Monday, January 17, 2011

Is Last year being repeated?

SPX made a HH and HL and closed in the positive that is positive for the markets.  The first low came at 6.33 early at the open and the second  (1286.70) and the second came at 7.30 at about 1.60 higher.  A steady rally took SPX to the highest point of the day at close.  The range was a healthy 12 points.  RUT did very similar.  The first low was 799.05 and the second low at 799.19.  The pull back never came.  RUT closed very very close to high.  Now that is negative for RUT and RUT could see a 0.8% about 7 points some time during the day  tomorrow. 
On right is SPX and RUT for the week.  The low came early on Monday and all the pull backs were minor.  First rally from 1262 to 1277 corrected 50% to 1269.72.  Next a rally from 1269.72 to 1286.87 corrected a 37.5% to 1280.47.  Finally a rally from 1280.47 to 1292.99 hasn't corrected yet.  The purpose of this highlight is that when the markets pull back very quickly every step of the way then the giant correction is not needed and often very late coming.  It is also worth noting down where the last rally started from.  A tabulation of the highs and lows over (25% correction)  may give better trading outlook.

The charts on the left is hourly SPX and RUT from the recent low point  made around Thanksgiving in November.     First it shows the importance of DOMA 77 in SPX.  Secondly while the magnitude of the moves are different the nature and the characteristic of the moves are very similar.  Most of us do our calculations and TA on SPX and to me it is a confirmation that it fits RUT.  Not exactly may be but good enough for my work.  SPX has done 15 steps of up and down(a step is when it corrects 25% or more of the previous move) and has in all corrected 60% (84 points) of the total 142 point move. A tabulation is on right .  Keeping a running tab helps me a lot.  Lastly SPX has rallied 195% of the previous decline and should be setting up for a decline. 

The last chart on right is SPX daily.  The top line from July 2009 onwards and the bottom line is from July 2010 onwards.  In the primary structure of the two moves are very similar.  After closing at the high of the day on Jan 19th SPX lost 106 points (9.2%) in 14 days.  If history were to repeat from 1293 SPX would decline 119 points to 1174 .  We did close at the high of the day. 
It is very difficult to be objective and not get locked in to a perma bear or a perma bull. What keeps me on my toes is reading both sides on many of the blogs on the net.
I have a short position and continue with it till things resolve.
Thanks for reading my blog.

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