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Curb Your Bearish Enthusiasm (For One Day)
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Curb Your Bearish Enthusiasm (For One Day)

by ScottJune 12, 2014

We have a change in market sentiment. The sweet smell of fear is in the air. Let’s examine it a little more closely, shall we? We have a very strong bull move, which is running out of puff at the highs and failed to attract dip buyers where it should. Today we fell off the plate, accelerating to the downside. Expanded range close near the bottom.

This looks quite a bit more bearish that we should have expected in the circumstances (and don’t blame Eye-Rack! News can’t push the market unless it is ready to fall) 

There is one fly in the bearish ointment and THIS is it. The high has not been retested yet.

Lets look back at previous tops for the last few years, you will see there has never been an interim top worth noting that has not been retested. Also you might note that in change of trend moves the retests tend to be VERY DEEP since they catch dip buyers unawares one last time.  The overwhelming probability is for a retest. What that means is that bears will have a better chance to short, and quick longs will have one more chance to buy the fucking dip if they can get out quickly.

 

A straight shot to the downside is looking a little too obvious at this point. I suspect fuckery is afoot! Let us examine the market internals on a 5 min timeframe to see if  institutional dip buyers are ready to save the day.

What we see here is fascinating. Clear lack of participation and narrowing of breadth at the highs. Wyckoff signs of weakness as the downmove kicked off. Yet for the second half of today we see more two sided price action. Market Breadth (ADD) started to rise, and TICK is painting a very small bullish divergence.

Find Scott’s conclusion below the fold:

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Scott Phillips


About The Author
Scott

  • Scott Phillips

    Oh its not a gap down in emini futures, but change of contract day

  • BDI

    News, has, does and will always move markets, regardless of the current trend. The trick is not to to read about the macro news, but rather anticipate it.

  • Billabong

    I don’t use the news, I allow my system to tell me when to trade. Sometimes I don’t even know what the macro market is doing. There is also an ES philosophy; “we don’t trade the news.” 🙂

  • Scott Phillips

    The news can move markets, but it’s kind of a weird positive feedback loop. If the market “should” go down on bad news and it does not, then that is its own kind of bullish setup. You could base a method on this, it would be very complicated.

    BobbyLow is always saying “price speaks to me so loudly that it drowns out the news”

  • Scott Phillips

    BDI, welcome 🙂 Do an experiment. Pull up virtually any market moving news you might want to name. My experience is, virtually without exception, there are footprints in the price action ahead of time, a market that is ready to turn on a pure price action basis. Look at airline stocks September 10 2001. Look at the Lehman brothers collapse in the GFC. There are *plenty* of major announcements that don’t move markets, because they are already “priced in” or the market shrugs them off.

  • http://www.ProfitFromPatterns.com/ Ivan K

    This old chart illustrates US interst rates and the ‘powers to be’ / news … food for thought regarding news and market movements, perhaps.

  • phylum

    Neg div on EURAUD fwiw……. <1hr tf

  • phylum

    Neg div on EURAUD fwiw……. <1hr tf

  • http://evilspeculator.com molecool

    EXACTLY – once again we are in sync my brother from another mother.

  • http://evilspeculator.com molecool

    EXACTLY – once again we are in sync my brother from another mother.

  • http://evilspeculator.com molecool

    People see what they want to see – call it historical curve fitting. How many news items do we see each day which could have broken the trend but didn’t even cause a sweat? Then they see some bad news correlate with a down turn and you get the usual junior finance reporter connecting the dots: “Equities fall among jitters over…. bla bla bla….”

    Let’s not walk through this valley again – the news are useless and we managed to anticipate this reversal without it.

  • http://evilspeculator.com molecool

    People see what they want to see – call it historical curve fitting. How many news items do we see each day which could have broken the trend but didn’t even cause a sweat? Then they see some bad news correlate with a down turn and you get the usual junior finance reporter connecting the dots: “Equities fall among jitters over…. bla bla bla….”

    Let’s not walk through this valley again – the news are useless and we managed to anticipate this reversal without it.

  • http://evilspeculator.com molecool

    Yup – the news is simply a reason to do what the market wants to do.

  • Billabong

    A good example was the ECB announcement last Thursday.

  • Billabong

    A good example was the ECB announcement last Thursday.

  • Scott Phillips

    Exactly 🙂 The one thing I would like to add is that the future from here is rather opaque with a few different soylent flavors. A shallow retest would actually be long term bullish, and a very deep retest like a double top puts the trend in jeopardy. The highest probability outcome at this stage is for a corrective move to work off overbought momo and at least one more leg up.

  • Scott Phillips

    Exactly 🙂 The one thing I would like to add is that the future from here is rather opaque with a few different soylent flavors. A shallow retest would actually be long term bullish, and a very deep retest like a double top puts the trend in jeopardy. The highest probability outcome at this stage is for a corrective move to work off overbought momo and at least one more leg up.

  • Scott Phillips

    Even if the news is market moving (as some people maintain, even though I disagree) it makes trading orders of magnitude more difficult.

    Strict information diet is a path to sanity

  • Scott Phillips

    Equities fell today because sellers had more conviction than buyers!

  • http://evilspeculator.com molecool

    Well, now we’re all over the place. Let’s summarize what we KNOW:

    1) The long term bull trend does not even have a dent in it.
    2) A short term correction has been satisfied and then some.
    3) The question now is whether or not we correct deeper. In order to assess this possibility we look at the velocity and strength of the first leg lower and then evaluate the follow up bounce. If it’s meek then the door is open to take things lower. It’s not an easy task but I’ll keep you guys abreast on all the essentials.

  • http://www.ProfitFromPatterns.com/ Ivan K

    Sounds like ‘crystal-ball-itis’ … following a ruleset aka RBT can be so muchos simpler … and less effort … but then where is the fun in / with tht!

  • Skynard

    Flipped to long /ES, protecting R’s until it reverses again.

  • http://www.ProfitFromPatterns.com/ Ivan K

    News is simply news … what matters is how the news is interpreted … price action is the final arbiter thereof.

  • mugabe

    A Brian Shannon-type take on SPY:
    Short-term
    We’re below a declining 5 day moving average. Bearish.
    There is considerable support nearby in the 192-193 area.
    Prohibited to go long.
    Permitted to go short, but probably not worth it at this price level given the magnitude of the move down and nearby resistance. Better to wait and see.
    Medium term
    Bullish
    10 day ma above 20 day ma above 50 day ma.
    Price slightly below 10 day ma.
    Masses of support between 185 and 190.

  • http://evilspeculator.com molecool

    Bullpucky – I have pointed out what we know – no tea leaf readings involved.

  • http://evilspeculator.com molecool

    Roll-over was yesterday grasshopper.

  • http://evilspeculator.com molecool

    Anyone watch Colbert last night? It’s all over now….

    http://www.ecoglobe.ch/images/soylent_green-nowwithmoregirls.gif

  • evilasevildoes

    watching USDJPY

  • Skynard

    /CC has ben a wild one:)

  • http://dartht.blogspot.com/ Gold_Gerb

    sold some more Tech.
    it’s so far off my radar.

    http://stockcharts.com/h-sc/ui?s=INTC&p=D&yr=3&mn=0&dy=0&id=p19480515814

    Soooo glad I didn’t have a short option. I’ve learned to eschew shorting blue chippers …as an amateur. 😉

  • bdoone

    Thank you Scott. I posted this yest: ‘something I learned from CS a couple years ago: significant highs are almost always retested.’ Why? Because the quote is taped to my monitor and has served me well…The 1st time CS stated this was the Friday of the ‘Egyptian uprising/Arab Spring’ 3+ yrs ago. I went short on open and added on way down. News started coming in afternoon and we accelerated to big down day (SPX -30ish) I was smartest MF’er on planet ‘catching the top’ (SPX 1300 I believe). Since I ‘caught the top’ I was gonna keep over weekend for bloodbath to follow…He stated ‘sig highs retested’ late in day and I thought, ‘this guy seems to know his shit’. Shook the greed and glory out my head and flattened. Slept good. Gapped up on Monday, 1300 reclaimed by Tues and kept going.

  • ridingwaves

    News is more sector/symbol related than market related…Example..
    NKTR +“13% today based off FDA panel meeting results release yesterday afternoon..

  • Skynard

    Low tested, see what those bulls have left:)

  • SS_JJ

    closed my shorts and playing the retest of the high

  • ridingwaves

    muting the vix will help…in progress

  • Skynard

    Flipped to short at resistance for one more shot in the dark:)

  • ridingwaves

    NAVB just got hijacked by (The Street) article, allowed shorts to unload…took a chance and jumped in at 1.60..the author’s track record is incredibly bad….

  • http://dartht.blogspot.com/ Gold_Gerb

    S&P ’40’. Inside daily candle.

    http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p22713163326

    off to work..

  • BDI

    I entirely agree that there are footprints ahead of the News, which is precisely why I said reading the news after the fact is of no value, however, anticipating it can certainly be. If the market is acting ahead of it, and you are aware of the various macro developments which are in play, (ie. pending econ data points, ST event risk, geo-political under currents) they can be useful to add to the over all picture, just another tool in the traders belt.

    To simply dismiss them out of hand, as your obtuse partner does, in his typical know it all fashion, seems rather short sighted, to me anyways. After all the market does not operate in a vacuum. Just my macro take on things, and FWIW, I did agree on your above ST assessment posted yesterday, well done mate!

  • mugabe

    ‘If the market is acting ahead of it, and you are aware of the various
    macro developments which are in play, (ie. pending econ data points, ST
    event risk, geo-political under currents) they can be useful to add to
    the over all picture, just another tool in the traders belt.’

    1 Everything is already known and priced in. The market knows more than anyone unless you are a world expert or have truly inside info. So your macro musings will most likely get you nowhere in terms of information / perception edge.

    2 The problem with using macro musings is that you start to construct a narrative and believe it. There is no guarantee either that your narrative is correct or, even if it is, that the market will react to it as you think it ‘should’.

    So rather than it being a tool in the trader’s belt, macro musings might well be a millstone around the trader’s neck.

  • BDI

    In fact, if you really think about it Scott, this entire bull market move since the 2009 bottom has been driven in large part by a Macro / News development, namely TARP/ZIRP/QE. Again, to simply dismiss out of hand outside events and forces which clearly effect the markets is short sighted, as Moles are, which may well explain your partners narrow view on the subject;-)

  • mugabe

    The problem of thinking you’ve got some sort of special insight. The great Ed Seykota in Market Wizards:

    In the late 1960s, I decided that silver had to rise when the U.S. Treasury stopped selling it. I opened a commodity margin account to take full advantage of my insight. Finally, the day arrived. I bought. Much to my amazement and financial detriment, the price started falling! At first it seemed impossible to me that silver could fall on such a bullish deal. Yet the price was falling and that was a fact. Soon my stop got hit. .

  • BobbyLow

    Perhaps you are good at anticpating future results based on an upcoming event. I have tried that many times and been burned many times. I believe that the main point Scott was making in his example was that the market was on its way downward prior to 9/11. Then 9/11 exacerbated a move that had already begun. I was trading back then and really felt that move.

    Also, for me the worst type of anticipation plays are political situations. First in guessing what the political decision is going to be and second what the market reaction to said decision will be.

  • mugabe

    At the risk of ramming home the point, it really is the height of hubris / naivety to think that, all on your own, you have worked out something that all the extremely intelligent and well informed market participants have not

  • ridingwaves

    I would say the Intel news leaked last night was purposeful and partially led to today’s move along with what Scott mentioned…Much Like Buffets buy of GS at height of market panic in 09…

  • Billabong

    You’re onto something about shallow. The equities I track are already starting to turn up.

  • mugabe

    I’m sure it’s true to say that genuine surprise news can change market direction and that, equally, it’s not true to say that the market is always trending in the direction of the news (that would be to give the market some sort of mystical 100% adivination ability). Just think about earning announcements and the havoc they can play with charts. Or news of the end of the palladium workers strike yesterdays which didn’t do much for my long position:)

  • ridingwaves

    I agree…I think the point-counterpoint of this thread is a dead end….

  • ridingwaves

    24% short ratio, fda approval just announced refuting Jim Cramers buddies again…either epic short squeeze or they have enough of them to walk it up slowly to cover….added here, stop at todays low 1.56

  • http://evilspeculator.com molecool

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  • http://evilspeculator.com molecool

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  • Scott Phillips

    BDI – each to their own 🙂 I know traders with very very different methods who manage to make money, and most hedge fund guys I have met do read the news. I was talking with Van Tharp last year about market beliefs and how the trader needs to build a method around his own market beliefs. I asked him “what about people with bogus methods that cannot withstand scrutiny, like sunspots, solar flare activity, Gann angles, etc?” He told me that one of the most useless conversations you can have with someone is telling them their beliefs are wrong, it just goes round and round again and again you can still be there hours later. My own experience in trading (perhaps because I average 12 trades a week which is more than most people and because my ideal time for holding a trade is around 24hrs) is that the biggest problems I encounter are self imposed, ie arising from the interaction of ME with my emotions, and I need to strictly control the amount of external stimuli to maintain peak performance. That information diet is very very helpful to my performance, and because I measure it closely and review it often I can see performance going down immediately even when I have things like facebook open while I trade.

  • BDI

    Scotty; I understand perfectly the validity of what you are saying, and it is particularly true in your time frames. I just take exception to any categorical denial that outside events can and do influence the market. The key is to know when they are a factor and when they are not at all in play. I just think it’s rather obtuse to completely right off their clear and impact out of hand is all………

    You’re a good man Charlie Brown, now please go tone down that Teutonic Mole partner of yours;-)

  • BDI

    I would simply say that purposely choosing to be completely oblivious to any outside influences on the market which are constantly at play is counter productive. No reason not to aware. I mean do you not even consider ST event risk prior to the FOMC meeting or anECB announcement. The absolutely position you take on this issue is odd, and the fact that you all are so bent on it is strange to me.

  • BDI

    It’s also very boring……………….;-)