own work keeps calling for 777 on the es. Could happen this week or months from now(hopefully!). i say that because it seems too early in the bear cycle to make the 'ultimate' price low. If the 865 low holds as a valid retest, then another 27.4% rally would carry to at least 1102 , and my own work keeps screaming 1115. This is my hope ,but there is simply no way to tell if the retest is complete yet,(except to watch 865). I have oct.22 pencilled in on my calender from previous work ,but in all candor im not sure why. Either way this plays out, its going to be another fun week!
The other important thing to keep an eye on here, is the pattern forming on the daily chart. if the daily range continues to contract, and we dont break below 875 or so on the es, its possible a huge triangle could be forming(the upper boundry not yet defined.)We sould know by the end of the week.
Update 10-24 08 ... please refer to opening comments on the es 10-24-08 thread.