As you can see during market bottoms (January 08/March 08) it has closed north of 30, in fact in the mid 30s
Now, we are really oversold (almost 8% straight down - June 2008 - yowsers) and in most cases (ex January 2008) we'd be expecting a dead cat bounce rally soon. I believe it is possible if we do fall to 1275 here to close the day we'd get some sort of reflexive rally. Or an Invisible Hand rally. Or some combination of the two.
But this would create a technical condition called a triple bottom. (January 2008, March 2008, now) Now, just from years of experience, triple bottoms usually don't end well (unlike double bottoms which seem to create very nice rallies). In a socialized market helped by the invisible hand I don't know what would happen at a triple bottom, since we have little historical record. But in a free market, it usually ends badly.
So a theory could be, crumble to S&P 1275... followed by all the King's Horses and all the King's Men buying futures like mad to create the appearance of "real" buying which pushes the indexes up and then snares hedge fund computers into buying, which self reinforces onto itself .... creating a rally (boy I sound cynical)... which will peter out after a few days, and then we will retrace to 1275... and break it on the next attempt... causing the VIX to spike. Since breaking S&P 1275 will cause even hedge fund computers to break out in a cold sweat.
That's one theory... it's complicated, it's cynical and it's "half empty".
As an ulterior investment strategy I could offer you the "half full" theory - which is followed by the pundits on TV and sponsored by your government and Federal Reserve - and simply show you this (thanks to Bluedog for his artistry) I'll leave it up to you to decide your path ;)
Did I mention the "2nd half recovery" starts next week?
12 comments:
a bounce here at 1275 has got to be the most widely anticipated bounce ever. That's probably why the VIX is barely moving.
The PPT Put? :)
ala the Greenspan Put?
I don't know if I believe in the PPT. Or if it does exist, how often does it actually come out to mess with things...
But the idea of a PPT is just as self-fulfilling as technical analysis is. So the thought of its existance makes it real. But it doesn't always have to be.
I just don't see a real bounce because the VIX is so weak. And people have yet to puke out all their 'good' cookies.
they are not a fairy tale.
http://tinyurl.com/2agbq2
On Bear Stearns Monday I can tell you they were active because the market should of broke down at least 8 times that day, but in a spot where no technical analyst, or no computer would buy was consistent buying. If you do a full day chart on that day, you can see it - it made no sense - I know because I was positioned for more selling and it never came. All the charts were broken.
Look at mid April charts as well.
But hey its just a working group that meets to discuss things over crumpets and tea I suppose :)
enough for today, I am worried what PCE and spending reports will show tomorrow, if preceived to be bad, that will flush the PPT out of the bushes
disclosure bought ultra short ETFs yesterday and this morning, sold this afternoon, tidy
Could the use of Ultrashort ETFs as a hedging vehicle keep the VIX artificially lower? If I hedge my portfolio using an ultrashort, I don't need to buy puts.
Is this logical?
Mike, that is above my pay grade. Maybe call into Mad Money tonight and pose that one to Mr Cramer? :)
I'm exhausted, that's about all I know right now. Doing 2+2 is about the level of skill my brain can do at this moment. I'll check back in tomorrow for another round of "fun".
Mike, that's an interesting idea. I use the ultrashorts for exactly that. But for large funds, I don't think they would be using that type of instrument for hedging. That's using alot of capital, when an option (now still cheap because the VIX is still low) could do the job just as well, and with less capital.
I'm also watching the VIX. It's curious that it's so low despite closing in on a potential triple bottom. Check out this graph:
http://tinyurl.com/2s4x6q
I bought into some of the financials today, a homebuilder, and an airline. God help me.
BD
Phew! Went long GOOG calls at the close and some MEE puts! - God help me too!!
-Pankaj
I would put the VIX in the category of what is known by every one is not worth knowing....
Plus I don't get your statement: "spot where no technical analyst, or no computer would buy was consistent buying." Once again, I know you do your homework but if you look at daily charts of the SPY over the past 5 or so years, it was probably better to buy breakdowns then to buy the breakout. For example, rigorous backtesting shows that breaks of support or breaks of up trend lines where better times to buy then breaks of resistance. So it would not surprise me to hear that the "magic hand" was buying at those levels
For the record, I suspect there is market manipulation but it probably is in the forex and futures markets
Guy,
I also believe it is in the futures. The thing is, so much trading is now computerized and when futures start spiking out of the blue - it seems to set off algorithims that try to detect things before anyone else, and that creates "real" buying. I'd love to look behind the mouse trap and see how it really all works but you'd have to have access to all these institutional computer programs.
Post a Comment