09/14/2012 Market Outlook (Expect a pullback soon)


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Maintain the call made in 09/13 Market Outlook:

  1. Expect a pullback soon, as early as the next Monday. The pullback usually is a buy opportunity as more likely a new high ahead.
  2. An intermediate-term pullback could be around. Strictly speaking, it might not be big enough to call intermediate-term top because the pullback might last just a few weeks, so from now on I’ll refer to a few weeks pullback instead of more serious one – an intermediate-term top.
  3. Before I’m able to spot a short-term top pattern, no matter how many evidences I blah blah for, an intermediate-term top, sorry, I should say, calling for a few weeks pullbacks, they’re just warnings. We’re in an unusual era when there’s simply too much free money around, so personally, I could hardly find any logical reason why this market wants to pullback at all!

THE EVIL PLAN:

  • The short-term evil plan should be clear, pullback or not, not important, although I believe we’ll see a pullback as early as the next Monday, what important is to know, the pullback, if indeed, is buy opportunity. Only when the rebound thereafter fails to make a new high then you can seriously consider my call for a few weeks pullback. Again, take the call for a few weeks pullback as what you see  from your rear mirror while driving – it’s a good to know, but it doesn’t mean you need act immediately.

EvilPlan60min

  • The big picture evil plan explained the common bear target if indeed we have a few weeks pullbacks. It also calculated a potential bull target, which could be up to SPX 1553.68. In order to help you understanding the time frame differences, I put a thumbnail of the short-term evil plan on the top. Now it should be clearer what the difference is between the short-term and the intermediate-term.

EvilPlanDaily

  • The chart below explained how I got the pullback target, as again, everything I report here should have evidence to back me up.

PullbackTarget

  • The chart below is the long-term evil plan. Because for now, I still cannot prove that the market won’t drop big anymore, so I simply added green up arrow saying now up huge is likely too while keep all the rest bear stuff unchanged. Again, in order to let you know the time frame differences, I put a thumbnail of the big picture evil plan on the top. Basically, the big picture and the long-term evil plan are saying the same thing, which is down then up then either up huge or down huge. So from now on, I’d mention more about the big picture evil plan.

EvilPlanWeekly

WHY EXPECT A PULLBACK SOON, AS EARLY AS THE NEXT MONDAY?

  • I’ve mentioned 2 reasons in the Friday’s Trading Signals. The most important one is the bearish Monday. The statistics below is from Bespoke, interesting and crazy.

DownMonday

  • Volume decreased on Friday, which I consider as a confirmation of the Thursday’s volume surge, so still it’s possible the Thursday’s SPY daily bar is an exhaustion bar.

ExhaustionBar

  • I didn’t mention the statistics below because the Internet was broken on Thursday. ISEE Indices & ETFs Only Index >= 100 again on Thursday, which according to the statistics below, any gains since Friday and thereafter would be erased in a single red day. In another words, if indeed the next Monday closes in red, then it should close below the Thursday’s close (so as to erase all the Friday’s gains).

ISEE

  • The chart below argues when 47%+ NYSE Stocks 2 Standard Deviation above MA40, not only a few weeks pullback thereafter was likely (I’ll mention again later), but also the next day had 88% chances to close in red.

T2112

WHY NEW HIGH AHEAD?

  • We have another SPX daily bar opened and closed completely above BB top on Friday. As discussed in the 09/07 Market Outlook, it usually means fireworks, skyrocket high then fall back to the ground, such a fall back usually provides a 2nd buy opportunity.

BodyAboveBBTop2012
BodyAboveBBTopPast

  • NYSE new 52-week highs hit another new record high on Friday. Listed below are all the past extremes since the year 2000. A short-term pullback was more likely but in the majority cases, SPX had more new highs thereafter.

NYHGH2012
NYHGH2007
NYHGH2004

WHY A FEW WEEKS PULLBACK?

  • Now we have 47%+ NYSE Stocks 2 standard Deviation above MA40. I believe the chart is trustworthy because in this crazy money printing world if there’s only 1 indicator left still working, it’d be the Gravity – a price cannot be too high above its MA forever.

T2112

  • I see a bullish reversal bar formed on VIX . Usually VIX leads, so if VIX had a bullish reversal then it could imply that SPX is about to reverse (down) too. Please note, the chart is very large, you may need click twice to see the original picture.

VIXReversalBar

  • Speaking of VIX leads, let me remind you again that SPX new high without VIX hitting new low, such a divergence may mean a top.

VIXDivergence

  • UUP RSI is way too low now.

UUPRSI

  • SPX 60 min RSI is way too high which more likely means big pullback since the year 2009.

RSIHigh

  • SPX closed too high above its BB top, as I’ve mentioned several times before, surprisingly, the pullbacks thereafter were not small.

TooHighAboveBB

  • USHL5 (US 5 day total new highs – new lows) is way too high now, could mean a few weeks pullback.

USHL5

THE SHORT-TERM TREND IS UP

  • The short-term model believes the trend is up since 09/06/2012.

THE INTERMEDIATE-TERM TREND IS UP

THE LONG-TERM ACCORDING TO OUR SIMPLE STRATEGY IS BUY SINCE SEPTEMBER

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

 

 

 

 

CHINESE TRANSLATION

 

维持09/13 Market Outlook的说法:

  1. 短期要回调,最快下周一。这个回调多半是买的机会,因为还会有新高。
  2. 中期回调应该也在附近。这个中期回调,严格的讲不能算是中期回调,因为可能只有几周,所以以后改用A few weeks pullback,以免误导。
  3. 在我没有明确指出短期形成可能的top pattern前,中期,sorry,现在应该说,看a few weeks回调的证据再多,也只能是warning。我们处于一个非常时代,太多free money,我本人已经想不出来还有什么理由,这个市场会跌了。

THE EVIL PLAN:

  • 下面的图是short-term evil plan。应该很清楚,pullback有没有,不重要,虽然我认为最快下周一就会有pullback,重要的是知道这个pullback多半是买的机会。而只有反弹没有能够形成new high以后,我的关于a few weeks pullback的说法才有效。Again,把a few weeks pullback的说法,看成是你在开车时后视镜里看到的东东,good to know,但并不意味着你马上就要有所动作。

EvilPlan60min

  • 下面的big picture evil plan解释了,如果真有a few weeks pullback的话,常见的target是哪里。同时也给出了,可能的bull target,up to SPX 1553.68。为了让大家清楚不同的time frame,我把short-term evil plan的缩略图放在顶上了,这样就应该很清楚我的思路了。

EvilPlanDaily

  • 下面的图解释了我是怎么得出pullback target的,因为我在报告里说的每一个结论都必须有证据。

PullbackTarget

  • 下面的图是The long-term evil plan。因为我还不能证明不再会有大跌了,所以只是增加了一个向上的绿色箭头,表示这个已经很可能了,其他看跌的部分暂时保留。同样,为了让大家清楚不同的time frame,我把big picture evil plan的缩略图也放在顶上了。基本上,the big picture和the long-term evil plan,说的是同样的东东,所以下面大家关注the big picture evil plan就好了。

EvilPlanWeekly

WHY EXPECT A PULLBACK SOON, AS EARLY AS THE NEXT MONDAY?

  • 周五的Trading Signals里已经给了两个理由,最重要的是最近周一大多是收红的。下面的统计来自Bespoke,很有趣,也很疯狂。

DownMonday

  • SPY周五的volume跌了,我认为这是确认周四的volume surge,因此也确认了周四的SPY daily bar是exhaustion bar。

ExhaustionBar

  • 周四因为Internet断了,所以我没有时间说,周四的ISEE Indices & ETFs Only Index >= 100 again,根据下面的统计,周五以及此后的涨幅,都会在一天内被抹去,换句话说,下周一如果收红的话,多半是收在本周四的close以下(抹去周五所有的涨幅)。

ISEE

  • 下面的图是说,47%+ NYSE Stocks 2 Standard Deviation above MA40,下面多半会有a few weeks pullback,不过,统计也说,周一有88%的机会收红。

T2112

WHY NEW HIGH AHEAD?

  • 周五又是一个SPX daily bar opened and closed completely above BB top,这个在09/07 Market Outlook里已经详细讨论过了,往往意味着一个放焰火的过程,冲上去,然后掉下来,这个掉下来是第二次买的机会。

BodyAboveBBTop2012
BodyAboveBBTopPast

  • 周五NYSE new 52-week highs又是历史新高。从下面的所有的自2000年以来的类似情况看,短期可能会有回调,但是绝大多数情况下,还有new high ahead。

NYHGH2012
NYHGH2007
NYHGH2004

WHY A FEW WEEKS PULLBACK?

  • T2112显示,已经有47%+ NYSE Stocks 2 standard Deviation above MA40了。这个图的可信度应该很高,因为如果在这个疯狂印钱的世界还有一个indicator可以工作的话,那就是地球的重力,股价不可能无限制的远离其均线。

T2112

  • VIX周五整了个bullish reversal bar。VIX往往领先股指,VIX反转了,可能意味着股指也要反转。注意,图很大,需要点击两次才能看原图。

VIXReversalBar

  • 提醒一下,SPX new high,但是VIX没有new low,这样的Divergence,往往意味着顶部,同样,理由是VIX往往领先股指。

VIXDivergence

  • UUP RSI太低了。

UUPRSI

  • SPX 60 min RSI太高了,这个自2009年以后,往往意味着比较大的回调。

RSIHigh

  • SPX closed too high above its BB top。这个,反复说过几次了,非常surprise,居然此后的回调都不小。

TooHighAboveBB

  • USHL5 (US 5 day total new highs – new lows)太高了,往往意味着a few weeks pullback。

USHL5

THE SHORT-TERM TREND IS UP

  • The short-term model believes the trend is up since 09/06/2012.

THE INTERMEDIATE-TERM TREND IS UP

THE LONG-TERM ACCORDING TO OUR SIMPLE STRATEGY IS BUY SINCE SEPTEMBER

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

    Thanks for all the information Cobra…

  • HK88

    If you Google this “A comedown may be waiting after Fed high”, you will find an interesting article about VIX call options. 

    Thx

    • Thanks. I saw someone already posted on my Chinese forum.

    • Yet activity in the options market shows some very bold bets that volatility could sky rocket in the months ahead. Call option buying on the VIX – bets the index will rise – is close to a record high at 5.182 million contracts, according to Schaeffer’s data. The record is 5.249 million set in August.

      The most actively traded VIX calls on the Chicago Board Options Exchange were October calls with a strike price of 60. Those also had the highest open interest. The VIX would need to rocket more than 300 percent by mid-October, hitting its highest level in about four years, for that trade to break even.

      On the face of it a bet like that may seem little better than betting your 401(k) on a single number on the roulette table, but it does reveal more bearishness creeping into the market as stock indexes march to new highs.

      Open interest, or outstanding contracts, on the October VIX calls with a strike price of 60 was 37,000 while traded volume was around 40,000. Many of those were bought in blocks of 2000 to 5000 for 5 cents each, suggesting a single buyer, according to Todd Salamone, vice president of research at Schaeffer’s.

      “Somebody’s really playing a disaster by October,” said Salamone. “If they’re looking for something that big, that is not a portfolio hedge because that would be a lot of downside in the market before that hedge would actually kick in.”

      • HK88

        The only thing that does not sit well with me is that it means that someone is really trying to take out Obama, which is against the course of events up until now. It is not that I am into politics but I do believe that winner of an election is somewhat determined beforehand. Until now, it has been almost perfect for Obama. Supreme court decision for Obamacare, FED launching QE3, media playing down economy etc. Plus, everyone knows that if he has the lead going into the debates, Romney almost stands no chance.

        However, judging by the size of the bet, there could be a sizeable correction. The game is still buying the dips but this time around the dip could be a little deeper than expected…

        Thx

        • It’s just one institution’s bet so might not mean anything. I’m very curious to see how a market without any pullback would like… 🙂

      • uempel

        I don’t do VIX contracts, pls: what was the $ size of the bet by this one guy?

  • rusrod

    Wow. Thanks for all of the hard work, Cobra. I really like the analyses that you provide and I’m glad to be in your corner.

  • wayne0708

    Great report as always!
    One question regarding the size of pull back, is it possible to see a huge pull back after Ben’s announcement of pumping  $40 billion a month  into economy ( I think he means stock markets)? Expecting to hit 60 on VIX by Oct is like hitting a solid number on roulette.
    If this speculation does come true, I would be happy betting on the corner of that number 🙂

    • Anything is possible. Maybe it’s time for a survey in the live update forum to see how many think we’re up huge from here. Well, I think the results might still be bears are the majority.

  • uempel

    Next Friday is Triple-witch, but nobody here is mentioning it… 

    Now imagine how many shorts will be squeezed into Friday – why? – because so very few issuers/traders were reckoning with an SPX above 1450. Now some of them are presumably in distress. By belief: it’s unlikely that there will be a tradeable correction next week, I reckon the market will match or beat last week’s intraday top.

  • Al_Dente_Here

    Uempel: Could you comment on the energy bullish percent $BPENER (second panel). It hit 97.78 Friday. This chart only goes back to 2009.
    You have to go back to 2005 to find this bp so very high.

    • uempel

      Al, I don’t follow energy at the moment, so this is a very wild guess: checking long term BPENER this could be 2005 or 2009. We all know what happened in 2009, so let’s look at 2005: energy issues made a sideways move and then up, up and aw…

  • kena1

    Thanks for the very good detailed weekend report.I believe it one of your best.From your comments and other specialists and some of my own(be it small ha) the mkt is going to pull back before going higher.Don,t forget about Oct.Most bull mkts end and bear mkts start.(Stock Traders Almanac)  Something no one comments about on this site is…Another indication of a pull back is most of the strong stocks now are high on there up channel charts and with out them the mkt can’t do much.For what it’s worth the Dorsey Wright P&f Bull % are all high.So lets see what happens mon.

    • Thanks. Let’s hope this market could indeed have some pullbacks. 🙂

  • Harapa

    This strategy originally described by Dr. Jerry Minton of Alpha Investment Management has produced a positive return for the last 20+ years (Out of respect of the moderator of this site I am not posting a link to the original research, but a Google search will get you to the author’s site or PM me for a link). I have expanded this to include Emerging Markets and Small Caps in addition to Mid Caps. Average return assumes equal allocation to three investments. Next trade will be at the close of October 29, 2012.  This should allow you to check the merits of this strategy by yourself. As Markets continue to push higher (which I hope) there will be a lot of discussion about when they are going go down (some of which is already happening here), you may want to keep this mind as this has worked regardless of markets in bull or bear phase.

  • john jacobs

    you were wrong.. 

    • No, it’s not fair to say I was wrong.

      This report says a pullback is due, which indeed.

      This report says only a rebound to test the previous high (i.e. 09/14 high) failed, then a top could be confirmed. And indeed, later the 09/14 high got revisited. A retest of the previous high doesn’t have to be a higher high, a lower high is even better to confirm the top. So I see nothing wrong here.

      The attached chart shows what I said on 10/05, basically, I reminded my readers a short setup if the revisit of 09/14 high failed. And indeed the short confirmed.

      And also I attached part of 10/09 report, where I clear said “a confirmed 1-2-3 trend change (down) on SPX might be just a matter of time.

      You should now know what happened thereafter…

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