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The 3 Stages of a Market Sell-off
Call this article “the 3 stages of a market sell – off” or more realistically, how the bulls view market.
This is stage 1. See figure 1 a daily
chart of the SP500 with the price bars wrapped in a Bollinger Band. At
point #1, you have your first oversold reading when prices touch the
bottom trading band. Oh my, the market has pulled back; there is
concern amongst the bulls. But don’t worry all your favorite bulls are
trotted out in the media to remind us what a great buying opportunity
this is. The trading gods have blessed us with an opportunity to print
money like the big boys. Jump in you are missing out on all of the fun.
Figure 1. SP500/ daily
Well oops! Stage 1 didn’t work out for the bulls too well. That’s
ok. We always have stage 2, and that is where the market finds itself
now.
Stage 2 is seen in figure 2, a weekly chart of the SP500 wrapped in a
Bollinger Band. And holy buy the dip Batman, price is sitting right on
the bottom Bollinger Band (point #2). Concern has turned into an
outright schvitz (i.e., a nervous sweat for those not familiar with
Yiddish) as the previous call to buy the dip has been poorly timed, and
instead of everyone talking about what a great time it is to buy stocks
some are actually wondering why they are even holding these worthless
pieces of paper. Nonetheless, the bulls are out there pounding the
table that it is great time to buy, and their collective voice will only
get louder. After all, the market is oversold and prices are sitting
on the bottom Bollinger Band and this techical analysis worked great in
the 1990′s but wasn’t too hot from 2000 to 2003, but what the heck, I am
a bull and all I know is buy, buy, buy!
Figure 2. SP500/ weekly
So stage 1 is buy, buy, buy when prices touch the lower Bollinger
Band on the daily chart, and stage 2 is buy, buy, buy when prices
touches the lower Bollinger Band on the weekly chart. And you guessed
it, stage 3 involves the monthly chart. We are a very, very long ways
from that occurrence.
Whether this is the time to buy, buy buy is anybodies guess.
However, if you keep making the call, eventually you will get one right,
and that is what the bulls like to do — keep making the call until they
eventually get one right. I am as hopeful as the next guy and would
love to see a rip roaring bull market, but I will let the data guide my
investing. There will be a time to be a bull and pound the table.
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If you can become 100% proficient driving backwards and ONLY by using the rearview Mirror at Freeway speeds, and not get a ticket from a Cop for doing it, THEN you can tell me TA is the path.
Lemme say this as simple as I can. TA is nothing more than mapping past Trader behaviors BASED on the drawing of past prices on a chart. It has NOTHING to do with what will happen in prices from here on. You cannot Trade the Past. It's gone. Bernanke sure as hell hasn't learned that lesson either..but I have to give the guy a break..he is a PhD after all. That "Stupid Education" he taught is reason enough to NEVER trust anyone with one in a position like he is in.
These arcane TA words and "indicators" were created by horney men to impress women at parties so they could get them to have sex with them, because they wanted the women to think they are smart! That is all this stuff is. If you want to do the Buy and Hold game..then look at your Monthly chart and see if that Market is at extreams. Very High or Very Low. Palladium is a good example. You really think it is going higher from here? Bet the Farm Short this stuff, buy Calls to protect yourself just in case some really crazy crap happens...and then don't worry about it. Don't read ZH, don't look at papers, Money MagAZINE, or TV Investment "Stupid News". In 2 or 3 years you'll either be very rich or very poor. Trade only when at Extreams and exactly OPPOSITE to what you are hearing in the News at the time. Don't listen to the comments about how we have a "new paradigm" or..like Sugar was in the early 80's "going nowhere cause no one wants the stuff and we have a decades long glut". That's it!
Same as Gold did guys. I bought a LOT of Gold and Gold Futures in 1999-2001.. I did that because of exactly the words I quoted here. "Gold is no longer valid..it's a Dinosaur..no one will ever use it for anything.. it's not money like before..Central Banks are selling all of it they have..we have a new economy" bla bla bla!!! I also bought a lot of my Silver then too because of the same shit.
You TA and Analysis guys are making this all too difficult for yourselves. If this long term stuff is not your style then Day Trade and go total Gladiator and fuck the horseshit. You don't need Stops and all that crap either. If the price 20 minutes ago was higher than now..and it looks like it probably will go back up because it just went down a ton, then jump your ass in there and see if you take money out or get your money taken. If you cannot afford to loose $10K in a few minutes then you cannot afford to be in the arena, because you ARE going to loose money sometimes. If that bothers you then get the fuck out and stay out. Same deal the other way..10 or 15 minutes ago the prices were charging up like a homesick Angel, you have a pretty decent idea that price is going to top out and roll over and when it does a bunch of Sells are going to happen. Then the idiots Trading with Stops will get hit, and the price will drop like a stone. You go Short. Lets say do 10 trades a day and loose on 4, the same amount of Contracts and same Market..but 6 were winners that you rode longer (as you will naturally do) because you can SEE the money being added or taken away from your account right then and there..now you have to control your Greed and when you do (because you will or you will get wiped out doing this type of Trading), your set for life. YOU can control your losses QUICKLY. You cannot control your Gains, only how much you will gain on each Trade in a winning position. I activly Day Trade Commodites Futures. I prefer trading CL because it is heavily traded..sometimes others. Somedays you will loose 6 or 7 of the 10. Some days nothing is really all that great, so you do something else rather than trade. So what? Shit happens! Put it in your Trading Log and go get some beers or go to the beach. Next day go back with a clean attitude. At least your not busting your ass figuring out all the "indicator" garbage which in the end will not help you one bit...unless you want to do Position Trading and want to test OTHER Traders believing in TA or Fundimentals. Then it can be somewhat useful but only because of the Mind games you know they will be going thru. Much better to go Extreams charting a Monthly and Long term Positions then FORGET about it...or Day Trade. If you can't afford these two strategy's then you need to go back to your job and leave the Markets totally alone. You'll drive yourselves crazy on all the "holy grail" junk out there.
Bollie bands are a hoax.
P&F are great.
Swing counts best for trading. Can tailor trading to almost any time frame. See HFT or yearly charts.
Elliot Wave has evolved into gibberish and social commentary.
Careful, Tyler might use Point and Figure charts in CAPTCHA in order to post.
Next would be Pop Up Quizzes to read ZH.
wally_12
I see interesting similarities between the 2000 and 2007 market tops and the market of the past few months. A simple regression channel using +/- 2 standard deviations as the boundaries is a pretty effective guide as to what to expect. If the comparison holds, we have one last bump up before the party's over.
http://pebblewriter.blogspot.com/2011/06/channel-surfing.html
User: You have to be a member to see more than three years. So, just look at three years with the Renko method, both daily and monthly. If you find another charting service that offers Renko, check it out on daily, weekly, and monthly basis for longer time periods.
Renko charts consolodate price movements in candlestick-type vertical bars, and adjusts the time frame (x axis) so that the bars form perfect stair-step channels, providing a clear macro picture of trends. (A bit like point and figure, as mentioned by an earlier poster.)
In the past ten years, the renko chart for the SPX has had 13 downtrends, and 9 uptrends, where a trend has been as simple as only a single bar, or as many as 11. We now have a red (downward) bar on the weekly for the NDX, NYA, and SPX. The odds are good that we will have more than one down bar in this intermediate trend, IMO.
TA? The market went down because hundreds of thousands of Wall Street types were recovering from the post CFA exam parties. Relative strength has been a bit weak during the retrenchment, but the 50 DMA still pulling away from the 200 DMA.
can you describe what you mean, skeptic? stockcharts did not offer the 10 year chart, maximum was 3 year.
+4
can you describe what you mean, skeptic? stockcharts did not offer the 10 year chart, maximum was 3 year.
can you describe what you mean, skeptic? stockcharts did not offer the 10 year chart, maximum was 3 year.
can you describe what you mean, skeptic? stockcharts did not offer the 10 year chart, maximum was 3 year.
Go to stockcharts.com, and look at a weekly for any major US index, preferrably the S&P 500. Instead of "candlesticks", choose "renko" for chart style, and look at the past ten years. Write back and tell me that what you find isn't significant. It has completely changed my trading style, for the better, about 2 years ago.
Yep lovely clean way to demonstrate price and price action..but that's all it is, a different method to display price that, due to it's cleanliness, has massive appeal. You suffered any re-paint issues on lower TFs?
skeptic, thanks for the tip. an interesting way to look at trends, kinda reminds me of p&f charts.
Daily charts show short term trends, weeklies show intermediate term trends, and monthlies show long term trends. The weeklies are now in a definite downtrend. The monthly will be in a possible downtrend if June ends up below the May levels. Short term, anything can, and will happen, of course, but for the intermediate term, expect this decline to continue, at least until the VIX reaches 30 to 40, and the weekly charts show that the market is considerably oversold. We are maybe 2/3 there.
My Captcha question was an integral calculus problem. Anybody else get these?
Lucky for you! All I ever get is Trigonometry... :>D
Stop it guys.. with all this numbers stuff and fancy words in TA your giving me a big boner! Jus so you'll know..I get Finite Element LoadPath questions... which basically means a crooked road of clay mud to a heaping hill of steaming shit. Sorry..part of my Aerospace Engineering background peeking thru.
I saw this back in September 2010. I had to save it just to see how it turned out. Guess the guy was off the mark just a little. But he sure sounded like he knew what he was talking about.
-------------------------------------------
9/7/10
As for stocks, they are very close to completing wave 2-up. This wave could top tomorrow, Friday, September 10th. The chart on page 13 shows that stocks need just one more small rally to finish a five wave Expanding Ascending Wedge termination top pattern to complete wave 2-up in the Industrials. On page 11 we show the same pattern exists in the S&P 500. There is a phi mate turn date and Bradley model turn date scheduled for September 10th/11th, and as stocks have risen over the past two weeks, it means this imminent turn will be a top. It coincides with a completing Elliott Wave labeling for 2-up, and a New Moon which just occurred yesterday, which often is the kickoff for autumn declines. The Daily Full Stochastics are topping in the Industrials and S&P 500, and generated a new sell signal Thursday in the S&P 500. We sit on a Hindenburg Omen potential stock market crash signal, which is in effect until December. We also are entering the period of time (September through December) when stocks have performed very poorly during the mid-term elections of first term of presidents, which is the set up we have now. - McHugh
Yep, thought it sounded like Robert McHugh as I was readingit.
I have backtested the crap out of bollinger bands have not found a scenario where they make money over buy and hold. Very little actionable intelligence in this article.
You can try here if you want.
http://www.raintreeasset.com/
That is my point here...very little actionable intelligence can be deemed from any or all of this...one thing is certain is that the bulls will really be pounding the table now
I'm as much a Bear today as anyone about the Economy here..but guys..this is a lesson about Market behavior. TA is a factor, even if you do not trust or use it, because there are enough Traders that do! It becomes a factor if only because of this participation!! Charting is about mapping the past behavior of a large portion of the Sheeple AND Fund Managers, also a ton of "advisors". So understanding how the TA crowd thinks..what drives them to act WILL give you some forcasting leverage. Like Weather Forcasting it is going to have SOME common factors with results that have a high chance of happening. TheTechnicaltake is correct. When the Monthly lower Boll is tested there WILL be a flood of Bulls jumping in and for a time that will hit the Equities Market Bears (in the past including me) hard. They WILL get stopped out IF they have Stops (I don't now at all, and haven't in a very long time. Besides..no such thing as a Stop on Gold and Silver bullion coins). Add those High Frequency algorithm guys to the mix and you'll see what I call Stupid Move UP. The talking heads will shortly be jabbering once again about green shoots..marching thru financial savants and soothsayers by the palletload; so then you add Stupid News which only makes the permaBulls that much more confident they "saw it all along". One more thing, how far are we from the election startup? This site is FC..and I watch Tyler for good reason. Like it or not insanity IS a factor in our World. We all go crazy and loose sleep trying to create reason or order out of the chaotic conditions we build for ourselves! That's why TA is so popular. Many go hug trees in bad times..the same number want to cut them all down. Some think charting (TA) is the path..and sometimes it is..others go for numbers and information (Fundimentals)..and sometimes they are spot on. You as an effective Trader need to look at HOW the minds of other Traders are driving them into or out of a particular Market. Act when most in your favor, and ONLY when you see the insanity of what they are most likely going to do. Ironic that CAPTCHA is based on if determening if a Machine or not is trying to enter, or if our IQ is somewhere near our Shoe size....well....in order to pass the trials of getting out of personal poverty which most are in, one must first understand the Machine (TA) and it's insanity. As far as my Trading IQ...more than once that Shoe (Fun-de-mentals) fit me! I must have been crazy to enter into that Trade...trusting....and why not?..the P/E MUST be telling me the truth..and I was correct!! The Market proved it to me! And best of all the Chart said so too! I agree with this technique.. you guys mark our words. Monthly Lower Bollinger S&P gets hit and you will see a ton of Bulls charge in. Not because things are all better...but because the Stampede MUST happen, or so they must believe.
I agree. TA is crap in general. This is an unscientific conclusion. But I don't ever remember reading the Forbes 400 and seeing "technical analysis" as the source of someone's wealth.
Sounds like you have never tried it and are making excuses not to.
Why use Bollies? May as well use MAs if you want to be that 'lite'..and it's way to early to buy the indices..Who needs to be in at the 'b of the bang' risking a huge stop loss?
O.K. here's my view on charts: put your hand over the right (future) portion of his plots (say back in nov-dec) and try to predict what happens in Jan-Mar (it looks just like whats happening now). Can't do it can you? Now put your hand over the left, known future portion and try to predict the past. Also, can't do it can you? Use any price chart on anything-you can't do it. Its a non-linear process like the weather. No only weather be be predicted inthe future based upon the past, the models can't be it right in the past using current values. Just substitute -t for t in the dynamics-the equations remain invariant. Only the inevitible increase in entropy (disorder) sets times arrow. Price charts only give you a false sense of prediction since humans are so good at pattern recognition even if there's no real pattern. Charting is quasi-useful only if enough market participants follow them and base their behavior accordingly. But then panic sets in and all "support levels" go out the window in an act of self-preservation."
In a "truly" open market there would be no "bulls" or "bears" just people buying value in the hopes to make money over time...and that is the problem with this article and market in general.
In a "truly" open and free Republic there would be no "dumbocrats" or "republicants" because there would only be people doing what is right by their neighbor and community.
Get it?
In Robslob we Trust
If and when we see this question of the possibility of a "open" market realized what percentage of people will take on the responsibility of trying to earn the kind of Trust needed to create real Value?
People out there keep disappointing me when I ask them.
I am not looking forward to all the whining and fingerpointing to come - or finding out which of us do and do not have a soul.
Maybe it'll all happen in another life time...
It's time to bye, bye, bye !
It would appear that the Fed and Treasury are allowing an organized retreat in the equities in the market... to prompt up the treasury market and to spur on panic about the debt ceiling. The corner is getting tighter on Mr. Bernanke-the bond vigilantes are starting to push on the yield curve. Operation Twist will be attempted, but in the end we are heading into a massive deflationary depression. With less money supply, and worse purchasing power for each dollar in necessities like food and fuel. Thanks Federal Reserve
Winner! Let the "fear" trump "greed" for a few months. Get the debt ceiling raised, start QE3, sit back and watch prices rise and have a good old name calling election battle. One more kick of the can towards the abyss. Record foreclosures for 2011, continued fall in home prices, higher gas and food prices, higher unemployment numbers, throw in some new wars and natural disasters for good measure. Ah, life in the USA!
+1
You are exactly right, Fed is happy with a declining market between now and August. Ben believes that this will get rid of the pesky headline inflation numbers in time to begin QE3 while blaming it on the Republican's blockage of the debt ceiling legislation. It is a politically calculated move designed to allow Ben cover to print money throughout the next year while dodging the political fallout that he knows would dog a QE3 announcement that didn't have a boogyman (and, on a personal level, allows him to believe that his past money printing wasn't a failure - though it clearly was).
--Brian
This article was written in a very confusing manner.
Technical analysts are like the bulls in the article. They try and try again (drawing lines or citing indicators or counting waves), hoping this time they will get it right.
Anyone drawing lines on a piece of paper to forecast the market is a fucking idiot. Kind of like the French and the Maginot line. "No no!!! No No!!! I tell you Jacques!!! Jacques!!! Zay came zis way last time!!! Zay came zis way last time!!!
Hey.. I resemble that fact since I'm a Kraut! Hahaha.. How VERY true!
sounds like Elliot Wave International ....they've been calling for a bear market since 2009 and 24 attempts later get one right
...all hail King Robert Prechter and his Idiotician courtiers...wrong 23 times out of 24 but they'll sing the 1 (lucky) strike until the cows come home!!!
Elliott Wave theory: far, far worse than a 50/50 coin toss but they'd never admit it
I agree.
After three martinis, I think. I recognize the scatter-brainedness.
I'm guessing it was a vodka--no ice while listening to MHFT
Well..., we ran out of olives, so we went next door to borrow a few from our cute young friend. And she didn't have any, but she had this really weird looking pipe..., and well, we meant to fix the article but Tyler already posted it.
so where was the monthly chart?
BUY BUY BUY,... only a lot lower....