12/15/2011 Market Outlook (VIX Double Hollow Red Bars)


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SHORT-TERM: COULD SEE MORE SELLING AHEAD

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I’m not sure up or down tomorrow because according to the Stock Trader’s Almanac, December Quadruple Witching Expiration SPX up 20 of 28, so should be very bullish. But the chart still looks like a continuation pattern to me, especially QQQ, could be a Descending Triangle in the forming.

SPYEvilPlan

A little bit longer time frame than tomorrow, I still believe the selling isn’t over yet for 3 reasons:

  • Although you can argue that because of Option Expiration, so the VIX chart is screwed up. But still you cannot deny, for 2 hollow red bars (open low close higher), chances are high the bottom (of VIX) is around, which by no means is a bullish sign for SPX.

VIXDaily

  • The bearish crossover is clear on Non-Stop model today, so those who follow the model, tomorrow should close long and open short (I don’t actually expect someone does follow the model because apparently the model needs a lot of fine tuning but it can be a backbone of your own system). If you click the Non-Stop link, you should see the Non-Stop sell signal had only 2 out 17 (12%) chances of being issued at exactly the market bottom while 73% chances it meant on average 10 more calendar day drops before a bottom of some kind could be in.

NonStop

  • And don’t forget the SPY 7 consecutive hourly red bar pattern I mentioned yesterday, most likely, rebound then sell off, at least to revisit yesterday’s low.  So the rebound today was typical, if not weaker than the previous few times.

SPY7HourlyRedBars

One thing I’d like to explain a little is, I believe some would mention the UUP chart to me. Because the black bar plus hollow red bar implies heavily a pending reversal (down), which, in turn, means a rebound of SPX. I saw the chart and I did hesitate a little bit on whether I should make at least a short-term bullish call. However, the FXE (Euro) chart below doesn’t look like bottomed, so at the current stage it’s still hard to say whether the coming reversal of UUP equals to the pullback of the USDEUO, because after all Euro is only 57.6% part of the UUP. We all know the recent pullback was mostly due to the Euro, so if Euro is not bottomed, even indeed UUP drops, it might not translate into an up SPX.

UUPDaily

INTERMEDIATE-TERM: EXPECT MULTIPLE WEEKS SELLING AHEAD, TARGETING JUNE 2010 LOWS AROUND SPX 1010ISH

See 11/18 Market Outlook for more details.

SUMMARY OF SIGNALS:
TREND MOMENTUM COMMENT
Long-term 3 of 3 SELL
Intermediate 4 of 5 SELL 5 of 5 NEUTRAL Cobra Impulse in BUY mode; Non-Stop in *SELL mode.
Short-term DOWN 6 of 6 NEUTRAL
* = New update.

 

 

Chinese Translation

SHORT-TERM: COULD SEE MORE SELLING AHEAD

首先,会员请注意检查自己login以后是否能看Member Only Test Page里的内容。这两天通过这个测试页,我已经解决了大量付费但却没有注册或者不知道自己login密码的情况,今天明显的要求customer services的少了,因此这个测试页的目的基本达到了。从下周起我会开始逐步锁定我每天的报告(就是说慢慢的所有的报告就只能login才能看了),因此也请还没有入会的同学抓紧时间。加入请按这里

不确定明天是涨是跌,因为根据Stock Trader’s Almanac, December Quadruple Witching Expiration SPX up 20 of 28,应该很牛的。但从图形看,还是个continuation的pattern,特别是QQQ,Descending Triangle的意味很重。

SPYEvilPlan

稍微比明天长一点点的time frame,我还是认为没有跌完。理由有三:

  • 虽然你可以争论说因为Option Expiration,所以最近VIX的图形不准,但是不可否认,连着两根低开高走的空心红棒棒看起来VIX bottom的可能性很大。这个意味着SPX还有的跌。

VIXDaily

  • Non-Stop model今天的bearish crossover很明确了,所以明天应该close long同时open short (I don’t actually expect someone does follow the model because apparently the model needs a lot of fine tuning but it can be a backbone of your own system)。如果点击Non-Stop这个链接的话,可以看到Non-Stop的卖信号只有2 out 17 (12%)的几率出在exactly bottom,而有73%的机会,SPX还要跌10个calendar day,所以这个卖信号多半意味着还有的跌。

NonStop

  • 不要忘了,昨天提到的SPY 7 consecutive hourly red bar的pattern,反弹后是要跌下来的,不是明天就是下周了,今天的走法,so far跟过去没有什么两样。

SPY7HourlyRedBars

最后说明一下,可能会有人提到UUP,黑棒棒加空心红棒棒因此反转向下的可能性很大,这应该意味着SPX会有大反弹。我起初也犹豫是否要做出短期bullish的判断,不过最下面的FXE(欧元)暂时看不出来筑底的迹象,所以这个UUP下跌可能并不意味着米金对欧元的下跌,因为毕竟欧元只占UUP成分的57.6%,大家知道,最近的下跌就是因为欧元,所以如果欧元没有筑底的迹象,既使UUP下跌,可能也不一定意味着SPX到底了。

UUPDaily

INTERMEDIATE-TERM: EXPECT MULTIPLE WEEKS SELLING AHEAD, TARGETING JUNE 2010 LOWS AROUND SPX 1010ISH

See 11/18 Market Outlook for more details.

SUMMARY OF SIGNALS:
TREND MOMENTUM COMMENT
Long-term 3 of 3 SELL
Intermediate 4 of 5 SELL 5 of 5 NEUTRAL Cobra Impulse in BUY mode; Non-Stop in *SELL mode.
Short-term DOWN 6 of 6 NEUTRAL
* = New update.
  • Cobra, I am glad you pointed out the uup signal.  I was feeling pretty confident I was on the right side of the trade (short) until I saw that, now I am nervous.  The daily MACD now has a bearish cross, the index is below the 50 DMA and most important averages.  Additionally, SPY put in a black candle in what appears to be the middle of a downtrend.  Statistically this looks bearish to me for at least a lower low.  I would like to see a gap lower with some sort of hammer to tell me that Santa was coming, but it seems that we gap up too frequently which only creates general weakness.

    • I’m still not sure how much trust we can put in the VIX hollow red bars in this OE week. If it indeed means something, then SPX could be very ugly ahead.

  • Cobra
    Reposting this because I’m interested in your view:

    Highest CPCE today since the Aug low in SPY. Also the highest CPC since the Thanksgiving low. Overall, the highs are getting lower in CPC. This is a bullish pattern if it continues, at least historically. 

    • Allan Sun

      Hi, friends:

      Could you explain what is CPCE and CPC?

      Thanks!

      • Anonymous

        CPC = total put/call ratio.. in other words: index put/call + equities put/call

        CPCE = equity put/call ratio.. retail usually buy options for individual stocks rather than index options. therefore CPCE = dumb money
        CPCI = index put/call ratio.. (smart money) hedge fund managers, etc.

        • Allan Sun

          But is these signal valid in the option expiration week?

          • Good question. I think the answer is that OpX does not make a difference. I posted a chart on twitter (under my name) comparing OpX and CPCE. I see no bias; some are high, others low, others in the middle.

    • I won’t agree with the highs are getting lower part, because we don’t have new low yet, i.e. we’re still far far away from the Oct lows. 

  • Eying Chen

    Thanks cobra!

  • Allan Sun

    Cobra, 

    We have three t-bill auctions this week. Is it possible those t-bills draw most funds out of the market and hence make the index fall?

    When the treasury sale is over, do you think investors’ risk appetite will resume?

    Thanks.

    • I won’t read into that much because we have t-bill auctions almost everyday.

  • Jason_70

    Hi Cobra/All, Hope all of u doing good. I see cobra you are moving to a paid system. 🙁 Well, i am happy for you that you are progressing. Coming to my patterns. http://www.cobrasmarketview.com/2011/11232011-trading-signals/#comment-371174172 So, here’s my magic wand work once again.
    1- Next 2 weeks will be range bound
    2- By either OPEX of november or towards the end of Nov, TF will wipe out all the gains it made through this rally
    3- We will however end this year with TF regaining back again all of what it lost in Nov, the so called santa rally.
    4- January will bring bears out of oblivion. TF will lose 50% by end of january.

    1 – Check
    2 – We are getting there.

    3/4. Lets see how it pans out.

    2 and 3 both failed in my opinion as all of the patterns that i look at, not just single stock, but a ton of things stocks/bonds/interest rates/emerging markets/PM, the combined result was the above outcome. It has failed as the difference in price action cannot be deemed as a delta. Hence, i don’t think 3/4 also will happen. However, i still feel that the intermediate pattern may not work out, but the end outcome still has ton of probability of happening. Few pointers 1) TED/LIBOR had one of the biggest BARS in recent times and they clearly broke out today. This signifies the underlying credit crunch and coming liquidity crunch. Without enough liquidity we could see a “waddal and reid” episode where 100 ES contracts sold brought down the dow by 1000 points last year.2) EM seems to be rolling over pretty fast. China has broken down. India is in a continuation pattern and WILL break down. Both these markets have been precursors in the past for finding tops and bottoms. In almost all cases, both these markets topped/bottomed way before S&P did.3) The scale of $$$ liquidity crunch is not even being published these days. Look at the various governments scrambling for $$$ and various currencies the way they are acting and you will see how difficult it has been. This means $$$ will rally higher and put further pressure on the markets.4) In the last 6 months there has been NO action from US/FED and this ties down to what i stated earlier. Before elections there won’t be any action one way or another. This is good in the long run, short term of course it will put pressure on equities. I could actually go on. But i clearly feel with SPX below 50 and 200 dma and with bearish crossover 4 months ago, we are simply consolidating before the big leg down. I try not to be biased, but in this case i am unable to find any reasons logical or otherwise to think we are either in a bull market or will get into one. Hence, i don’t think Santa is coming this year. Look at today’s performance. Gap up and then close down. This is a very very weak rebound, if any. We are in continuation pattern and will go down. At some point equities have to realign to the action in bonds/currencies/dollar/PM. The way i see it is that we will NOT see a controlled decline and rather CRASH. I do NOT believe in crashes, but i cannot think of any reason this time around why not. If all the indicators state that equities should move down and they dont even under dire liquidity crunches where insititutions are ready to sell gold/GLD and cover their expenses instead of equities, i can only imagine what will happen when folks start selling equities. We will see a very fast trickle effect that will take equities crashing down. There is barely any bid below where we are as everything is controlled by HFTs. Once selling begins with volume, HFT’s will not know what to do and will cease their operations. 🙂 In any case, i don’t want to be too bearish (personally), but i don’t see any reason to be bullish either. Holding my shorts since 127 and have been adding to them all along. GLTA and happy holidays in advance (as i dont get to post that often).

    • Thanks, Jason. What you said are really scary. I hope that wouldn’t happen…

      • Jason_70

        Cobra, i am more than 100% sure on the outcome, unfortunately.  Only thing is that as is with trading, we do not know the exact dates.  We can only predict what is probable based on what you see. 🙂

    • Allan Sun

      Hi, Jasons:

      Your scenario analysis is excellent. But everything comes with a probability. How probably you think a crash will happen?

      About the liquidity crunch reasoning, please allow me to correct a bit.

      1. Emerging market are experiencing credit crunch like China and India, for the lagging effect of their contracting monetary policy.

      2. US, for the sake of QE 1 & 2, OT, does have moderate to expansionary monetary policy, which doesn’t trigger the crunch you said.

      3. But, if any US or European bank collapsed, the credit crunch you mentioned will surely happen in the US.

      The market is driven by traders who creates marginal demand and supply of equities right now. So I believe you will see range days before the year end.

      • Jason_70

        For
        1) There are two types of credit crunches that i can think of. a) monetary (within the country and this is what you are referring to) and b) BOP or balance of payments arising out of $$$ rising and/or export bill shrinking vs import bill rising.  Both china and india are deeply into this territory now and this is where they need more and more $$$ to pay for their imports.  This nicely blends with the fact that china is ready to report trade deficit in many many years.  When $$$ shortage occurs, nobody can get one. 
        2) US was never and will never be in a crunch and this was never the state as US has the “power of printing press”. 🙂
        3) Yes, what i was stating was that the crunch as experienced by Chindia is what is being experienced by most of the european nations.

        And yes, when i said the above scary probability is plausible, i was only stating the eventual outcome.  As they say in trading circles, market can be irrational than you could be solvent. 🙂
        Hence, i am not necessarily implying that this is going to happen tomorrow (as i post very rarely, once in a month or so).  Hence, i agree with your assessment that going into holiday season with negative bias means range bound days rather than santa saving the day IMHO.

    • Anonymous

      There is much point in what you’re saying. I’ve been updating bull vs. bear sentiment from aaii.com data for some time now ( http://traders.fi/ , scroll to the bottom) and it is somewhat strange that the bull sentiment is RISING although indexes are declining.

      As you said, Santa rally is what we expect but is it what we get (if bulls are all-in, who’s gonna buy?)?

      It’s time to go fishing (again). Merry Christmas and Happy New Year 2012!

    • Anonymous

      Jason,
      Thanks for your analysis.
      What is TF? Thanks,
      E.

  • Hi Cobra,
    As you suggested,I’m trying to understand your Non-stop model.

    Just looking at the 0.0.2 Non-stop model Chartlist, which you also include in this outlook, I’m not sure what I’m looking at. Here are my questions, please excuse me if I’m obtuse. What’s the chart in the first section, which gives the “primary sell signal”? I created RSP:$CPCE on stockcharts.com, but it looks nothing like what you have, although it does have the same OHLC data. The second section is a chart
    of SPY, the one with the Bollinger Bands, isn’t it? However it still has “RSP:$CPCE (Daily)” as the headline. The last question is for $NYSI, $BPSPX, $BPNDX at the bottom. What is the solid line, and what is the dotted line for each of them? And are sell/buy signals given out by crossovers?

    Sorry if the answers are obvious. If there’s a place where I can find the answers, please direct me to it (I have looked under “Getting Started”).

    • If you are extra member of stockcharts, this link should answered all: 
      http://stockcharts.com/h-sc/ui?s=RSP:$CPCE&p=D&b=5&g=0&id=p74374124367&a=197681529

      It’s not exactly the same of my chart because some indicator parameters are dynamically calculated (then I manually adjust it on the chart) so to avoid confusion, I used EMA20 for all primary buy signals. The results are the same, so no worry. 

      If you’re not stockcharts member, let me know, I’ll try to explain. Well, better you’re. 🙂

      • Unfortunately I’m not an extra member. But I see the top section is MACD(21,55) of RSP:$CPCE, and the primary sell signal is crossing down 0? And the dotted lines are $NYSI, $BPSPX, $BPNDX, and the solid lines are their EMA20?

        Thanks!

  • uempel

    BPNYA down 1.11%, BPCOMPQ down 1.10%, BPNDX down 3.85%, BPSPX down 1.02% and the big cap indices BPOEX and BPINDU are both flat. As to the sectors: BPENER (Energy), BPDISC (Consumer Discretionary) and BPINDY (Industrials) were all down, BPENER by 6.25% (signals lower expectations for demand in the months ahead).

    Don’t know what’s going to happen on Triple Witch, but this week’s market action does not suggest a reversal is close and that Santa is coming.

    PS: Friday is Triple Witch and not Quadruple Witch, Witches prefer Fib numbers…

  • Anonymous

    Cobra, yesterday you talked about the first chart on your $CPCE graph being MACD(21,55,1). Is it supposed to only be one line? If you are looking for the 21,55 ema cross over, where is this at? I am confused; sorry for the beginner questions

  • uempel

    This meassage is for readers who play futures and are aware of risk/reward: 

    Friday’s expiry can be played like this: December S&P/ES tends to get squeezed in the last half hour before expiry, in bullish markets to the downside, in bearish markets to the upside. As March tends to show the same pattern, March will follow December’s action minute by minute, even though it has 3 months to go.

    As to the trade: wait for the high/low of the December squeeze approx 5 -10 minutes before the close and short/long March at that very moment. I’ve been playing this game for many years and success rate is quite high (as far as I remember it did not work out very well in September).

    Note that this game works better at Eurex than at CME, on expiry the two European futures seem to be better correlated than the S&P futures (Euro Stoxx 50, Stoxx Europe 50, FDAX, FSMI.)

    Eurex expiry is Friday 3.00 am EDT, for CME it’s 8.30 EDT. PS: Don’t play if you’ve been drinking heavily Thursday evening, poor trading can cost you more than ditching your aperta into East River…

    http://www.ferrari.com/English/GT_Sport%20Cars/CurrentRange/SA-Aperta/Pages/SA-APERTA.aspx

    • uempel

      Europe worked better Friday morning, index I used lost about 0.5%. ES was less attractive: at 8.30 am they went down from 1221.75 to 1219.50, not quite 0.2%. I might be tired now, but I’ve done my Friday trading…

  • Anonymous

    Pls note that $VIX has its own life when we are close to holiday seasons (=non regular trading sessions). I would not look too closely on $VIX at the moment.

    Btw, it seems to me that “big money” has taken vacation (=market could behave “strange” for the end of year 2011).

  • Allan Sun

    Guys, an important notice:

    I am trading HK stocks overnight. By the end of its Friday trading session, the HK and Shanghai stock markets climb sharply, which contradicts all previous Friday pattern. (It usually ends lower since they are scared of bad news during the weekend.) I tried to find a clue on it as follow:

    1. It is confirmed that indian monetary policy turned direction.

    2. It could be some insider information that China will release their monetary pump again!

    3. It is confirmed some Chinese banks are dumping US dollars & Chinese gov are net selling US treasury bill >> By pressing dollar down, China may want to help the Euro a hand in the shadow…

    No matter what factor pushed the HK & Shanghai market, I think your guys should read into this signal while you wake up and start to trade US stocks. 

    Thanks!

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