SHORT-TERM: LOWER LOW AHEAD BUT COULD BE GREEN TOMORROW
Three cents:
- Big picture is unclear for now. Not sure if the rebound was over we are heading to SPX 1,000 or it’s just the 1st up leg over, after the pullback we shall see the 2nd leg up. I’ll temporarily believe that we’d see the 2nd leg up because the sell off was too sharp, unless it’s an exceptional exception, otherwise such a sell off is not sustainable, should be over pretty soon, that at least the 10/27 highs would be revisited.
- Odds are very high we’d see a green day tomorrow. Not sure if we’d see a lower low first tomorrow morning though, may or may not.
- Odds also are very high that today’s low is not the low, so if without a lower low, the market rebounds directly from today’s close, then most likely it’s a sell opportunity.
Let’s take a look at the chart pattern first. Still above an important support, so the chart doesn’t look bearish yet. Theoretically, before any attempt to revisit the 10/27 highs, the chart looks ugly only when the 10/04 lows is broken. Such an analysis obviously has no trading value, and that’s why I said, the big picture is not clear. Let’s wait for a few days.
Why are odds high that we’d see a green day tomorrow?
- VIX rose 38%+ in 2 days, there’re only 8 cases in the past 20 years, all (100%) closed in green the next day.
- We had two Major Distribution Days in a row, there’re only 5 cases in the past 20 years, 4 out 5 (80%) closed in green the next day.
- FOMC tomorrow, except the famous roller-coaster show after 2:15pm ET, the day tends to close in green 73% of the time.
Why isn’t today’s low the low?
- VIX rose 30%+ in 2 days, 23 out of 26 (88%) times since 1990, there’d be at least a lower low thereafter. The chart below shows all the similar cases since the year 2010. For all the past cases please refer from chart 8.3.4a VIX Rose 30% in 2 Days – 1990 to 8.3.4g VIX Rose 30% in 2 Days – 2010.
- Today is a Major Distribution Day, because of the law of inertia, 76% chances a lower low tomorrow.
INTERMEDIATE-TERM: WE COULD SEE MULTIPLE WEEKS RALLY, WILL NEED REASSESS SPX 1,000 DOWNSIDE TARGET
For why we could see multiple weeks rally, please see 10/14 Market Outlook for details.
For why SPX downside target at 1,000, please see 08/19 Market Outlook and 09/30 Market Outlook for details. I’m not sure about this call anymore, will need more evidences to reassess.
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Chinese Transcript
SHORT-TERM: LOWER LOW AHEAD BUT COULD BE GREEN TOMORROW
三点说明：
- 大方向暂时不明，不清楚是否反弹已经结束了，下面就要奔SPX 1,000去了，还是只是1st up leg结束了，pullback完了以后，还有2nd leg up。暂时维持2 leg up的看法，理由是这两天跌的太凶，除非是非常特别的情况，否则，这样的下跌是不可持续的，很快就会结束，这样10/27的high至少还是要去测试一下的。
- 明天收绿的可能性很大。不确定早盘是否会有lower low，可能有，也可能没有。
- 有很高的几率，今天的low不是the low，因此明天如果直接反弹，没有lower low的话，反弹是sell的机会。
先看pattern，今天收在支持上，因此图形并没有坏。理论上讲，在没有测试10/27 highs之前，只有跌破10/04的lows才是图形变坏了，显然，这样的图形分析没有多少trading价值，所以，我说大方向暂时不明。我们再等几天看吧。
为什么明天收绿的可能性很大？
- VIX两天内涨了38%，过去20年只有8个case，100%第二天都收绿了。
- 连续两个Major Distribution Day，过去20年只有5个case，4 out 5 (80%)第二天收绿。
- 明天是FOMC，除了2:15pm ET以后有过山车表演以外，有73%的机会最终收绿。
为什么说今天的low不是the low？
- VIX两天内涨了30%，23 out of 26 (88%) times since 1990，此后至少都有一个lower low。下面的图只显示了2010以来的情况。如果想看过去更多的情况的话，请参见 8.3.4a VIX Rose 30% in 2 Days – 1990 to 8.3.4g VIX Rose 30% in 2 Days – 2010。
- 今天是Major Distribution Day，因此由于惯性，76%的机会明天会有lower low。
INTERMEDIATE-TERM: WE COULD SEE MULTIPLE WEEKS RALLY, WILL NEED REASSESS SPX 1,000 DOWNSIDE TARGET
For why we could see multiple weeks rally, please see 10/14 Market Outlook for details.
For why SPX downside target at 1,000, please see 08/19 Market Outlook and 09/30 Market Outlook for details. I’m not sure about this call anymore, will need more evidences to reassess.
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As usual very nice piece of work.
Thanks
really good statistics
really really good statistics!
thx, ding
great report!
holding 25 put contracts on spy – legacy position (was 150 contracts) i closed out 125 even today – your NYMO and a couple other things in your report were the thin straws that kept my hope that we’d have the last two major distribution days. opened 25 contracts of calls for tomorrow’s green day. looking to take advantage of tomorrow and maybe the next day’s green, but will add to shorts for the presumed lower low ahead in the next week or so.
Thanks Cobra, I think Bernanke is out of bullets this time! If he eases inflationary hawks will be enraged.
Excellent work! Very useful.
Even though you and I use different indicators, but our conclusions are usually the same. Interesting..
BTW, cobra last night post I didn’t mean to be rude it was not my intention. Just so you know. 🙂
Yes, I know, thanks. 🙂
Very nice analysis of VIX, Cobra. You’ve convinced me to look for a bounce.
Interesting day today, with SPX and other indices showing positive hourly divergences but not ES, because the real low was premarket, which raises all sorts of questions about the sounds of trees falling in forests and of one hand clapping. I wonder if the lower ES will happen tomorrow morning, and we get a rally.
Last time we had a similar B wave (April 2008) it ended at the 50DMA, which seems reasonable. But the overall target of the entire rally was the 200DMA, which we’ve already hit. Hmm.
analyze this mon petit chiens……ndx back to 2000 by end of November…do you dig it?
蛇老大辛苦了
“…so if without a lower low, the market rebounds directly from today’s close, then most likely it’s a sell opportunity.”
cobra: if above is the scenario for today, does this mean yesterday low may be revisited within next few days or at worse much lower low is high possibility in next few days?
yes, normally it should get revisited.
ding, thanks cobra laoda
GREAT call on today, Cobra!
This is the third time this year that we have had a somewhat significant bottom on the Tuesday of Fed week (March, August and now this week)
As for employment, if we are reverting to the bull market behaviour, then yesterday was a significant low, as we used to fall at the beginning of employment week (remember your end of month stats?) and then the rally would re-start….
As always, ever interesting!
-D