Trading the Bounce

[ducati916]

Checking in with the Commercials:

For the market going forward the inflation/deflation question is important given the volume of monetary and fiscal policy intervention.

The Commercials are consistent: deflation.

For us that means we stay long. The market (will of course fluctuate day-to-day) but (for the moment) the bounce (or new trend) remains long.

jog on
duc

 

[aus_trader]

And starting a 4th system on Monday, able to gain on both up and down moves
Do not stay frozen out is my view..trade the bounce

Sounds exiting qldfrog. I have tried to develop some form of trading methodology either based on company research or chart based for the short side but no success so far. I don't beat myself up for it because it's really tough to be consistent in making money on the downside and people more wiser has also struggled to pull it off such as Peter2 some time ago.

Recently I am only exposed to the upside and cautiously with few selective stocks. I practiced a few paper trades on the short side as the market was more weighted to the downside recently. The results are not that impressive. Would have made money on GMG, REA and MGR, but got killed shorting APT and FMG.

 

[qldfrog]

T

Sounds exiting qldfrog. I have tried to develop some form of trading methodology either based on company research or chart based for the short side but no success so far. I don't beat myself up for it because it's really tough to be consistent in making money on the downside and people more wiser has also struggled to pull it off such as Peter2 some time ago.

Recently I am only exposed to the upside and cautiously with few selective stocks. I practiced a few paper trades on the short side as the market was more weighted to the downside recently. The results are not that impressive. Would have made money on GMG, REA and MGR, but got killed shorting APT and FMG.

Took me a while to find the holy grail, not sure this is it but will try, need specific conditions so can not sadly wait to paper trade for months..
Will keep you posted in my thread weekly status reports

 

[aus_trader]

T

Took me a while to find the holy grail, not sure this is it but will try, need specific conditions so can not sadly wait to paper trade for months..
Will keep you posted in my thread weekly status reports

Sure mate, will read you posts and updates. I'll get involved also if I can see good Risk/Rewards setups.

We can't predict exactly what will happen, but if the fundamentals play out, over-riding the Central Bank interventions, I think we have a higher probability to the downside than upside IMO.

You are probably right in saying paper trading will not suit as the market may already run it's course before practice is complete. I'll join in with smaller position sizing and get my feet wet, that's the best way to learn and grow as real money is involved.

 

[mangojoe]

Thought this is an interesting piece of information:

From: https://www.marketwatch.com/story/s...s-below-its-200-day-moving-average-2020-05-22
Through Friday’s close, the index had remained between the 50- and 200-day averages for 21 straight sessions.

SentimenTrader

Since 1928, there have been 29 streaks that have stretched to at least 20 days — and 21 of them ended with the S&P 500 falling below the 50-day average, while only eight ended with a push above the 200-day, he noted, making for a roughly 72% probability the index will break down.

 

[Smurf1976]

SentimenTrader

Since 1928, there have been 29 streaks that have stretched to at least 20 days — and 21 of them ended with the S&P 500 falling below the 50-day average, while only eight ended with a push above the 200-day, he noted, making for a roughly 72% probability the index will break down.

I'm not convinced either way but I liked your post for bringing the info to attention.

We seem to be in a situation where there's a lot of argument for both possible outcomes. That being so, I'm thinking that whenever the breakout comes it could be fairly dramatic. Whichever way it goes, there's going to be a lot of people on the wrong side and keen to buy / sell.

 

[ducati916]

Thought this is an interesting piece of information:

From: https://www.marketwatch.com/story/s...s-below-its-200-day-moving-average-2020-05-22
Through Friday’s close, the index had remained between the 50- and 200-day averages for 21 straight sessions.

SentimenTrader

Since 1928, there have been 29 streaks that have stretched to at least 20 days — and 21 of them ended with the S&P 500 falling below the 50-day average, while only eight ended with a push above the 200-day, he noted, making for a roughly 72% probability the index will break down.

On that basis, let us delve a little deeper:

Number of S&P500 above:

3 day: 47% (heading lower)
5 day: 50% (heading lower, but at support at Mean)
10 day: 78% (at resistance 1STD)
20 day: 70% (resistance x3 top)
50 day: 81% (breakout to new highs through 1STD)
100 day: 35% (trending higher from (-1STD) to Mean)
200 day: 33% (same as 100 day)

We can easily see superficially that the short term averages are (3day - 20day) are heading lower or stalling. We can therefore say that with a higher probability, things will (already have) get choppy or increasingly so.

The longer term indicators (100day - 200day) are moving (strongly) from an oversold to the mean. There remains, underlying strength in the overall market currently.

Which leaves the 50 day. This also (coincidentally) is the one I watch very closely. How you read the above data is very SUBJECTIVE. You could (a) strong trend upwards, will continue or (b) reaching an 'extreme' and will pullback.

Historically over the last 5yrs, (b) is closer to the truth. Out of +/- 20 occasions where the 50 day has reached or breached the 1STD mark only on 3 occasions has it trended higher.

On that basis, it would be reasonable to expect the averages to pullback from the first test of the 200EMA.

Pullback or failure of the bounce?

I'll leave my opinion on that for a later post.

jog on
duc

 

[ducati916]

I'm not convinced either way but I liked your post for bringing the info to attention.

We seem to be in a situation where there's a lot of argument for both possible outcomes. That being so, I'm thinking that whenever the breakout comes it could be fairly dramatic. Whichever way it goes, there's going to be a lot of people on the wrong side and keen to buy / sell.

I agree. Breakouts/downs tend to gather increased volume as there are flippe floppes.

Part of any analysis must consider the truisms of the market: (a) Greed, (b) Fear and (c) Need: and in which direction those emotions are most strongly leaning.

I always post the 'sentiment' polls. They are a complete waste of time. What people 'think' is irrelevant. How they place their money is all important. Therefore an analysis of the above 3 (a-c) could offer an interpretation of the demonstrated position currently, which is/has been the purpose of the thread to date.

jog on
duc

 

[qldfrog]

As i see it based on the 3 abc factors
A :Greed always here but gosh, market has been up 20pc or more since the crash..am I missing out?
- greed is high....
B: fear lower and lower even with scary headlines the virus is not that bad..not just a flu..but not the plague.
We did not know 3 months ago, we now know.economic reality not understood yet...
Fear is lower...
C: need well so so here: super withdrawn vs super invested..not a high push into shares from that.
Age pyramid effect slowing down, people losing jobs but many other spending less..inflation may be officially negative or near zero but cost of living increases
so people feel pressed to get some return from their savings
Overall a moderate push to go into shares, catch a few bargains and some dividend income on the way
Mildly positive...
2 +,1=
Globally positive still

 

[ducati916]

Let me concentrate on (c) Need.

Who needs to be in the market?

Insurance companies,
Pension Funds,
National Wealth Funds,
Big Banks,
Others.

These represent a significant amount of capital that has to go somewhere, because they need to earn a return on their assets v liabilities. That somewhere could be:

Bonds,
Stocks,
Commodities,
Real Estate,
Esoteric,
Cash,
Other.

In addition to a return they require liquidity, depth and transactional speed. We are left with the top 3 + RE for longer term propositions.

Currently stocks (SPY ETF)

Yield 2.17%
30yr Treasury yields 1.37%
Almost 100 basis pts.

Look around the world for yield: there is none. The SPY (or ES) represent a basket of 500 large companies. That yield is as risk free as you will find.

Prior to the crash, money was pouring into Corporate BBB rated debt. That is essentially Junk. That 2.17% is attractive to a significant mass of capital that needs yield.

We know the battleground: it is at 300 (see 200EMA).

Calls on top, Puts below:

There is significant volume at that 300 level (OI: Call: 185,818 and Put:107,832). This confirms the battleground.

Who has the greatest conviction leading into the battle?

On Balance Volume:

On-balance volume (OBV) is a technical trading momentum indicator that uses volume flow to predict changes in stock price. Joseph Granville first developed the OBV metric in the 1963 book Granville's New Key to Stock Market Profits.

Granville believed that volume was the key force behind markets and designed OBV to project when major moves in the markets would occur based on volume changes. In his book, he described the predictions generated by OBV as "a spring being wound tightly." He believed that when volume increases sharply without a significant change in the stock's price, the price will eventually jump upward or fall downward.

On that basis, the Bulls have the stronger position going into this battle. The Bears have (as price has risen) lost their conviction.

Finally:

The VIX is still historically elevated. The trend is lower. It can however still spike higher.

It is not however giving any indication of doing so.

Overnight Futures pretty calm currently:

So going into next week the (c) Need is currently dominating. At that 300 level, we have potentially a volume of 30 million shares that could change their position. There are 10 million currently betting short, which if they reverse is actually 20 million shares just at that 300 level in the Options market. Fear and Greed will always capitulate before Need.

jog on
duc

 

[aus_trader]

Great analysis all, especially duc

I especially like the comments about it's what people do i.e. where they place their money than what they say or what they believe. I am also guilty of posting my views and ideas without having the conviction to take action. It might be the inner need to see what others think and be challenged before acting

Have been watching the market like a hawk but have been passing up on possible opportunities either because prices have run up too far too fast or I still see some risks that may only be assessed when future results are reported.

However I found a stock that has been kicked to the curb and beaten down to the gutter, but based on my analysis should not be affected by the health scare at all. In fact it could even benefit in the current geopolitical situation, I mean people still have to eat right ? I'll write up a report very late tonight in the "spec portfolio" thread with the details.

It's good to see one of the stocks in the spec portfolio (ALK) showing up as one of the top performers of the day:

 

[sptrawler]

+1 aus trader, thanks you guys, I'm in the black on quite a few of the stocks ( dollar cost averaging helped), only the banks bleeding ATM.
It will be interesting if the prediction, of a second drop at 6,000 eventuates, here's hoping a W recovery doesn't eventuate.

 

[sptrawler]

My apologies, I didn't look at the forum (international markets) thought it was the Aussie market. My bad.

 

[ducati916]

First shots fired:

This week will probably see resolution of this battle at 300. Looking underneath the hood at the various sectors:

Market is nicely placed to break through that 300 battleground. The leaders still have space to advance and the laggards are starting to move (FAS). The financials are very important. They need to participate.

jog on
duc

 

[Joules MM1]

RenMac: Renaissance Macro Research‏ @RenMacLLC


The struggle of value investors vs growth investors has been real, persistent and brutal. Here's the drawdown of value vs growth back to the 1920s.....ouch.

 

[gartley]

On the following thread https://www.aussiestockforums.com/threads/how-far-will-the-market-fall.35253/page-23#post-1065137 post #448 we labelled an developing upward corrective pattern with contracting triangle wave b. The measured move out of the contracting triangle was approx 5750.
So the market has thrust upward as expected and reached this measured target but is that the end of the move and what are the other options?
Well one possibility could be that waves a and c are equal in which case that gives us a target of 6408.
I have recently been looking at the eliades/hurst cycle projections for the SPX using the 10 and 20 week nominal cycles using with 27/28 day and 48/52 day offsets respectively, and translated these same cycles to the XAO. Both give substantially higher projections to where we currently stand namely 6153-6615 and 6905-7205 respectively. These are not set in stone and can be invalidated by price action crossing back below both offsets. To invalidate the 20 week projection we are talking about a huge move down starting now to retest lows and cross the very low levels of the V shape of the offsets. I can't see that happening in a hurry although anything is possible. What would more than likely happen is the market continues to trend to the 10 week projection of 6153-6605 and then corrects and has a chance of crossing the offsets of the 20W cycle at a higher level and invalidating that projection if it gets down that far, or reversing before that and start a new leg up bullishly to meet the 20 projection but I don't think that will happen because that means an new ATH and we have long term delta cycles that are due to bottom in 2022(Cycle point red 14).

 

[aus_trader]

RenMac: Renaissance Macro Research‏ @RenMacLLC


The struggle of value investors vs growth investors has been real, persistent and brutal. Here's the drawdown of value vs growth back to the 1920s.....ouch.

View attachment 103842

Thanks Joules MM1. I knew instinctively that value investors were getting smashed compared to all the money going into growth stocks and this chart just validates it quantifiably.

I am trying to figure out is this the new normal or it is a growth/tech stock bubble that is going to pop sometime in the future ? Similar to say 2000 tech wreck ?

 

[qldfrog]

Thanks Joules MM1. I knew instinctively that value investors were getting smashed compared to all the money going into growth stocks and this chart just validates it quantifiably.

I am trying to figure out is this the new normal or it is a growth/tech stock bubble that is going to pop sometime in the future ? Similar to say 2000 tech wreck ?

Isn't this just a reflexion of crazy QE?;
So much money forced into the market that PE can not be meaningful again, so we are just in a bidding war attached to any ticker

 

[aus_trader]

Isn't this just a reflexion of crazy QE?;
So much money forced into the market that PE can not be meaningful again, so we are just in a bidding war attached to any ticker

I think you are absolutely right

 

[Student of Gann]

8th June could be Low for SP500.