A Day Trade View Chart

Down in comments on the prior trade oriented posting, Rick A had said:


RickA says:
21 August 2015 at 8:37 pm
I have been waiting for a 10% correction from the highs (at least for the DOW) since about Feb. of 2014.

So I dumped some money in the market today.

I am a contrarian.

Well see how well it works out.

I responded with:

Monday will be interesting… I’d expect a down open, then a reversal in the afternoon as the “market makers” bank some profits off the shorts to date. When prices rise to the SMA stack, that’s when the shorts get re-applied.
@Rick A:
FWIW, I’d have guessed about 10 AM PT ( 1 PM ET) Monday as the ideal time to “dump some money in”. We’ll see which of us is right…

Well, looking over some charts, the hourly tick mark wasn’t quite as clear as a 15 minute one. So I thought I’d put that chart up here and folks can check out who guessed best on this come Monday. Here’s the saved chart of as Friday close:

SPY vs other markets and bonds / gold 10 day 15 minute tick marks 21Aug2015

SPY vs other markets and bonds / gold 10 day 15 minute tick marks 21Aug2015

Remember that you can click on this charts to “embiggen” ;-) them…

On this very rapid time scale, some things get stretched out and harder to read, others get more obvious. Take RSI Relative Strength Index, for example. Instead of a ‘near 20’ and a ‘near 80’ it tends more to “at 20” and “at 80”. But it can stay in that state a couple of days, so it’s hard to decide “how soon”.

On this graph it was “at 80” Monday 2 weeks ago. Time to sell. Then “at 20” the next day and half of the one after. Middle of that 2nd day was a good time to buy. But hard to tell from the close the prior day until the next day got here. A “near 80” Monday of this week was a good ‘sell’ time, but not clear until Tuesday when RSI fell away sharply almost to 20 (but still clear in time for an exit. Next we have a jump up on that flat day, but then a dead drop into Friday. Now, end of week, 2 days of “at 20” implying time to buy is “soon” (or perhaps “now).

Any help from the other indicators in sorting these out? Well, yes.

First off, the SMA stack was saying “be out” on that start of 2 weeks ago drop. Only having a ‘be in’ crossover mid Wednesday. MACD crossover was a clearer ‘buy’ call at that point with better timing; but then it also said buy the prior day into market close and the gap down Wednesday would have busted that trade… The safer trade would have been to make the entry only on at least 2 indicators. Price crossing SMA stack AND RSI ‘at 20 and rising’ and MACD crossover… That misses the start of the rise off the exact bottom, but avoids the larger loss from an early entry mid Tuesday. Then you ride the slow arc up to about Monday for a 1% or so gain. Maybe enough to cover transaction costs… Sigh.

That exit on Monday/Tuesday comes in a ‘topping weave’ of the SMA stack and prices with flat slope and low volatility. MACD has crossover to the downside Monday and RSI is headed to below the midline late Tuesday as MACD crosses under the zero line. Time to be out, but you needed to act in 1/2 hour increments or faster.

Now look at DMI / ADX. Clearly “blue on top” from that Mid Wednesday buy point, but it whipsaws you out end of Tuesday. Back in and out Monday / Tuesday of the second week. Then mostly screaming out until the end of the week. Accurate, but twitchy.

They must be combined to get the ideal trade times. Using MACD above zero / below zero gives a nice basic trade. Tune it up a little by a slightly earlier entry ( perhaps using a ‘buy if touched’ to buy in quickly on a rise out of that dip the first Wednesday) or just noting that RSI on 20 2 days in a row likely has a reversal ‘buy moment’ coming soon.

ADX (the black line) going down to a very flat 15 or so spanning the weekend a week back says that staying in is having less chance for gain, and all the risk of loss, and encourages an exit.

The MACD crossover downward on Tuesday also says “heading flat to lower soon” and the cross below zero end of day pretty much says “sell now or on the close”.

Wednesday this week we gap open below the SMA stack. Shorting would be nice, but a bit later than optimal (that was the close the night before). You make nothing on the day and would likely be scared out of the short on that blip up toward the end of the day.

That the blip up fails to penetrate the SMA stack says to “hold the short position” and especially as MACD is below zero (though inflected upward…)

Thursday DMI- is clearly rising fast (red line) and ADX (black) is rising too saying strength increasing. If scared out of the shot, it ought to have been put back on fast (but having lost on the short it would be emotionally hard). MACD “surfs down” the next two days with mid-day attempts to rise, that fail. ADX just keeps rising until a ‘go flat’ mid Friday last. Turning up again at the very end. DMI- (red line) has crossed under ADX and gone flat, but with ripples. So a steady down with some strenght. DMI+ is just dead on the bottom at between 10 and 15.

At the very end of Friday, Price is still well below the SMA stack. There has not been a ‘crossover to the upside’ and no “Dead Cat Bounce” is seen. RSI Is “at 20” so “end soon”, but it can be that way for a couple of days. MACD is still ‘red on top’ and pointing down.

All in all, it looks like “more down to come” and I’d hold the short (or not buy the long side). Looking back, the middle of the day is when reversals upside try their attempt. Usually on the second RSI 20 day (though the sample here is very low). It happened after ADX was inflected downward and as DMI+ (blue line) came off ‘near 10’ and headed for crossover of a decaying red line.

None of that is here now, but could form by the middle of Friday. So I’d hold off on a ‘go long’ stock buy until those signals started to show up (IMHO, a few hours after market open on Monday, and likely just after lunch in NYC as folks have had time to asses the news over the weekend and clear out the “sell at open” order from folks who only check their accounts Friday evenings or Saturday by the pool…

IFF the market opens “gap up”, then things are changing fast and a guess has to be made of the relative values of a quick long buy vs just sitting out the move and letting that surprise develop into a more understood trend. It is generally better to sit on the cash until you know the trade will work than to toss money at guesses and hope.
“Hope is not a strategy. -E.M.Smith”

RUT the Russel 2000, is an almost exact match to SPY on this time scale. No help there. But QQQQ is showing a big drop. Given that the NASDAQ darlings were THE hot property going into this, that they are dropping more (“the leaderships is failing”) strongly implies more to come. I’d be cautious until I see some strength there or “new leadership” clearly identified.

TLT bonds and GLD gold continued to rise into the close Friday. Not much sign of the ‘flight to safety’ weakening there.

Finally, Friday was an options expiration day. They can be quite volatile. Often followed by a flatter Monday. I’d not be too surprised to just see things tread water Monday. (Open down to clear out the weekend warrior sells at a low price. Rise back to prior close to sell on that inventory at a profit. Wobbly up just after lunch, then sell back down into the close at about where started. I’ve seen it before.)

Now remember that longer chart from the prior posting. Basic conclusion was that this down run had a strong pair of legs and a fair distance to go. That “down bias” context makes a ‘go long’ bet even on a day trade basis a bit more risky.

With all that said, this chart looks to me like a small day trade to the upside ought to be coming “in a while” as the SPY retraces the roughly 10 pts back to the SMA stack (about 900 Dow points) for the next “fall away” as shorts are reapplied.

But I’d “wait for it….” and mostly look for further down as the entry point for that trade AND be ready to flip reverse it to a short at the return to the inverted SMA stack from below.

Let The Games Begin!”

So now you all get to watch the market Monday, and see if any of this was worth a damn or if something “completely different” happens ;-)

Here’s a live chart (that won’t change until markets are open Monday)

Original at Bigcharts where you can play with the buttons…

Update: I’m adding more charts Sunday Evening

The first thing to mention is that if you have too many indicators in use, analysis paralysis sets in. So while I sometimes use some of these, by the time you looked at all of them you would miss the timing on a trade and be more befuddled anyway. I have a set of about 6 that are as much as I’ll typically ever ‘go to’ prior to a decision. If it takes more than that, you ought to be in cash as the situation is not clear enough.

Also note that this is not an exhaustive set. I left off a half dozen (and that’s just of the ones at Big Charts! other places have some more) simply because they didn’t seem to say anything. Maybe they are useful at some other time scale, but I could see no useful information about the prior 10 days in them, so nothing I could say about the next 2 from them.

I’ve changed to “only SPY” just to unclutter the charts a little. This also means that the side axis is labeled in price, not percent.

Bollinger Bands

This one adds Bollinger Bands (those red envelopes around price) and uses an Exponential Moving Average that moves faster on recent events.

Volume+ uses RED for volume on down periods and BLACK for volume where the period ended up.

Volatility is used in pricing options, so it is better to be “selling volatility” when it is high and not buying options then if possible. At low volatility times, buying options is better as their price is lower for any given strike range. So buy “protective puts” at the tops when volatility is very low. Sell puts at the bottom when prices are very low and volatility high. If you do get “put” the stock, you are getting it at a big discount anyway. (But odds are the put expires worthless and is pure profit, or if the volatility dies, you can buy it back for less and bank profit before expiration). Selling calls at the top doesn’t gain much premium and if you are wrong on direction, has your stock called away for not much gain. Buying calls at the bottom costs too much premium and the gain on the stock rise is often offset by the drop in volatility premium. (And buying calls at the top is just a stupid losing bet just as is selling calls at the bottom…)

Williams %R, to my eye, just says the same things as MACD but in a less useful way.

S&P 500 BBands Vix Volatility  Williams %R 10 day

S&P 500 BBands Vix Volatility Williams %R 10 day

The Bollinger Bands (BB) formed a nice tight channel on Tuesday and as price dropped to the bottom of that channel it was a very good time to sell. (Or buy puts, or put on a short). Hard to tell that Tuesday from the prior Friday other than price moving from the bottom band to the top on Friday. IFF that is a consistent behaviour, then BB could be a very useful “sell now” indicator. On the First Wednesday ‘buy’ day, price pulls cleanly away from a very much widening BB. Could work. The second Monday does something similar, but too late to make a decent trade of it. The second Wednesday does something similar, just in time to get you bought in to a hard crash like drop… Hmmmm… Need to add some protective context. Like maybe “don’t buy right after a narrow channel sell – give it a couple of days”… At the far right, we are still hugging the lower BB, so no reason to even think of buying yet.

Don’t see much difference / benefit from the EMA vs SMA. Maybe with some added tuning?

Friday Monday Tuesday in the middle we can see volume just dry up and die. Just before the crash starts, on Tuesday, it’s just dead. On the same days volatility dries up too. ( I call the two of them together VolVix. When VolVix dries up, sell. It is never good. It can also dry up on holiday intervals, so this weakens at Christmas and Thanksgiving as folks pack up and head out of town. I usually avoid trading each side of a holiday. Volume and Volatility both still building to the downside. Not seeing any indication of exhaustion yet. (Watch for mid Monday. If VolVix is starting to weaken, the tend is winding down. If it is continuing to rise, well… Note that volume is always higher at open and close than in the lunch time window. Traders do most of their work before and after that window. During that window they will do ‘price discovery’ with moving prices back and forth to see where volume lives, then plan what to do in the after lunch session. Look at the second Monday at mid day. Price inches up, but volume just dries up. Now look at volume mid Thursday. Prices dip a little, and retreat as volume started to build. That’s when the “short into the close” strategy is formed. Similarly Friday. After a painful open, price rises a little before lunch, volume drops. Dropping back into lunch, volume rises, so after a ‘raise prices and get ready’ on low volume, more high volume shorting into the close.

Those are my speculations on what floor traders and market makers are doing. I have no first hand knowledge of it; but I think it fits all the known facts.

Williams %R is mostly above the center line when you ought to be in, mostly below when you ought to be out, but jumps back and forth rather a lot. The Second Tuesday it swaps to mostly below the line in time to signal a ‘get out’. Having been ‘mostly above’ from the first Wednesday buy point until then. After a ‘whipsaw’ buy sort of on the second Wednesday, it is cleanly ‘mostly below’ through the end of the chart. IMHO it would be more useful with less whipping and more smoothing, so I do the smoothing visually.

So these indicators mostly say “stay out right now” and expect a down open. I find BB and VolVix the most useful of the set.

PSAR and faster SMA Stack

Here the top indicator is the PSAR (Parabolic Stop and Reverse) those little red dots. When price crosses the dots, you swap to the other side of the trade (and the dots swap sides too). So if the dots are above, price is dropping and you ought to be in cash or short. Until price touches a dot, then the swap to the other side as you ought to have closed the short or bought the stock (or both). I find it works well in trending stocks, but is prone to severe whipsaws at flat market tops. When you see that “chopping sideways”, it’s time to not trade PSAR and just get out.

On Balance Volume is supposed to tell you if folks are net buying or selling (with Market Makers making up the difference). Never talked to me much. Maybe I just don’t know how to read it.

ROC or Rate Of Change is like a slightly more volatile Momentum. I find it useful, but not a whole lot different from MACD Histogram much of the time. (And between MO and ROC it’s just a coin toss, IMHO).

There is also a Fast Stochastic, but since Slow Stochastic is often too twitchy, I’ve not going with the even more schizo cousin.

S&P 500 Parabolic SandR OBVolume Rate of Change Slow Stochastic 21 Aug 2015 10 day

S&P 500 Parabolic SandR OBVolume Rate of Change Slow Stochastic 21 Aug 2015 10 day

The much faster time interval on the SMA stack gets you bought in sooner, but with too many whipsaws IMHO. I mostly just end up looking at the longer time interval line in this set. FWIW, I’ve generally found that setting the first number to 1/10 of the total ticks in a chart time period gives the best medium between too fast and too slow. So a one year chart has about 230 trading days, and 23 works well. A 10 day 15 minute chart has about 260 ticks, and a 26 works well (though I’m often lazy and just leave it at 23). Don’t know why, just seems to work that way.

So PSAR is all muddied and both sides of price both on the First Monday top and at the 2nd Monday / Tuesday top. Muddied PSAR, maybe get out. (Or you are in a slowly rising boring market and ought to be using investor rules, not trying to day trade it…)

First Wednesday it made a nice “buy now” call part way into that rise of the day. Could be very useful to watch PSAR on this coming Monday. It seems to get a little muddied just about lunch time (gee… I wonder why…) and then is clear into the late afternoon. Right now, still saying “stay out”. So, to my eye, you need to not expect it to be useful during the lunch meander, but pay attention at long days of flat muddied (exit) and after large plunges (buy on crossing). Useful, I think.

OBV told me the first 3 days people bought until they didn’t, but I knew that from prices already, then it told me people were buying up to the top and were selling during the crash. Well Duh. Not seeing any predictive power. It does show the exit was continuing into the close, which I suppose is helpful, but again, we already know that from price. In fact, from my point of view, it is highly reflective of a reduced range price chart with an added lag. Then again, I never did like OBV, and maybe it comes into it’s own on decade scales…

ROC gave a pretty good “BUY” in sync with PSAR on the First Wednesday. The inflection of an imaginary tangent would be a great indicator. By the 2nd Tuesday it has gone flat, but crept below the line. A subtle but clear warning that the run up is out of gas. The 2nd Wednesday is clearly saying “you ought to have been out already”, then has a blip up of “exit now with the floor brokers” (On the first day of a heavy fall, you often see that ‘rebound’. I speculate that it is Market Makers raising the prices to sell out the inventory they had to suck up in the morning before they can short things the next day…) ROC is then substantially a big below the line blob (modulo the occasional lunch wiggle) into the end of the week.

Slow stochastic is calling every little wiggle and bump all day every day. IMHO at this time scale it is too useless and twitchy for home use. Maybe for floor traders or folks with automated trading and real time quotes it could catch all those tiny day trades, but with 20 minute lagged quotes at home, just a day late and a lot of dollars short. ( I do find it useful on multi year charts as then the time scale makes it closer to a decent swing trade time scale of coverage. Several days to a week or two range.)

Price Channel and Mo

Here we have a Price Channel on the upper price portion. This holds a marker at the last highest and lowest prices. Moving out of the ‘channel’ is supposed to indicate a trend. Probably better with slow staid stocks when waiting for a breakout. Then again, an average like SPY is slower and soft of staid.

Money Flow is like OBV only measuring the money flowing in not just the stock volume; and to me has about the same result.

Ultimate Oscillator is supposed to give clear trade signals. I don’t hear them well…

Momentum is a measure of which way the crowd is running. To buy or to sell? Volume and price products are the momentum basis.

S&P 500 Price Channel Money Flow Ultimate Osc. Momentum 10 day 21Aug2015

S&P 500 Price Channel Money Flow Ultimate Osc. Momentum 10 day 21Aug2015

Price Channel, to me, says about the same as Bollinger Bands but without the Volatility component. Knowing that Volatility matters, I don’t see the point of leaving it out. Still, we do get price in a narrow channel on the second Tuesday and hugging the lower bound to the end of Friday, so saying “out, and stay out”. Comparing first Wednesday to 2nd Wednesday both give a ‘buy me’ lift off of the lower bound. But the second one is a head fake whipsaw… so maybe a rule to “only buy after a down” and “never buy the day after a topping call”? Or maybe 2 days…

Money Flow just doesn’t do it for me. Misses the trade out early in the week. Looks a lot like flattened lagged price data. Just don’t see the use.

Similarly Ultimate Oscillator. Well, it DOES oscillate a lot. But what is it saying and when? And does that do any good? No idea…

As noted above, most of the time ROC and MO are essentially the same (and similar to MACD Histogram). Does have big black blobs below the line when you ought to be out and above when you ought to be in; so provides some psychological comfort while you fret. Inflections from above to below happen at buy and sell points (but as the 2nd Wednesday shows, it’s a little too twitchy sometimes so needs some confirmation to buy using it, and didn’t tell you to get back out until after the gap down open 2nd Thursday. So again “trade rules” to need a clear confirm from 2 or 3 indicators not just swap when it swaps.

At the Friday end, the “mass” below the line is lighter. An imagined tangent line is sloping upward at that point. Put a trend line from the 11 to 3 peaks and it intersects Monday about 11 just before the “lunch wobble”. So I’d say an 11 AM potential buy (short cover) point, but then the lunch wobble will let you know what the floor brokers / market makers discover and choose to do at 1 PM ET …

End of Updated Charts

So that’s the end of the added charts update. Now you can try all sorts of things and see what works.

At the end of Monday, or maybe Tuesday if Monday is just all down all day, I’ll put up some comparison postmortem charts along with the “who won?” conclusion on ‘when to buy the dip’ question that started all this.

Enjoy watching the market and place your bets now ;-)

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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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22 Responses to A Day Trade View Chart

  1. E.M.Smith says:

    I posted prior to open of the Asia markets (just so I couldn’t take any ‘clue’ from them on my prognostications…). They have now opened (some longer than others).

    It’s a bit of a “blood bath”. Pretty much 100% red on the boards. 4 out of 5 China markets down over 7% (the other one down “only” 3.5%…) Japan down about 3%. Similar numbers across Asia and into Australia / New Zealand.

    Some strength in the Japanese Yen (that usually means a run to safety as Yen is considered a safe haven currency). Also bonds rising.

    I’ll be watching to see how the open in Europe goes too.

    However: Usually after a down Friday, the USA only has an ‘up open’ if Asia has opened down, then reversed mid-day. If Asia continues like this, I’d not make any long bets on US markets even if the indicators said it was going up. The “up” will likely be way too little and too fast to make any money off the trade (unless the computer is doing the trades and you have your own hot wire into the exchange… and a little front running would help…) so I go for “keep powder dry” in those cases and just don’t do the counter trend day trade. In a few hours I’ll post a followup on the Asian markets.

    I’m also going to add a couple of other “captures” of the 10 day chart with other indicators. Just think it would be a fun thing to have some ‘full examples’ for future historical use. Also, Mr. Bollinger was interviewed on one of the financial shows (CNBC?) and was pointing out the use of Bollinger Bands to indicate volatility and how the volatility was way low a week+ back. So one chart will have volatility and Bollinger bands to compare.

    I’ll need to get them made before the next day date starts to change them…

    So “lots of fun” here on a lazy Sunday evening ;-)

  2. Serioso says:

    At our annual Island gettogether here on the coast of Maine, one of my guests suggested a reason for the downturn, and why it happened so early this year:

    COLLEGE TUITION! And also BOARDING SCHOOL fees. And also private school tuition and fees: Many sellers raising cash ahead of payment, trying to beat out the usual market decline in October. Having just sold stocks a month ago for the same reason (a grandson), I am inclined to agree. What think you?

  3. RickA says:

    The premarkets sure don’t look good at 10:23 pm CST.

    Maybe I jumped in to soon!

    We will see how the market closes tomorrow.

  4. E.M.Smith says:

    @Rick A:

    Some times one is too soon, at other times too late. I tend to be too late more often than too soon. It tends to be the same result. It is only the “just right most of the time” that beats either of us… But yeah, it’s looking pretty grim on Bloomberg, Fox Business and CNBC right now.

    OTOH, I’ve seen such things reverse about 11 AM ET after NY opens after just such down weeks and horrid Asian Monday.

    Let the charts be your guide… and bon chance!

  5. E.M.Smith says:

    Looks like at the open Europe is joining the drop too.

  6. E.M.Smith says:


    Well, the market opened with the largest down for the DOW ever. -1058 points if I remember it right. Now back up nearly “only” 3+% down at about -500 points. It plunges from the panic selling of all the weekend warriors saying “SELL!” as the market makers MUST buy by law, then it rises into the lunchtime as they sell out those buys at a net 500 point gain. Lunchtime will be the ‘test direction’, then we either start up and it is the safe time to buy for more than a lunchtime sell, or we head down in a round of professional shorting.

    Last week I put my bet on the table for “buy” for a short swing trade of a couple of days. Before I would actually do that, I’d consult the charts one last time. With a historic down open, I’m more inclined to do shorts than ‘trade long’ as you must also get the next plunge timed correctly. WHEN price rises to just touch (or “almost touch”…) the SMA stack on a 6 month daily chart, it’s time to exit the long side trade. This has become ever harder to time as computerized trading has come to dominate. While folks still talk about “buyers feeling” or “sellers thinking” at this point somewhere around 75% of market trades are by computers… you are mostly playing against an algorithm. The good thing is that they can be more easily predicted than human emotions…


    That happens. But it happens every year. There is also a size issue.

    Just the decline is Asia is over $1 Trillion.

    I don’t think that went to boarding schools and tuition…

    So it’s a nice cocktail party in the Hampton’s story, but “There is always a story. -E.M.Smith”.

    To see the actual causes of this kind of movement requires looking at macro economics, secular trends of decade scale, fiscal and monetary policies of governments, huge money flows of 100 Billions to $1 Trillion scale. Not just some rich folks ( or rich folks wanna-bees) sending (an ever smaller) number of kids off to school. Most of us could not and did not send our kids off anywhere and the tuition at the local Junior College is not very high…

    So everyone will make up a story. The story they make up will reflect their life and their life station. Some will blame Obama and “Obamanomics” (already saw that on Fox Business this morning), some will blame The Fed for talking about tightening (saw that on a more liberal station but I didn’t flag which one- CNBC World in Europe IIRC), and some will blame “traders and banksters”. All nice stories…

    The reality is just that markets rise until overvalued, then fall until undervalued. Governments can contribute to those moves with anti-growth or pro-growth policies, but one just raises the tops and the other lowers the bottoms. Other than when you swap governments from a ‘topper’ to a ‘bottomer’ does the range actually change much. Similarly The Fed can move counter cyclical to dampen the range (that is supposed to be their job) or as lately they can try to prevent the price bubble collapsing by over inflating it with loads of QE… and lead to wider ranges ( 8000 DOW to 18,000 DOW? And now we’ve had a 2000 point drop in one week…) Similarly traders can swing the oscillations wider and “banksters” can both over sell SIVs and mortgages and then turn around and short the stocks of the investment banks that did it. (While blackmailing government into repealing Glass-Steagall so they can buy up those investment banks and commit merger…)

    Oh, and let us not forget We The People demanding ever more “goodies” from the pockets of our better off neighbors via taxation. Then wondering why they laid us off at work due to lack of profits.

    So IMHO the “cause” is simply human nature that lends itself to a boom and bust cycle of greed and fear. All of us. Everywhere.

  7. Larry Ledwick says:

    Some trading houses having issues servicing accounts. Interesting to see if this is just a volume problem or due to other issues.

    A sharp correction over a few days is not in my view that much of a bad deal (bleeds off a little pressure on the balloon). More important is if this conspires with world events (cough Korea) and other events to lead to a steady open wound of daily drops spread over longer periods with no breather spaces where folks can cover margin and get their accounts in order without resorting to panic sell offs forced by the drop in prices.

    Only time will tell. My only participation in the market is via my retirement account and either those guys know what they are doing and will minimize the losses or they don’t. Nothing I can do about it at this point and nothing to be gained by watching breathlessly every tick of the market. In fact I have not even looked to see what my change in account value is and have no plan to any time in the near future. It is what it is and it will be what it will be, when the time comes to check on it.

    I find the whole grand game of the markets interesting intellectually and as a secondary indicator of the general mood of the business community but as noted above it now reflects more the baked in the cake assumptions and expectations of computer algorithms. In the short term that is good news, as they are more predictable, but as someone who works in IT I know also that there could be “undefined behavior” buried in those algorithms which could lead to black swan behavior.
    Grab a drink and hold onto your hats, the roller coaster is nearing the top of the first big hill.

  8. Larry Ledwick says:

    Ten year chart of the S&P posted on twitter a bit ago.

  9. Larry Ledwick says:

    Another interesting chart in this article comparing Equities vs GDP over the last few years since the early 1980’s.


  10. E.M.Smith says:


    That stocks and debt vs GDP graph set is very interesting. Not seen it before (but kind of in line with the ol’ intuition and I have talked about the gap between the real economy and the paper assets… so I was close ;-)

    On that 10 year chart, not the similarities of now to 2008. More or less a ‘double top’ with ‘failure to advance’, then a plunge. Next in 2008 came a short countertrend rally (that went back to the SMA lines on my style of charts), then the fall resumes. That, in general, is what I’d “expect” this round. (But “expecting at markets” doesn’t work as well as chart following… ‘reality just is. -E.M.Smith”)

    Per trouble servicing accounts: Not really surprised. It’s hard to convince upper management to pay all the money to size an internet system to handle the once every 10 years volume spikes in orders on one or two days. Their ISP link will likely be near saturation and their servers loaded to the gills. ( Their back end likely has no problems, though. ) I would guess it is the 80% of ALL customers logging on to check their balances and clicking “SELL!” buttons next to positions… when they are sized for more like a 5% of retail customers looking on any one day. Why I’m with Schwab. They don’t have that kind of problem. (Remember that I worked there for a year in the security area… I know the corporate culture and it is to avoid a hit in the press at all costs, even the costs of overbuilding capacity and carrying 20% contractors. There will not be a layoff at Schwab in the news. Only “cost savings from reducing contractors”. I was one of them when the “all contractors must go” memo came out at 8 AM in a downturn of business…)

    OTOH: Preventing those panic driven folks from selling at the 1000+ points down moment and delaying them to the -400 point is, in reality, a big service from Ameritrade and Scottrade – though I doubt most folks will realize it…


    FWIW, PSAR has had a touch and swap to buy, and DMI / ADX is not yet inflected. There was a big spike of volvix at the open, now stabilizing. Price still way below the SMA stack (no surprise with this giant a down move this fast)


    RSI opened at 10 (!) and now ‘only’ at about 25 so likely ‘up soon’ and while MACD has not had a crossover yet, it’s getting that bulb like shape that says crossover soon. MACD histogram is still below zero, but slope of a tanget is upward and headed toward a zero crossing ‘soon’. Momentum is ‘way negative’ still, but lessening.

    The only real worry point is that projecting price and the SMA lines we could have a ‘touch me’ moment with prices only slightly higher than now, later in the day (on this time scale) and that would be a very short rise window to trade in / out.


    Personally, I’m just going to sit this one out. I still think a ‘buy and sell’ cycle later today into the next day or two is a reasonable day trade, but the risk / reward ratio makes it a tough trade. That down slope on the SMA envelope is just way steep. ( I don’t like ‘long’ trades in a falling ‘short’ market). I’m more likely to wait a few days for the 6 mo daily chart to show a ‘touch the SMA stack’ moment and do a short (via inverse fund) then. Or just get a $4 bottle of good cheap wine and make some French Bread and enjoy “quality time” with the garden and bunny….

  11. RickA says:

    I felt pretty bad at the open.

    Now that the DOW is only down 123 (about 12:04 ish CST) I feel much better.

    Since I invest via mutual funds, I cannot buy intraday anyway – so I think Friday was hopefully a pretty good entry point for the rest of the year.

    I wish the FED would just raise interest rates and get it over with.

    I really think the market will rally once the rate hike is over with.

    I am hoping for a rally to the end of the year.

  12. E.M.Smith says:

    Well, clearly I’ve missed the best trade of the day. Knowing full well that the odds favored a broad sell off at the open, and watching Asia and Eu tank over night, the ‘best bet’ was a fast day trade of buying the spike down at about 10 minutes after the open, then selling out as the 15 minute chart touches the SMA stack (happening now). That would have been about 900 DOW points in a few hours. (Though even better would have been a short on the first large down day knowing that they often happen over several days from a top; and then cover and reverse at the open today. That would have been about a 3000 DOW point round trip).

    Now we have price on the 15 minute chart approaching the SMA stack. And, while volume is dying to the upside at this ‘lunch check’, I’m just not ‘feeling the love’ enough to short this late in the game, nor the desire to ‘go long’ when the fast action long trade is over and the slow action trade is to the downside.

    We’ll see in the next day or two if “do nothing” wins, but at this point Rick A has a better shot at recovery in the next few days (weeks?) as prices on the 1 year daily chart return to THAT SMA stack; while I can neither gain nor lose.

    The major driver of this “Story” is the trouble in China where stocks have been in freefall for a while. Germany and other European markets not quite that bad, but following. Commodities also doing the down dance. Nothing looks like it is changing that reality. All that argues for “more down”, but at tops like this the “buy the dip” mantra is so ingrained that folks keep doing it for a month or so. (Thus the ‘return to the SMA stack’). Going long in a topping market is just not something I like to do (and clearly that emotional bias just cost me a few hundreds to thousands of DOW points…). OTOH, I did get to sleep well last night, oversleep the open a bit this morning, and now I’m going to have “Garden, Sun, and Bunny” time with the ‘after breakfast coffee’ while I let this market tell me WTF it is thinking… ;-)

  13. Larry Ledwick says:

    Here is a trading glitch (blackswan event for the trading algorithm I suspect) or someone timed it just right and made a boat load of money (on paper).

  14. RickA says:


  15. Larry Ledwick says:

    Well this is one way to take care of income inequality (if you are into that sort of thing).

  16. E.M.Smith says:

    @Rick A:

    No worries. It’s looking like a rebound up for the next couple of days so you ought to be able to recoup. FWIW, my timid lack of entry was due to having exactly the experience you are having a couple of times in prior top-N-drop moments.

    Though this one was rather exotic…


    Saw a statistic somewhere that something like $2.5 Trillion had been wiped out in the last week or so. Never mind that it was largely fictional money based on inflated bubbilicious stock paper. The same people who “lost it” did nothing to “get it” for the most part as the price bubble formed, yet feel great pain at the evaporation of the bubble filling vapor they had watch grow so well…

    ANY time a stock market is rising more than 3% / year in a modern economy, it is a fiction of some kind. That is the ONLY real growth that can exist. Everything else is some combination of inflation, Fed / Central Bank currency puffery, ‘multiple expansion’ i.e. hot air, fraud (as in bogus reports), exuberant self delusion, story telling; and similar and price must, at some point, come back to touch that long term 3% trend line. But the good news is neither can it stay down forever before the next bubble forms. Just takes about a decade…

  17. E.M.Smith says:

    @RIck A:

    And just as prognosticated last night, we are up mid-day today and by quite a lot. Not yet enough to get back to Friday, but on the way.

    FWIW the general behaviour I’ve noticed at major tops is that the thing goes dead flat for months. IMHO that is when the “Giant Money” is slowly liquidating. Investment Banks get to see the order book all day every day. They KNOW when ‘buy’ is drying up and “stop loss” is building under them. It’s right there in the order book as just a few “buy if touched” above and an ocean of “sell if touched” rising below. So they liquidate in the ever shrinking middle band. This prevents big rises as they are selling, and that mass of stop loss orders prevents them setting the price down or they would be flooded with sell orders (and exchange rules require them to buy that stock as a market maker…). Only once well clear of the risk of carry of an inventory, and maybe even a little bit on the short side, they do a VERY large short. This puts them “short” before the bulk of the stop loss orders are triggered.

    Now the shorts can pick up those stop loss “SELL!!!” orders at a discount as the price spikes down. After a day or three (usually closer to three) prices rise again and the “shorts” having “covered in” at way low prices, can now let the market float up again and sell out that inventory to all those “value buyers” who started to show up.

    At intermediate “corrections” the volume to the upside builds and the market goes on it’s way.

    At major tops (about once every 8 years to decade) you have volume compress on the rebound days, and we enter a “Bear Market” with bear market rules. That is when the “market maker” shifts from having a positive inventory (as stocks are generally going up) to being flat or short at the end of most days. Price trends invert, and where you used to have “short prices down to pick up some inventory” early in the day, you get more of “put up prices so you can short into them later”.

    It really really helps to think in terms of what a Market Maker would do, having knowledge of the Order Book. And realize that this is a 3 cornered market. It is repeatedly said that “for every seller their is a buyer”, but that isn’t true in the common understanding sense. There are buyers (customers) and sellers (customers) and Market Makers (the house). So when they say “there were not enough buyers so the market went down” it now makes sense. The Market Maker had to put prices down as he was having too much stock sold (that he would have to buy) and wanted to unload it on some of those lower “buy if touched” orders rather than take on inventory himself… Once you start thinking like the Market Maker is all sorts out nicely.

    So was Friday or even Monday all because a hoard of Sellers (customers) were suddenly all possessed of a massive desire to sell at the very same time on the very same days? Or were the Market Makers (largely very massive too big to fail trading houses) faced with a load of stop loss orders they didn’t want to have work right, and not many buyers above, so the answer was to clear out inventory over a month while not hitting those orders, then short massively and sharply so the stops were hit way low (gap down at the open anyone?…) and then buy that “inventory” at distressed prices as “required by the exchange”… Now what do you do once loaded up with stock you really didn’t want? Let prices rise over a few days as you clear out inventory again, at a gain.

    Next comes either a continued bull market (minus those pesky stop loss orders and ‘buy if touched’ above you) or, after several years, all the “buy” is way saturated… so… need some volume to buy that boat…. And, having cleared the stops, sold to the folks with stars in their eyes, and knowing the order book says “not many buyers above”; then looking back at a decade of price rise over 3%, take it down. Short heavily and often. Just short like there is no tomorrow. $Billions of shorting.

    Folks will buy, then sell back to you after a few hundred or thousand points of drop. Repeat until the bottoming process. ( I covered that about 2009 ;-) At the bottom, the shorts ‘cover in’ buying all they need as folks “capitulate” and just sell. The last of the cover shows up as a ‘dead cat bounce’, then the relaxation back down as no more sellers show and the shorts are full. After a few months, optimism and bottom fishing starts again. The major trading houses, now gorged on shares at near nothing prices, slowly sell out the inventory over the next years at ever higher prices.

    BTW, many years ago there was the “uptick rule”. You could only short on an uptick in prices. The trading houses (think Goldman…) got that rule removed as it was too inconvenient to their shorting operations… Now they can just short to oblivion anyone who tries to stand in their way in a “biggest wallet wins” operation, and since they can borrow unlimited money from The Fed at 0% interest, they have the biggest wallet in the world. Think about it…

    The uptick rule was put in place to prevent market manipulation after the ’29-’32 era crash / depression… It (and Glass-Steagall also from that era) worked quite well until removed sometime in the 2000s. https://en.wikipedia.org/wiki/Uptick_rule

    The rule went into effect in 1938 and was removed when Rule 201 Regulation SHO became effective in 2007. In 2009, the reintroduction of the uptick rule was widely debated, and proposals for a form of its reintroduction by the SEC went into a public comment period on 2009-04-08.[2][3] A modified form of the rule was adopted on 2010-02-24.

    Guess that crash of 2008 got some attention…

    But the new rule exists, so ‘why worry’?

    Adoption of Alternative Uptick Rule
    On February 24, 2010 the SEC adopted the alternative uptick rule. The new rule does not apply to all securities. It is triggered when a security’s price decreases by 10% or more from the previous day’s closing price and is effective until the close of the next day.

    Gee, so you can “only” drive the market down 10% in any one day, then you have to give it a rest for a day. Wonder why Thursday / Friday didn’t reach 10% down but add in Monday did…. gee….. And now we will ‘rest’ for a couple of days (as those orders ‘settle’) before the game can resume…

    And yes, that’s part of the reason for the surprisingly accurate “market will go this way” comments I made above. Knowing what the Market Makers are likely to be doing, and what rules they are working under.

    So “this time” will not be anywhere nearly as “straight down” as 2008. It will need to take a break for rally every few days… This will actually help the shorts, as they can ‘reload’ and short from a higher starting point each time. It will also coordinate their timing… ( I liked the old simple rule better. No ticky up no shorty…)

    Also note that for all practical purposes, a 10% down rule is irrelevant. We didn’t even hit it at the depths of the all time ever greatest point loss on Monday at the depths. ( It would have been hit in 1987 on that 20% down day. Yes, 20%. The next day I was buying…) I’m certain the size of that was chosen to look useful to the public, but not matter much to the major trading houses.

    At any rate, let volume be your guide, and learn to think like the Market Maker… Today, they are loaded up with stock they “had to buy” at 4% to 15% off… so are putting prices up to sell at a nice profit. Likely tomorrow too…

    As this posting is getting long, and I need to add more charts, I’m going to head off to chart making land for now. Enjoy your green day ;-)

  18. Larry Ledwick says:

    So in summary there are buyers and sellers (customers — ie gamblers) and the market maker, (the house) – – – The house always wins.
    It is just a little fancier and high class than a slot machine or a roulette wheel.

  19. p.g.sharrow says:

    Wilbur Ross on FBN said he had a bunch of low buy orders out, but not yet filled, as of Tuesday close. He would not say what they were or how low he was fishing for….
    Market makers are shouting BUY NOW!….The market is greatly under priced… Yeah right…..

    my street research says economic conditions are still moving down….pg

  20. E.M.Smith says:

    E.M.Smith says:
    25 August 2015 at 8:01 am (Edit)
    @Rick A:

    No worries. It’s looking like a rebound up for the next couple of days

    Well, that was hubris, and got a kick in the teeth at market close today. I was out playing with beans and bunnies and not bothering to actually look at the charts so shot my mouth off from the hip (an interesting image ;-)

    Do “down day” all due to a few minutes at the close after a 400+ point up.

    Well, in my defense, I had the feeling that I ought to sit this one out…

    I’ll do a ‘work up’ on this later today.


    You say that like it was a bad thing… or a surprise… ;-) ;sarc>


    To my eye (and from what I know of global state) we are at a secular top and headed for a pretty firm crash. The only real open question is “Exactly NOW?” or “in a month”… And that depends on what vodoo the Coordinating Oligopoly Central Banks can pull on the world out of they bag of tricks.

    That’s a large part of why I’m not playing the ‘return to the SMA stack’ this time. Because it can do that via the stack coming down to meet a sideways / slower down price trend…

    Still expect an up leg in the next week max, but from what level? Need to do that charting / analysis thing…

  21. p.g.sharrow says:

    Additional, Talking heads, The observation that the sell off appeared to be triggered by insurers raising cash to pay demands on insured bonds that they had guaranteed. Nothing definitive…pg

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