Give or Take…

Berk here:

A few things to consider in the face of this ugly mess. 1) Fed day… this could just be the beginning. 2) Fed is notorious for calling tops (even little bity ones). 3) Have you seen the $VIX?

Here’s the $INDU count. I believe that it will tell us most quickly what is going on. Since it is difficult to count it as much more than a I-II, i-ii, I think that however it breaks will be telling.

$INDU count

The other option is that we are pushing up in “A” of {{ii}} or that this will be a five wave move in “C” of {ii}. This could end up being the proper count if the Fed gets a nice reaction.

$VIX is cruising at the mid-20’s today… Ouch. But then again. Today or tomorrow should be the best chance you will get to buy OTM options in the next several weeks. Price action might make it back to where we are now, but the $VIX will not be this low for several months.

Could be done. Probably more to go...

What I don’t like is an unclear count in the $INDU, and a count that most likely points higher in $NDX. It’s not looking good for the bearish account here. I think the rally will be short lived. And it is possible that the $NDX could head lower first, while the $SPX and $INDU rally off a touch, but that is highly unlikely.

I guess it is watch the clock time until uncle Benny breaks wind…

11:45am Update: Berk still here:

Little reminder...

The reason I recommend buying your puts now or soon rather than completely waiting on price action is this boy. Trust me on this: A few well placed OTM Apr ‘10 puts wills have enormous gains. I reasonably expect the $VIX to be trading in the 90 to 120 range (vs. the 70-90 range of the last decline) in fairly short order. This is why Mole and I are proponents of buying a little early. You don’t want to be paying for options with a $VIX at 40 (or higher). I joked with Mole the other day that with the $VIX at 20 I was about to recommend buying any option you could get for $0.05, as it was sure to double. Honestly, I don’t think I was that far off.

Anyway, lunchtime is approaching.

BTW: THANK YOU ALL. This is some of the most intelligent conversation I have seen in here for some time. Keep up the good work all…

This entry was posted on Wednesday, November 4th, 2009 at 11:48 am and is filed under Market Outlook. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

malverd

Rates unchanged, here comes the fun
malverd

Anyone here use the CBOE Put/Call Equity Ratio in their trading decisions/timing? I use thinkorswim and they don't have a symbol for that. where is a good place to see this data graphed? is there a way for me to download the data from the CBOE site and somehow graph it with some program?
molecool

You REALLY got to come here more often, malverd....

But since you're a noob I'll be nice (this time): http://screencast.com/t/ljKeBYAFY
malverd

Thanks molecool. Just found this site. Appreciate the info...
I_got_Prechterized

The russell is already negative. There's not a lot of depth to this rally.
molecool

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Stainless_Steel_Hamster

bad news for bears... no i-iv violation yet (and the aproach and repulsion seems to confirma a count that way) we're missing v both on s&p and nasdaq... and 5's get overexcited p.s. anyone else having problems withe the disqusT site?

ps but today might flatline on 1055
tradejane

Disqus working fine on this end but my TD-streamer keeps showing the SPX at -808 pts. Sign of things to come? :P

Catracho posted the following DAX chart earlier this morning:

http://www.screencast.com/t/Syr23zq13SWX

Well, it tested the bottom of wedge and guess what, it got rejected. Of course this can still break through and jump to the 5.555 area when the FOMC decision comes out but, imo, it confirms a weakness we didn't have before.
gregn

Anyone else having problems with ES? Looks like a DoS attack.
gregn

The Fed should drop the interest rates into the negatives.
Schwerepunkt

I knew ES would revert to VWAP, but I didn't have the patience to wait through the gyrations. Only made 1.25 points on my short (1055.25), instead of 3.5 pts from my entry. Very poor performance considering the perfect trade was 5.75 points.
Vardoger

Still bagged points, congrats. You don't think a test of the 50dma is in the cards?

edit~ 2nd -1000 tick registered when I said that, I eat crow for breakfast, lunch and dinner...

Covered and hoping we are fortunate to get a knee jerk off FED
BigHouse(Aka Mr Vix)

LVS now red :)
Tronacate

FWLT.......lol.....didn't stay up there fer long
momac

I'm the one that bought the bni puts the day before yesterday, I asked about it here yesterday and was advised to sell, but I checked and I had already lost the full amount possible - $!2.00. So I thought what the heck, let it ride. So anyway, today I have a profit showing of $7.50. I'm wondering since part of the sale is stock, if Berkshire stock goes down, will this make the shareholders actually get less than the $100 per share?
I_got_Prechterized

Probably comes as no surprise but Xtrends is becoming a pay site. I guess they're launching their premium service, xsetups, which will be initially 100 members each paying $342 a month. Not too bad, 35k a month for Atilla and Sol. Granted they have been pretty accurate lately, but Tokyo Joe couldn't miss for a while too.
innatedc

Thanks Berk...I am in full agreement with the Vix argument....I still think we see a hammer candle at the EOD...but I am building a list of shorts to dump cash in, especially your GNK which I am still hunting down.
centerline

BAC looking weak again. Testing the 15 level.
Schwerepunkt

Anybody know what happened to a blogger by the name of Tradingperspective? He disappeared weeks ago. Good ST trader.
dreadwin

If I see IYR fill the gap from yesterday's close before the FOMC, I'm going long DRN. IYR seems to find support at 41.50 every time, however.
Tronacate

DBB 60 min....lower high
Tronacate

Might be a safer metals bet than shorting gold.......less "special"
Tronacate

GS looking like it wants to fill the gap just to look humble
gregn

I am kicking myself, I fooked up an order in ToS, I bought a bunch of GS puts when it was around 190 and I put another order in in the event that it rose and I accidentally put the order in to sell that many puts, rather than buy that many more if it rose to a certain point.. which it did and I sold my puts for a loss rather than averaging down.
momac

I feel for you, this morning I was trying to put in a limit order for spy calls to average down my cost, but accidentally sold the spy calls that I already had at a loss. This isn't the first time I've done something like that.
Schwerepunkt

Ouch! You never know, though, it might have saved you money in the end . . . ;-)
gregn

Seeing as GS dropped $20 from where I bought puts, I would have to say that it did no such thing.
Schwerepunkt

Double ouch! My condolences. Hopefully, you'll make it up on your next trade.
gmak

Notice that the CAD has been giving back a lot of its gains from overnight. Could the EUR be next? or is it for different reasons?

The BoC did jawbone again today stating that the move higher in the CAD would undo any of the economic good that had happened.

Just watching EUR sitting on the edge of the lower 3 min bollinger.

ON a related note, London used to close at noon NY time. After going back to EST, is it now at 11AM NY time?
Tronacate

Funny how everybody is in a battle to destroy their currency.
molecool

A.k.a. the tax on the clueless (i.e. 98% of the population).
gmak

no surprise. In times of financial stress, there is always many who try the "beggar thy neighbour" approach with a race to the bottom in currency - especially those heavily dependent on exports for growth. It can only end in tears.

________________________________
innatedc

Well you know how competitive us Canucks are....we figure if we kick ass in hockey then why not currencies...
Vardoger

.
Schwerepunkt

Flat now after lowering my stop. That was a frustrating hour to make 1.25 points! I was expecting a drop to at least 1050-51. May still happen though.
fuw

Solid uptrend in TRIN over the day, indicating possible weakness.
malverd

Just curious, why do you think "but the $VIX will not be this low for several months."
berkshire

I think this chart should explain it pretty well...

http://screencast.com/t/z36Bqfwy

Let me know if you have any more questions. (BTW, I said the same thing back in July and August of '08)

Skål!
malverd

Thanks Berk & Hildenbrandt.

Berk on the rules that you guys use for bollinger bands and the VIX, I don't see what you do if the VIX just bounces off the inside of a band. What do you do if it breaks the Bband moving average, switch from bullish to bearish or vice versa? Also, once you have a confirmed VIX signal, what do you consider a reversal of that signal. Thanks and sorry for posting this a few times, but I'm not sure if you have seen it or not, plus the screen has been updating on me as well, so it makes it a bit hard to keep up on the action
berkshire

For a $VIX confirmed signal you need 3 things:

a close outside of the 2.0 Bollinger Band (20 day, SMA
a close back inside the 2.0 Bollinger Band - this issues the signal
a higher close (sell) or lower close (buy) than the close of the day back inside the 2.0 Bollinger Band - this confirms the signal.
Once you get those 3 things a major reversal usually occurs within the next week. The sell signals are far more accurate than the buy signals.

As I said, the $VIX buy signal means to go long, while a $VIX sell means go short...

Skål!
malverd

Berk
Thanks. I've seen those rules. What if you don't get a close outside the bollinger and it just touches the upper or lower band and reverses? When do you change your position then? Do you consider the 20 day Bollinger Band moving average in using the VIX? When do you consider a signal confirmation invalidated?; Thanks for the help. For some reason I wasn't able to connect here earlier.
berkshire

There is some art to the signals too. Hopefully if you you get a push to the lower BB in $VIX it corresponds with some topping signals in the market. I don't use a MA on the $VIX, just simple 20 day BB.

Skål!
malverd

If it did get a push to the lower BB in the VIX, and bounced off that, when would you consider reversing the bullish position to bearish
berkshire

I consider reversing my bullish position anytime we get close to the lower 2.0 BB...

Skål!
malverd

Thanks. And I assume reversing a bearish position when you get close to the upper BB. Also, say for example VIX confirms bullish, and then tomorrow or the next day pops above the upper BB, then what would you do? Reverse back to bearish?
berkshire

Not quite so simple the other way around. Market tops are usually marked by complacency, making a relative low in $VIX quite common. However, in a bear market, fear is the main emotion, and it is marked by spikes. Therefore it is much harder to gauge when to reverse your bearish posture based on the $VIX alone. If you look at the chart I posted above, you will see that there were several buy signals before the market ever reached a "nominal" bottom. As I said, much harder when $VIX is pushing the upper band...

Skål!
molecool

Well explained - even Prechter wasn't able to convey this point as elegantly. See, that's why I keep you around and even clean out your cage on a regular basis.
centerline

Thanks for the reminder. Technically, what I am watching for would be a failed confirmation. However, that theoretically would need to happen today rather than tomorrow.
Stainless_Steel_Hamster

As in C=A at VIX 20, it's over kids, now you will all know the power of pain?

or in a santa will bring you VIX 50 for Xmas, the easter bunny is doing stretch exercises to lay VIX 90 Eggs and Summer will be hot in the 100's?
berkshire

$VIX 50 by X-mas will be no prob if we can get a little action going. I think today and the rest of the week will tell us what Santa is bringing.

$VIX back to 20 (or god forbid under 20) would be absolutely horrible for the bearish case (minus the potential double bottom argument).

Skål!
Stainless_Steel_Hamster

do you have a long (since 2000) vix chart at hand?
berkshire

Here you go... What do you need to see?

http://screencast.com/t/zuk2t7nfS

Skål!
Stainless_Steel_Hamster

dates as well? ;-)
berkshire

There are nearly 200 signals, I don't have the dates recorded because they are all on the chart...

Skål!
Stainless_Steel_Hamster

think you cut them out

http://content.screencast.com/users/berkshire/folders/Jing/media/5e90e4de-a999-430d-984e-a304d8d3bf4b/00000227.png
AS2009

Berk - how do you calculate the 39.20 tgt for X, if it bounces from the gap ... I am assuming that is the count for ABC ... with the A up yesterday... B down right now ... ..how do we know what A, B,C should measure to ?
berkshire

Give me 20 to grab some lunch and I will show you with an update chart in the post... that cool?

Skål!
AS2009

Sounds good :)
Vardoger

VIX not being this low for several months implies that stocks will not be this high for several months. From an EW perspective, this assumes that we are now in the Intermediate wave 1 of Primary 3 which should last a few months at least (considering P1 was 17 months and P2 7*), Intermediate wave 2 will correct wave 1 and theoretically will be the next time the VIX comes in substantially if the premise is correct.
malverd

Hildenbrandt,

I must be missing the point trying to be made. VIX was below its current level of around 27 just a few days ago. Can you explain? Also, what are the rules for trading the VIX if it doesn't go outside the bands? I saw the rules here if it has a close and return within the band. Thanks
berkshire

In the next few days the $VIX will be at it's lowest levels for months. I do expect that it could drop a little more. Anything below 24 would surprise me. And you have to be cautious, because we can open lower and rally all day (in the $VIX).

The $VIX gives market signals. Today it will most likely confirm the buy signal that was issued yesterday. However, you can see in the chart I posted above that there are numerous buy signals throughout this $VIX rally/market decline.

Skål!
Vardoger

I think Berk's chart does sum it up well so I'll give my best try at answering your question without putting words into someone else's mouth~ I'm going to assume that these gents are looking at a longer time-frame than you. The safe play IMHO is to plan on where we should be heading weeks or months ahead. I doubt anyone will argue that the VIX is putting in a meaningful bottom as we speak, rather when you look back at the chart months from now it should be obvious that early November was a good time to close out long positions or buy puts with plenty of time-value. With that said, nothing is obvious in the market and anything is possible~ but hey, that's what analysis is for and Berk's damn good at it. Place yer' own bets!

As far as trading the VIX that's not something I do. I watch it against the bollinger's and respect the reversal signals to a degree (it's been mentioned that P3 should have a whole lot of bad VIX buy signals).
I will say that the VIX is often chartable in the same way that stocks are. S&R, channels, trendlines etc..
ultra

berk - what if we go north of {ii} on your $INDU - that your point to change to a corrective count?
berkshire

Unfortunately, we could be in an expanded flat of {ii} in which case I could see 100050 before turning down. That is really pushing it though, and I will become quite skeptical north of 10K. Granted we certainly could spike these levels today, but a solid push above would leave me scratching my head, as I don't see a clear corrective count either (is that an oxymoron?).

Skål!
ultra

ha - indeed it may be. mind you, the impulse counts aren't that squeaky clean these days either...

on another note - you mentioned buying VIX calls yesterday - interested in nicking this trade idea off you especially with this nice little correction we're seeing right here - and have already bought some april 50s today directly on the VIX itself, but is there an ETF cos I can't find *correction* 2011 expiry through IB...?
berkshire

I believe it is VIX.X or something like that. Maybe VXX?

Skål!
ultra

Hmm... VXX and VXZ both telling me "no options available for this underlying".

Why I oughta...

Kinda like this trade though, you are betting on the underlying rising and as it does it's pumping up option value anyway. Double bubble.
bshah

Berk,
I asked in last post, but you might have been busy with this one... So are you considering MA for short... ? Mole says, it's ripe enough... But it's volatile one... Atleast it covered almost 20 pts in 2 days.. what do ya say...
berkshire

MA is a fav of mine... I shorted it after the fed peak last month to great success. I am looking for a repeat here, but we might have to deal with a little pump fake first.

It's so ripe it's almost fermenting...

Skål!
WTFed

Thanks Berk.
Bart7

Meredith Whitney's latest thoughts, higher interest rates?
Bank analyst Meredith Whitney out with two notes to clients over night:
1) Ain't Gonna Happen, where she argues that "normalized" earnings for banks is a fallacy, that it's more likely we will see protracted consumer deleveraging, fewer consumers who qualify for credit, and dramatic regulatory change, which will negatively impact earnings for a protracted period, and
2) The Great Exit: The Biggest Market & Bank Risk Over the Next Four Months, a long note on the importance of the Fed's agency MBS purchase program, where she argues that uncertainty over when the program will end (now scheduled for end of Q1 2010), and who the substitute buyer for the Fed will be, means that "prices will go down meaningfully and rates will go up meaningfully." She argues that it is possible the mortgage market will again shrink notably: "We believe this represents one of the larger risks to the banks and overall market over the next several months."
Tronacate

BERK.....you sure as hell got your FWLT target....easy......now what???......wait for a little more?......or you jumping in the pool?
berkshire

Dipping in here. I don't really expect much more. Earnings only pumped them 5% and they drop more than that on a normal day. Starting to build a position.

Skål!
AS2009

You get your cookie on that one :)
berkshire

Yeah, what are you doing about CME here. Markets are up pretty big and the bugger is just sitting tight. A bad Fed reaction could chop 20 bucks of it in short order, while a good reaction could pump it up too. Still hanging in there?

Skål!
AS2009

CME - moved to the upper band of the triangle ... broke out and now consolidating in another triangle ... this bugger is consolidating again - 303.5 is key - watching carefully ...

Finger on the trigger on this one ... anything below 302.2 an I am out ,., damn CME ... and knowing it - it will rise as soon as I sell it :)

What are you thinking for X - holding this one still - not pretty, but thought worst case as a hedge - the gap up took too much out of it ...
berkshire

If we don't fall through the gap on X, we will be looking towards 39.50. There are really two options with everything here. Would could have done an "A" wave and will get pumped up by the Fed. Or we have a complete ABC and the Fed reaction will be poor and set things falling.

I believe it is still too soon in the decline for a bad Fed reaction, and the talking heads have been hinting that there could be poor wording. I still expect a rally, and I am hoping it doesn't destroy the $INDU count.

Skål!
AS2009

My thought is to close on the gap fill - as it has additional support from the 200MA on the 10 min @ 35.66 ...

37.41 is the resistance line in my book GREG ... so good call on picking up some puts there ... I just wanted to wait out the Fed move ... since you can day trade, you can always close it on the bounce from the 200 MA if it happens ...
gregn

That gap is going to get filled soon. ;D
AS2009

Yes - that's for sure ...the question is cover then or keep holding ... :)

Where are you thinking to add to X again ?
gregn

I already got some puts this morning near HOD. Chose that area because it was 50% from drop from support at 41.25 to 33.28 http://screencast.com/t/wEULCiz2
ultra

hit the 50% retrace of the abc from sep22 this morn and then fell back
bshah

It touched 50 SMA and steady there.. But STO, RSI, MACD all bullish... Should wait for another day or two..?
berkshire

I've got a good retracement on it. Also, I see an ABC. It might get a little pop higher, which is why I am only dipping in. But it is close...

Skål!
Schwerepunkt

At the least they'll want lower prices going into the FOMC.
Trader_Steve

I have an uncanny abilty to be posting to a thread as the post of a new thread is going up. I wish my market timing was half as good.

Here is where I'm pretty confident we are and it's wave [2] correcting the down move with an elongated C. Whether it will just be A of [2] or all of depends on who the mkt comes off. If the market is not going to come off from these levels, I think all of the EWI talk off P2 being in comes into a BIG question.

http://www.screencast.com/users/mkt_ronin/folde...

I thought we were going to get a slight pop (5 points perhaps) to complete a LD and then a B wave down to buy before a C wave to finish, but apparently the B wave was completed yesterday. Closing lower on the day? Possibly.
Stainless_Steel_Hamster

nice count, an the B with b higher than the start explains the 5 waves down

a running flat.... nice... but bulish, I should have seen it
Tronacate

DTG down today
berkshire

So I was looking through TOS yesterday and I thought to myself... "Why are the QQQQ hard to borrow? Why is DIA hard to borrow? Shouldn't there be plenty of liquidity in these puppies?" So I check out my favorite short interest site, and find the following...
http://screencast.com/t/yzhyWmnrFXY
Now, unless I am doing something wrong, that tells me that roughly a quarter of the diamonds float is short. Me thinks that's a little strange. Anyone else have thoughts?

Skål!
gregn

Berk, did you grab some X puts here. I got in a little late, missed the top by about .40.
berkshire

Missed my fill, but it looks like we might still get us another push up...

Skål!
gregn

Gap fill trigger in X.
roscoe_casita

Here's a list of dailies.

Took awhile to put together, but there is a really important 2-3 charts in here that are really telling:

$SPXHILO (AT or above 98-99-100 for 30 days.)

$NAA150 - More lows bellow 150 then in jun/july.

Lastly, 50% of stocks are bellow their 50 day ma.

http://docs.google.com/View?id=dd6gf48g_40gr6dbvfc
gregn

If we don't get one today, I see a quick gap fill. For gap fills plays, I wait for a 15 min bar to close below lowest point of opening bar -- we are close.
Vardoger

I wish there was a way to see a chart of the short interest.. Anyways, if I'm reading the table correctly- an extra 3M (16.56%) was just shorted from previous measurement (last session or week?)

% of 52-week low 34.6%; is this change or the reading from that date...

All in all, the fact that these products known for their liquidity aren't easy to borrow is compelling in itself. You have to wonder if the pension funds and rest of the sheeple are more in tune this time around. It seems to me that short positions are being accumulated heavily and that less are being floated by LT holders. Since it's likely not retail I think it lends credence to HOY being in but also makes you realize that short covering rallies will be sharp throughout.
berkshire

Thanks. Good explanation. +1

Skål!
Tronacate

25% short interest could make one hell of a squeeze........wierd though........sure there aren't some zeros missing?
berkshire

Could be, but it would be missing zeros from both. It's not like one was a 10,000 and one was a 1,000,000 where it would be obvious... But just that they are hard to borrow makes me scratch my head. Smells rank if you ask me...

Skål!
ultra

Yep, cheers Berk - and yes, you and Mole (and everyone here?) pretty much saw this coming aye.

I for one echo your sentiments on the length of the rally - been pretty straight up so far - sat on the 38.2% retrace on SPY (if you count as an expanded flat as per EWI STU count t'other day). Is that enough? We shall see, but there is small scale divergence on the zero/lite already.

My vote on VIX correction? +1 Mr Vix - loving your work, baby..
Schwerepunkt

ES needs to revert to VWAP at least once before FOMC.
gmak

Why? Based on what TA?
Vardoger

I'm on basically the same scalp but the setup wasn't very solid although worth a shot IMHO~ 6 points outside upper bollinger on the hourly, two +1000 ticks and a decent likelihood of retesting the 50 day considering the nature of the move this morning. Surprised dixie hasn't been able to manage any retrace yet..
Tronacate

PALM......another few months and this one could be a zero
Vardoger

Thx Berk. Note to newbs: Often the FED announcement is followed by a "knee-jerk" reaction that may last a couple of minutes before reversing hard the other way. If anyone remembers what ensued after the hot option babe posted her Blast Off rocket ship last announcement, it was a thing of beauty. With that said, FED days are usually subdued so who knows going in this time...
molecool

Thanks for the update, Berk. Well, it's not that we didn't see it coming - plenty of warning signs. But you might also want to compare the signal strength on the Primary Zero with what we saw during the drop. Just saying...
berkshire

I typically leave the zero analysis to you... :-P

Skål!
molecool

Fair enough - but as of now (and this might change shortly) the signal is comparably weak.
berkshire

Phew, you let me slide with the lazy way out...

I did check it out. That's nice...

Skål!
Stainless_Steel_Hamster

in a nuttshell? weaker?
Tronacate

Heads up on RIMM....it's looking super weak......low VIX......might be great time to load up on putz
CorporalCarrot

Amazon is looking weak too. Down despite the NDX up. Oh wait, I'm already loaded up there :)
Stainless_Steel_Hamster

BTW does anyone see VIX 36 prety soon?
centerline

Hope so. On the VIX, maybe I am nuts, but I am watching that close inside the BB today for confirmed buy signal - BUT, am not reacting to it yet. I am really watching to see if tomorrow it pops back out again and closes higher than previous voyage beyond the BB. if the VIX pops back out tomorrow with conviction and sell-off, we could see something different than in previous months, IMO.
centerline

... I meant sell-off in equities, not the VIX, btw.
Stainless_Steel_Hamster

yes.. nasdaq seems to be wanting to finish... everything depends on how fast it falls before the fed talks
centerline

Same here. Still holding some long term puts. Not hedged at this time. Am preparing to load a few more long-term puts early tomorrow. Maybe end of day today depending on where we go this afternoon - and how fast we go there. Will likely be looking at OTM June puts this time. Hopefully the VIX plays nice today and tomorrow before going ballistic. My closer-in puts would really love a IV infusion about right now!
Onorio

EURUSD @ 50% retrace of 1.5056-1.4630

1.4840 is the deal rats, or we retrace here or 1.4900 will come in no time.
gregn

Great post, Berk. I am waiting until tomorrow to buy puts back, I feel like we will have a pop in AM then strong reversal.
CorporalCarrot

Greg,

Why are you expecting pop tomorrow? I would have thought the best chance of the action you describe happening is this afternoon after the Fed announcement? (i.e. similar to the late day reversal after the last meeting)??
gregn

Completely gut feeling, I'm not talking about a 14 point pop -- more like 2 or 3 points. If I see negative momentum divergence as the day passes, I might get some OTM today, but I like tomorrow at around 10ish right now.

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