S&P 500 Index Analysis

Quote from DrChen:

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
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I predicted a significant market drop for today elsewhere on this site. The post was from early last night. I have also noted several times over several weeks that a corrective phase is overdue, especially in certain sectors.

I don't have a clue where the Index will close tommorrow but my trades don't necessarily depend on it. Its all about risk/reward evaluation for me at this time.
 
Nine Ender,

You stated that "financial and technology sectors did not fully participate in the drop." The S&P 500 FINANCIALS INDEX and the S&P 500 INFO TECH INDEX dropped 1.83% and 1.87%, respectively, according to www.bloomberg.com, more than the S&P 500 Index decline of 1.62%. Please correct my misunderstanding of your statement, if any. Thanks.

Dr. Chen
 
Quote from DrChen:

Nine Ender,

You stated that "financial and technology sectors did not fully participate in the drop." The S&P 500 FINANCIALS INDEX and the S&P 500 INFO TECH INDEX dropped 1.83% and 1.87%, respectively, according to www.bloomberg.com, more than the S&P 500 Index decline of 1.62%. Please correct my misunderstanding of your statement, if any. Thanks.

Dr. Chen
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My post from last night :

Quote from Nine_Ender:

Everyone headed to the exits ? Not nearly yet we're still very close to the highs of this year's trading range.

Option expiry week often has a built in quality of countering any large moves in the market preceding it. This is because large institutions that have sold call options ( in a bull run ) want some of their money back; or at the least, they won't let the stock run up anymore.

Ireland can only be bearish to the market. With the foreclosure issues in the US and what happened to Greece etc ( eg flash crash ) there is no doubt the market will drop on any required bailout for Ireland. Perhaps this is the best indication of a possible top when people are claiming bad news might raise the market higher lol.

Here's my idea. Don't go long now. Wait for the pullback, its coming. My best guess is tommorrow. Be ready. If we somehow muddle through Tuesday and Wednesday fairly flat or slightly up, then its 90% chance the market sells off Thursday morning. Seen this happen on option expiry week many times.
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Regarding the subindexes, I stand corrected. But several stocks in those indexes that I trade dropped very little today. This is what gave me the idea we haven't completed the pull back from today. I expect something more within 48 hours for similar reasons to my original call.
 
Nov. 17, 2010

Analysis:

Yesterday's Analysis predicted that "the CPI excluding food and energy will be flat or negative, drawing buyers into the bond markets and weakening the dollar." Today the core CPI was flat, and the dollar weakened. Looking ahead to tomorrow, the Initial Jobless Claims will be below 440,000, which, along with improving Leading Indicators, will drive the market higher.

Strategy:

Hold long at 1,197
 
Dr Chen, if you don't mind me asking, are you really trading your Analysis with real funds? If so, what is your P&L since thread inception? You can use percentages, if it suits you better.

I am also curious as to your reason for remaining long at this point.
 
Quote from Optionpro007:

Dr Chen, if you don't mind me asking, are you really trading your Analysis with real funds? If so, what is your P&L since thread inception? You can use percentages, if it suits you better.

I am also curious as to your reason for remaining long at this point.
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This week has been unusual for expiry week, with futures pointing up tonight so far despite a world of hurt in the news.
My experience is often on the Thursday morning there is a tricky reversal out of nowhere feuled by options markets.

Perhaps the jobs number will give the market the trigger to sell off. Dr. Chen remains bullish, which surprises me as well.
 
Optionpro007,

Thank you for your question.

As to your first question, you must have read plenty of threads at this website to know that your question either purposefully or inadvertently will open the flood gate for many exchanges of accusations and defenses of the writer¡¯s honesty. I refuse to be drawn into such a futile discussion, as it only distracts the purpose of the thread, which is the analysis of the S&P 500 Index. (Out of respect to you I respond to your question, in a stark contrast to my total disregard of all accusations and insults posted under this thread by others. I am sorry to disappoint you, since you have harbored this question as early as Oct. 22 when you said, ¡°with all due respect you guys are talking about Dr. Chen as [if] you knew who he is or what his real intentions with this thread are.¡±)

I remain long because at the time of my writing this Analysis, I believed that the market would rise. And it has risen since then. (As you must have noticed, I do not post my trading strategy in advance ¨C for a good reason; for if I do, say, by stating to reverse to short at 1,193, and later I decide to hold the long position to take profit at 1,226, I will be called a liar for holding the long position, which name would be an unnecessary distraction from the S&P 500 Index Analysis.) Thanks.

Dr. Chen
 
Nov. 18, 2010

Analysis:

Yesterday's Analysis predicted that "the Initial Jobless Claims will be below 440,000, which, along with improving Leading Indicators, will drive the market higher." Today the Initial Jobless Claims came in 439,000, and the Leading Indicators increased 0.5%. The market recovered most of its losses from earlier this week, perhaps validating the conspiracy theory that Wall Street institutions were out there to take profits from late retail bulls and bought at bargains just when the latter threw in the towel.

Looking ahead to tomorrow, the Irish rescue will become more concrete, and Chairman Bernanke's speech will firmly reject the exaggerated concerns about uncontrolled inflation fueled by the Fed's QE2 and will reaffirm the Fed's commitment to carrying out the injection of the full $600 billion into the monetary system by next June. As a result, the market will rise to as high as 1,210.

Strategy:

Hold long at 1,197
 
Nov. 19, 2010

Analysis:

Yesterday's Analysis predicted that "the market will rise." Today the market rose slightly on the backdrop of encouraging corporate earnings. Looking ahead to next week, the market will continue its upward movement, as the resolution of the Irish banking crisis and the revised Q3 GDP will provide the ground for the market to launch higher.

Strategy:

Hold long at 1,197
 
Nov. 22, 2010

Analysis:

Over the weekend the Irish finally relented to ask for a bailout from the EU and the IMF. Today, the Bears tried to pull another buy-the-rumor-sell-the-fact trick, but the market had another idea and closed only slightly lower. Looking ahead to tomorrow, the revised Q3 GDP increase will be 2.4% or higher, as the international trade deficit subtracted less from the GDP due to a weak dollar, and the Fed's minute will disperse any lingering doubt about the Fed's resolve to carry out pumping the full $600 billion into the financial system by next June. As a result, the market, driven by technology stocks led by HP, will rise towards 1,210.

Strategy:

Hold long at 1,197
 
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