The Market may get Crushed by End of Week

The action today in the market so far is quite curious.  I mentioned yesterday that the big rally we had yesterday was probably a ghost rally.  Today’s action seems to be confirming that theory.  Why?  Well with all the bullish AAPL news we see AAPL only up 3% and the QQQ DOWN half a percent.  Something is not right and I am glad I still have the BOT short signal in force.

I would not be surprised to see the sp500 fully engulf yesterday’s big up candle and close very hard down into the end of this week perhaps right at the 1295 level !!.  The volume today so far is horrible on the SPY ETF, horrible follow through!

August is notorious for volatile low volume trading in BOTH directions.  Sustainability of trends should be questioned with every move.

The monthly tape is setting up for a huge drop that starts to evolve in the early part of August 2011 !  It is quite possible that today is a ‘dream shorting opportunity’ and one big red down candle into end of this week may confirm that hypothesis.

We also may have a possible evening star candlestick formation on the sp500 (or even a modified version of the evening doji star) which typically leads to a hard down day the next day.  One might even call it an ‘abandoned baby’ candlestick pattern.  Problem is today’s doji was not much of a gap up.  But I can easily see this market down tomorrow and then HARD Down Friday to close the week.

It would be extremely bearish if we are able to retrace the entire rally that began on June 27, 2011.

Sometimes right shoulders of head and shoulder topping patterns have the habit of forming very quickly!

Remember September 29, 2008 ? That was the day the DJIA was down 700 points on a failed passing legislation to bail out the economy.  It was a HUGE hard down red candlestick and it occurred when the daily histogram was in a sell mode under the zero line.

http://money.cnn.com/2008/09/29/news/economy/bailout/index.htm

But now we seem to have a similar situation that is evident on the weekly time frame and today’s hesitation candlestick pattern could suggest we are are about to do a repeat.

I am still researching the possibilities here, but I would be very careful in either direction from the current juncture.  More sideways does seem to be the popular stance right now, but keep in mind in mid August 2007 there was quite a big down move.  The market will move if it has enough reason to do so.

And if the debt deal gets screwed up?  Maybe 1000 points down on the DJIA to kick start the decline.

How ironic it would be if the June 27 2011 rally to the July 7, 2011 rally was the biggest fake out rally and teaser rally trying to get everyone on board before the big dump.

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9 comments on “The Market may get Crushed by End of Week
  1. RMT says:

    Very bold call. I’m 100% neutral right now and out of my sso for a good profit. Todays’s price action on the qqq’s and the light volume follow through is bearsih but there are still bullish signs that will prevent me from shorting. The debt ceiling will be raised; it’s just a matter of when. Politicians have no choice but to raise the debt ceiling; all this political bickering is about which party will get a bigger piece of the pie. If it does’t get passed before august 2, then markets will fall, but I highly doubt it will have any resemblance to 2007 crash of 700 points on dow. But sooner or later the debt deal will be passed.

  2. Geoff says:

    this blog surprised me. rather than reactive to yesterday’s explosion, the blog has seemingly stuck to its guns. i agree with RMT that this is a bold call. hopefully, it is the beginning for blog maturity. i am bearish but respect that i may suffer more. while extremely remote, i think a “swoosh” (down) is possible at almost any time – – and from that point the last EW leg up (which “pug” thinks will terminate around Nov 11) and the beginning of a much more dour market.

  3. Tom Tom says:

    Hehe, blog maturity… I like that phrase 🙂

    Interesting that INTRADE notched down to a 40% chance of a debt deal completion by July 31, 2011.

    http://intrade.com/v4/markets/contract/?contractId=745701

    And 66% chance of a debt deal by August 31, 2011 (down about 7% today).

    http://intrade.com/v4/markets/contract/?contractId=749123

    I cannot speak to the accuracy of intrade predictions but this report argues intrade is more accurate than polling in the concluding paragraph of this report:

    http://www.iansaxon.com/academic/IanSaxon_MScEconomics_Dissertation.pdf

    In keeping with similar research by Berg et al and others, this dissertation found that market
    prices tend to be better predictors of political event outcomes than corresponding polls. This
    superiority was observed over all time periods studied, with Intrade market prices correctly
    predicting the winner 36% of the time in the 2004 Democratic presidential nomination contest
    (compared to 13% for polls) and 54% of the time in the 2008 Democratic presidential nomination
    contest (compared to 45% for polls). Furthermore, the p-values generated from these results
    showed that these outcomes were unlikely to have occurred by chance, making it possible to
    reject that possibility at the 5% level for most time periods considered.

    Maybe worth keeping an eye on the two intrade links above.

    Maybe the futures will be interesting tonight as well:

    http://www.forexpros.com/charts/real-time-futures-charts

    The traditional argument is that there is no way on earth the government would not pass the debt deal.. but just like anything in life almost nothing is 100% guaranteed.

    So if there is some type of failure in them getting the job done, we could see a debt and stock market melt down with unprecented speed.

    Since the head and shoulders topping formation started in the market, we simply have not seen the market deliver to us a very strong price signal about its next major intentions. Will be interesting to see if it delivers one soon.

    Other notes.. The TLT bonds ETF has a bearish harami candlestick formation… not the most reliable but could suggest bonds get busted down.

  4. Larry says:

    Always with the negative waves. There will be an accord reached soon enough on the debt deal. This is just the neanderthal actions of some hot air politicians. If it doesnt I believe the market will react negativley for 1 day and bounce back. There will surely not be a 1000 pt down day, the stop loss will kick in and trading will be halted so that wont happen like last year in May.

  5. Neal says:

    Geoff: A couple of investing considerations: 1) The market can remain irrational far longer than the “investor” (ie speculator/ day trader) can remain solvent 2) As a speculator add up the true cost of your speculation hobby, including the full “cost of the carry.” Start with margin costs, add in monthly interest on bond rate interest lost. And to come up with an accurate grand total don’t forget to include the biggest expense which every losing speculator tries desperately to forget–the ongoing bleeding of capital with every losing trade he tries to shove out of his mind while obsessively attempting to divine the direction of the market. In other words, gentlemen, trying to “game” the market is a sucker’s game. There are far better ways of making money than persisting in this ulcer-producting financially suicidal hobby. Geoff, I direct this free wisdom specifically to you, who in these blogs appears to sense something is self-destructive with attempting to outsmart this trendless market. My advice, my friend in cyberspace, if you have capital left, cash in your chips now!!

  6. Tom Tom says:

    I realize it is a long shot, but I don’t think any good deals will get done in Europe tomorrow and also no good deal will get done by Friday of this week for usa.

    The market will get upset about that and start to dive like a rock.

    I think there is still too much complacency. Yes earnings are great and the world is still turning.. but this was the case at the 1987 peak as well.

  7. Geoff says:

    Neal – – thank you for your advice to avoid ulcer inducing financial suicide. my comments allowed by this blog format are directed at the blogger and those who, perhaps, may be following his demonstrably horrendous advice for many months now.

    hopefully, the blogger will get ‘lucky” here soon.

    as for myself, i have tried to do my own thinking, some times more successfully than at other times. i try to tune out the “tempting” and easy siren songs which would boil the market movements to the theories of astrology (cardinal climax), or M Armstrong, or mayan end of days as rather endlessly promoted (without effect) by this blogger.

    i am generally bearish and have the pt of view that very little has been done to actually fix the problems that plagued us in 2008/9. in fact, i think we are quite possibly demonstrably in a worse fix now (being even more indebted and with less options available). i stupidly hold significant capital in non-interest earning US dollar funds (unforunately not kiwi, aussie or canadian dollars), an above average amount of gold in a stock mutual fund, and a roughly equal amount alternatively on short / long trades but predominately short.

  8. RMT says:

    Once you are in the market, you are in for life. There is no going back. It’s an addiction like no other. As traders our biggest friend is the stop-loss. One thing I’ve learned is that there will always be money making opportunities in the market but the key is to limit your losses when trades don’t work out. I think buffet has 2 rules for success: 1. Don’t lose money, 2. Don’t forget rule 1.
    I find that to be so true. Trading is probably one of the toughest thing in the world to master. One can lose money even after having 90% accuracy on trades. Nowadays with all the super computers that the big boys have in addition to the insider information, small investors like us are inherently disadvantaged. It’s true that most amateur investors lose money, but the ones that can master the markets will be set for life. Mastering the markets is an unique skill that very few have; even the best academics or the brightest minds around can’t achieve success in the markets. If you can learn to game the market, then you will be a rich man. So If you have capital to spare then I say the risk is worth the reward.

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