Thursday, October 29, 2009

Other Indices Fading Away in Latter Half of Rally Today



Just a quick note: notice the attached chart (click on it to enlarge) shows the Dow, S&P, Nasdaq Composite and the Russell 2000. All followed suit with a straight line up this morning, but the riskier the index, the less enthusiastic the second half of the rally has been. You can see the "tipping over" effect as you look from left to right at the trajectory blue and red lines I drew on the indices. This shows that the higher risk assets are loosing steam, and they tend to lead the way. Now this can be resolved if they all charge higher at any time, but as of right now it shows a lack of confidence in the second half of this rally today which may be signal of the near future. I'm not calling a top here, although certainly possible, it's just something to watch as this rally unfolds.

More later.

11 comments:

adan said...

great graphics - gives such a clear instructive look

thanks!

Anonymous said...

Todd, I've only been following you for a little while and I have to say that I'm very impressed. About the ads from sponsors, do I actually have to download the stuff or just click through?

Mart

Todd S said...

Thanks Adan and Mart for your support. Mart, you can just click through the links if you find anything interesting. If not, no sweat! :)

Thanks again,
Todd

Anonymous said...

hi todd,
very cool charts.
i think current rally is 2nd wave, instead of 4th, same result just more bang! 3 of 3 of 3 coming up..imo 830??

Todd S said...

The strength of the rally today in the Dow and S&P definitely feels like a wave 2. Counting waves right now is very speculative; it's so early. A break of my wave 1 low at S&P 1074 won't eliminate the overarching bearish case, it will just cause me to relabel my count. Only a break of 1101 would remove my short term bearish stance.

Thanks for the input!
Todd

infinitus said...

Hello Todd,

great analysis and graphics.
How do you rate the chance of Dow below 9000 in mid December?

Thanks in advance,
Markus

Todd S said...

Hi Markus,

You sound like an options trader :) Time is always difficult to predict, however I can say that if the S&P high of 1101 holds, which I strongly feel that it will, then the Dow is very likely to break 9,000 by mid-December.

Hope that helps,
Todd

infinitus said...

Hello Todd,

thank you very much.

You are right. I bought those options between 9300 and 10100, thought it would be a nice play. But as always: Time runs fast :-(
and the breakdown takes longer than anticipated. My fault (greed) :-)

We will see....

Maybe I sell them on monday and reenter at top of Wave 2 up. But the spread is damn high (around 20%).

Have a nice weekend,

Markus

Todd S said...

Hi Markus,

I learned the hard way that it's difficult to trade in and out of options even if you get the market analysis right. I tend to use spreads for short term options trades myself. But planning on this crash, and that the VIX would probably see triple digits, I bought Jan 2011 put options for my positions. "Normally" a terrible play, but this is not a "normal" decline.

Good luck,
Todd

infinitus said...

Hello Todd,

how low do you expect the Dow to be in January of 2011 (wild guess)?

Thanks again, and good luck to you, too :-)

Markus

Todd S said...

Markus, that's really hard to say right now, but I expect the Dow to definitely be at a new low beneath 6,470 by Jan 2011, and I actually think it will be below that by June of 2010. If I had to guess, right now I think the Dow can be in the 3000-4000 area by Jan of 2011, but that's extremely speculative. I'm positioned to have the Dow and S&P at new lows (beneath 2009's) by January 2011, which I think is very likely in my opinion.

Good luck
Todd

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