Living Inside a Broken Clock: Wednesday, Mar. 3, 2010

by gmak

ZH has an interesting post that says that there is a low probabiity of SPX going more than 5% below the 50 DMA.  Here:  http://www.zerohedge.com/article/guest-post-5-solution

I ran the numbers for SPX going back to March of 1960. Of the 12,605 trading days in that range, about 6.4% (811) were ones where the SPX close was 5% or more below the 50 DMA (I used both the one for that day, and the one from the previous day to be sure). By that, I mean that [SPX / 50DMA – 1] was <=-5% for 811 of the 12.605 trading days.  This suggests that when the SPX price moves near or over that threshhold, that there is a high probabiity of a move up. I havent’t done the analysis of how long SPX stays below the 5% threshhold – I will do my best to have an answer in a post this week.

Needless to say, SPX was 5% or  more above the 50 DMA for almost 10% of the trading days (1,264). I would conclude that moves up last longer than moves down from this data. 🙂

Now you have one more indicator to help you live inside a broken clock.
EQUITY

What can I say? The trend is up.  The “Since Aug 17” trend line is the next major level of resistance on the daily SPX chart.  SPX is above the 50 DMA, which is at 1108.99. 5% above that is around SPX = 1164. Thre is 90% probability (based on data back to the start of 1960) that it doesn’t close above this today. Do you feel lucky?

In a similar vein, the close on Feb 8 was at 1056.74. The 50 DMA from the previous day was 1112. SPX was 4.9% below the 50DMA at the close (which was the low for the day). The previous day (Feb 5), the low was THE low for the latest wave down. It was SPX = 1044ish. It was about 6.1% below the 50 DMA (the one from the previous day at the close). So in this one case, going beyond that 5% threshold was enough to cause a pullback and a higher close (note the next day was a red candle). I hope this helps.

Asia was totally green, with the exception of Indonesia, Malaysia, and Thailand (anyone remember the heady days of 1997?) but mildly so. Europe is mainly red with the exception of some more nordic countries.  The DAX surprised by opening around yesterdays close and then drifting sideways. This is either classic topping or consolidation for another move higher – neither of which helps in a trading decision. You might as well flip a coin and manage the stops – changing the trade if proven wrong. The DAX is effectively flat, and only Health care, Industrials, and Financials are green – but only 50% of the members  I would suggest that there is a bit of fear of what will happen regarding the meetings over Greece, today.

ES was effectively flat all night, trading is a slow range between 1115 and 1118.  I currently have TD resistance around that level (1118). Pivots:

• R2: 1127.50 = Certainly would be an aggressive bullish indicator, no?  This would put SPX around 1129.  The 50 DMA is at 1109. I think it would be interesting to have probabilities for how far SPX can move off of the 50 DMA in any one day – both the close, and the high.
• R1: 1122.50 = Above the highs from yesterday. This looks like there was support here back before the top in January and the subsequent waterfall. This means that it could now be resistance. The reasoning is that those who went long previously at this level may be “trapped” by the Jan sell off and the emotional pain will lead most of them to sell at or about the break even point, IMO.
• Neutral: 1117.75 = ES has been back and forth over this like Canadians on a parity shopping spree.  As mentioned, there is TD resistance just above at 1118.50 which has been the general area for two retracements down overnight.
• S1: 1112.75 =  This was support for the overnight yesterday. It could still be support for the regular hours – but it is hard to say.
• S2: 1107.75 = A general support and resistance area from Mar 1 and Feb 26.  This level seems to have meaning. It was the S1 pivot yesterday, more or less.

FX

Not much to say here, except that there are a large number of shorts in the EUR. They’ve been talking their book – my guess would be to draw in trades on their side in order to exit, or to draw attention away from their “real” target which might be the GBP. Either way, I wouldn’t be fooled. When hedge funds reveal their positions (especially talking about “generational” trades) – they are doing so for a reason = to make money, which is probably your money in this zero sum game.

NEWS

Greece continues with the deficit cuts. Bonds rally and the GBP snaps back, probably with a bit of a short squeeze on the late nervous money. AAPL has decided to get in a phone patent fight with Taiwan’s HTC. Korea is aglow with Oympic medals and want to outperform the world economy (don’t we all?).

DATA

MBA mortgage applications were up 14.6% vs -8.5% prior (week of Feb 26 for current data point). Challenger job cuts YoY were -77.4% vs -70.4% ( I don’t know if this means more or less i.e. improvement).

8:15 is the ADP employment change which is a much-watched data point. There will be bets on this and short term volatility.

14:00 Fed’s beige book. By the way, the last of the TAF money rolls over again on March 12th, I beleive.

Cheers.