Trading the Bounce

[Beaches]

SP500View attachment 103655

Gann you have a pullback shown on Monday 25 May which is Memorial Day and the market is closed. Does that change your call at all?

 

[ducati916]

Today:

Not quite ready to test 200SMA, or that is the test: either way consider the following:

The bears have been fighting this market all of the way. They have had ample news to support their case: virus, deaths, economic contraction, unemployment, etc. It has done nothing to blunt the advance.

Going forward, there will be improvements. There will still be issues, but they will be reducing, not increasing. In 2007, the story was worsening all the way through 2008. The depth and full extent of the problem only gradually revealed itself. To an extent that (could) be possible here, but it is less likely.

This is now less a bounce, than a V shaped recovery forming.

jog on
duc

 

[Student of Gann]

The Main point I am looking at is the 29th May which completes an important Time Cycle and should be High . The Minor Cycles such can sometimes have -/+ 1 day allowance so yes the 26th May could be Minor Low and then up into the 29th May Top.

 

[Knobby22]

This is now less a bounce, than a V shaped recovery forming.
jog on
duc

A bear signal if ever I saw one

 

[Garpal Gumnut]

A bear signal if ever I saw one

I'd agree @Knobby22 . Thanks @ducati916 but I'll not be jogging with you on this one.

The dramatic fall off in volume since May makes me feel that there are few committed buyers and the slight increase in volume recently saw a flood of sells and a decrease in prices before volume decreased again.

The show ain't over until the fat lady sings and she is stuck somewhere in downtown Chicago with ole Trump.

gg

 

[ducati916]

A bear signal if ever I saw one

Fair enough.

jog on
duc

 

[ducati916]

I'd agree @Knobby22 . Thanks @ducati916 but I'll not be jogging with you on this one.

The dramatic fall off in volume since May makes me feel that there are few committed buyers and the slight increase in volume recently saw a flood of sells and a decrease in prices before volume decreased again.

The show ain't over until the fat lady sings and she is stuck somewhere in downtown Chicago with ole Trump.

gg

Again, fair enough.

jog on
duc

 

[gartley]

I think the next week will be critical and it will also tell us what it wants to do. Bull or bear does not matter..... If it is going to be bearish then the volatility has to pick up and we need to see some big down days coming again soon to invalidate the bullish projections

 

[aus_trader]

Looks like a period of consolidation on the Indices except for the Tech Giants that is pushing up the NASDAQ...

 

[Smurf1976]

I've had a decent look around as to what others seem to be thinking and there's a definite pattern here.

Go to any forum, website etc where there's comment from people who are somewhere from keen investors / traders (which I assume to be most on this forum) through to actual professional economists etc and there's a definite mix of opinions as to whether we're in a bull market or a bounce before we head back down. Many individuals readily acknowledge both possibilities despite seeing one as more likely than the other.

Now go somewhere where financial discussion is off topic. Forums about IT, consumer issues, music, even fashion. There's a very strong "FAANG can't go wrong" mentality there. Anyone not into the tech stocks must be a fool they say. Next question, from the same individuals, is "so how, exactly, does one buy shares" the answer being "you need a broker.....".

I'm taking that as a definite warning sign and I think that those pondering whether we were seeing a repeat of 1987 or 1929 are perhaps both wrong. This looks awfully like the year 2000 with the tech stocks and investors with zero experience throwing everything they got at them.

Time will tell. I'm in the camp which sees a move either way as being possible although I do think that any major move is more likely to be down than up. That is, a retest of the low is more likely than a new all time high in the next few months.

On the bullish case is the Fed. Don't fight them as they say. Not much more to say really - the Fed is the bullish case as I see it apart from the possible development of a vaccine but that's very uncertain at this point and could be argued a speculative.

On the bearish case well the COVID-19 issue has damaged the real economy and if you take a look at the daily infection rate in the US and plot it on a chart well then it looks to have bottomed and now starting to trend back up. So they're probably opened up the economy too much and need to pull that back somewhat. It could well be either that or face a truly massive death toll that far exceeds any war and prompts broader change in the US. Either way, if that's what's going to happen then once the market works it out there's going to be an awful lot of selling pressure.

Both are very powerful forces. Don't underestimate the Fed and don't underestimate the market response to finding out that the virus drama is really only just beginning if that is indeed the case. There's an outright fortune involved in either case.

 

[ducati916]

1. I've had a decent look around as to what others seem to be thinking and there's a definite pattern here.

2. Go to any forum, website etc where there's comment from people who are somewhere from keen investors / traders (which I assume to be most on this forum) through to actual professional economists etc and there's a definite mix of opinions as to whether we're in a bull market or a bounce before we head back down. Many individuals readily acknowledge both possibilities despite seeing one as more likely than the other.

3. Now go somewhere where financial discussion is off topic. Forums about IT, consumer issues, music, even fashion. There's a very strong "FAANG can't go wrong" mentality there. Anyone not into the tech stocks must be a fool they say. Next question, from the same individuals, is "so how, exactly, does one buy shares" the answer being "you need a broker.....".

4. I'm taking that as a definite warning sign and I think that those pondering whether we were seeing a repeat of 1987 or 1929 are perhaps both wrong. This looks awfully like the year 2000 with the tech stocks and investors with zero experience throwing everything they got at them.

5. Time will tell. I'm in the camp which sees a move either way as being possible although I do think that any major move is more likely to be down than up. That is, a retest of the low is more likely than a new all time high in the next few months.

6. On the bullish case is the Fed. Don't fight them as they say. Not much more to say really - the Fed is the bullish case as I see it apart from the possible development of a vaccine but that's very uncertain at this point and could be argued a speculative.

7. On the bearish case well the COVID-19 issue has damaged the real economy and if you take a look at the daily infection rate in the US and plot it on a chart well then it looks to have bottomed and now starting to trend back up. So they're probably opened up the economy too much and need to pull that back somewhat. It could well be either that or face a truly massive death toll that far exceeds any war and prompts broader change in the US. Either way, if that's what's going to happen then once the market works it out there's going to be an awful lot of selling pressure.

8. Both are very powerful forces. Don't underestimate the Fed and don't underestimate the market response to finding out that the virus drama is really only just beginning if that is indeed the case. There's an outright fortune involved in either case.

Mr Smurf;

1. So let's compare notes.

2. That is probably true. Here are some bears:

-David Tepper call this the “most overvalued stock market” outside of the 1999 bubble.
-Stanley Druckenmiller is “bracing for a bear market.”
-Leon Cooperman suggested stocks could fall as much as 22%.
-Mark Cuban said “Stocks are overvalued and the risk-reward isn’t there till we see a cohesive plan for testing from the government.”
-Howard Marks cautioned “Those of us in markets believe that stocks and bonds are selling at prices they wouldn’t sell at if the Fed were not the dominant force.”

Their opinions are informed. They also have reputations. They are weighed down by knowledge. They are discretionary, fundamental value chaps (not sure about Cuban). Rationally, they find it hard to get past all of the issues. The issues are myriad. Certain individual stocks will go under (just look at the Oil sector). Others that will do well are already running and are 'overvalued'.

Here is the thing: let us accept that there will be a bear market. There will be a new low. Why would you not trade the bounce? The reason is that they are so committed to their viewpoint, they simply cannot trade long, expecting at every point, the market to collapse: at 3%, 5%, 9%, 15%, 30%. Now, the market has run so far, that if they started to buy and the collapse comes, they have additional losses etc. In epic declines, you buy and are ready to sell pretty quick if it turns to custard. If it doesn't turn to custard, you are sitting pretty.

Time is always a factor. It is a crucial factor. If something is going to break (Enron) it will break. The time it takes to break is however relevant. You could have traded Enron with massive profitability utilising a mechanical system because although it was a fraud, it went higher for a long time. A mechanical exit, you come out with significant profits.

From the lows of 2009, you can argue that the recovery was/is a fraud. Probably. Wages have been stagnant, inflation rampant, quality of life for many lower, corporate earnings lower, etc. All true. The market went in 1 direction (until March 2020). Now we have the 'bounce'. Will it break? Maybe. Maybe not. Will you sit on your hands because the market sucks, the economy sucks, employment is in the gutter, etc? Or will you simply trade? If you have an exit plan...you trade. Why would you not?

On the other hand, time can also fix problems. Virus. Things improve. Economy re-opens. Things start to improve and return to 'normal'. In this case, the more time that passes, the less likely is a downturn. The reason is that the factors that drove the market higher from 2009 are still present x 10. Whatever was under the hood (excepting the virus) that were showing signs of strain (corporate debt) are now granted a new lifespan before time once again catches up with them. How long? Who knows. 1 year, 10yrs, 20yrs. Does it matter? Yes if you are sitting on your hands. No if you have an exit plan.

3. I have become interested in the online phenomena recently (last 6 mths). Certainly the COVID-19 issue has already, or will drive increasing business the way of FAANG, particularly AMZN/GOOG/FB (as much as I despise FB). So much so, that lofty as their valuations are, they could actually prove to be cheap currently. Now I know that this isn't exactly your point, however, I was really surprised at what was going on under the covers (so to speak).

4. I don't see this as a Tech wreck. The risk (as so often) lies again in the financials.

Banks are 'supposed' to be better capitalised after the last fiasco. Whether they are or not, we'll find out sooner rather than later. Of course, this time there may well be bailouts for the homeowner, taking the banks off the hook.

5. Agnostic is the correct position. Systems traders (Mr Skate et al) are positioned perfectly. They hold no mental position. They hold no bias. They hold no conflicted views. They simply trade the signal. Ignore the noise. I am the same (slightly different) in that I trade volatility, on a mathematical basis. I am agnostic. I engage in discussion simply because I enjoy it. I like to test theory against reality. I love market history. I have a limited suite of indicators that I follow simply because it allows me (often) to optimise the model that I trade. That is my discretionary input. They also inform my viewpoint (bias) if I express one (which I do quite often). These indicators however are not 'sentiment' based. They are demonstrated choice. Skin-in-the-game. Currently (despite everything) the market is moving higher.

Why?

Recent history: Since it is that 30%+ rally off the lows that seems to have startled so many, let’s use that as our leaping off point. Frame the present move in terms of the S&P 500 Index falling 34% to its March 23rd lows. That month was one of the 20 worst in market history, and the fastest bear market ever. Deeply oversold, the market rubber band got stretched too far in one direction. Hence, the snapback rally. Once its overdone to the upside, argues the technical types, it will swing the other way. Eventually, equilibrium is achieved.

It is inappropriate to focus on the strength of this rally while ignoring the sheer speed and force of the collapse. Looking at one without the other is the investor’s version of denominator blindness.

Markets are forward-looking: Equity markets do a great job making probabilistic assessments of likely outcomes. Regardless of your views of the efficient market hypothesis, you have to admit that markets sniff out shifts in economic data and corporate profits or revenues long before the official news is released.

Meanwhile, economic data looks backwards. The weekly first time initial jobless claims are an assembly of state data, which is already known days earlier. Monthly non-farm payroll can be deduced via other data sources a week or two prior to the official BLS release. And GDP is so old as to be months behind what already has occurred.

Which is a pretty fair summary.

6. Which since about 2003 has been my position. I could argue all the negatives. The reality is (to date) that fighting the Fed. is a losing game. Combine the Fed. and a massive deficit Fiscal policy, well now you have a mountain of money moving markets higher. I would have said that this is obvious, but after experiencing the limited understanding of Mr Kahuna, possibly not as obvious as I thought.

7. Markets don't care about death. Markets care about money.

8. There is the Fed + Government. Opposing, nothing (never confuse the market with the economy). The virus is a non-issue. I would only add, you still need to think about the stocks that you buy. Not all will survive. Hence I buy ETFs, not individual stocks. I buy sectors.

jog on
duc

 

[bux2000]

Hi Duc,

I enjoy your commentary, thank you for your time.

All the best
bux

 

[qldfrog]

And while market was stable last night, another kind of flat session, vix fell again and i notice Russel is the top winners of the us indexes.
That really seems to indicate a positive consolidation more than a peak reached.
This is the US market, not the Australian economy where we are increasingly boycotted by China but even with an economy in tatters, if wall street goes up, we will participate .
Pessimistic mood wise and rationally wise, but positive looking at my systems..and I know which is the $winner there.
If dancing is required, i dance

 

[Knobby22]

Fair enough.

jog on
duc

Thanks for the work. I was half joking, it has been a bit weird how much confidence there is.

Consolidation around these levels is a reasonable call.

 

[aus_trader]

Love the discussion and both sides of the arguments, hence likes given to both bears and bulls. This is what makes markets, or should I say what should make markets as bulls and bears fight it out till true price discovery is achieved.

The problem I have at the moment is Central bank distortion of the markets. What used to drive stock markets is the profitability and productivity of companies. Now it's pure speculation as to how much gets printed and pumped into it.

 

[Smurf1976]

The virus is a non-issue.

This is the bit about which I'm most unconvinced either way.

One argument says that it's almost sorted, we've seen the worst, things will open up and so on.

The other argument says that what we've seen thus far is only the beginning.

At a personal level well my account balance is up compared to February, the whole thing has been profitable thus far, and I agree with what you're saying - trade what actually happens.

That said, I do find it helpful in any situation to know what's possible. Outside the financial markets, that approach has become invaluable more than once. Knowing where the limits sit and what's going on gives confidence to be that guy with the poker face taking action whilst all around you are in an outright panic extrapolating data whilst being unaware of reasons that won't work.

I claim zero expertise in anything medical but I can add up numbers and that has me worried. Almost 100K COVID-19 deaths in the US thus far whilst official data shows 0.5% of the US population has been infected. Meanwhile the US is opening up and seems to be going down the "let it rip" path.

Now I don't think anyone can say with certainty how this would unfold but if, and I stress the word "if" here, we come to a point where the US states decide to lock down again well then I can't see the market being overly joyed with that idea. Nor can I see the market being thrilled if it comes to millions dead and civil unrest and so on.

I'm doing a lot of speculating there and looking at extreme scenarios certainly but for me personally, well I do find it useful to understand that there's a few guns pointed at the market and some of them may well turn out to be loaded.

The pandemic fire is still very much alight so far as I can determine. The only question is which way the wind blows.

I'm just under 50% in stocks at the moment and ready to jump either way. So I'm acknowledging both cases as possible. I readily acknowledge I could be completely wrong - I'm posting to see what others think of the reasoning and to share the idea, not to try and convince anyone.

 

[Garpal Gumnut]

This is the bit about which I'm most unconvinced either way.

One argument says that it's almost sorted, we've seen the worst, things will open up and so on.

The other argument says that what we've seen thus far is only the beginning.

At a personal level well my account balance is up compared to February, the whole thing has been profitable thus far, and I agree with what you're saying - trade what actually happens.

That said, I do find it helpful in any situation to know what's possible. Outside the financial markets, that approach has become invaluable more than once. Knowing where the limits sit and what's going on gives confidence to be that guy with the poker face taking action whilst all around you are in an outright panic extrapolating data whilst being unaware of reasons that won't work.

I claim zero expertise in anything medical but I can add up numbers and that has me worried. Almost 100K COVID-19 deaths in the US thus far whilst official data shows 0.5% of the US population has been infected. Meanwhile the US is opening up and seems to be going down the "let it rip" path.

Now I don't think anyone can say with certainty how this would unfold but if, and I stress the word "if" here, we come to a point where the US states decide to lock down again well then I can't see the market being overly joyed with that idea. Nor can I see the market being thrilled if it comes to millions dead and civil unrest and so on.

I'm doing a lot of speculating there and looking at extreme scenarios certainly but for me personally, well I do find it useful to understand that there's a few guns pointed at the market and some of them may well turn out to be loaded.

The pandemic fire is still very much alight so far as I can determine. The only question is which way the wind blows.

I'm just under 50% in stocks at the moment and ready to jump either way. So I'm acknowledging both cases as possible. I readily acknowledge I could be completely wrong - I'm posting to see what others think of the reasoning and to share the idea, not to try and convince anyone.

I'm in a similar situation to you and agree with all your thoughts.

Will Covid or won't it. Only the virus knows. Nobody else does.

The Chinese are getting warry. The USA is disease ridden and led by a lunatic. Even without a virus the markets should be more wary.

A bounce is as likely as President Xi becoming a godbotherer and joining Hillsong.

gg

 

[ducati916]

1. This is the bit about which I'm most unconvinced either way.
One argument says that it's almost sorted, we've seen the worst, things will open up and so on.
The other argument says that what we've seen thus far is only the beginning.

At a personal level well my account balance is up compared to February, the whole thing has been profitable thus far, and I agree with what you're saying - trade what actually happens.

2. That said, I do find it helpful in any situation to know what's possible. Outside the financial markets, that approach has become invaluable more than once. Knowing where the limits sit and what's going on gives confidence to be that guy with the poker face taking action whilst all around you are in an outright panic extrapolating data whilst being unaware of reasons that won't work.

3. I claim zero expertise in anything medical but I can add up numbers and that has me worried. Almost 100K COVID-19 deaths in the US thus far whilst official data shows 0.5% of the US population has been infected. Meanwhile the US is opening up and seems to be going down the "let it rip" path.

4. Now I don't think anyone can say with certainty how this would unfold but if, and I stress the word "if" here, we come to a point where the US states decide to lock down again well then I can't see the market being overly joyed with that idea. Nor can I see the market being thrilled if it comes to millions dead and civil unrest and so on.

5. I'm doing a lot of speculating there and looking at extreme scenarios certainly but for me personally, well I do find it useful to understand that there's a few guns pointed at the market and some of them may well turn out to be loaded.

6. The pandemic fire is still very much alight so far as I can determine. The only question is which way the wind blows.

7. I'm just under 50% in stocks at the moment and ready to jump either way. So I'm acknowledging both cases as possible. I readily acknowledge I could be completely wrong - I'm posting to see what others think of the reasoning and to share the idea, not to try and convince anyone.

1. Which is the rational position. No-one really knows. Historically:

Markets just haven't cared. People die in all manner of ways. I could post charts from periods of war: WWI/WWII/Vietnam: markets (once over the initial shock/uncertainty) trade higher.

2. But we have agreed: no-body actually knows what will happen.

3 - 6. We will never know the truth of the matter until so much time has passed that taking any action will also have passed. I repeat: Markets could care less based on historical precedent.

7. That is a plan. Stick to your plan. The problem only arises when you have no plan and are swayed back and forth by the 'experts' and end up doing nothing at all. The 'experts' know' only marginally more than anybody else.

Approach the market with a 'Shoot first, ask questions later' mentality. Not too much can go wrong.

jog on
duc

 

[ducati916]

I'm in a similar situation to you and agree with all your thoughts.

Will Covid or won't it. Only the virus knows. Nobody else does.

The Chinese are getting warry. The USA is disease ridden and led by a lunatic. Even without a virus the markets should be more wary.

A bounce is as likely as President Xi becoming a godbotherer and joining Hillsong.

gg

Mr Gumnut,

See post above.

jog on
duc

 

[qldfrog]

What my history and many relatively benign failures in the market has told me is that there is no point being right, or wise and knowing before the masses.
You need to play the lemming even if you guess or even see the cliff, just be ready to jump out.
This is for the money you manage directly and can get in out with a call or internet order, not the one in super funds etc where there is too much lag.
So my super still 90 pc capital garanteed
But nearly 90pc trading for the other free cash
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