Tuesday, December 16, 2008

Do you see what I see?

The S&P 500 index closed at 913 today, which is the highest closing price since the November 20 low of 752. More importantly, the index climbed more than 5% in one day, erasing the gradual decline of the previous five trading days.

Just two weeks ago prices were forming a small bullish pattern of a gradual rise interrupted by a brief, steep correction. The past six days reversed this trend, sporting a gradual decline that ended with a big single-day rally. In other words, the charts are starting to look bearish again.

Tomorrow I will transfer another 25% of my Roth IRA funds to GRZZX.

15 comments:

wooderson316 said...

The implication being that the charts point to a steady multi-day bear trend just as the last bullish trend on your chart followed the big decline day with a multi-day up trend?

Tim said...

Enjoy your analysis.
Jody you must be mulling over a new target for the SP is you are going aggressively short here. Below 7000?
Careful Jody this Bear Market rally could last for another few weeks. Best of luck anyways.

Jody said...

I never have a future target price in mind when buy an ETF or fund. I simply get in when the market is signaling that it's going to move, and then get out when the market signals that the move is finished.

The more people warn me that the rally is going to continue, the more my contrarian antennae tell me that it won't.

Tim said...

Jody
The increased traffic and comments on your site alone gives me pause about taking out new short positions. I have been following your site for over a year and the number of comments on the site has increased with the moves down in the market. Many "bear" sites have also gotten more crowded in the last 2 mos.
Contrary indicators aside the market is crazy and I'll sit this out for a while.

Jody said...

It would be ironic - and costly - if I missed a sentiment indicator right under my nose!

Jody said...

By the way, the number of comments doesn't really reflect the total traffic to this site. The number of hits (views) actually reached a multi-week minimum last week, and it peaked in late July and early October.

Best of luck to you too!

Anonymous said...

Hi Jody,
Lets hope you are right and the market starts its downtrend today. Seems unbelievable how much bad news comes out, but the market keeps going up anyway. Just hope the "Santa Rally" isn't a self-fulfilling prophecy... thats the only thing keeping me from buying DOG or any other bear fund right now.
-Matt

Anonymous said...

Hi Jody, Glad to see you back in the market. I’m curious about your indicators. Care to share them? Optimism isn’t what it used to be. I think people are optimistic that we won’t totally collapse but not bullish at all. We could correct for a long time with very little price movement. Interesting note on site traffic. The biggest bear blog of all is calling for 500 points straight down and they have on average 50K hits a day. Hmmm. Want to get contrarian on that?

Jody said...

One example of short-term optimism is the frequent use of the phrase "Santa Rally," as if that is preordained. My use of the term "optimism" reflects S&P 500 forecasts, and nothing else - not the economy, not jobs, not the GDP.

People tend to find evidence for what they *want* to happen, and at least 3 people commenting on this page have spelled out reasons why they think the market will continue to rally. There are bearish blogs and bullish blogs - bearish newsletters and bullish ones, and I think your focus on a popular bear blog simply reflects what you think is going to happen, and not the other way around. In other words, I don't think that you're non-bearish because you noticed high traffic on a bear blog.

tim said...

Jody,
Last comment I will say about sentiment, I promise. One thing I look at is the Yahoo and Google message boards. When the "Perma Bulls" switched to Bears (Nov) in the posts, that is they were betting heavily on low quality stocks such as GM then went into the Ultrashorts I thought it was time to cover my shorts.
Good luck to all.

Jody said...

I agree that when the last bull turns into a bear that it marks the bottom, but I'm not sure how to quantify bearish/bullishness from message boards. There's a huge pool of long-term investors who will never visit a message board, and some of these folks may turn bearish long after internet-savvy traders have.

wooderson316 said...

Jody, after rereading your post I am still unsure about your thesis. Am I correct that the very small time-frame trend you point out in your recent post plus the sentiment indicators you look at suggest to you that there will be a renewed drop in the current market?

I just don't get why the very short time frame you reference in your current chart leads you to believe that the market will continue to drop enough to warrant taking action. I think you are correct, but I just don't fully understand the case you are making for why based on the micro-trend. Help me understand.

Thanks.

Jody said...

I'm not exactly sure what your question is. Your sentence that begins with "Am I correct..." is indeed correct, and suggests that you understand it. But then you say you don't understand. My method is what it is because I've found that it works. If you're looking for more than that, then you may be looking for a deeper "why" than I have answers to.

Anonymous said...

A little off topic, but why are people buying treasuries that pay no interest to "protect their principal"... Why not just leave in a govt insured savings account? I think some online accounts are still paying 3%.
-Matt

Jody said...

Many 401(k) plans are limited to only a few funds - stocks, bonds, or money market. They don't offer cash or savings. People with these plans are choosing 0% interest money market funds over the declining stock funds.