Controlled Sell Off

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The market sold off early Wednesday, but retraced almost all of the move down by the close of the day.  It seemed too be a very controlled sell off as the volume wasn't really that heavy for a down day.  It followed the technicals fairly well all day.  While I thought it would rally up in the morning and sell off into the close, it didn't have the strength to start rallying until it sold off some more first.

(to watch video on youtube: http://www.youtube.com/watch?v=bs63pR2qzJ4)

Finally, around midday, the market bottomed and the charts all pointed back up and proceeded to rally into the close.  I think it will continue up tomorrow morning until about midday and then rollover into the close.  The market is certainly showing signs of weakening as it put in a deeper histogram bar this time.

Last week it wouldn't have dropped as much before rallying back up, which means there isn't too much longer before a sell off begins.  They seem too be doing everything they can to hold it up until the elections next week.  I have no idea if the high is in or not, but it feels like it is.

Mainly because of the time remaining before the elections and the time of the month.  The last days of October the mutual funds should be selling to lock in profits before the elections.  They can't take a chance on what the outcome will be, so the safe move is to sell ahead of it.

But, the short term charts are pointing up into tomorrow, so I do believe we'll see another chance to get short before the week ends.  I think Friday could see some selling as the GDP will be released in the morning (could surprise?), along with it being the last day of the month for the mutual funds to close their books on the quarter, spells a "down day" on Friday.

Reasons for a down day on Friday:

  • The short term charts (60, 30, 15, etc...) will likely peak Thursday by midday and rollover into the close.
  • The mutual funds need to close out the quarter by the last trading day of October, which means they will likely take profits by selling some of their core holdings.
  • Thursday will be the last POMO day for the week, allowing Friday vulnerable to any selling pressure as there won't be as much money available to buy up the market.
  • The dollar seems too be breaking out now, and that should put pressure on the market.
  • The VIX seems too be breaking out now too, and that shows fear in the market is coming.

Now... if it were only that simple, we'd all be rich!  LOL.  You and I both know that they are going manipulate the market to where ever they want too this Friday.  While the evidence points to a down day, if they want to rally it they will.  So too be fair, here are the reasons for an up day on Friday:

  • There are Weekly options expiring this Friday, and they need to pin the market where they pay out the least amount of put holders as possible.
  • The government doesn't like Friday's to be down, because they want to give the false illusion to the public that everything is "ok" going into the weekend, so they will go out and stimulate the economy by spending money they don't have.
  • The elections are next week and the government (or at least the Democrats) want to hold up the market until it's over with and blame everything on the Republicans on the coming correction.

So, which will it be... a positive close on Friday or a sell off?  Only time will tell, but I'm leaning toward a sell off... especially if we rally back up tomorrow morning to 1185-1190 area by midday.  Of course we could roll over tomorrow at the open, if the initial claims and continuing claims numbers are viewed as negative for the market.

While I expect them to be better then expected, if they are too good then everyone will think that the Fed's might raise rates soon, and that they might not get the QE2 money that everyone is expecting.  So, we really want them to met estimates or disappoint for that one more move higher in the morning too happen.

If they beat by a lot, I'd expect selling to happen pretty quickly.  I'd like too see one more move higher, and then rollover into the close tomorrow and early Friday.  But, you don't always get what you want.  If we rollover at the open, then things could get ugly pretty quickly.

Best of luck to everyone,

Red

108 COMMENTS

  1. I was thinking about the weirdness before and after the latest G20 and made some semi-conclusions:

    First of all, just about every G20 member was all over Geithner for his request to “refrain from competitive devaluation” and exchanges were quite heated during the opening discussions. However, by the end of the meetings, everyone was satisfied with an agreement to do just that. One could deduce that Geithner must have made assurances/guarantees that aren’t being publicized, but may have been leaked in China, being that the HSI tanked yesterday. The HSI is currently trading slightly lower today also. Hmm…an agreement to buy dollars? An actual figure for QE?

    Also, what the media stated was a “greenlight” for the dollar to fall farther, turned out to be quite the opposite.

    Thirdly, if you look at the selling that occurred before May 6, the selling was sparse before the market tanked. Now, the selling is far more pronounced the last 2 weeks, while the price action was fairly tame. I think the pumpers who may have been caught off guard by the flash crash will now be more than ready to take advantage of the inevitable. Does all that make sense?

  2. Lastly, POMO cash is just that, cash. At some point in time, primary dealers who have been pumping the market for the Fed will no longer see a favorable cost-benefit ratio to pumping the market upwards.

  3. I was wondering what score we might get in the opening game of the World Series but once it got to 10-4 (at one point it was 8-4 looking like we could get an 8-5) things started to look bleak but it ended up 7-11 Giants. By the way, the last time the Giants won a championship was in 1954–56 years ago. And our triumphant triumvurate got their first win of the season 97-87.

  4. Overall i cant say im more surprised then disappointed.I belive that alot of people out knew and expected the feds to float the market going into the elections.as ACP pointed out the POMO effect has been losing steam over the period of time since it was introduced till now.Today i will lean towards what red said rallying in early trading and hopefully topping out before midday.I will place alot of attention to the initial jobless claims coming out at 8.30 during pre market cause i see that report setting the tone for todays overall trading trend. If anyone disagree with what ive just said i hope we can have a discussion before trading starts as im still currently in the process of collecting any bits and pieces of info i can lay my hands on before trading starts.

  5. hahaha nothing new about this red same BS rise and repeat.To be honest im actually surprised that its still not coming down best guess here would be that they are trying to hold till the POMO kicks in for another run.

  6. Thanks anoopsan well now everythings just a mess hahahah charts say down ,indicators say down ,news says up ,candlestick says up.HAHAHAHAH today im gonna flip a coin.

  7. By the end of the day the 60 minute and 30 minute chart should be overbought. The 15, 10, and 5 should also reset from this mornings’ sell off and become overbought too.

    Once they are all insync together the down move that follows should take out the supporting trendline from the rising channel. Will this happen tomorrow? I don’t know, as it depends on how long it takes to get the 60 overbought.

    It will also depend on whether or not the market can take out these mornings’ high around 1190? If not, then any move up today will set up a bear flag for tomorrow morning and/or the last hour of today.

  8. Thanks anoopsan somehow i dont see the market coming back from this slide there is still time but right now it looks like Feds VS whole world and Feds dont seem to be winning this time

  9. Could be the mutuals are bailing while the POMO money is being used to control the selloff. And remember cost-benefit to pushing a topping market upwards.

    If you were a primary dealer (pretend you’re an evil scumbag), wouldn’t you wait until the oppotune moment, then use a few billion POMO dollars to tank the market? Way easier money than using those billions to push up the S&P another 3 or 4 handles.

  10. Yeah no kidding……every time I’ve seen total chaos like this, it usually results in everyone getting spooked out and bailing. Someone gave the controls to Cheech and Chong.

  11. Once again I get the direction and time backwards… LOL! We sell off in the morning and rally into close, while I thought the exact opposite would happen. Go figure! That’s 2 days in a row that I got it reversed.

  12. Any one feel like guessing where the DJ will end up tonight after the report came out it rallied to top out at about 11120 and then a nice long slide came into play and touched 11000 right now its hovering at 11030.Does anyone see a last min play that might push it up.Cause im not seeing anything and i dont want to be wrong espically this time.

  13. Well… tomorrow is a wildcard day I guess. The charts are looking toppy right now and ready to rollover, but will they allow the trendline of support to break on a Friday?

    We still have very low volume right now, which usually favors the bulls. Tomorrow must rally up or risk breaking this rising channel’s lower support line.

    So what will it be? Sell off or rally? Gap up to breakout of the triangle forming, or gap down to break the support line?

  14. Hard to say. All I know is, there was major dollar manipulation today. I wouldn’t be surprised if the Fed had every one of its 400 traders on “dollar duty” today, pushing down the USD using every possible tool.

    I bet they even have offshore accounts to mask their identity.

  15. The UUP (the dollar) had 6.8 million shares traded at 3:30 yesterday. The average volume over the last 30 days was 1-2 million per 60 minute candle.

    This was 6.8 million in the last hour of the day! That’s huge! The entire day yesterday was 15 million, while the average over the last 30 days was only 5 million. Talk about a short squeeze!

    When this market finally tanks, the dollar is going rocket higher. As if that one day created 3 times the normal volume, that tells me there are a ton of shorts that will get squeezed hard when she finally starts moving up hard and fast.

  16. I believe the max on DOW should be 11,500 if you are to consider 11,497 in oct 1999 the right shoulder, 13,895 in july 2007 the head, and now we are in the left shoulder and ready to fall

  17. Not to mention buy volume the last couple weeks is far higher and is accelerating far steadier than it was either before or after May 6…

  18. AAII poll at 51+%bulls now and 21%bears. That is a really low bearish number. Nyse McClellan Summation Index has now dropped below its 20day average and it doesn’t appear to whipsaw once below that average. We’ve also had 2 days in a row decently down below the o line on $nymo. Perusing the blogosphere, it appears everyone is bullish now even the diehard bears who have been calling for a crash. According to Mahendra, we now start with the greatest bull market in history. Too bad he doesn’t realize that the Summation Index never reached a level from which bull runs start from. I need to put him on my watchlist for compromised analysts.

  19. I have a high convergence of cycles for tomorrow. 770trading days from October 2007 high,417 tds from March 2009 low, 749 calendar days from October 10,2008 financial crisis low, 84 tds from July low, 58tds from August 9 high, 81calendar days from 08-09 while also 81 years from the October 29,1929 crash day….here are some others/ don’t know if they back an esoteric punch….186 and 176 calendar days from April high, flash crash day (could have some punch as 87 and 77numbers….by the way I did discover 586/87 B.C. is considered a vital date for the insiders)….It’s also 131,123 trading days respectively…..This weeks high in the SPY 119.76 minus the SPY flash crash number from last week of 106.46 is 13.30 while the high close this week of 118.7 minus that number is 12.24 (224 was SPs October 19,1987 close while 2246 was the Dow’s close the day before the crash). Dow closed at an interesting 11113.xx today (xx I believe was one of these crash signature numbers like 73).
    I did buy another put today and tried to for copper but don’t think I got filled. Gold is churning sideways after its initial drop like the stock indices did from April 26 to may 3 (when my intermediate strength level cycle last appeared as a high)
    I still can’t believe the level of bullishness now among bears who expect at worst for the market to hold up until the elections and fed meeting and just the level of apathy and non-participation on some of these bear boards)

  20. Currency depreciation probably helped some, I would imagine, plus –

    In last year’s quarter, Microsoft deferred some revenue from Windows sales. Had it not done so, net income would have been only 16 percent higher this year in comparison.

  21. All the short term charts are in overbought territory and can roll over at any time now. I think we’ll go lower from here, as the downward sloping overhead resistance line seems to be holding the market back.

  22. Well, with the low volume we have right now, the bulls have the odds on their side. But all the short term charts are overbought, favoring the bears. So, it’s likely to be a stalemate and close the day with another spinning top.

  23. honestly i think we will see another rush later as we all know they want to close the weekend on a high note but it wont be very strong.Today was one of the best days for a down day with nothing much supporting the market but i dont see that happening now.I will also concur that today most likely will end up flat the dow started this week at 11090.I will seriously be laughing if it closes at 11090.

  24. You should submit that number into CNBC for “Call the Close”. If you can’t get real news from CNBC, might as well get a prize!

  25. Hahahah that would make my day.On a more serious note looking at the day chart it seems that overall there was a break in the trend line which was supporting the uptrend althought i would have loved to see a clear break all that we have seen so far is that when a break happened there was a huge rush to bring it back to the trendline. Its losing steam and momentum over the last couple of times as i think fear is starting to rise and traders are taking a sideline stand before the elections to see where its going before jumping back in.Moday has generally been bullish and with low trading volume its alot easier to float the market during that time rather then big volume days. With that in mind and looking at another POMO Nov 1 to Nov 2 i see monday either as a flat or an up day.Unless today kicks in and drops like a stone before the closing bell which fingers crossed happens i honestly see monday as an up day if anyone wants to discuss or throw things i might have missed out to state otherwise please do so cause i am looking for anynews to try and piece things together before they happen.HAHAHAHA nice pic red SMACK SMACK SMACK

  26. I have seen nothing in the last few days to deter me from my spx 1201-1202 prediction either 11/2 late or 11/3 early.

  27. Well, I wouldn’t be surprise if that target is met Diablos. This market is holding on with pins and needles right now. After the election this thing is going down hard I believe.

    Is the market open Monday, or closed for the election that day too?

  28. Market open Monday.

    I agree with the move down. Have 1137 on Nov 10ish before a final rally into xmas and moonwalkers print.

  29. hmmm i dont mean to sound like a wet blanket but is there anything to support a down move i will compile a list later on things that could affect the market up or down and we can all see a clearer picture.

    Elections = Down
    Pomo = UP
    Charts depending on where it ends today either OB or OS
    Not sure about any news reports on monday yet so thats another factor.

  30. I’m merely looking at charts. It points me to 11/2, 11/3. I did not pick the days based on election/fomc.

    I’d like to see a move to 1189-1190 by Monday and have that hold, but not necessary.

  31. Ok thanks for clearing that up so charts are pointing to that i will post the list again later on base on todays close i think that should give a clearer picture.I forgot to mention that im an intraday trader so please forgive me when im discussing the market day to day.

  32. No worries. And all i’m doing is offering an opinion. I think i see something, and if my time and price are right, i’ll act on it. Otherwise, i’ll just look for another setup.

  33. Hahahah thats all we are doing cause in this kind of market we can only guess as to weather it will happen this way or not somethings the market just likes to defy logic.

  34. Looks like there are two gaps EUR/USD must fill. Probably fill the higher one today, pumping the market +30-60 on the Dow, I would guess. Then fill the lower next week.

    My guess is that QE will continue indefinitely. Any time the market gives any indication that it may possibly fall, or even stay flat, Madman Bernanke will push more money into the system. Any removal of liquidy from this economy, which is now fundamentally built on illegal intervention by the Fed, will result in a large downturn in the markets. It actually looks to me that there is no more “economy” in the US. It’s simply the Fed buying every other bond that comes out of the Treasury. Now that there’s no one left in the world to buy our garbage bonds, the Fed is the only one left. Unbelievable Ponzi scheme. No wonder there was a USD flash crash. The dollar no longer exists!

  35. well there have been rumors flying around that QE this time round might already have factored in a sum that already has been on the market making it a smaller QE then expected.Overall i would say that the (shock and awe) effect is gone and all your left with are junkies chasing after that first high.If the QE figures come in lower then what they have previously wanted i wont be surprised if the market tanks in response to that.Im actually quite interested in the FOMC meeting to see what happens but overall when bernanke speaks the market shivers hahahah.

  36. Usually bulls get long on Fridays and we gap up on Mondays.So many times bears get crushed on bullish Mondays. I wonder now if they learned the lesson and simply don’t get short anymore.Someday we might just gap down on Monday with all the bulls trapped and no bears on board.
    The ED can still play out with a 5th wave up to 1205 going into FOMC or the bears take out 1170 before. For me, i will be a bull once we take out April resistance with conviction and a bear when we break 1170. In the meantime let’s just watch,resolution is coming.

  37. good point as it seems to be in a channel right now and without a clear sign on where its going anyone could be caught out on a big move still about an hour to go on the market and for the dow it seems to be retreating back to the days opening.(My opening is at 6:00 when the night trading starts) Shows me that without POMO even on good GDP numbers its already starting to turn.This really shows how fragile the market is right now.I wont put it past the market to rally before closing and make a rush to finish off near 11100 but times ticking away for that to happen.On my charts 1 min is oversold. 5 min is over sold. 15 min is over sold. My own personal wish is for the bears to hold out for the next hour to work off the oversold conditions.

  38. haaaahahahahah well if we look at the weeks chart then its looking like its gonna end soon its clear for everyone to see that gains have been getting less on each bar and this week is the first red bar although its small and pathetic.Well just looking at charts espically on the week then there is no way that it CANT turn however we all know that the market has been extremely irrational over these past few months there is just a couple of mins left on the market so provided nothing major happens it should end at about this region.Any views on next week red.

  39. Well, I don’t think squat is going to happen until 2:15 pm on Wednesday when Bernanke is done yapping his jawbones. Depending on what is say will determine the next move.

    I think that any (if any at all?) stimulus that they promise to give will be too little and the market will tank on the disappointing news. No stimulus = Crash! Not enough Stimulus = Big Correction! Either way, the bears should get feed something…

  40. Ok so the list for monday is shaping up like this on the charts.

    1 min = OB
    5 min = OB
    15 min = OB
    30 min = OB
    60 min = OB

    Volume normal is normally low on monday

    POMO Nov 1 to Nov 2 which is monday with the low volume that will work out to be in their favor.

    Earlier on anoopsan had a chart which showed overhead res which failed to break out today.

    News front im not sure what reports are coming out on monday yet but i dont really think it will be a major factor.

    Holiday mood typically means slow or no movement sluggish at best.

    Elections this time round shows a very strong move to the bears no matter who wins but before that traders seem standoffish.

    Overall i see monday as a bullish day espically due to the volume , holidaymood and POMO in early trading base on charts we should see it taking a down turn before stabilizing around 10 after which POMO should keep it from falling before taking it to new heights.

    This is just my personal view and if i missed something out please feel free to correct me.

  41. I agree that’s what SHOULD happen, but I’ve noticed a whole slew of news coming out about a selloff now, trying to get enough people short to create a short-covering rally, like the last 2 months. I’m not so sure. There was a very concerted effort to rally September and looks like they’re trying to do it again.

    In any case, it’s just a wait and see. I guess the new trend is irrational rally, crash, irrational rally, crash, etc. At least as long as QE keeps going, which Madman Bernanke will never stop as long as he’s Chairman.

    There’s no QE 1, QE 2, etc. It’s just QE forever because Madman Ben has finally breached the final frontier…direct injection of cash into the stock market. The one bubble that will completely and irrevocably cripple, if not destroy, our entire economy.

  42. Which news are you watching im watching market watch ,cnbc ,bloomberg and WSJ. I will also be watching to see if anything new forms up over the weekend but my trading is done for now and im getting a little tipsy so i might not remember all the news hehehe.

  43. Any rally is going to be subdued w/o short sellers. “Not a short left in the house,” as topstep said on its site a few days ago. That’s not to say it won’t crawl upward for a while.

  44. Hahahah true the only way anyone is gonna earn money is to sucker in traders on the other side if there isnt anyone going in for the short will in hell will buyers get their money from.If im looking at a super winning trade and i have the house on my side meaning that any moves IIIIII make will shift the market in that direction.I would fake the masses out by releasing rumours and tanking it hard when they are in.After that i will find a scrapgoat to pin the blame on but laugh my way to the bank.Now dont get me wrong im not saying that the news are nothing but rumours in fact i find them warning bells that something is about to happen.However if everyone jumps into the market looking for a short if you were the house would you allow it to happen ? I see it as move money to push it even higher .Bear traders are almost if not dead.Any big down move will wake up alot of traders on the sidelines to start throwing their money in again but the timing isnt really right cause if it was up to me i would move for a down move after the republicans take the house they will be my scrapgoats if it goes down now who am i gonna pin the blame on other then myself (feds).

  45. Next week is going to be a huge week. Hint it’s week 87 from the March 2009 lows. By the way, I have more confirmation that 58 is the crash number: Nov 21 major low/McClellan Oscillator major low/qqqqs absolute low was week 58 from Oct 2007 high. This week was a doji week. But Summation Index continued to drift lower and now put some separation beneath its 20day average and going back a few years, there aren’t whipsaws once it penetrates it to the downside. A low could come in in a few days but that would require more selling. And miracle of miracles QQQQs and $ndx both finished in the red after sitting near their highs of the day for most of the session. Apple down $4+; not looking like a leader anymore. BBs are tightening for the euro and EEM (ewz not looking too healthy either)

  46. I am not really looking at Monday yet but I think it is 85tds from the July low. Summation Index and my intermediate strenght cycle (which is working so far and it generally does except in March where it was muted) and today’s close which set up a completed wave 2 (or all the requirements for a wave 3 to ensue are met) for all indices. I was just looking at some weekly cycles and some interesting number play. Just that we have some 88s coming up and converging on a certain date that jibes with some of Jaywiz’s key dates.

  47. hmmm ok thanks cause overall to my own personal view i see a downtrend is something that is unavoidable. However i am an intraday trader so i also need some info day to day to see if i can piece things together as they go along.

  48. Well, one ray of hope…after the markets closed, EUR/USD filled the gap from this morning. If the Euro feels like tanking, there’s nothing stopping it now.

  49. hmmmm with that in mind comes the inverse relationship of the currency and market.By right if currency goes UP then market goes DOWN i will be keeping a close eye on that as well thanks for the heads up on that fill ACP.

  50. Yesterdays news flooded the networks with what I see as a distractions for something bigger planned? Not sure how they find printer cartridge bombs on giant cargo planes from Yemen. Didn’t know Yemen made printers or that they were a major distribution hub to the US??? Give me a break.

  51. Hey Red- on the ES the entire week looks like a triangle being formed, we’re in the “d” leg as of close Friday which means one more minor dip and then a more sustained rally early next week. I’ve got us in the 4th wave of the rally that started late August, so a rally next week would be a 5th and thus some serious selling should follow. http://screencast.com/t/CgztnOsThPR I think a significant part of the rally over the last couple months is anticipation of Republican victories next Tuesday, so if my Elliott count is right it fits a classic “buy the rumor sell the fact” scenario. Only problem is a lot of folks are seeing the same thing, when too many people agree on market direction it mitigates against it happening.

  52. Good catch, we’re going to so have a major selloff next week. Looking more at the convergence of esoteric cycles from Friday, it looks like it could have been an important pivot high.

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