Whale Songs – Bottom Signal?

Well, this is darned interesting

In this graph we have an interesting thing. It looks like our “Whale” has sold back out of the gold they bought, and is now moving partly into Yen and partly into Euros (or closed out a Euro short position).

We have Yen and Euro up, Gold down, and stocks flattening. Hmmm….

WhaleWatchingFlashCrash

This all, of course, assumes that there really is a Whale driving this market right now and these are not just disconnected events… But that tendency of the Yen to slowly rise over time sure looks like someone steadily shorting the SPY down and rolling the cash from those short sales into Yen, driving it up proportionately.

OK, on the “sell side” we had a 3 day lag to buy the gold as the trades needed to settle. But sell gold, and I think you get “cash today”. Which would imply “use it tomorrow”.

By the time folks see this it likely will be tomorrow, so hear is a live version of the same chart:

Whale Watching GLD FXY FXE SPY QQQQ

Whale Watching GLD FXY FXE SPY QQQQ

Now if this theory is correct, we ought to see a closing out of the short positions in US stocks tomorrow and an attendant rally. In that case, the “trade” would have been to sell out of gold yesterday (not sure how to have predicted that day… perhaps that jump up at the end of the day is the counter direction “head fake” to get the market price up just before the dump? Then if true, one ought to prepare to short the Yen and buy stocks.

If that thesis is correct, we ought to see the Yen dropping (as the Yen in the account(s) are used to buy back the stock short positions. And stocks recovering along the way too. If they have taken off a Euro short position, we might well see the FXE rise as well.

It’s also possible part of the short positions might have been closed today. I found this chart rather interesting:

Chart of Visa and Master Card with Volume, MACD, DMI - vs Yen

Chart of Visa and Master Card with Volume, MACD, DMI - vs Yen

Notice the huge volume spike as these are most likely shorted to death. Then the “up volume” at the end on rising price. Sure looks to me like a bit of a short cover (though perhaps with more to go). I’d expect a small ‘dead cat bounce’ tomorrow. We’ll see…

Live version:

WhaleWatching V MA

WhaleWatching V MA

This is for Visa and Master Card. AXP American Express, COF Capital One Financial and DFS Discover Financial Services all look about the same, though with a bit less volatility in some and many of them looking better than V and MA on total price movement.

So watch for a quick rally tomorrow on a short cover. ( If this “Whale Watching” thesis has anything to it…)

British Pound

What are some other currencies doing?

FXB British Pound vs other currencies, hourly

FXB British Pound vs other currencies, hourly

Just for Grins, here is a chart of the British Pound v.s. several other currencies. I notice that the Australian Dollar got knocked down hard today. The Pound has MACD turning up and with DMI near a crossover. Also notice that pattern in the RSI of a ‘higher low’. All in all it looks like the pound may be headed up a little bit. About 10 days back to the SMA stack, if the 6 month daily interval version of the chart is to be believed. Then it ought to resume the gradual trend down. (The assumption is that “A trend in motion tends to remain in motion for a long time”.)

FXB British Pound compared to other currencies - 6 month daily interval

FXB British Pound compared to other currencies - 6 month daily interval

About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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13 Responses to Whale Songs – Bottom Signal?

  1. E.M.Smith says:

    FWIW, tomorrow is “Options Expiration”. Markets are often very volatile a day or two before expiration and on expiration.

    In the past, some years ago, it was mostly Expiration Friday that had very high volatility. In the last couple of years, folks started closing out more positions in the day or two before the actual expiration. I suspect that’s what we are seeing.

    OK, what to do?

    First off, for folks who want to ‘buy and forget’, this stock market is not for you. It’s approaching “Bear Market Rules” and is at least “flat market rules” at this point. Those are terms I use to determine what set of vehaviours to use in trading. In “Bear Market Rules” the bias it to be short (i.e. bet against the market) or in cash. “Flat market rules” are a bit complicated but mostly means that you have a ‘balanced book’ of equal long / short bias bets AND make faster trades (rather like one does at top and bottom inflection points when the trend goes flat… tighten the holding period to shorter and trade faster, sit in cash more.) In “Bull Market Rules” you want to hold stocks and when in doubt, just wait in the stocks. Only holding cash when clearly needed. Notice that “Bull Market Rules” are what most folks do when buying stocks.

    So the typical investor has a “One Trick Pony” of buy, hold, and hope. That gets you nothing in a flat market (that can go on for a decade) and gets you killed in a falling market (that can go on for years).

    Right now is NOT a time for “Hold and Hope”, so investors ought to be in cash. And as long as the Euro panic continues, that cash ought to be US $, Japanese Yen, or Swiss Francs. (With honorable mention to the Chinese Yuan as it is pegged, more or less, to the US $.)

    OK, for folks trading…

    It looks to me like we are on the cusp of a transition back to bear market rules. We’ve had a long run up, but now this ‘correction’ is looking particularly rocky.

    If you are trapped in long positions, it does look to me like we’re in an ‘oversold’ state too far from the moving averages and we ought to return to those averages. So this would be a particularly bad time to get out of long positions. The time for that was a week or so ago. You would have been better off being “trapped in chash” waiting for a clear buy signal…

    If you are largely in cash (as I am) it’s still not a ‘clean call’ to buy in. It’s looking really close, and we’ve had a couple of short ‘day trades’ to the long side; but the winning bets have been to the short side. Yet it’s way too late to go short. So we wait for a clear entry to the long side.

    If you are short this market, congratulations. Care to share your methods? ( I can often spot a good short, but don’t yet have the right ‘attitude’ for it… so I can hedge short, but not yet make a straight out short. Soon, though, soon. I’m getting more used to it.) At any rate, my read on it is that with VIX spiked up as high as it is, and ‘leveraged short’ ought to be sold. VIX will drop, and as that volatility drops, so will the premium in that option or option bearing ETF.

    Me?

    I’m just sitting “mostly cash” and waiting. Waiting for a reversal to the upside after a sickening drop where the volume spikes, but then fades to the downside. That “everybody has sold and driving prices lower finds no one left to panic”. THEN watch for a volume spike on rising prices. That’s the professional shorts covering WHILE the bottom fishers come in for a value buy. THAT is the moment to buy. I’d expect it to come tomorrow about 10 am, but it could happen later this afternoon. Real pro money is likely to cover shorts today and tomorrow, but not buy long until Monday. So we might see a rounder bottom with a bit of short covering bounce over the next 24 hours, then a buying surge Monday. Those predictions are based only on prior market behaviours and the understanding of how the traders think. In all cases, I consult the charts before tossing money in… RSI with a “stair step” up of higher lows off of a near 20 bottom. MACD with ‘crossover upwards’ and the opening pointing up. DMI with an inflection down from a peak for the red line and preferably the black one too. (DMI- inflected down, ADX inflected down, nice to have DMI+ inflected up, that is the blue line rising.)

    My take on it is that our “Whale” may be doing the “one last short push” head fake to panic folks out into his short cover.

  2. P.G. Sharrow says:

    I get to see the day after the close :-) your post and comment was before. good call. One floor trader remarked that much of todays trades were in small lots, 100s, not thousands of shares. Oil down, gold down, stocks down. Someone needs or wants cash, or at least does not want things. Lumber contracts is very cheap. Maybe I’ll build my house this year. We are getting tired of this small cabin.

  3. E.M.Smith says:

    @P.G.Sharrow:

    Thanks! We’re continuing to have a “Ministry of Stupidity Speaks” moment globally. Everything from Brazil with a 7%+ pension rise to USA with “financial reform” (that mostly means putting back maybe 1/4 of what Glass-Steagall did before they quite stupidly trashed it) to the ongoing Greek / Euro debacle and finally with India feeling left out and starting to talk about a “Super Tax” on miners like Australia has proposed…

    Ignoring for the moment why anyone would want a tax that was more “super” than the typical destructive taxes, the desire to punish one particular industry more than another is just stupid. What ever happened to the ideal of “equal protection under the law”? You know, fair play?

    So I’m looking at the world and wondering just when we filled the global governance structure with folks who have all gone mad… Ego driven litigators with not an ounce of wisdom among the lot of them.

    Oh well. The worst they can do is burn Rome down…

    The more things change, the more they stay the same…

  4. Wes says:

    Chief,

    I’m still all in, and holding a small loss for this week as a result. My records go back to prior to 1987, and in this period the all- exchange overbought/oversold indicator has only been as oversold as it was yesterday on one other occasion- the March 2009 bear market low.

    So, this has been one major fear producing two weeks.

    Beware of Greeks burning thrifts.

  5. E.M.Smith says:

    @Wes:

    You almost made me spray Irish Whiskey all over my keyboard with that Greeks line! I’m going to steal it!

    IMHO, the pace of “drops” has been steadily accelerating over the years. You need to allow for that.

    At this point (having not yet looked at the graphs) this looks to me like a ‘local bottom’. But it’s also true that the long term indicators I use (SMA stacks) say we are now in ‘bear market rules’ territory…

    So it’s a “buy against the tide” by my method. We’ll see…

  6. Tim Clark says:

    Ego driven litigators with not an ounce of wisdom among the lot of them.

    E.M., this statement only applies when actions are considered without an underlying agenda, which I consider to be the elimination of the global middle class. You know, the intelligent voters. Whether the merits of the agenda are wise……..

    I routinely trade SDS ( I sold my positions yest.), as I’m a contrarian. The mind is a funny thing, and will skew your cognitive discernment towards your overarching goal. An example of this is CAGW (not that I’m saying you are :~D). Therefore I’m quite adept at seeing marker tops, because I’m looking for them. Reread some of your posts with this concept in mind, and you will see that your skeptical thought is prejudiced toward discerning bottoms. You believe we are in a long term uptrend. I think we are in a prolonged dead cat bounce from S & P 9500, which I think we will revisit, followed by a prolonged flat market. The caveat is a major fiscally conservative election this Nov. Otherwise, even if the market continues upward significantly, in real dollar terms, it will ultimately be a flat market. I’ve only returned about half my money to inflation “indexed”stocks, very few monetized in US $ (Aust, Canadian, Chilean, and some Asian), the rest is in bonds (PTTRX). I usually double down (SDS) about 25%, so I guess in the grand scheme of things, I am long.
    I developed my strategy and thought patterns of trader mentality while an intern one summer at the CBOT. Regarding the whales, a few appropriately timed trades by someone fairly large (shark to your analogy, God I hate Cargill in grains) results in whale pod actions (herd mentality). It really starts quite slow. My mentor who worked for Con-Agra once, said they have computer programs which indicte how much, usually with increasing sized lots spaced over time, when, how often, through different seats, etc. The summation of this diatribe is I think it’s extremely difficult to trade both sides. But E.M. thanks for what you do (this bud’s for you – remember), and not just regarding market analysis. I very much appreciate your analyses of the market through indicators, although I trade against you most of the time (not against your analyses – I’m out when you’re in and vice versa). By experience I’m mostly a fundamental trader and have difficulty with timing.

    Waiting for a reversal to the upside after a sickening drop where the volume spikes, but then fades to the downside. That “everybody has sold and driving prices lower finds no one left to panic”.

    In the pit, they used to call that short/long capitulation, shorts shitting, longs puking it up, etc. You are correct, they occur all the time. Unfortunately for you, me, and most everyone else, the rapidity of movement long/short is very fast and without being in the pit, the average investor can only catch a portion of it because you don’t get the emotional “feeling, or tension” when you just know it’s going to happen. I can’t really explain the tenseness in the air, the look in the floor generals eyes. I was closely watching the S&P trying to anticipate it (The big drop being 100% cash since August 2008). Unfortunately, it occurred precisely while I was traveling to Lawrence KS north of Emporia with no cell phone service. I’m still pissed at my wife for that trip. She said, well you’ve been waiting for 2 weeks, what’s another day. Go figure.

  7. Tim Clark says:

    I would like to run this by you, maybe when can flesh this out, being programmed differently. I think Fridays trade was mostly a sharp spike early on shorts coughing it up, followed by weak volume and folks leaving the pits early to get to the bar. we’re below the 200DMA, ~nuetral RSI, with other indicators mixed. 50/50 conditions. Be informed, this applies to the S&P index, since I do my trading there and not in individual stocks. Those are in for the long haul. What I would expect Monday is a slow start to the upside, perhaps a gain of ~10-15 pts through the day (to relieve ~oversold conditions, with a weak close. If that occurs, I would go long SDS at the close and hold through wed with a goal of 1050 s&p. If the gain is larger, or is held into the close, I stay out.

  8. Tim Clark says:

    If you are short this market, congratulations. Care to share your methods? ( I can often spot a good short, but don’t yet have the right ‘attitude’ for it… so I can hedge short, but not yet make a straight out short.

    Sorry to fill up your thread with my drivel! But to quote someone I knew (deceased) who was very successful, “When you’ve been trading for a long, long time…don’t rule out gut feelings.”

  9. Tim Clark says:

    P.S This is for entertainment value only. Nobody but me should trade on this call.

  10. E.M.Smith says:

    @Tim Clark:

    FWIW, I actually DO call tops, and with fairly good accuracy. I just don’t post about it. 2 reasons:

    1) I figured most folks reading this (i.e. the friends I’d started the finance pages to help) would be typical retail “long or cash” types and not the kind of folks who “short”. That has changed a little bit in the last month as some readers have showed up who want to make trades.

    2) While I’ve spotted 3 out of 3 of the last “top to crash” transitions; I’m still afraid to go flat out short. I’ve done a few ‘toy trades’ and I end up too antsy about ‘day 2 and no drop’ and have sometimes closed just the day before (and in one case, 1/2 day before…) the next ‘drop’. Basically, I’m still learning how to turn my brain inside out in less than 4 hours and keep it that way.

    Due to #1, I’ve basically said “stay out” or “balanced book” when a short would have said “short hard”.

    Due to #2, my bar bill is higher ;-)

    Essentially, after 3 of these transitions, I’m about ready to accept that the indicators are valid enough to do more than just go ‘balanced book’ even if I’m still on “bull market rules”.

    Or put another way:

    Until now, I’ve had bull market rules, bear market rules, and sometimes “sideways roller rules”. But the transition from Bull to Bear has been based on a trend following system that works very well at bottoms (that are slower and more protracted) but turns to Bear Rules after 3/4 of the game is over (since the collapse has accelerated since I made the system about 8 years ago…) So I’ve got a newer, faster, experimental indicator (that I call “Crazy Ivan”… homage to The Hunt For Red October) that I’ve been testing, but not willing to commit cash. I think it’s time to accept that it’s valid.

    FWIW, the basis of it is that “whale watch”. After a long slow climb, the price bars have typically ’rounded over’ in to a fairly shallow slope (often near or at zero) and the price ranges compress as volume drops off. That’s the time to leave the long position and put a ‘short if touched’ order below present prices. Then, often a few days later, there is a sharp price drop down. That’s the ‘whale’ shorting (or metaphorical whale if it’s just a lot of automated trailing stop loss orders getting hit). That’s the start of the bear raid. Be short.

    This is often followed by about 2 ‘relief days’ back to the original price point, then another hard down day. That’s the “last call” to go short (and it’s been during those relief days that I’ve been prone to closing a short that I ought to be doubling… need to get the new ‘trade rules’ ironed out… as part of getting that ‘short mind set’ pattern built.)

    So it’s not so much that I don’t look for tops. I do. And I reliably spot them. It’s more that I just don’t believe myself ;-) and don’t act on it…

    As for tomorrows action:

    Your descriptions sounds like my worry…

    FWIW, I’m a bit fried right now due to 4 hours sleep out of 48 hours and driving round trip to L.A. last night (a long story…)

    I hope to get a WSW posting done, but will likely not.

    From what I’ve seen (and without having done my due diligence / chart work…) we’re now in official “bear market rules” territory (or close enough). That means bias is to the downside, be short or neutral (balanced book / cash), AND expect violent motions both ways. (trade faster cycles). Also FWIW, my ‘bear market rules’ switch (old form) often calls a bear market right as the first relief rally forms… probably part of why I’ve been reluctant to ‘trade short’… We’ll see if the newer method works better.

    So I’ll be watching Monday for the same thing you are watching to see. Is it just a short cover bounce to flat, or the start of a return to rising trend?

    Me? I think it’s 2004 all over again. Rolling sideways for a year with a slight downward tilt. Reality will diverge from that, and the charts will inform me when, but that’s my expectation.

  11. Wes says:

    Chief,

    If ” bear market rules” means bear market now, I’ll need to go back to the drawing board.

    Glad you liked the Greeks comment. Not to push it too far, but my second choice was:

    Acropolis Now

  12. E.M.Smith says:

    @Wes:

    There is a fairly old rule that when the price has dropped below (variously) the 200 day moving average or the 150 day moving average, we are in a down trend.

    So look at this chart:

    http://bigcharts.marketwatch.com/charts/big.chart?symb=spy&compidx=aaaaa%3A0&ma=1&maval=40&uf=0&lf=2&lf2=4&lf3=1024&type=4&size=3&state=15&sid=9864&style=320&time=13&freq=2&comp=NO%5FSYMBOL%5FCHOSEN&nosettings=1&rand=7191&mocktick=1

    that has the 20 week (or, at 5 trade days / week, 200 day) moving average with the price plunging through it.

    I see two possible outcomes. First would be a repeat of 2004 with the sideways rolling downtrend. But notice that the spike down is more like the top in mid 2007 than like the entry to 2004. Also the “plunge” in 2007 is much more steep and monatomic than the ‘bounce down a stairstep” of 2000-3 as we are compressing the vertical angle in recent years.

    It is my belief that this is due to the repeal of the uptick rule for shorting. There is now no limit to when and to what degree a short can drive a bear raid.

    So my “rules” are to be positive during ‘price above average’ and be in cash or short during ‘price below average’. There is an added finesse in that if you look at the 2003 bottom or the 2007 top you will see the price returns to be about flat (for the peaks, up or down) with the prior peak (called a ‘retest’) then reverses. So I’ve often defined an “inflecting” or “battleground” rule set that take a halfway position until the ‘retest’ confirms the change of direction. (That’s the part I’m working on changing so as to get into a ‘short bias’ faster rather than waiting for the retest… so I can trade the drops like the one we just had rather than step aside.)

    So by my older rule set, this is a bull market in a potential inflection and we are waiting for a retest and resolution. Which is fine and works well… except… it leaves me doing nothing for a month or two as things work out or I get to day trade minor ripples…

    By my newer (still being developed) rules, this would now be ‘bear market’ and I’d shift bias immediately (though I’d still watch shorter term charts for swing trades inside that trend.).

    In ether case, we have MACD ‘red on top’ and pointing down and we have ADX / DMI with ‘red on top’ and that says be very very cautious about trading ‘long’. Be quick to exit and expect ‘stairsteps down’ not ‘stairsteps up’ until those change.

    Basically, the context for our 1 year daily chart is no longer “bull run up and higher” it is now “bear run to the downside”. So “when in doubt be out” as the trend will not rescue a broken long side swing trade… (though it ought to rescue a broken short side swing trade…)

  13. Tim Clark says:

    Thanks for your response. As I write this the market is poised down ~10. One big problem with my analyses is the night trade, which I detest and sleep through. The action I anticipated occurred last night, and I have to digest reanalyze going from here.I won’t go short into a ~10 pt drop, just too much risk. If the market recovers about 5 pts to about 10am, I’m short.

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