Tuesday, October 7, 2008

Everything Is Off The Charts

Most every indicator I look at with regards to breadth, volatility, and price action is strongly suggesting a strong short-term bounce should be at hand. Below is a short excerpt from Sunday night’s Subscriber Letter which puts some of my thoughts on these extremes into context.

What needs to be kept in mind is that the price action over the last week has been more severe than at any time other than 1987 and then back to the 1930’s. In other words, while extreme readings in breadth, volatility, price, and volume indicators of this magnitude have almost always led to short-term upside over the periods tested, the current situation is far beyond most everything tested. Measures need to be taken to control risk. Tight stops are a possibility, but difficult to implement with such extreme volatility. I’m controlling risk by scaling in with reduced position size.


TraderJ said...

Have you ever considered testing the Art Cashin "classic" setup? He keeps talking about a horrible Thursday, tepid Friday, horrible Monday that closes on the lows with a down (maybe gap down) Tuesday morning followed by a PM reversal that puts in a solid bottom that lasts. How often has that setup actually occurred and worked?

Anonymous said...

My feeling is that when all the indicators say the market should bounce, but the market doesn't bounce, you should stop initiating long positions until the market is overbought. Something has changed. The statistical tests don't cover this situation, and nothing can be predicted. At some point this will change, but there is no way of knowing when.


Anonymous said...

The hardcore daytraders do not follow the technicals, just trendlines and price patterns.

SDS on Oct 7th followed a classic higher lows, uptrending channel, helped by intraday market internals of decliners/advancers/breath