02/10/2012 Market Outlook (Is 3rd time the charm?)


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SHORT-TERM: IN WAIT AND SEE MODE

Three cents:

  1. From indicators or signals we’ve been discussing in the past few days, the top was in.
  2. However the chart pattern has yet to confirm the top.
  3. Trading wise, the short-term MAYBE is short while the intermediate-term is still clear long.

I have no idea what would happen the next Monday. I see a possible Double Bottom in the forming, so there’re some chances SPY would keep going up the next Monday. The chart below illustrates how I’d read:

  • Watch the line on the top, if the rebound cannot decisively break above it, then chances are the top was in (for the short-term of course).
  • If the market keeps going down the next Monday, then it must break below the bottom of the tinted area within the time represented by the width of the tinted area. Only by this way, it proves the down momentum is picking up (since it’s stronger than the previous time) therefore a bigger pullback thereafter is POSSIBLE. Consolidation or small pullback instead of the sharp down, then basically it means bears’ game are over AGAIN.

EvilPlan

The chart below might provide a little clue on what might happen in the coming days: The previous 2 times when SPY had a big gap down, the market reversed up almost immediately and gapped up huge the next day, then the gap was mostly faded, the close, however turned out to be excellent buying opportunities. The bears’ only chance is: Will the 3rd time be different? I have no answer for the question, the only difference I see is the rebound after the gap down this time is the weakest, so a Monday gap up, if indeed, might be not as big as the previous 2 times.

The3rdTimeIsCharm

Signal wise, clearly, it’s the top, because both Nasdaq Total Volume to NYSE Total Volume ratio and CPCE Trend Line are yelling for the top. Both are very very reliable signals. Besides, seasonality is not bull friendly from the next week till the end of the February (For details, please pay attention to the Trader’s Calendar at the main page).

  • CPCE Trend Line broken and held for the 2nd day, confirming the top was in.

CPCE

  • The Friday’s pullback didn’t change the fact that Normalized Nasdaq Total Volume to NYSE Total Volume ratio is at historical high level.

NormalizedNATV2NYTVRatio

You may think if we wait until the chart pattern confirms the top, it’d be too late. Here’s my solution trading wise: Always to trade the short-term and the intermediate-term at the same time. Since the short-term is more sensitive, so it already shorted on Friday, while the intermediate-term model, the Cobra Impulse System, is still trying to buy this dip. So:

  • If the short-term short is proven wrong, since the intermediate-term long is untouched and the dip should then be bought (as instructed in Friday’s Trading Signals), so I’m still riding this trend up.
  • If the short-term short is proven right, the it automatically becomes the perfect hedge to the intermediate-term long position.
  • What I want to say here is, it’s difficult to find a model that can fit any kind of market environment well, so to hold positions of different time frame at the same time might be a good compromise. Theoretically, we are taught to trade differently in trend market and range market. However, the reality is, how you know the current market is trending or in a range? By simply trading on different time frame on the same time, we don’t need answer such a difficult question, because chances are a range market in the bigger time frame may trend well in the shorter time frame and vice versa. 
  • The daily Portfolio Update, by the way, although still is in lab phase, the basic idea is to hedge automatically via trading different assets. While the method of trading different time frame at the same time mentioned here is to utilize the time differences to do the auto hedge. Both ideas do not conflict each other therefore can be used together.

Trading

THE INTERMEDIATE-TERM TREND IS UP

THE LONG-TERM ACCORDING TO OUR SIMPLE STRATEGY IS LONG SINCE JANUARY

  • According to the January Barometer, 80%+ chances, 2012 will end in positive territory.

 

 

Chinese Translation

SHORT-TERM: IN WAIT AND SEE MODE

三点说明:

  1. 信号角度讲,是明确的顶部了。
  2. 但图形上并没有确认顶部,需要继续观察。
  3. 操作上,短期可能是short,中期还是clear long。

不清楚周一怎么走。周五可能形成了一个很小的Double Bottom,所以可能周一会继续反弹。下面的图演示了我将如何读图:

  • 同样是上下两根线,反弹不能决定性的突破上面那根线,那么可能top was in了。
  • 如果周一开盘继续跌的话,必须在高亮区域限定的时间内,跌破高亮区域底部,才能表示下降动力增强,这样此后更大规模的回调才有可能。盘整,或者小幅回调,基本上都意味着熊熊又没戏了。

EvilPlan

下面的图可能对短期的走法提供一点线索:前两次与周五相当规模的gap down都是立即反转,第二天大大高开,然后sell off,但收盘是绝佳的买入机会。现在的问题是,是否第三次会不一样?这个,我没有答案,唯一的线索是这次gap down后的反弹是最弱的一次,因此可能周一的gap up,如果有的话,也不会很大。

The3rdTimeIsCharm

信号角度讲,是明确的顶部了,因为Nasdaq Total Volume to NYSE Total Volume ratio和CPCE Trend Line都在喊顶,这两个信号是非常非常可靠的。此外,seasonality讲,从下周起到月底都不怎么牛牛友好。具体,请注意主页的Trader’s Calendar。

  • CPCE Trend Line broken and held for the 2nd day,这样算是确认顶部了。

CPCE

  • 周五的回调,并没有改变Normalized Nasdaq Total Volume to NYSE Total Volume ratio在历史高位的情况。

NormalizedNATV2NYTVRatio

可能你会觉得,等到图形确认顶部后,已经很迟了。操作上,我是通过同时trade short-term和intermediate-term的方法来解决这样的矛盾的。因为short-term的反应比较快些,所以周五已经是short了,而intermediate-term的Cobra Impulse System则还是作buy dip的指示。假如:

  • Short-term的short最终被证明是错误的,因为intermediate-term的long并没有动,并且buy了dip,所以依然没有错过这一轮上涨的行情。
  • Short-term的short最终被证明是正确的,那么它将自动成为intermediate-term long的hedge。
  • 这里想说明的是,要想找到一种trading model可以适应任何market环境是不容易的,所以同时持有不同time frame的舱位可能是比较好的折中办法。不要告诉我,在trending market,你用一套方法,而在range market,你又用一套方法。我的问题是,你怎么知道现在是trend还是range?简单的同时trade different time frame的方法,可以正好避过trend or range的问题,因为在大的time frame是range的market可能对于短的time frame是trend的market。
  • Portfolio Update顺便说,虽然还在试验阶段,但是基本思想是通过不同的asset达到自动hedge的目的。这里提到的hedge则是通过时间差达到hedge的目的。这两种hedge方法并不矛盾,是可以结合在一起使用的。

Trading

THE INTERMEDIATE-TERM TREND IS UP

THE LONG-TERM ACCORDING TO OUR SIMPLE STRATEGY IS LONG SINCE JANUARY

  • According to the January Barometer, 80%+ chances, 2012 will end in positive territory.
  • Anonymous

    Great outlook for next week’s market, and thanks to Cobra for your hard working!!! 

  • Allan Sun

    Whether it is gap down or up, it all depends on the Greek parliament vote on Sunday.

  • you can always count on Cobra to through in the market fix when the markets are closed.  Sometimes I would like them to be open 24.7
    thanks COBRA … you are the best. .. and AZ .. you know I love him too !! ha ha

  • Anonymous

    Thanks, Cobra.  My game plan is a bit different.  I’m fading a gap up
    Monday or buying a gap down.  If open flat, remaining on sidelines. 

    • Allan Sun

      Don’t buy gap down if Greek bailout was rejected. In that case, the global sell-off will last for days.

    • Anonymous

      Go Browns!!!!!

  • Anonymous

    thx, ding

  • Anonymous

    Cobra
    wrong date in the heading (02/10/2012)?

    • It’s correct. The date always refer to the last trading day.

  • RK

    Cobra,

    I posted a comment twice. It got deleted.

    The low you posted on the chart is also where the trend line is on daily chart. 

    Are there any stats comparing opex week monday to rest of the week.

    Thanks

    • I don’t have statistics. According to Stock Trader’s Almanac, the coming Monday is bearish though.

  • Cobra or anyone . do you have any news on the greek resolution? 
    I have CNBC on line and they dont say much , futures are up. ….?

  • Ke Xia

    Cobra, Thanks For your Great Work!

  • Allan Sun

    Greek bill passed. Huge gap up on Monday! S&P >>> 1400!!!!

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