01/20/2012 Market Outlook (OEX Open Interest Ratio Record High)


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SHORT-TERM: MAY SEE PULLBACK SOON

Three cents:

  1. SPX could close below the Friday’s close within 2 days.
  2. A bigger correction should be around. But, again, don’t front run because I don’t see any reliable top pattern yet. Nowadays the market tends to go extremely extreme, so front run based on signals or statistics are dangerous.
  3. Because FOMC announcement will be on Jan 25, normally, there wouldn’t be any meaningful pullback before that day, so  the “bigger correction” might happen after Jan 25. Should the signals become even more extreme on Jan 25, off the record (because I officially against front running), I personally think this would be bear’s good opportunity.

Let’s see chart pattern first.

Could be an Ascending Triangle in the forming, so chances are it’d breakout on the upside, at least more likely up on Monday morning. This is why I said I don’t see top pattern yet.

EvilPlan

On a little bit bigger picture than Monday intraday, from daily and weekly chart:

  1. SPX is testing the primary bear trend line.
  2. The Thursday volume surge may mean bear capitulation.
  3. There’re some chances that the weekly bar is an exhaustion bar.

So the daily/weekly chart argues for a short-term pullback.

SPXDaily
SPXWeekly

Now let’s take a look at signals. Why there’d be a pullback within 2 days? Why could a bigger correction be around soon?

  • OEX Open Interest Ratio is at record high (at least 2nd record high) now. This is the major reason I believe a bigger correction is around.

OEXOpenInterestRatio

  • T2112, % NYSE stocks 2 Std Dev above MA(40). When this signal was on the way up, rarely it had 2% pullback, which if so, then it could mean the high was in for T2112, therefore implying a bigger correction is ahead. In addition, the back test summary shows 84% chances we’d see a pullback within 2 days.

T2112

  • AAPL is interesting, a sudden 1.5%+ drop on a strong way up usually leads to a big correction on QQQ.

AALPBigDropOnStrongUp

  • ISEE Indices & ETFs Only Index closed above 100 again which could mean a pullback within 2 days.

ISEE

This is just to follow up what I mentioned in 01/19 Market Outlook. Normalized CPCE, becomes extreme now but still not extremely extreme, so let’s wait for a few more days.

NormalizedCPCE

VIX might rebound the next week because VIX:VXV is way too low. It doesn’t always mean SPX would pullback too though. The reason I mention this is I know some of you bought TVIX, so if deeply underwater now, be patient, there could be chances in the coming weeks. In addition, from the VIX buy to open call/put ratio, chances are high the rebound of VIX might translate into a correction on SPX this time.

VIXWeekly

INTERMEDIATE-TERM: WILL REASSESS AFTER NEW YEAR

The latest intermediate-term forecast was in 11/18 Market Outlook

SUMMARY OF SIGNALS:
TREND MOMENTUM COMMENT
Long-term 2 of 3 BUY
Intermediate 5 of 5 BUY 5 of 5 NEUTRAL Cobra Impulse in BUY mode; Non-Stop in BUY mode.
Short-term UP 5 of 6 NEUTRAL
* = New update.

 

 

Chinese Translation

SHORT-TERM: MAY SEE PULLBACK SOON

三个结论:

  1. 最快两天内SPX会收在周五的close以下。
  2. 比较大的回调可能就在眼前了。但是,还是老话,不要抢跑,因为我没有看到price pattern确定顶部。现在的market趋向于go extremely extreme,所以单凭信号或者统计抢跑是很危险的。
  3. 关于比较大回调的判断,由于FOMC announcement在25号,一般在此之前不大会有大的回调,所以多半要到25号以后了。如果到25号的时候,信号更加extreme的话,off the record,我个人觉得是熊熊的好机会。

先看chart pattern,可能是个Ascending Triangle,因此向上突破的几率比较大,周一早盘可能还有的涨。这个是我说没有看到top pattern的原因。

EvilPlan

稍微大一点点的方向(other than Monday intraday),Daily和Weekly图看:

  1. 正好在测试primary bear trend line。
  2. 周四的volume surge,可能意味着bear capitulation。
  3. 不排除weekly bar是exhaustion bar的可能性。

所以稍微大一点点的方向,daily and weekly chart 支持短期会有回调的说法。

SPXDaily
SPXWeekly

下面看看信号,为什么我说最快两天内会有回调?为什么我说可能比较大的回调就在眼前了?

  • OEX Open Interest Ratio是record high了(at least 2nd record high)。这是我说可能会较大回调的主要理由。

OEXOpenInterestRatio

  • T2112, % NYSE stocks 2 Std Dev above MA(40)。这个一般上涨的途中是不会有2%以上的回调的,一旦有的话,可能意味T2112 high was in了,因此多半意味着要有较大的回调。另外,从back test summary看,两天内回调的可能性高达84%。

T2112

  • AAPL很有意思,向上猛涨的过程中,突然出现1.5%以上的下跌,往往是QQQ大回调的前奏。

AALPBigDropOnStrongUp

  • ISEE Indices & ETFs Only Index又大于100了,这个是说2天内会有回调。

ISEE

Normalized CPCE,follow up一下01/19 Market Outlook。Extreme了,不过还不是extremely extreme,所以再等等看吧。

NormalizedCPCE

VIX:VXV too low,因此VIX下周多半会反弹。这个,当然并不意味着SPX一定会跌。因为我知道很多同学买了TVIX,所以如果深度水下的话,就忍一忍吧,下周也许有机会。另外,从VIX buy to open call/put ratio看,这次VIX反弹意味着SPX要下跌的可能性还是比较大的。

VIXWeekly

INTERMEDIATE-TERM: WILL REASSESS AFTER NEW YEAR

The latest intermediate-term forecast was in 11/18 Market Outlook

SUMMARY OF SIGNALS:
TREND MOMENTUM COMMENT
Long-term 2 of 3 BUY
Intermediate 5 of 5 BUY 5 of 5 NEUTRAL Cobra Impulse in BUY mode; Non-Stop in BUY mode.
Short-term UP 5 of 6 NEUTRAL
* = New update.
  • Anonymous

    Great report Cobra.  Thank you.

  • Anonymous

    thx, ding

  • Thank you for your great analysis, Cobra!
    I would like to ask you about TVIX volume (http://stockcharts.com/h-sc/ui?s=tvix). The price is as low as in August and volume surges as high as it was. What does that mean? This is going to be just small pullback or huge one?  In advance, thank you.

  • Anonymous

    Cobra: Nice report!
    btw. how did you know I own TVIX and yes Im 10% under water? lol

    • Lots of guys talking about TVIX in the daily watering thread, so I know this one is very popular.

      Only 10% underwater? Then chances are you just bought last Thursday. 

      • Anonymous

        Yes you are correct, I bought tvix at 22.70.  My question is should I unload half at 23 (if it gets there next week), then add more when top is in, or should I just hold it until meaningful profits.  Please share your thought, Cobra.

        • depends, no right answer. I tend to out half if I’m trading against the trend and get very lucky to win something immediately as I’d always assume I’m not that lucky catching exactly top or bottom. This is like you’re trying to find the closest parking spot at a busy mall, sometimes you do get lucky, but mostly, you have to park far far away from the mall. All about odds.

  • BB Finance

    Hi Cobra,
    You have mentioned “Short term pull back”  as well as “Bigger correction” . So what is the evil plan? A short term pull back, rebound and bigger correction? If so what kind of time frame?
    Your thoughts are highly appreciated.
    Thanks.
    BBF

    • Yes, one day pullback, then up to FOMC then bigger correction, could last a week or two.

      That’s of course, the wild-est-est-est guess.

      • BB Finance

        How about one week pull back starting next week, SPX around 1250 or so, then a blow off top in the 1st week of Feb. and then longer term correction up-to SPX 1000?
        Another wildest-est-est to the power infinity possibility!

        • Anything is possible. Maybe SPX goes to 3,000 from here too. 🙂 

  • Anonymous

    Thx Cobra, good report.

  • Allan Sun

    春节快乐!我个人的一点分析,广大的祖国同胞们看看靠不靠谱。我个人认为1315点以上不会再去了,道理很简单:再往上涨,去年八月大跌中被套的最坚定的小散们就要解套了,这股套牢盘的卖压是不可想像的。(我最近已经听说不少套牢盘在卖出了。)对于MM们来说,对待小散们手中的筹码有两个选择:

    1. 把大盘拉到比暴跌之前更高的位置,倒贴小散们,让他们解套。
    2. 把小散手中的筹码在低位震出来,等市场真正回暖时,再套利出售。

    大家觉得哪个更有可能呢?除非这次的MM是Fed,否则我认为1是不可能实现的。

    • Thanks, although I don’t believe MM, but SPX is in the resistance area now.

  • Anonymous

    Cobra,

    I have January 24-25 as the date of FOMC meeting:

    http://www.federalreserve.gov/monetarypolicy/fomccalendars.htm#11655 

    • Yes, you’re right, should be 25. I misread the 2011 calendar.

  • Anonymous

    We are topping out and then watch out!!!!  30% haircut on the SPX by April back to 900!  Beeeellliiiieeevvveeee!  You suckas that believe all is well deserve to have your money taken from you!  Don’t be greedy and be a man! 

  • HighRev

    I’ve been banging my fist on the desk for the last couple of days over on Daneric’s blog about the NDX breaking to news highs and what that means for its Elliott Wave count.

    Here’s what I think it THE preferred long term count.
    http://mediacdn.disqus.com/uploads/mediaembed/images/201/4830/original.jpg

    Here’s one of my posts with the “rules”. 😉

    http://danericselliottwaves.blogspot.com/2012/01/elliott-wave-update-20-january-2012.html#comment-418154066

    • Anonymous

      Ahhh Elliott Wave…where everyone is right after the fact! 🙂 Maybe we are completing wave B of a corrective ABC that start after the completion of a double zig-zig back in May last year from Mar09 low.   That fits the “rules” too!  I’ve studied EW for a while and took me a while to realize it was useless let alone find someone that made a dime using it.  How about Pretcher and his Primary 3 prediction that has failed about 10 times over.  When the godfather of EW can’t get it right you think danericselliottwave is going to get it right.

      Here is a hint…we are not breaking to new highs any time soon!

  • Anonymous

    Hi Cobra,
    You mentioned in intraday watering that there is a surge of liquidation from long term fund to the market. And that implies some big good news for bull. How do you see that affect the conclusion of the topping prediction in this report?

    Thank you,

    • The liquidity can change dramatically, so it only reflects what happens now, not in the future.

      According to all the signals, looks like we’re due for a little bigger correction, but you should know, nowadays, signals, if against the current trend, don’t work at all, unless extremely extremely extreme.

      The report has to report whatever I see, no matter I believe or not. This time, I personally do believe a bigger correction is due. I’m not short yet. I’ll wait either NYMO extreme, or a sharp down day to short.

  • denali92

    Cobra,

    I will respectfully DISAGREE with your point 3 above about the FOMC – as it is not correct.

    With the FOMC, a top BEFORE the FOMC (generally 2 days – some times 3, occasionally 1) will mean a reasonably significant top, while tops around or shortly after FOMC have been generally shorter term and not as deep – here are tops around FOMC day for the past 2 years:

    I define major tops – as  a pullback of at least 50 SPX points

    Jan 2010 – Minor top – Day after
    Mar 2010 – Minot top – Day after
    April – 2010 – MAJOR TOP – 2 days before
    June 2010 – MAJOR TOP – 2 days before
    Aug 2010 – Major Top – Day Before
    Sep 2010 – Minor top – post announce
    Nov 2010 – Minor top – 2 days later
    Dec 2010 Minor top – post announce
    Jan 2011 – Minor top 2 days later
    Mar – 2011 – Major Bottom  – Day after
    April 2011 – AN EXCEPTION – Major Top on the Monday after (Osama top)
    June 2011 – Minor top on Fed Day
    Aug 2011 – Major Bottom on Fed Day
    Sep 2011 – MAJOR TOP – Day Before
    Nov 2011 – Bottom on the day before
    Dec 2011 – Major top – Friday before

    Personally, I think Friday was a squeeze like in December – also, while slightly different – there are aspects (how OB we are on a daily and hourly basis – the Mclellan Summation, the relentless post holiday rise – which happened post 4th of July) Big difference is those squeezes were pre opex and last week occurred post opex.

    Anyway, based on my work, I also support the view that the top is in or near….

    All the best!

    -D

    • Thanks for the info. It’s valuable. I knew FOMC more often than not was turning point but what you found is really interesting. 🙂

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