ES -- DX/CL -- isee -- cboe put/call -- specialist/public short ratio -- trinq -- trin -- aaii bull ratio -- abx -- cmbx -- cdx -- vxo p&f -- SPX volatility curve -- VIX:VXO skew -- commodity screen -- cot -- conference board

Tuesday, October 28, 2008


caught short!

the NASDAQ gapped up at the open 50 points to open at 1552 (yesterday's close -- 1506), some 3% higher, only to close the gap back to flat into 11am new york time. a tentative rise then found spurs at 2pm and the index is currently around 1650, up about 9.5%.

this will quickly bring to mind october 13, though the extent of the gains (considerable though they are) are not quite of that size.

i was caught short in a small way by this fierce rally -- position sizing saves the day, where a stop-loss would have been appropriate but wasn't left in the system.

all is not necessarily lost here, though. while this should be close to a 90% upside day and is quite possibly the start of a more significant rally from a very oversold technical condition, this study from quantifiable edges suggests a high probability of at least a partial retracement over the next few sessions.

Typically when the market gaps up by massive amounts it tends to pull back at some point in the next few days. Below are listed all instances where the SPY gapped up by 2% or more. In 19 of 20 cases it posted a close below the gap open within the next 5 days ...

so look for a close in the next few days below NASDAQ 1552.

similarly, the NASDAQ 100 opened at 1210, up from 1170 or 3.4% -- and is closing about 1297, up nearly 11%. again, a close back around 1210 would be typical.

SPY closed yesterday at 83.95 and opened this morning at 87.34, gapping up 4.0%. they are closing 93.97, up 11.9%. one would expect a retracement then corresponding to approximately 870 in the s&p.

UPDATE: markettells had this to offer back on october 13:

"Monday's 11% move represented the sixth largest rally, but what's particularly interesting is that 17 out of the 20 largest gains occurred between 1929 and 1933. That's food for thought from a long-term perspective. It will be particularly noteworthy if we see another 7%+ up day at some point in the coming year. If and when that does occur, it would suggest we're in another 1930's style environment, which would certainly not be a positive sign. A cluster of unusually large percentage gains reflects treacherous volatility and most likely lower stock prices over the long haul. Consider that from 10/30/29, when the first big percentage gain appeared, to 7/24/33, when the last big percentage gain appeared, the S&P500 fell over 60%. And don't forget there were fifteen other 7%+ up days during that roughly four-year period, most of which proved to be selling opportunities."

now that we've got another, what does it say?


This page is powered by Blogger. Isn't yours?