Monday, December 22, 2008

Potential bearish breakout

This chart of the S&P 500 index says it all. (The S&P has broken downwards through a bottom trend line.)

By the way, my second purchase of GRZZX was processed on Dec. 17th at a price of $8.67 per share, so my average purchase price was $9.02.


Schuyler said...

This same line could be drawn on your graph from the post of 12/16, but you said that one was bearish. Why the change in description with the same data?

Jody said...

No, the same line could not be drawn on both charts. The chart on 12/16 used closing prices only to highlight the overall trend, while this one includes intra-day lows and highs to show the rising support line. If you read the posts, you will find that both charts are bearish.

Schuyler said...

ohhhh by "potential bearish breakout" I thought you meant the S&P was about to break out of the bear market. Not the other way around. Makes more sense now.

Jody said...

Maybe the chart didn't say quite enough. I've circled the point where the S&P 500 broke below the rising trend line.

Dan said...

Fidelity charges a short term trading fee for GRZZX of $75 for redemptions less than 180 days.

Have you considering using: SH

"Short S&P 500 SH S&P 500" ?

It sure would be nice to avoid the mutual funds and utilize an ETF that shorts and isn't tied to the derivatives market.

Jody said...

Well, you're lucky that you have the choice to buy GRZZX at all, even if there is a fee. I have a Fidelity account that only allows me to invest in Fidelity funds.

Depending on how much money you have in the account, the $75 trading fee may be insignificant. I can only sit in a money market fund earning ~2% per year, but I would be happy to pay the $75 for the chance of making more than that with GRZZX.

By the way, SH uses derivatives. GRZZX is the only way I know of to short the market without using derivatives.

Anonymous said...

Can't wait to see how the market reacts after the new year. Yesterday's rally didn't make a lot of sense.. two horrible reports come out, but GMAC is getting help. Looks like we have a another rally today over the unemployment filings, even though they noted they were low because of the holiday. Hope to see some sensibility return after the 1st!

wooderson316 said...

So if the S&P breaks the 920ish level of resistance, I would think that is a stronger bull sign than the potential bearish breakout you noticed. Thought?

Jody said...

Yes, a higher high is a bullish sign. However, this rally has been accompanied by very low volume so far, so I don't believe it just yet.

Anonymous said...

Santa came late?... Nov. uptrend still going. Think your chart is drawn incorrectly.

"very low volume so far, I don't believe in it just yet" Did you not take into account the low volume when you guaged optimism/sentiment?


Jody said...

Sentiment was positive before the volume fell.

If it happens in December they call it the "Santa Rally." If it happens in January they call it the "January Effect." The truth is that the timing is irrelevant.

Johh from Colorado said...

Happy New Year! It's been some time since I checked in so I'm wondering what your indicators are indicating? There appears to be a lot of optimism out there which usually suggests a coming drop in the market. A side note; I bought oil (DXO) early (~$3.80) and then had a second buy order just miss ($1.72). Since then DXO is up ~80%($3.35). Seems to be my unluck. I'll wait for DXO to drop back into the mid or low $2 range (~40/barrel equivelent) and then buy. Any thoughts on oil or commodities in general?
John from Colorado

Anonymous said...

"what your indicators are indicating?"

Ya this blog would be alot more interesting if we had something to actually dscuss and test.

If you have an indicator why not share it with 4 others- not like it's really nailing the tops or lows. JMO.

PS 10% is my general stop. Are you holding that initial purchase?


John from CO said...

Well, I got out of my DXO position yesterday at $3.55 with a relatively small loss. Is oil going to $40 in the short run? I'm interested in any analysis of oil or commodities. Another thought I had is shorting emerging markets (EEV). Any thoughts are appreciated.
John from Colorado

Jody said...

Happy New Year everyone!

Sentiment is now the most optimistic it's been since October 2007, which is a bearish sign.

Breadth is now phenomenally positive. Usually such high breadth cannot be sustained, and is followed by a retreat in stock prices.

The rally which began in late December is the most bullish looking factor I can see. Today's close may give a hint: a big one-day drop would support a continuation of the rally while a gradual multi-day slide would be bearish.

I don't use stops for my positions in broad market funds like SSO or GRZZX. Right or wrong, I'm confident that the market will *eventually* move to a profitable price for me.


I think oil prices are going to be much higher - and soon - as more fighting breaks out in the Middle East. However, I'm still leery of ETFs that use derivatives like USO and OIL.

There may be a small volatility advantage to taking positions in emerging markets instead of the S&P 500, but there's less data on sentiment, breadth, earnings, etc. for those stocks, meaning they are more difficult to time correctly.

Anonymous said...

Hi Jody. Would you consider today drop a big one? While about 250 is significant, its nothing like the 500 - 700 points drops we would have seen a few weeks ago with the bad job news that came out today. -Matt