A Larger Than Expected VST Selloff Next Week

I had posted a few “Failed Expectation Reversals” from time to time. From the number of thread views and the lack of follow-up discussions, it doesn’t appear to be anything of interests here. Nonetheless, they’re emotional and therefore sometimes very powerful reversals. At any rate, many hardliners who were adamantly bearish in the week following the February 5 bottom are now very bullish. But, that’s enough about the little guys, which include yours truly. One of the real concerns I have is the large SPX E-mini, approx. 240,000, net long position held by the non-commercial traders (large speculators) 4 weeks in a row while the commercials had begun to increase their net short positions. The last time the non-commercials held such large net long position for consecutive weeks started in the 2nd half of December 2008. And, from there, we all know the SPX plunged another 20% or so before the March 2009 bottom. And, during that same period, the commercials were building and holding one of the largest net SHORT positions. So, it doesn’t really matter why little guy like me, and perhaps you, couldn’t come up with any reason to sell. It only matters when the large speculators sell. And, they sell HARD, especially when their expectations aren’t fulfilled. There are other collaborating data indicating that may just be the probable event next week, and my bear buddies here may get their days in the sun…

Edited by TechMan, 06 March 2010 - 01:00 PM.

There are other collaborating data indicating that may just be the probable event next week, and my bear buddies here may get their days in the sun…

An excellent post., TechMan.

Curious... what "other collaborating data" do you see?

Thanks, Kris

Nice observation.

I think below 1120 could be revisited, if the market sells off from the get go on Monday. Instead we will try higher and I suspect 1120s are becoming the support now, this is the support necessary to build and consolidate to spring higher from FOMC until the end of the month... It is clear to me that if the markets rush higher faster and faster from here, we are in a mark up phase... A deeper pull back below 1120 or even 1100 should still make new recovery highs into the summer...

edit: BTW, the internal momentum per NYMO is now better than July 2009 low [to my surprise] and I think the prices will eventually follow. The July low yielded about 30-32% advance in the indices in the following 6 months, I would expect 1220-1240 to be achieved in this case by the summer or over the next 5-6 months... This is 20% or so [from 1040-1050 low] and perhaps not much for some, but you have to consider that it takes a lot more money to push the markets higher from here unlike 2009...

Edited by arbman, 06 March 2010 - 02:48 PM.

Arbie – As I wrote 4 weeks ago, on Saturday, Feb. 6, that I had caught myself by surprise looking at a probable longer term uptrend than initially envisioned. And, this Feb. 5 bottom that I had called on Feb. 6 is about ready to be upgraded from an Intermediate Term (1-4 weeks) BUY to a Long-Term (1-3 months) BUY by me. I’m going day by day and week by week… I don’t know about summer, winter, or fall, and I don’t set targets. Those things, as far as I’m concerned, put me in a frame of mind that could impede my “Outside-The-Box” thinking style. I leave that to the seers, who can predict the future. I don’t even know what I’m going to have for dinner tonight. Nonetheless, it’s all about reversion to the mean. The Nasdaq had just closed above both the January intraday and the closing highs on Friday. What had previously taken the Naz 4 months to accomplish has taken just 4 weeks this time is well worth the consideration of a probable pullback that may come just as abruptly. We’ll see… got my puts in place for my long positions just incase.

edit: BTW, the internal momentum per NYMO is now better than July 2009 low [to my surprise] and I think the prices will eventually follow. The July low yielded about 30-32% advance in the indices in the following 6 months, I would expect 1220-1240 to be achieved in this case by the summer or over the next 5-6 months... This is 20% or so [from 1040-1050 low] and perhaps not much for some, but you have to consider that it takes a lot more money to push the markets higher from here unlike 2009...

Good points ARB. Btw, it's not like the market did not signal this powerful upside momentum and subsequent market move coming. It gave us lots of chances to get on board BEFORE the upward explosion, as it will continue to do in the future...

Just a thought or two on what's hot in this market....

My approach, again fwiw, has always to buy the strongest sectors in an uptrend {or sell the weakest sectors in a DT}, that is, to ride the leaders in any given trend. The strongest sector of the market here looks to be small and mid caps, mainly the RUT. I'll be rebuilding longs in BGU and TNA on a pullback:

http://stockcharts.com/c-sc/sc?s=$RUT&p=D&yr=0&mn=3&dy=0&i=p03227721239&a=185689071&r=719.png

Meantime the SPX 400 Mid cap has registered an McO and McO-volume high already in this move equal to what it achieved in the launch of March '09. That's one powerful push-off!

There is no doubt that we are making a mega top for my signals, I posted the time-frame and I'm not expecting any much higher, maybe just a complicated start that could drag things for another month. One piece of the puzzle that I'm waiting for is the comm building big shorts...

First of all, Kris, WELCOME ABOARD. The data are really all over the place, but one of the first things came to mind was the CBOE weekly Call options advancing volume that had just popped the 60% extreme bullish barrier. The last time it came close to this level was in the 2nd week of October and the 3rd week of September. Both of which were followed by pretty good short-term selloff. And, then there’s my volume weighted Nasdaq Index, which had just hit 1,000. And, that rarely happened. The last time it happened was during the Nasdaq’s first week of January. It would also appear that the RUT to RUI ratio had gone into the risky territory of above 1.06, given my arbitrary range of 0.12. Sure it could go even higher like in Sept. and Oct. of 2008, but the results may not be pretty. And so on and so forth…

First of all, Kris, WELCOME ABOARD.

thanks, TechMan.


Speaking of RUT, some kind of superstition about numbers, specifically 666. http://etf-corner.co...l-russell-.html

Symbolic? Very very curious ...

Speaking of RUT, some kind of superstition about numbers, specifically 666. http://etf-corner.co...l-russell-.html

Symbolic? Very very curious ...

666? Sure, and the S&P managed to close at 1138, and 1+1+3+8 = 13. What are the odds of having 666 and 13 on the same day? It’s the Judgment Day, the end of the western civilization.

Fortunately for people in Asia both 666 and 13 are extremely lucky sets of numbers. I’m packing and getting ready to relocate to Asia by Monday morning…

Oh wait... I can't drive my car to the airport with that license plate. Somebody call me a taxi...