Analyst expectations for today’s non-farm payroll number was bad — really bad. And when the news came out, it was worst than even the most downbeat estimate, yet the market opened down and powered up to close on a high note. Why? Because the script was already written.
“W” Test of Bottom Setting Up on Daily Chart
2:43 PM Teresa: You around?
2:47 PM Pete: hey t, +119
2:48 PM Teresa: yep, they were all braced for a bomb and it was hard to beat that kind of fear, so we’ll see if it can power up big time.
Pete: well the number was terrible and for buyers to show up its a good sign
2:49 PM Teresa: all the sellers were out of the way and dummies short, so it had to go up
Pete: how was your day?
Teresa: we’ve seen this sort of thing before back in the mid 1990s. Remember that blowout employment number way back then, but that was to the upside, and then they started watching it forever and ever
2:50 PM Pete: +200
Teresa: some things never change
Pete: human nature can’t change
2:53 PM Teresa: nope
2:54 PM they are getting excited, lol
Pete: yea we bottomed, lol
2:59 PM well u did say to watch positive divergence
3:08 PM Teresa: plus when they are braced for Armageddon, you know that who ever wants out is out and the dummies are short
3:10 PM Pete: and life goes on, saved for another week
Teresa: man, I am exhausted. Was on my feet from 12noon (Vienna time) to now
Pete: you went to gallery?
Teresa: Yeah, saw the Van Gogh exhibit and am packing now. Are you listening to Maria? She doesn’t get it, after all these years. And some guy is pumping POT…
Pete: yeah, nice pick
3:11 PM Teresa: Arch Coal, and Flowserve. Geez.
Pete: crazy oil broke $40 today
Pete: yeah guy tell em to buy coal… the LOVE IS GONE
Teresa: I think things are actually getting worse out there in “the real economy”. Today’s move up is “technical”
3:12 PM the reason being, that everyone knews for weeks that this number was coming, and it’s going to be bad. Just wait for the next “unscheduled” announcement
Pete: well we will soon get overbought via the sentiment. We watch: just when everyone will say ‘its ok to get in now’ lol
3:13 PM Teresa: and maybe make that diabolical two swing bear flag after the trendline breach
3:14 PM The economy is not going to bounce back much by “mid 2009”. I mean, there is continuing credit contraction and people can’t even pay back loans even if the interest rate is zero. They can’t even amortize the principal on schedule.
Pete: thats the big problem
3:15 PM Teresa: and every guy that walks away from his house, it not gonna be OK. All his CC are gonna get #@$%#@, and the guy is down for the count for years. And that’s before the billions of LBO debt need to be rolled over next year
3:16 PM I mean, TLT is off only 1.4% on the day
3:17 PM seems to me that it’s 2+2 = 4, but everyone thinks it is 3 or 5
Pete: well the these are the pieces of the puzzle and people have to accept them
Teresa: they don’t understand that this market didn’t “shrugg off” this news: they knew the date it was coming and got out of the way.
3:18 PM They expected Armageddon. Maybe this is the part they all get faked out, a big bull trap coming up.
Pete: what if we test the lows again we KNOW they going to freak the @#$% out
Teresa: breach the downtrend line above and then whammo. That must be the script because now with the downtrend line, we can draw the Trader Vic 1-2-3
Pete: yeah this should be a mother of all traps if that happens
Teresa: FINALLY, if it goes down one more time
3:19 PM they will say “there is no bottom”
Teresa: I think the market will not allow Bill Miller to be right, and maybe we get a classic 2B test of bottom after the big bounce
Pete: a very good setup to trap. NO ONE out there thinks like you lol
Teresa: They’ve been wrong about the fundamentals, about how bad this whole thing all the way down
3:20 PM and now they think all will be hunky dory in 6-9 months. lol
Pete: Miller said in April the worst was done already..
3:22 PM Teresa: Man, this market is not that convincing so far…only +150
3:23 PM Teresa: considering how many people might be trapped
Pete: Dead Cat Bounce in bear market…once bear flag setups start failing then they have to go into sideways phase
3:28 PM Teresa: 1/2 hour to go. Will they pile in? It could go up 200 more, but we shall see
3:29 PM it ought to if there are as many people trapped as there should be but bonds are NOT being pounded
3:33 PM Pete: +250
4:04 PM Teresa: yep, they did it
For details about the “W” Test of Bottom, please see Chapter 10: Reversal Patterns. Remember to type in the password: impossibleportfolio.com
29 CommentsSubmit a comment
So, by your reckoning, are we short-term overbought here or in position to continue Pete’s “mother of all traps” higher for a while? Also, if you have a chance, please show a current chart with the Trader Vic 1-2-3 drawn and projected forward.
Teresa, thanks, you answered my question. Back to school.
The conversation you and Pete had above is difficult to follow in terms of what your take about the bounce. Was it a Dead Cat Bounce as Pete indicated or was it bottomed ad he said too? confusing message. I would rather hear from you a clearer message in terms of what your take about the market direction even if it is to be totally wrong.
Also, i was writing your “Script was already written”, i could not figure out exactly what you were saying. Your messages always have two sides of market, so you will be always right, from one or another.
You cite Mamis and a rolling avg # of 52-week new highs and lows, I believe, and his explanation was clear and very educational. However, it would seem that that average would take some time to swing, like turning an aircraft carrier. Clearly, that oscillator would confirm LT trends. Does it make any sense to follow the number of 20- or 50-day new highs/lows as a shorter term barometer? Or rolling avg of stocks with 20-day SMA exceeding 50-day? Or 50-day SMAs exceeding 200-day? Should VIX or VXV play any roll in choosing an appropriate period?
As you know I just started to read the Ultimate trading course.You said, May be we get a classic 2B test of bottom after big bounce. That means market will go higher then go further DOWN side?
Just dumb ????. It will take me a week to catch that chapter.Also, Please help me with my Problem with InVivo Stops efs. I requested for a help yesterday.
I’m still hanging on to the 08_08_08 Bounce ;'[
Whats with the derisive talk re POT, ACI, etc? Understand you don’t like trading but these shares are up 15-25% over the last two days. You and Pete sound catty discussing a dead cat bounce. This is a trading market that has demonstrated buy and hold to be a failed strategy. Seems to me the PM talking the stocks up did someone a favor. Even himself. And me.
Yan and Rick: I guess the lesson for me and Pete to learn is that we should not post “extras”. We’ll let the portfolios do the talking and everyone can trade what they wish, any way they wish with or without our trading tools. After all, what do we know? I am (i) entitled to my own opinion, and (ii) many times, the market works like this: IF this, THEN that. Furthermore, I’ll have you know that it was my last night in Vienna, and instead of going out to a nice place for a late dinner, I stayed behind to edit and post this especially for members thinking the information was going to be useful, but no. Next time, I will not be such a big moron.
I’m sorry, I’m going to pipe up here,
please acknowledge I have no standing.
This is how I read it:
There is a 2 swing Bear flag (2 uplegs, the second leg of which we are in.) The resolution of which, is in the 900-940 range on the spx.
After it breaks down we should see a significant probably of a new low/ or some form of bottom test.
So, in conclusion, the 900-940 spx range would be a place to look to reduce risk, instead of increase it. Many traders and swing players exit on the pull back instead of trying to “Top Tick”
Using the model, one could look for some giggling/Cheering/or booya’s(euphoria) for an exit.
Though Kudlow and Erin were awfully excited this morning.
thanks for taking time to write your perspective about friday. don’t let cramerica get you down and next time, choose dinner.
Dan: you made my day! LOL! If all members could be of such good humour, then we would really be in business…
I for one always appreciate the time you put into the little “extras” you server up for us members, and value the experience you share with us on a daily basis!
Thanks all. I think perhaps a bit of background would help provide insight into why we are so jaded. Pete is working on it.
Jason: We keep the InVivo Sentiment for OEX/NDX to help us get a feel how bullish or bearish the markets are. As of Friday’s close the NDX had 54 Buys and 46 Sells, while the OEX had 63 Buys and 37 Sells. When the Buys get into the higher levels ‘for example’70 and above we might consider we are closer to overbought levels and pay attention for Negative Divergent patterns.
The comment that I made “mother of all traps” was because I have been hearing from retail investors who have taken big hits to their portfolios starting to look at Short bias ETFs. The concerning part is they are looking at the 2X and the new 3X leveraged Short bias ETFs. The thinking from them is “I feel the market is going lower so if SPY goes down -10% my 2X Short ETF will be +20% but since I am down so much I should opt for the 3X Short ETF so I can make a +30%”. Can this be considered fuel for bulls?
Another observation is from a very well known market guru who has been very bearish on the broad markets for a while. He has been selling ‘how to short the market’ advice. What is important is he said he is being bombard by emails from his clients who are mostly retail investors asking him what to short right now. He himself thinks there will be a ‘Inauguration’ rally in the near term. But I find his comments regarding his clients wanting to blindly short the market a very big sentiment point.
And the final observation that makes you say ‘oh really?’ is the famed bear Bill Fleckenstein will be closing his short only hedge fund. Makes you wonder what does he see in his crystal ball?
Fleckenstein Shutting Down Short Hedge Fund
Fleckenstein on Short Sellers
As always everyone has to do their own homework to make their decisions. These are just my observations that perhaps might be useful to members.
Well, that certainly got the juices flowing. I have been very complimentary of you and your blog but I re-read your conversation and I stand by my comments. You two do sound catty, especially with repeated LOL’s. How is that helpful? Are we to act on those remarks> Learn from them? Are people making decisions on LOLs? I, too, am entitled to my opinions; the difference is that I don’t charge for them. I am trying to get the most out or your service and so, when I read a non-conclusive, minimally instructive conversation I feel let down. But thanks for the effort, I have said several times to you that you work too hard. Finally, (hooray!)am not sure I would have stayed in the hotel but would have gone to the Cafe Central for pastry & coffee.
We like to laugh a lot, because the market is too absurd to do otherwise. Next time, I will be sure to not post.
Yan: I am sorry for the confusion when I said, “we bottomed”. I said this as a joke to Teresa only because we were watching CNBC and Maria Bartiromo was coming on with her 3pm show. On big up days like we had on Friday her voice is a little bit higher pitched and she talks faster that usual. Since I knew she was coming on CNBC live on the floor of the NYSE with her giddy bullish day bias might have helped bulls push the buy buttons.
So this is ‘the why’ I said that as a dumb joke sorry!
Those who don’t believe ‘money honey’ has no affect on traders, ask those who used to daytrade Micron (MU) in 1995. Every morning how did Maria report her pre market morning notes on MU? [Answer:Very Bullishly] 😉 Silicon Investor the oldest stock message online has posts confirming this.
12-9-1995 Micron Technology…great opportunity
Also: Maria Bartiromo on CNBC said (Friday) that many of the floor traders which she has spoken to expect the stock to be much higher very soon.
Rick: The reason I spoke about POT and ACI that way is very simple. Maria and Dylan had two guests on their show live. Bob Auer who runs the Auer Growth Fund (AUERX) and Daniel Frishberg of Laffer Frishberg. Mr. Auer was very bullish on POT and ACI for the long-term fundamental reasons. If you watch the following two videos Mr. Frishberg made some excellent remarks regarding those picks.
Navigating Market Volatility
Now AUERX YTD is down almost 59%. So when Mr. Auer is so bullish on companies that have made his own investors lose a lot of money one should pay attention. Who would you rally listen to just from purely watching those two videos? I felt Mr. Frishberg has a better pulse on the markets. Just my humble opinion!!
YTD Comparison of AUERX
Another observation also is I pay attention to where the ‘momo players’ run into and out of. POT is still on their watch list while ACI has fallen off their list. As I have said before the momo players are going after ‘whole dollar’ moves versus ‘percentage moves’. I think they rather get a 20% move in a $100 stock versus a 20% in a $15 stock. Risk management is necessary always!
Sorry again for all the ‘LOL’s’. I always liked the following quote.
“The most wasted of all days is one without laughter.”–E.E. Cummings
giddy bullish day bias – now that made my day. i don’t know about the rest of you, but i have trouble watching the financial channels from any perspective other than entertainment. there are so many agendas out there, some hidden, some not. and don’t get me started about a certain supply side economist whose tv show is on at 7 every night.
… Without the jokes and the cattiness, wouldn’t this be something besides “The Legion of Diabolical Thinking Analytics”
I’m a learn to fish kind of guy. I was actually reflecting this weekend about how T & P were making all this too easy, and I was getting complacent with my own skills. But during all of that I thought, it would all be easier if they just sent me an email when I should buy, and when I should sell.
Then I remembered, the market isn’t that easy, There is nothing definitive about it, the reason for the vagary, and why I have to read a post 4 times is because we are dealing with probability. Moreover, I have my own bias about how I want it to play out, which tends to distort how I read things.
Not to get too Philosophical.
We all want answers,
But sometimes it’s the Questions, and the answers that other people are give, that lead to what one might define as “Truth”.
….without the fun and joking around here, how am I supposed to tolerate watching my net worth go up and down all day, I need my joking snide T&P.
T and Pete, thanks for your comments today. In the short time I’ve been aboard, I’ve found you very patient and your insights very educational.
Now, I think I’ll go pile on a mess and half of SDS…. 🙂 ???
Eric: The entire discussion reminds me of my old boss. In a moment of penultimate snarkiness (can’t use the word “catty” when referring to a man), he said to me, “We might as well save the client the trouble of trading, and just cut them a check. That’s what they really want.” LOL!
there you go again with that lol…
seriously, thanks to you and pete. as for me, i’m, just a dumb short who doesn’t see any good news or reason for the current rally. the price action in steel is a good example. the argument is that the up spike is because of obama’s infrastructure program (wasn’t it just a week ago that he was being blamed for the precipitous drop?). this is the same guy who doesn’t take over till january and any programs he puts in place will take six months to ramp up at a minimum. meanwhile the steel industry has been posting factory shutdowns, layoffs, price cuts, and god knows what else for the past month. go figure.
And I’m just blindly following my own portfolio strategy. 😉
Here, I think I have an answer to the question on everyone’s mind. A member wrote in and asked:
In your conversation with Pete last week that you published, it seemed to me that the suggestion was this rally was bull trap. Do you still feel that this is a bear rally?
If you read it carefully, trade setups are IF > THEN scenarios, that is, there is still one more small sell setup left to invalidate.
OK, we’ve done a podcast to explain the way we see the market. Check out Trade Like a Commando.
I appreciated the dialogue and the type of thinking and scenario planning T and P demonstrated the other night. That exchange, including the “extras” was a very clear example of why this site/blog is very valuable to me as a student of the market. I have read many books about the market for 18 years, and learned more from that exchange than I have from a number of investment bestsellers. Keep it up, T, and don’t let folks who didn’t like something peripheral deprive the rest of us of your hard-earned wisdom.
Dale: I guess I read cynicism into their comments, and did not realize until last night that perhaps they just didn’t know our basic operating premises, hence the podcast. Thanks for the encouragement.
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