Guest Post: Ominous Similarities

Tyler Durden's picture

Submitted by Tony Pallotta of

Ominous Similarities

Dramatic title I realize but look at the charts below and ask yourself if this is purely coincidence or something more telling. Regulars to this site have read posts comparing the current market to that of late 2007. From equities to credit markets to volatility and more the similarities across asset classes has been rather striking.

The basis for these comparisons was the belief that at major inflection points markets are more about psychology than they are technicals and or macro data. Since human nature never changes patterns will repeatedly play out as discussed by Jesse Livermore (the following is from a book discussing his trading beliefs).

“He observed that human emotions collectively had major impacts on the movement of stock prices and Markets in general, ultimately creating patterns that kept repeating.”

Since late June these charts have continued to track very well. Most recently the final move to Point F and subsequent sell off has been eerily similar including the candlestick patterns as highlighted below.

Next comes the sell signal. Notice the Skew Vix divergence below. The accuracy from a day to day basis is not 100% but the correlations are enough to point towards further selling. In fact I referenced this on Tuesday even while the ES futures were still flat.

Next comes the sell signal. Notice the Skew Vix divergence below. The accuracy from a day to day basis is not 100% but the correlations are enough to point towards further selling. In fact I referenced this on Tuesday even while the ES futures were still flat.

In essence of full disclosure below is my current trading portfolio. Please note this is not investment advice.

I am currently short SPX via long SPY puts for both August and September and long SPY August debit put spreads. I did sell some SPY August puts today to offset the September puts I bought earlier in the week. The result my position size is the same but I was able to manage risk by shifting to a future expiration for about the same price. In other words I have the same capital at risk but have an additional month of theta.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
caerus's picture

holy title ever...very appropriate...and you quoted livermore?  bravo...

Michael's picture

Screw this subject.

When are we going to start talking about how many layoffs are involved with cuts in government spending?

When's the first anaversary of ZIRP, or did I miss it?

My comments are moderated. How quaint.

jomama's picture

not on ZH they ain't.

IQ 145's picture

Obviously, I disagree with the poster. I think the fat easy money is already made in the stock index shorts; that's why I took profits this morning; there's still automatic 401K buying on every month; and still too many people who want to buy the dip, (in stocks). I regard this article as a typical, "look at my system" article; it gives a signal when it's already over. The vix bs. I wouldn't touch with a long stick. Just look at the daily bar charts and the weekly charts. most of the time, there's nothing that needs doing; sometimes there is. Maybe I'm completely wrong in taking profits today; we'll have to wait and see. I felt that the risk/reward ratio had increased too much.

ibjamming's picture

I'm with government starts cutting goes with it.  We NEED the cut the government by many jobs is that?  And we know...government jobs are usually GOOD jobs.  This de/recession ain't going anywhere until we get some jobs again.  The best thing would be bringing back the NRA and putting all these people on welfare and unemployed back to being productive.  Rebuild the highways, bridges, rails...etc.

Zeilschip's picture

What does skew VIX indicate exactly? Open interest in out-of-the-money SPX options?

IQ 145's picture

Closed my short of the DJIA today at 12,264, for $10,900+; the original position was posted here on the day and hour I put it on. Closed my Dec. 2011 Silver today at $40.110 for $31,800; that position was also posted here when I put it on. I'm always thinking about Livermore, and the tone of the charts; simple daily bar charts; are the bears fed now, are they bored? what about the timing, has it been too long since it was profitable to be long? Only tops and bottoms interest me. I would never look at any charts like these posted here. Look at the daily bar chart for AAPL; it was a textbook illustration of a tulip bulb run-up and blow off; but all the comments were about it going higher; the chart was just saying, hey I'm done now; stick a fork in me. I didn't short AAPL; I mentioned it here. When you see the evidence of irrational buying; the next thing to do is to wait for it to ripen; then short it. 

AhhhItBurns's picture

I cant hear you! LALALALA--- Japan, Drought ---LALALALA

gangland's picture


Well On And On And On And On I Can't Stop Y'All 'Til The Early Morn'
So Rock Rock Y'All Tick Tock Y'All To The Beat Y'All
C'mon And Rock Y'All


Everybody's Rapping Like It's A Commercial Actin' Like Life Is A
Big Commercial So This Is What I've Got To Say To You All Be True To
Yourself And You Will Never Fall And Now I'd Like To Pass The Mic To


Yes Yes Y'All And Yes Yes Y'All I'm Always On Time Never The Less
Y'All And That's Right Y'All, I Shed Light Y'All I've Got No Time In
My Life To Get Uptight Y'All So What You Gonna Say That I Don't
Know Already? I'm Like Clyde And I'm Rockin' Steady But Time Flies
When You're Having Fun So Mike D C'mon And Get Some


jackson heights queens nyc bichezzz



Selah's picture

Since human nature never changes patterns will repeatedly play out as discussed by Jesse Livermore...

What does Jesse have to say about computers?


caerus's picture

you guys are the best...if you want to trade for a living then read livermore...smartest group of fuckers i've ever ran across...

Jambo Mambo Bill's picture

"Trading 4 living..."? You meant playing video games with your money?

caerus's picture

 i respect your opinion...but read jesse's book for christ sake..or play galaga...whatever

margaris's picture

poor livermore.... all the money and success couldnt stop him from commiting suicide...

Sometimes I dont undestand successful people!

caerus's picture weird was it that his last wife had four? previous husband suicides? man was goddamm briliiant

sodbuster's picture

Jesse was prong to periods of depression. Good book- excellant read.


Re-Discovery's picture

He was also subject to short bouts of losing all his money, which -- along with his 'unlucky' wife -- may have aided the suicide decision.

CrazyCooter's picture

Presently, the first search result on Google for ... "jesse livermore" "Reminiscences of a Stock Operator" filetype:pdf ... is the auto-biography in question. I reccomend saving a local copy if you wish to read, as one never knows when the internet will decide to reorganize itself.

In a much older thread, a ZHer was kind enough to link it on a Sat morning ... I spent all day reading it ... fascinating story ... and valuable insights into the elite stock market culture (i.e. the makers). This is a must read if you actively partake in the markets and haven't done so already.

JM seemed to have gambling issues and was prone to depression. My understanding is that he trust funded his family to protect them from himself (he knew he would spend the money). I forget which iteration of penniless he decided to end his life, was it four? Broke at 40 after the kind of wealth he had would be hard to swallow for anyone and I am sure his life was much more complicated. Why win again to lose again? He wasn't bad at math!

Brilliant doesn't necessarily mean happy.



caerus's picture

in the spirit of fairness let me say that jesse livermore was the greatest trader who ever lived..i guess you dont trade for a living else you would know this...good luck with your shitty humor and terrible mustache...i hope for you and your family that you never trade a godadmm dime take an english class if you can afford it...there are enough stupid people in this country who still wish to listen to your bile.

Jambo Mambo Bill's picture

Don’t get too excited amigo! What I meant was with active bots, HFT and corp. manipulations, trading today in no more than a gambling game...

Respect for everything else... including Jesse boy

All the best.

caerus's picture

if you're serious then that's my apologies...i hope you have a fine tomorrow

Jambo Mambo Bill's picture

Relax dude!

By the way, think about getting some Spanish lessons... It could be "useful" later the way we going...

Hope 4 a great opportunity to reload PMs soon with a coming DC deal... I hope...

Transformer's picture

Especially if you live in the Southern half of the country.

Moe Howard's picture

Consider moving to the Mexican interior. Empty land, lonely women getting a check from the USA but no men around. Let's dod a reverse migration.

Mad Mad Woman's picture

You are asking to get shot by those drug cartels. I wouldn't touch living in Mexico with a 10 ft pole. Even the areas around the resorts are not safe anymore. I look for kidnappings of tourists from the resorts in the near future.

caerus's picture

im sorry dude...i get fiery about livermore...hold your pms i think...maybe get some jim rogers ag...its still cheap

Help Is Not Coming's picture

Humans program the computers.

gangland's picture



no sleep till crooklyn bichezz


ShankyS's picture

I get it Tony, but one glaring difference not shown in the charts - QE. The Bernanke put is in play now and save the markets at all cost is the mantra. Wonderful work. TA rarely lies, but till the Fed is out of business I'm skeptical (and I'm one of the biggest permabears on the planet). They have to save the markets (if they can) till at least the next election (and till they get a few more military "practice" sessions in like they are running in Boston).

The Shootist's picture

Yup, practice sessions are going on in Boston. But we aren't China either...

Zero Govt's picture

no you're much worse than China.. 3 murderous illegal foreign occupations and looking to make it 5 wars soon

China sends manpower, investment and commercial groups abroad to conduct business in Australia, Iran, Africa, South America... the deranged cretins of the US Govt sends the Goon Squad shooting from the hip and airfreights pallets of bribe money to prop up corrupt umpopular Govts ...great contrast in foreign policy, is it working? ...has warmongering America throwing its military obesity around the globe got it any friends???

Wakey Wakey

Silver Dreamer's picture

I may be wrong, but you missed his point.  From his handle and other comments on here, I believe he was referencing firearms, not government.

i-dog's picture

"They have to save the markets (if they can) till at least the next election (and till they get a few more military "practice" sessions in like they are running in Boston)."

They're trying to extend the markets for a while longer, but I wouldn't count on a "next election" -- there are enough Executive Orders, and the Patriot Act, in place for Obomber to call it off when they are ready! Certainly expect more "practice" sessions in the major cities...and also watch for a ramp up in TSA activity away from the airports. That will be the sign that they're close to clamping down (they won't wait until after the market has crashed).

On a related topic, I heard on the BBC that Australia is also now about to institute FEMA-type "Fusion Centres" -- on the pretence that they are to stop "biker gangs". Riiiiiiiiight........ Look out,'s not only the "carbon tax" that points to an NWO takeover there, too.

Advoc8tr's picture

Supreme court recently over ruled and reversed their attempts to make it illegal to associate with groups on 'their' list. But you are right - we getting it from all angles at the moment. They are trying to use the murdoch scandal in Brittain to restrict and license the media ... already suggesting that any anti-climate change coverage is evil and 100% the work of right wing extremist nutjobs (how convenient world events can be)

chump666's picture

sounds good.  but a patten we haven't seen for a long time, maybe never.  US gets a credit down grade, looses the AAA the USD as a base currency sends the trade (as in export import markets) markets into chaos.  kinda banking on that.

best trade advice was from a lowly oldschool guy that traded futures, always said that 'the markets aint science just art and art is about taming chaos'...something like that.

anyways watch spanish spreads.  they blowout againm rumor has it French spreads will start to look like rating downgrade. dumb arse french, love the women though

disabledvet's picture

truly cataclysmic. and more like "taming the shrew" i would say, but "good enough for government work." the original problem was "counter-party" risk, yes? the government did the...i don't want to say expected...perhaps "rational" thing and became the counter-party itself. that's a lot of risk in place where no would want any, no? and now Fukushima--Libya--the euro crisis and the catastrophe in Norway. all eyes on Washington. You tell me what you see. Now excuse while i try and go to Adam Sandler's "happy place."

gangland's picture


 i got news for ya you ll be suckin like a leech



gwar5's picture



Peter Schiff: The Dow today (July23) is already at the March 2009 lows of 6500 priced in gold. 

PhattyBuoy's picture

And the paper (bag) holders don't have a frickin' clue.


Re-Discovery's picture

bbbbut . . . gold's going to 'correct' to 1200 . . .

Bear's picture

After your post ES drops 3 points in 10 minutes ... Congratulations TD moves the market ... again

falun bong's picture


(had to say that because it's my first zh post...)

Livermore, Buffett, yada, yada. All that is ancient history now that we have the Chairsatan (and his Chinese counterparts...)!

(Ross Perot's giant sucking sound is our standard of living reverting to the global mean...)



caerus's picture

blasphemy!  read livermore...then read him again...then read him a third time...them make some money

Transformer's picture

Yeah, that Perot guy really got it right, huh.  You talk about predicting what was coming.....  If he'd gotten elected... well....  who knows.

caerus's picture

not sure what that means...but livermore was the best...if you have the time read his book...please...

CombustibleAssets's picture

I smell something burning...