Monday, November 17, 2008

Sold to You

Today seemed like every buyer out there was met with two sellers. Every pop was sold into and even the midday rally that seemed like it wanted to just go higher at first and squeeze the shorts ended up getting hit with selling into the last hour as we closed at the lows near 850. Early on the market got stopped cold at 880 resistance, yesterday I said this was a key selling level and it turned out to be true. I would continue to sell into any pop we get. I was feeling a little bullish this morning thinking that perhaps this market would climb the ever growing wall of worry and grind higher. The failure at 880 was huge in my opinion and it says that the selling is not quite done yet.

Until we get over 915 I would not be bullish. The daily chart of the SPX pictured above is showing a very bearish descending triangle forming with support near the 830-840 area. Bottom line is we are very close to breaking this pattern to the downside. I think if we see any attempt at a rally up to the 900 level is a great chance to go short. I do NOT think we have seen max pain yet. Thursdays rally should be thrown out the window as of today and if we cannot bounce with volume these next few days I will begin to anticipate a very big selloff that could drop us a quick 1000 points in the Dow and perhaps as low as 690-700 in the SPX. I am not calling for a crash but only saying the probability of us going lower and making new lows by months end has gone up considerably since last week.

There is simply no leadership and the banks looks terrible. Oil looks like it wants to break 50 and the tech stocks just should not be touched. I like very few sectors to the upside. Looking at the triangle its possible we can see a weak runup to that downward trendline but if we do you should be selling into it because I think new lows are coming. I was hoping these levels would hold and we could begin to form a base but hope is not a strategy and I gotta call it like I see it. The problem is I see too many others "hoping" the same thing. And that has ALWAYS been a great contrarian signal in the markets. Bottom line do not get caught being long in this market and especially without stops in place. Any rally should be sold into this week until we get some more clarity in the charts. Right now I know we are oversold but we may be more oversold by friday so DO NOT FALL IN LOVE WITH THE UPSIDE.


GS751 said...

I think that anybody that is in love with the upside in this environment is gonna be like the person chasing flush's and straights to the river in Hold Em. They might get lucky with an explosive rally in the short term but will learn some expensive lessons in the long term. Chasing trades to the upside in this market is just plain dumb in my opinion.

Jason said...

yea well said. bottom line is that any bounce is a counter trend rally and those should only be viewed as scalps at the least and of course requires the discipline to get out when cnbc gets a little too cheerful lol

MarketAddiction said...

CNBC gets cheerful when we go positive. I hardly listen to it anymore because they drive me nuts. This is a horrible bear market. The fundamentals are horrible. Technically we're in a bad position and every time frame is pointing lower. I don't see why anyone would be wanting to buy this market. Only the most experienced people should be trading long scalps only. Too many people out there hope and guess, that's nonsense. I don't understand why people do it and why people are so infatuated with calling a bottom. Why not just trade the direction the market is moving? The odds are in your favor, you'll make money instead of losing it, and you won't look like an idiot when its all said and done.

Jason said...

yeah thats what i say. simply trade the chart and follow the trend. the fundies show themselves in the charts first. thats fact.

GS751 said...

The fundi's are screwed long term. A little word on financials what I have been telling people (but what the hell Im only 19). Is that the S&P 500 is still insanely overvalued from a forward earnings standpoint. Earnings estimates and people thinking we are gonna see S&P 500 earnings at 100 are nuts (more on that later). Analysts have yet to slash their predictions for 25% 09 earnings growth in Financials. Firstly most broker dealers revenues came from trading. Every investment bank had to basically shut down all prop trading to use the money to shore up balance sheets. No chance of trading profits which made up something like 60% of profits for your average invest bank. It was 68% at goldman and they had the best of the best trading wise. Take into account that spreads have gotten slaughtered. Banks make all their money on interest rate spreads... Plus no lending to the highly lucrative Alt-A / subprime stuff that a lot of profits came from in the past. What do we have.. A bunch of banks with no trading revenues, the market where there most lucrative loans were made is shut down, they are paying a ton for CD's. The spread between 1 year CD's and Prime rate has been sitting around 40-50 BP if you factor in expenses there is no money to be made lending to their most creditworthy clients... Some of the these banks are dumb but not dumb enough to lend at a loss. The earning power of a bank has fallen off a cliff. If we even see earnings return to 2006 levels it will be a long time because to say that banks are going to grow earnings in 2009 when you look at their business model and the fundamentals that drive their business model's (spreads where they make money), the consumer lending etc.) Bottom line is that it is foolish to think earnings will increase in 2009 based on the macro situation.

The financial sector has become 25% of GDP, this is unhealthy and can't last over the long term. The financial sector was partially built on consumerism. This ain't gonna last.

Next on Retail. American's have over spent for years. Something like 30% more than they make. You can't do this over the long term. It's gonna be great when sales come out for Q4 and look effing awful, well depending on how much the market prices in before that... But I expect retail to hurt pretty bad in 09. most retails run on thin margins (tech retailers like Best Buy and such). Ill cut it short here but yeah consumer spending is gonna come to more of a hault. The free market will make it happen.
I think that $60 earnings for the S&P 500 is a much more realistic estimate. That means that after yesterday's close you are trading at 14x earnings. Still pretty darn expensive. For earnings to come out at 100 you need growth in a ton of sectors and 20 plus precent growth in retail and financials. Good luck with that one.
Buffett thats great your bullish on America, I'm not, your buying America, Im short the crap out of certain sectors of the American economy. Some people call me doom and gloom but I call myself a realist with a spreadsheet.......Its almost 1 am and im a little out of it. If you made it this far. Thanks for listening to my rambling. Place your bets wisely.

Jason said...

lol nicely done. i agree on alot of that actually. Most folks dont understand that P/E ratios looking cheap dont mean a damn thing. They will get "cheaper" because as you said, analysts are behind the curve always and will once again prove to be idiots when they slash all forward 09-10 earnings estimates and growth AT or NEAR the bottom. Who knows when that'll be but earnings power is gone. I guess the only thing thats somewhat positive is that the market had began, and I emphasize began, to price in these assumptions. But it aint over yet. You seem to have a lot of the same thoughts as Peter Schiff. I love listening to that guy now that his predictions from the last 5 years are coming true. He thinks that we arent near the end yet. Check him out if you haven't heard of him.

GS751 said...

Yeah I like Schiff I disagree with one thing though I dont think we are gonna see massive inflation in the next 6 months. Because asset prices are falling much faster than the money supply is increasing, even though. In history we have never seen a huge currency devaluation show itself when house prices are falling. There are no bids for assets is part of the reason they are falling. If we were seeing a lot of inflation we would not see oil below 60 dollars a barrel and gold below 1000.. the effects of massive spending the TARP all that will show in prices but not until asset prices stop falling. Once house prices bottom out, I am shorting the hell outta the dollar because we are gonna see that double digit inflation that shiff talks about. The only thing I have beef with schiff about is that I dont like to go long emerging markets when the developed markets are not working haha. China will get cheap but the best way to play them for small players like you and me is through their currency. If the chinese start spending their $$$ and develop consumerism like the US, im getting long China expect a nice bull market then. Anyways there are a lot of variables that go into it and I cannot predict every global macro move but we will see what happens. I dont think we are gonna see massive inflation until 09 at the earliest. But when it comes watch out. That light at the end of the tunnel is really just a train for people long the dollar once asset prices bottom out.