Wednesday, November 7, 2007

Bear Rally Just Getting Started?



The fear-meter here is showing no signs of letting up. If one were to add a 10 and 20 day moving average to this chart, it would become evident that both are trying to cross over the 50 day average. Typically this is signal used to indicate the start of a new trend.

If this were the chart of decent equity, I'm sure many bulls would find it bullish. Too bad it is bearish. Keep that in mind as you position yourself over the coming days. If the VIX retests its August highs, it is safe to assume the indexes will be near the August lows.

I've included some Fib numbers here to suggest areas of resistance. It should be noted that the 50% retracement coincides nicely with previous resistance. We might expect the indexes to put in a few bullish days if the VIX pauses or reverses at that level. However, the question every trader should be asking himself or herself is if they believe the VIX will push through that resistance, and what will that mean for their positions.

Finally, bottoms are found quickly, while tops can take a long time to carve out, and are often coupled with grueling whipsaws and volatility as the bulls fight the good fight until they finally conquer, or capitulate. As the markets keep catching a bid in the afternoons, I'd say the bulls still have some fight left in them.

18 comments:

Woodshedder said...

FD: Long SDS DXD QID TWM

I sold the rest of that stuff in the widget, keeping only MVIS, GLD, SLW, and MSFT.

Anonymous said...

If you run FIB off of the dow or the s&p you get 2 possible bottoms, the place we were at at the original fed cut, or the aug lows.... Just a thought...

I'm looking for this move to decellerate to cover, and prep to go long at a blow off move(er blow down.)

if the credit market locks up, the fed will step into the discount window.

Anonymous said...

Shit, I ment FIB off of the March lows to the sept highs.

Woodshedder said...

VIX now almost at the 50% fib.

mdawsz said...

Grant,

I noticed you're pumping TELOZ, what about CENT? Are you still long that bad boy?

Sierra Water said...

Grant,

Look at the OTC derivative contracts held by JPMorgan, Bank of America, Citi, Wachovia, and HSBC. That is where the big problem is via the credit default derivative, a sub type of OTC derivative. The assets are not there to cover these capital risks should mark to market remain mark to thin air.

ducati998 said...

The return of the scarlet poltroon,

Surely you need not have the blindingly obvious explained yet again.......I do not do directional, I am market neutral.

jog on
grant

the scarlet poltroon said...

I recall that you were pumping long that stock? I'm assuming you are long TELOZ, of course. Can't have it both ways Ducati.

Eric said...

Sierra...

I've been dying to know where the 100-200 Trillion number comes from, I assume it's the 10 trillion WW in bonds multiplied by the Reserve multiple.

The housing numbers are unprecedented in 60 years and getting worse.
The Credit crunch numbers are worse than LTC and The S&L Crisis.. By over 10 times.. and that is if you take the banks at their word.

Sorry to intrude.

ducati998 said...

sierra,

After looking at the data, it would seem that you are in point of fact correct.

The exposure that the aforementioned Banks have assumed is totally beyond irresponsible.

Prudent Bank "leverage" was once considered to be 6x equity, aggressive would be 10x and above.

JPM & C have gone to 300x equity.

Very good find on the data, I'll bookmark this site to monitor the exposure in the future.

jog on
grant

ducati998 said...

S.Poltroon,

No, I'm not long TELOZ either, perhaps a language other than English might clarify matters for you with regards to my investing/trading philosophy?

I mentioned TELOZ as this was the stock I recommended on my "Fly" debut and had anyone used that recommendation they would currently be up some 100%+

As I shall be part of the retirement commitee at the weekend I just thought I would mention the fact in advance.

jog on
grant

Sierra Water said...

Good to see you confirmed Grant. Total Derivative exposure is of course off the charts near 200 trillion, but the kicker in this mess will be the default credit derivatives that are over 20 trillion US. This exerpt sheds some light as to the real risk these banks are facing:

"The credit default derivative that the financial integrity, as defined as the special performance contract actually performing, depends on the balance sheet capability of the loser on the arrangement. I would suggest to you that the outstanding commitments on the credit default derivatives exceeds the total cash and near cash assets of all the dealers involved. There is another outstanding question which is how many credit default derivatives have been written by the few participants on each other?"

I really don't care for talking about this stuff, but it is such a problem I need to protect my family and those that care to listen. Best of luck to everyone and I just hope it doesn't turn out as bad as I think it is.

jenn said...

hey thanks for the info~ i recommend you going to http://www.hototc.com
they got some good info and advice there.. just thought i'd let you know~

ducati998 said...

sierra,

Which brings us to the current conundrum faced by the Central Bankers;

*save the financial system
*save the dollar

It would currently seem that it is the financial system that the Fed has elected to *try* and save.

This of course is a replay of Argentina/Mexico in the early 1980's again involving the bankruptcy of Citi.

Thus, and as we are currently seeing, the dollar is sacrificed.

Interesting.

jog on
grant

Woodshedder said...

Sierra, I'm pretty sure I do not fully understand the default credit derivatives that you speak of. Do you mind explaining that in more detail?

Also, I'll give you the keys to this here blog if you want to do a post or two on the subject.

Easy To Get Credit Cards said...

I tend to find info on fibs a bit difficult to understand. Is it true that fibonacci's are a more consistent "proven" way to trade. I usually do channels, FA's, and scalps. I would like to learn FIBS.
Could you recommend where I could learn?
Thanks.

Sierra Water said...

Wood, I wish I had the brains to do a post on this, but I know very little in the big scheme. A very famous investor told me 4 years ago to look into OTC derivatives and thats how I found Sinclair via my research. There are many others who are talking about this situation on a daily basis who I listen to.
Sinclair talks a lot about the Weimar Republic as a good case study if anyone is interested. MDAWSZ, the stock market can go higher just like it did in the weimar republic for a period of time. The problem this time is the possible interoperability of the performance contracts of the major dealers of credit default derivatives. If one goes down, then there goes the town. This is not a one day event, it will last years and affect markets such as CA RE for 3-5 years. I am playing a generational bull in Gold, so know way am I selling an oz. I will play the stock market as it develops using TA as a guide. I covered 50 points on GOOG today as well as a trifecta on a float above the 5minute 50dsma on WB, C, and GRMN. I felt like a magician today, but that will probably change tomorrow as I am far from perfect.

Sierra Water said...
This comment has been removed by the author.