(1) My coming of age in the use of charts to trade for a living came as a student of a man named Vincent Micheal. He runs a service called, "StockMarketVideo.Com". He has become increasingly bearish, based on his reading of the charts, for the past six weeks. Tonight, Wednesday, he basically said run for the hills, something bad, really bad, is about to happen to our equity markets. I have never heard Vincent in this kind of panic mode before. I am taking his warning very seriously.
(2) A few minutes before the close today Jim Dines sent out an "Interim Warning Bulletin" titled, "IS AN ALL-OUT MARKET CRASH POSSIBLE?" In it Dines downgraded all stocks to "Hold" and suggesting that geopolitical forces, including a $5 Trillion Dollar assumption of mortgage debt by the American taxpayer (and Dollar) may very well trigger imminent nastiness in our markets.
(3) The Charts. Since we are on the subject of using Ultra ETF's as market timing vehicles (from earlier today), let's have a look at a handful of them. Remember, these are Ultra-Short charts, so they represent the inverse of market direction, i.e. when these ETF's go up it corresponds to the underlying market going down:
Dow30 Ultra-Short
S&P500 Ultra-Short
Ultra-Short Technology
Ultra-Short Russell 2000
All of these ETF's are in Bullish Trends, corresponding to Bearish Trends in the equity markets. This is enough in and of itself to be short equities. But enough to call for a crash?
I have never done this before, never so loudly proclaimed a market direction, let alone a market crash. So why am I doing it now? I remember the Crash of 1987. It killed my father (he died of a heart attack 20 days after the crash). I remember the days leading up to that crash, the stock market was going crazy, up 3% one day, down 3% the next, on and on in the weeks leading up to that crash. The past month has been very similar, with nothing really working on the Long side, with the market bailing out positions on the Short side. Lehman down 25% in 30 minutes of trading yesterday. Washington Mutual down 30% today and barely a mention of it in the news.
Too, too much to ignore. This is my warning, written in a hurry on a Wednesday night, for what its worth.
A
There's something happening here
What it is ain't exactly clear
There's a man with a gun over there
Telling me I got to beware
I think it's time we stop, children, what's that sound
Everybody look what's going down.
What it is ain't exactly clear
There's a man with a gun over there
Telling me I got to beware
I think it's time we stop, children, what's that sound
Everybody look what's going down.
27 comments:
Allen:
Thank you for the heads up. The charts of the indexes do look a little ominous but I didnt expect an all out run for the hills. Better to be cautious than sorry.
Are you still a subscriber to Vincent Micheal's work? Are his claims on his site substantiated? Any insight would be helpful.
Thank you!
Bruce
Bruce, yes, I am a subscriber to the site, although I am not familiar with any "claims" as I bypass that homepage and go directly to the charts when logging in. He's an honest guy though and his service is excellent. A great teacher.
Hi Allan,
Thanks for the update. Couple of questions, so please excuse my ignorance:
1) doesn't such comments cause undue panic which results in a market crash?
2) What are the technicals that support such a claim?
3) I hear people say, this too shall pass we survived the "dot bomb". How is this different?
4) What are you doing?
Thanks,
Ron
Ron,
(1) Maybe, but would you rather that I share these views or keep them to myself?
(2) A myriad of bearish engulfing candles on stocks across a wide spectrum of sectors.
(3) It's not different, this too SHALL pass.
(4) I am net short, with all my Longs hedged and holding long QID, SKF and as well as short some individual stocks.
Allen, thanks for the heads up. You might be right. Panic is not what we want, but people should be wary and ask themselves 'what if'. Anything can happen in this market.
Thanks Allen! I definitely appreciate providing me with information, that I may not have come across. Given that my investment skills are still developing and I probably would not have done as much research and technical analysis as you have.
I hope to learn more from you!
Thanks again!
Ron
Thanks Allen! Appreciate the insight and informing me so I can take a conservative approach on my investments.
Take care,
Ron
Thank you Allen for sharing your thoughts and insights.
Shyam
Thanks ALLAN... no E in the name guys and gals...
just noticed that everyone was spelling it wrong sorry
but yeah, being bearish has been paying off recently...
-Anar
I'm small potatoes and my amateur trades have been in the toilet for some time now ... so a crash wouldn't be a life changing event for me, just a reminder to spend more time on more important hobbies.
Allen, sorry to hear about your father...he must have lost a bundle to cause a heart attack. Remember folks, it is only money...you can't take it with you!!
Thanks for your input Allen ... you are a gem!
Thirty minutes before the close on Thursday and nothing has changed in my bearish bias. If and when there is a meltdown in stocks, it is going to have to be enough to forecast it, as opposed to pinpointing it. My guess is if it is going to happen we will know well before the election in November.
allan, what are your thoughts on this considering gravitas/xyber9 would suggest a rally from here. I'm just curious how much value you put in that anymore
Cyclomancer
Joined: 15 Jan 2007
Posts: 1064
PostPosted: Wed Sep 10, 2008 7:18 pm Post subject: Reply with quote
I have a chart, from the WSJ (May 15, 2005). It shows GDP on left scale and DJIA on right. Now, in 2005, at that point, the DJIA had plunged precipitously to 10,000. We were talking about the unrealized value in good companies, and I said the market would exceed 13,000 at some time. That it did. On 12/31/07, just under nine months ago, the DJIA was 13.264.82. Now, under duress, the DJIA in 8 1/2 months has dipped to 11,268.92. The same question appears. Is there unrealized value in good companies? Many say yes. Now the zone of unrealized value can be extended up to Dow 18,000. The journey there will be made, but not for everyone, and not without risks and volatility beyond past years. The question then is, can you stand to take that journey, not knowing when you will arrive?
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flopwedge
Joined: 16 Jan 2007
Posts: 8361
Location: North of San Francisco
PostPosted: Wed Sep 10, 2008 7:31 pm Post subject: Reply with quote
That column is full of shit.....I feel bad about his Dad dying, and the fact that he thinks it was because of the '87 crash..........
The 87 "crash" was the culmination of a major mkt correction......it ended on Oct 19th I think..................THAT DAY the spews (s&p index futures) went to a huge discount........there were billions of dollars with "portfolio insurance" on their positions.......that insurance consisted of selling spews futures everytime the portfolio went down a certain amount............the spews futures have no strike price so they can sell at a major discount....which they had been doing for several days......the portfolio guys just did what they were told and sold them down as the mkt was coming down......big, big discounts were the result......ENTER, program traders.......they bot the spews at that discount and sold the underlying stocks for the difference.....see the profit for them? You buy an index that is made up of $100 worth of stock ,and you buy it for $80....if you sell the $100 worth of stock instantly, you make $20 net. Right? The program traders were doing this is large size.....the portfolio insurers were exacerbating the sell off, that had gone on for a long while, by selling the spew future because they where just throwing all the stock on the mkt, although they were NOT selling it out of THEIR holdings, and I am sure some of the stupider ones think they did not have a thing to do with the sell off because they did not sell any of THEIR shares....but, by selling the futures for their socalled insurance, they WERE causing the sellof.......dinner call.....there is more on this....any questions?
flop
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flopwedge
Joined: 16 Jan 2007
Posts: 8361
Location: North of San Francisco
PostPosted: Wed Sep 10, 2008 8:12 pm Post subject: Reply with quote
Just to finish that up....there was a major regulatory move made a few months before the sell off culminated on the 19th..........Merrill's prop traders went to the SEC and asked if the company owns the futures (spews) can it sell the underlying stocks in the index "short exempt".........
What does short exempt mean?.............YOU GOT IT ! Selling short on a down tick ! ! ! ....................the SEC allowed it. The SEC allowed the crash of '87.....
None of those situations are in place now. Very little insurance, some program trading, but the algorythm systems do not allow those huge discounts to happen any more............
Now ya'll know why I hate the down tick short sale.....that is the main reason.........but my other reason is it is allowing young turks to rip our mkt up and down for no other reason than to run it up and down......................comments on my conclusions are welcome
flop
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ddhaze
Joined: 16 Jan 2007
Posts: 615
Location: Sarasota, FL
PostPosted: Wed Sep 10, 2008 8:25 pm Post subject: Reply with quote
Here's another financial blog who is bullish as of today:
http://scottgrannis.blogspot.com/
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pmcw
Joined: 17 Jan 2007
Posts: 1117
Location: KC
PostPosted: Wed Sep 10, 2008 9:08 pm Post subject: Reply with quote
Quote:
The 87 "crash" was the culmination of a major mkt correction......it ended on Oct 19th I think..................
In my view, 87 was destined to happen. Starting with sales made after 12/31/87, long term capital gains taxes went up from 20% to 28% and real estate taxation became much less favorable. There was a rotation of assets. Yes, there were things happening with the dollar that spurred the timing, but I think the mold was cast for it to happen in the fall no matter what.
We are currently being threatened with a higher long-term capital gains tax rate and maybe full income tax on dividends. Those are factors. Interestingly, the best thing that I thought came out of the Obama / O'Reilly interview was when Obama actually negotiated down his proposed long term capital gains tax rate to 20%. However, I don't believe he would honor that or any other compromise he's made.
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pmcw
Joined: 17 Jan 2007
Posts: 1117
Location: KC
PostPosted: Wed Sep 10, 2008 9:32 pm Post subject: Reply with quote
Other things to remember is that the crash happened after the market peaked up over 35% for the year in August and closed the full year of 87 relatively flat (up slightly). The S&P500 exited the year with a low PE ratio, but the ratio dropped lower yet the next year even though it was also an up year for the market. It wasn't until the 1990's that we began to see gains driven significantly by PE expansion.
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ronrasch
Joined: 16 Jan 2007
Posts: 1788
Location: Cleveland, Ohio
PostPosted: Wed Sep 10, 2008 10:35 pm Post subject: Reply with quote
Thank you for the excellent market reflections and commentary. O's tax policy backed by a dem congress would be a huge incentive to sell stocks.
Also, china with huge quantities of green backs wants to keep exporting. One way for China to keep the US buying their exports is to bus US stocks.
Does this make any sense?
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neil6
Joined: 15 Jan 2007
Posts: 509
PostPosted: Thu Sep 11, 2008 4:43 am Post subject: Reply with quote
Paul,
The tax changes you indicate contributing to the 87 crash were actually effective after 12/31/86.........not 87. The real estate taxation you point out was the start of the passive loss rules.
Those were the most sweeping tax changes of my lifetime. Another most notable change was the elimination of the ability of corporations to liquidate and avoid double taxation. That forced most nonpublic companies to elect S corporation status..........and perhaps, though I don't know for sure, affected the flow of capital.
I recall we visited this idea some time ago.
Do we need to crash now? I don't know but something is very wrong when our institutions like LEH and AIG and WM and countless others are thrown around the way they have been. The problem is ........if LEH is going down.........It isn't worth 7 or 6 or 5 or 4 so it needs to find it's end I suppose.
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RAN
Joined: 15 Jan 2007
Posts: 2013
PostPosted: Thu Sep 11, 2008 5:10 am Post subject: Reply with quote
neil6 - as a CPA and an investor, do you think the costs of the new mark to the market accouting rules outweigh its benefits especially in regulated financial institutions where there exist capital and reserve requirements?
_________________
-- RAN
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RAN
Joined: 15 Jan 2007
Posts: 2013
PostPosted: Thu Sep 11, 2008 5:18 am Post subject: Reply with quote
If the futures remain down after the jobless claims report in 15 minutes, then we could get our flush down the market toilet this morning. Be alert for buying opportunities.
On the other hand, if the futures rally after this data, then look to add to any short positions and/or sell any trading positions that you have established.
I have been fading the open this week with much trading success in the QID/QLD picking up 1-3% per day. We'll see if today sets up the same way.
_________________
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pmcw
Joined: 17 Jan 2007
Posts: 1117
Location: KC
PostPosted: Thu Sep 11, 2008 5:42 am Post subject: Reply with quote
Neil, Check your data. Here's an article with an interesting date - 10/18/87:
http://query.nytimes.com/gst/fullpage.html?res=9B0DE5DB113BF93BA25753C1A961948260&sec=&spon=&pagewanted=all
Not saying there wasn't a change in 1986, but the one I'm referring to went into effect 1/1/88. The sell off in 1987 was destined to happen - other catalysts simply set the timing and the depth.
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rjs1
Joined: 26 Jan 2007
Posts: 189
PostPosted: Thu Sep 11, 2008 1:23 pm Post subject: Reply with quote
Oh, the market hasn't crashed yet? That's scary!
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dcbeane
Joined: 15 Jan 2007
Posts: 850
Location: Virginia
PostPosted: Thu Sep 11, 2008 3:45 pm Post subject: Reply with quote
Oh, the market hasn't crashed yet? That's scary!
No kidding!! Laughing Laughing Laughing
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coach2
Joined: 15 Jan 2007
Posts: 910
PostPosted: Thu Sep 11, 2008 7:07 pm Post subject: Reply with quote
flopwedge-
***
I definitely feel your pain regarding the "down tick".
***
What do you think of the old saying, "Buy when blood
runs in the streets."?
***
I have tried it in the past.
***
In 2005-6 I made plenty.
***
In 2007 I lost plenty.
Re: Gravitas
I had been give a 5-year subscription to the Xyber9 forecasts, but earlier this year after only about 2 years, they stopped coming. So although I still watch the tides through the work of another, I can't comment on the official Xyber9 forecasts.
Are you short or long NNVC right now?
Are you kidding me? NNVC is a generational game changer and no way am i going to risk missing out on the "recognition wave" by trying to be too cute trading in and out. There are plenty of stocks that are on Sell signals right now (read: financials, airlines, homebuilders) to hedge a long NNVC position.
PS: The more I hear about this LEH deal, the more confidence I have in a market meltdown.
Allan, do you mind sharing your thoughts about the possibility of hyperinflation?
susan - the real threat, as I see it, is a coming deflationary depression that will culminate in a vicious, bloodthirsty world war.
more in a future blog.
Allan I think the Market Crash that you fear already happened. We are in a Bear Market and the S&P 500 is down 21.8% over the last 11 months. The stocks averages are down about as much as most typical bear markets and this cycle should be close to finished in both time and magnitude. We are currently botton dwellers full of fear.
The remaining downside should be small compared to subsequent potential massive returns early in new bull markets.
luis - there is nothing average about the times we are in; Bear Stearns, FNM, FRE, now Lehman, and who's next? Detorit is already ponying up to the give-away-taxpayer's-money window. These are extreme times, and expectations should be gauged to the extreme, not the average.
Allan: If the market is headed for the big crash- would gold not be a place to put some funds. What about an inflationary spiral? With the dollar in jeopardy, wouldn't gold be a safe haven?
Inflationary spiral? Nope. Deflationary depression? Yep. Gold safe haven? Remains to be seen, so far, not much shelter from the storm, but lets watch it.
Allan:
I want to warn your readers about the site you referred us to, Stockmarketvideos.com. I signed up for a 3 day trial for $2.99. Within 1 day I found that the service was not for me. There is now way to cancel in their website. They say call billing during business hours but you get an answering service that says they are supposed to answer. I sent an email to them in less than 48 hours to their billing asking to cancel before I get recurring billed and received no reply. You get an email back with a ticket status check link that goes nowhere and when I called again today I got the answering service saying I had been rebilled but I have to speak with them. Of course they were not answering their phones so it goes to an answering service. This site is not reputable. I shouldn't have to do all this to do clean business with them.
By the way, for 2008 they have 128 winning trades and 125 losing trades with a win of 2165% and a loss of 2419% for closed trades. Not a great record. I am going to make sure this gets widespread coverage.
Be careful with this site!
Bruce
Bruce,
Although I don't share your sentiments about that site, I did allow your comment to go through, since you seem to have a legitimate bone to pick with them.
Allan,
Thank you for letting it go through. I posted the record to let it speak for itself. That data is right off the site. My primary intent was to warn your readers that if they think they are going to take a 3 day trial, beware of the work involved if you don't want to continue the service. Each person will find any service of different value. I found his service to be very broad throwing lots of picks at you that have big ranges associated with them because they are based off weekly charts. Many traders will get shaken out at a loss if they set their stops too tight and dont understand this. The record this year speaks for itself.
If I would recommend a service to learn charts and see trades on charts I am still very positive on Eric Muathe. I know you passed onto Eric my comments on your blog when you first mentioned his service at muathe.com. The cost of a 1 year subscription and his "secrets" is minimal compared to any other service out there.
In addition, I am very familiar with Market Club and also see tons of value there above and beyond the triangles. I'm with you on your endorsement of their service.
Thanks again for allowing my post.
Happy Trading,
Bruce
Bruce,, yes, there are a lot of features in Market Club over and above the triangles, but I don't want to just pump MC all day long. That said, the intra-day scanning feature is a great source of trade ideas.
Well, does the brain trust at Gilder's Technology forum still think I "am full of shit"? Flop, anyone? Where is your bravado now?
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