S&P 500 Index Analysis

Nov. 10, 2010

Analysis:

Yesterday's Analysis predicted that "the International Trade Deficit for Sept. will decrease sharply due to a weak dollar and, along with the Initial Jobless Claims below 450,000, will further boost the dollar against the Euro," and that "the market will attempt to retrace back below 1,200." Today the International Trade Deficit was smaller than consensus, and the Initial Jobless Claims were 435,000. The Euro initially dropped upon the news but bounced off support at 1.37. As the Euro recovered, so did the market come off a few points above 1,200 to settle higher. Looking ahead to tomorrow, the market will drop to find a support level upon Cisco's disappointing earnings guidance, and such a market retreat may provide a buying opportunity.

Strategy:

Stopped out at 1,205 for a profit of 8.5 points; currently with a long bias
 
Nov. 11, 2010

Analysis:

Yesterday's Analysis predicted that "the market will drop to find a support level upon Cisco's disappointing earnings guidance." Today the market dropped towards 1,200 before closing five points lower. Looking ahead to tomorrow, the Consumer Sentiment will not increase surprisingly. The market will continue to drift lower to find a near-term support level on the backdrop of the weakening Euro, and such a market retreat may provide a buying opportunity.

Strategy:

Long bias
 
Nov. 12, 2010

Analysis:

Yesterday's Analysis predicted that "the Consumer Sentiment will not increase surprisingly, and that "the market will continue to drift lower to find a near-term support level." Today the Consumer Sentiment was 69.3, slightly higher than the consensus of 69.0, and the market found support near 1,195 before recovering near 1,200. Looking ahead to next week, now that the market has found its near-term support, it will drift higher as the concerns about Irish bondholders' "haircut" were dispersed by officials, and corporate earnings reports and retail sales will further boost investors' confidence in the market that is still priced below average in relation to earnings.

Strategy:

Bought at 1,197
 
Quote from DrChen:

Nov. 12, 2010

Analysis:

Yesterday's Analysis predicted that "the Consumer Sentiment will not increase surprisingly, and that "the market will continue to drift lower to find a near-term support level." Today the Consumer Sentiment was 69.3, slightly higher than the consensus of 69.0, and the market found support near 1,195 before recovering near 1,200. Looking ahead to next week, now that the market has found its near-term support, it will drift higher as the concerns about Irish bondholders' "haircut" were dispersed by officials, and corporate earnings reports and retail sales will further boost investors' confidence in the market that is still priced below average in relation to earnings.

Strategy:

Bought at 1,197
More...

Interesting, I don't have this sense myself even though I have found most of your recent posts fairly on the ball. I think the Irish situation is hanging on the market now and it won't take much to get a significant drop. We will need a lower level to truly establish support that the market will have 100% confidance in
( eg 1180s or 1150s, depending on news ).

Does anyone know what the current Call/Put ratio looks like on near term expiration ?
 
Nine_Ender,

Thank you for sharing your thought. As my trading style, I will not wait to see the market having 100% confidence in any level of support or resistance before placing a trade because by that time the potential profit may have already shrunk too much to be worth the trade. Thanks.

Dr. Chen
 
Nov. 15, 2010

Analysis:

Friday's Analysis predicted that "retail sales will further boost investors' confidence." Today the October Retail Sales increased 1.2%, supporting the market for most of the day. However, the market erased the gains later due to the strengthening Euro and settled slightly lower. Looking ahead to tomorrow, the Industrial Production will be 0.5% or higher, and the Euro will bounce back higher after the solution to rescue two Irish banks is hammered out in Brussels. As a result, the market will rise as high as 1,210.

Strategy:

Hold long at 1,197
 
Quote from DrChen:

Nov. 15, 2010

Analysis:

Friday's Analysis predicted that "retail sales will further boost investors' confidence." Today the October Retail Sales increased 1.2%, supporting the market for most of the day. However, the market erased the gains later due to the strengthening Euro and settled slightly lower. Looking ahead to tomorrow, the Industrial Production will be 0.5% or higher, and the Euro will bounce back higher after the solution to rescue two Irish banks is hammered out in Brussels. As a result, the market will rise as high as 1,210.

Strategy:

Hold long at 1,197
More...

Several items in this specific post seemed overly biased on the long side which was contrary to my own immediate views. Yesterday, 2 of 3 economic news items were negative but the Retail Sales ( thanks mostly to Autos ) was in the news more. The Irish situation in my opinion can only help lower the markets, but if I am right on this we are not done dropping yet.

Most of the move today was commodity based ( re China ). So the direction of the overall market now will depend on whether the full market joins in due to profit taking.

I do find your posts interesting even if we don't always agree how the markets will react to the indicators.
 
Nine_Ender,

Thank you for your comments.

Before I respond to the substance of your comments, I first respond to the timing of your comments. I would like you to comment on my Analysis before the market opening if possible, because your comments on my prediction made after the market close with hindsight, even if meritorious, seem, in my opinion, unfair to me.

You observed that ¡°several items in this specific post seemed overly biased on the long side.¡± Your observation is correct to a certain degree, and that is what the market does, i.e., when the market goes up, it ignores negative news, and no one can argue with the market for doing this when it goes up. Similarly, when I predict an upward market movement, I will ignore the negative news. (One can certainly argue with me when I am wrong.)

You stated that ¡°the direction of the overall market now will depend on whether the full market joins in due to profit taking.¡± My Analysis is written in a different style because a statement along the line that ¡°tomorrow¡¯s market direction will depend on whether the CPI reading exceeds the Fed¡¯s expectation [or whatever factors you fill out here]¡± is not informative or helpful to the readers. Thanks.

Dr. Chen
 
Nov. 16, 2010

Analysis:

Today's market rout was all impressive in the sense that it fell through the 1,180-1,185 range and never bounced back. The market action would seem to support the notion that Wall Street institutions conspired to scalp (or shake out) retail investors just as the latter were convinced that the bull market was finally in place. Whatever the theory is, many late bulls no doubt threw in the towel, and the stock market aphorism "buy the rumor, sell the fact" belatedly -- by 13 days -- proves its inevitability like death and tax.

Looking ahead to tomorrow, the CPI excluding food and energy will be flat or negative, drawing buyers into the bond markets and weakening the dollar, and the Housing Starts will hover around the uninspiring 610,000 units. The market will rebound from today's sell-off as investors see values after the froth in the market has been cleaned up in the last few days.

Strategy:

Hold long at 1,197
 
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