(nicht unähnlich Gehrt im letzten Posting, dafür aber short, teils mit bärischen Put-Spreads) Financials
Fade the S&P's Move to New Highs
By Harry Schiller
Street.com Contributor
10/5/2007 4:07 PM EDT
You may recall that back in July, I warned of some likely trouble occurring as the S&P 500 probed its prior all-time highs just shy of the 1553 level. I said I would sell into that pop and go short as the old highs were revisited. That worked out pretty well, as the S&P would fall 185 points over the next month. Too bad I didn't stay short for the entire drop. But now, the market is back at the same level. In fact, it's at new all-time highs in the S&P, so far by less than 3 points (as of 1:45 p.m. EDT). Once again, I am not interested in buying or even holding long. I am only interested in the short side at current levels. As I explained in previous columns, holding long or buying into an area of resistance that has been so formidable over recent years is like putting your foot on the accelerator (rather than the brakes) as you speed toward a brick wall. Why do it? Why not look for another way to make a buck? There are plenty of them -- just ask the subprime borrowers. Here is the story of the retracement pattern: Recall that the S&P 500 topped out in March of 2000 at 1552.87. From there, it took about 2½ years for the SPX to lose about half of its value. And from there, it took almost twice as long -- almost five years -- for the SPX to scratch and claw its way back up to the highs, topping out about 3 points above the prior high in July of this year. That, as I have said before, is the story of a complete retracement pattern. But then another retracement followed. This was the retracement of the rally from the lows of this year on March 14 to new all-time highs on July 16. It took about four months for the SPX to rally almost 200 points to new all-time highs (on July 16) at 1555.90. And from there it only took about a month to retrace almost the entire advance. The Aug. 16 low in the SPX was less than 7 points above the March lows. And now, as of today, we have yet another complete retracement -- this one is of the 185-point decline from the July highs to the August lows -- and we now are at another new high. While a breakout above this level would be bullish, a failure of some sort in this area cannot be ruled out. And for that matter, I would assume that any pop up to a higher high ultimately gets retraced, because that's what this thing does. Today the market is surging in the wake of the stronger-than-expected jobs data, despite the negative impact on interest rates (bonds are dropping sharply). The S&P has now scored a new all time high by less than 3 points so far (1558.67 is the new high at this moment), leaving open the possibility of some stalling in this area. SPX
New highs by less than 3 points | | (Chart am Ende des Postings) | | |
Adding to the significance of this level is that the S&P futures have just popped above the prior highs on the continuation charts. That, of course, was the high from July 16 in the September contract at 1566.30. That high has now been exceeded by less than 4 points as the new high (so far) is 1570.00 (though not reflected in the chart below). S&P Futures Continuation Chart
Heading back toward prior highs | | (Chart im folgenden Posting) |
Of course, it's not all about the S&P. The NDX was certainly instrumental in setting up for this move with its own short-term retracement over the past few days. In the chart below, you will note how the NDX gapped up on Monday and then spent the next three days pulling back to completely retrace that move, filling the gap at 2091 and bottoming about 2 points lower at the 2089 level yesterday before rebounding into the close. That took care of that and now this morning it's off to the races with a big gap up opening from Thursday's close at 2105.56 -- another gap that will get filled. NDX: Filling Monday's Gap
Setting the stage for a rally | | (ausgelassen) |
Then in the Dow, we had another kind of retracement over the past few days. It was a retracement of the move from one high to the next. After making a new all-time high on Monday at 14,115.51, the Dow had to pull back to its prior high at 14,021. It did that and then some -- it cracked below the 14,000 level just to get some recent buyers to rethink their purchases. But the point is, the pullback completed another kind of retracement pattern -- a retracement from the new high back to the prior high. It happens as consistently as the sun rising in the east. Dow Jones Industrials
Pulling back to prior highs | | (ausgelassen) |
Today, the Nasdaq (and NDX) and SPX are at new highs, but for the moment the Dow is still lagging a bit. But that's not all bad, as it is bullish when the broad market outperforms, as it has today. Breadth is extremely positive, especially on the Nasdaq, and the Russell 2000 is quite strong. All of this is good for the bullish case. Only reason to sell short here is the significance of this level in the S&P, and the fact that the market was already overbought coming into today's session. The McClellan Oscillator closed yesterday at a fully overbought +116.5. That's enough to get me looking for another shakeout. And I haven't even talked about sentiment. At the time of publication, Schiller was short NDX funds, bearish credit spreads in QQQQ out-of-the-money calls and long bullish ratio spreads in the Dow, although holdings can change at any time. |
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