S&P 500 Index Analysis

[Nine_Ender]

Quote from DrChen:

Nine_Ender,

Thank you for accepting my invitation for a critique.

You stated, "if China doesn't raise interest rates, you'll see a huge rally on Monday or Tuesday." I disagree. I believe that even if China does not raise interest rates, the 5.1% inflation rate in November will induce a market EXPECTATION of an interest rate hike, which will pull the market back when the futures market opens in Asia trading hours; whereas you believe that "a Chinese interest rate hike was priced in on the retracements we had." I make no prediction on the duration of the retreat -- one hour, one day, or one week. Thanks.

Dr. Chen

The expectation of a hike is old news by now. You have failed in any of your analysis to indicate why the S&P 500 is at 1240. You indicated a level of frustration would occur at 1228 and there was none at all. What I noted is GE and BCE raised dividends, BMO exceeded earnings estimates and offerred up a strong outlook.

December is usually the strongest for stocks I expect large caps that have lagged the market move to do very well into year end. For your short to work you'll need a massive correction in commodity prices. I just don't think it will happen.

 

[DrChen]

Nine_Ender,

You indicated that I have failed to indicate why the S&P is at 1,240. I never predicted that the S&P would rise to 1,240, which is the reason why I gave no analysis to support the S&P¡¯s rise to 1,240.

You brought up a massive correction in commodity prices as a reason for a market retreat. As a matter of fact, a number of commodity prices already fall back into previous trading range after a breakout, including crude oil, gold, silver, cotton, and wheat. The only exception is the price of copper, whose limited spot supply in London has resulted in backwardation of prices, but copper price will sink on Monday due to concerns about the slowdown in China.

Dr. Chen

 

[Nine_Ender]

Quote from DrChen:

Nine_Ender,

You indicated that I have failed to indicate why the S&P is at 1,240. I never predicted that the S&P would rise to 1,240, which is the reason why I gave no analysis to support the S&P¡¯s rise to 1,240.

You brought up a massive correction in commodity prices as a reason for a market retreat. As a matter of fact, a number of commodity prices already fall back into previous trading range after a breakout, including crude oil, gold, silver, cotton, and wheat. The only exception is the price of copper, whose limited spot supply in London has resulted in backwardation of prices, but copper price will sink on Monday due to concerns about the slowdown in China.

Dr. Chen

You resist giving reasons why we are at 1240, but frankly you MUST do so if you are to become a successful trader. This is your achilles heel if you cannot overcome this I am wasting my time on this thread.

 

[DrChen]

Dec. 13, 2010

Analysis:

China did not raise interest rates as widely expected, and global equity markets rallied -- except the S&P 500 Index, which gave up all its gain at the end of the session. Looking ahead to tomorrow, Retail Sales and Business Inventories for Nov. will both exceed consensus forecasts. However, once the market rises to as high as 1,245, it will drop due to profit-taking amidst concerns of a near-term top. Perhaps a wishful thinking is all a Bear is left, or perhaps Santa will grant the Bear his wish for this Christmas.

Strategy:

Hold short at 1,217

 

[DrChen]

Dec. 14, 2010

Analysis:

Yesterday's Analysis predicted that "once the market rises to as high as 1,245, it will drop." Today the market rose above 1,245 but finished only slightly higher. Looking ahead to tomorrow, the Empire State Manufacturing Survey will be positive to the market, but the market will retreat on concerns about the impact of higher long-term interest rates on banks' ability to lend and increase their loans and on homebuilders.

Strategy:

Hold short at 1,217

 

[DrChen]

Dec. 15, 2010

Analysis:

Yesterday's Analysis predicted that "the Empire State Manufacturing Survey will be positive to the market, but the market will retreat on concerns about the impact of higher long-term interest rates." Today the better-than-expected Empire State Manufacturing Survey initially drove up the market, but the market settled lower while the interest rate on the T-note rose to 3.53%.

Looking ahead to tomorrow, the lack of demand in the Spanish bond auction will rekindle the concerns about European sovereign debt, this time that of Europe's fourth largest economy, causing the Euro to weaken towards $1.31. The Housing Starts will be no greater than 545,000 due to increases in mortgage interest rates. The Initial Jobless Claims will reverse the recent downward trend and rise towards 430,000. The Philadelphia Fed Survey will decrease from 22.5 in October. As a result, the market will continue its slide towards 1,228.

Strategy:

Hold short at 1,217

 

[Nine_Ender]

Quote from DrChen:

Dec. 15, 2010

Analysis:

Yesterday's Analysis predicted that "the Empire State Manufacturing Survey will be positive to the market, but the market will retreat on concerns about the impact of higher long-term interest rates." Today the better-than-expected Empire State Manufacturing Survey initially drove up the market, but the market settled lower while the interest rate on the T-note rose to 3.53%.

Looking ahead to tomorrow, the lack of demand in the Spanish bond auction will rekindle the concerns about European sovereign debt, this time that of Europe's fourth largest economy, causing the Euro to weaken towards $1.31. The Housing Starts will be no greater than 545,000 due to increases in mortgage interest rates. The Initial Jobless Claims will reverse the recent downward trend and rise towards 430,000. The Philadelphia Fed Survey will decrease from 22.5 in October. As a result, the market will continue its slide towards 1,228.

Strategy:

Hold short at 1,217

I believe today may have represented your best chance to cover your short prior to year end. Friday may give you one last chance, but not if the Philly Survey is strong again.

Surely you must realize almost every US economic indicator has been market positive the last few weeks. That 22.5 reading was a blowout number that surprised the market in November. A repeat will create a new high tommorrow. 22.5 again is not required it was a terrible number not so long ago.

It is obvious the US economy is recovering from the numbers. The stock market is also pricing in increasing earnngs in 2011 ( almost a given at this point ). Your idea about higher interest rates simply cannot hold given the CPI numbers this morning.

I'm not guaranteeing a rally but its definately a strong possibility
and you are underwater on your short already.

 

[DrChen]

Nine_Ender,

You stated, ¡°the stock market is also pricing in increasing earnings in 2011.¡± I disagree. If this were true, the market would have little room to rise in 2011 unless corporate earnings reports in 2011 would consistently beat earnings forecasts made in 2010.

You stated, ¡°your idea about higher interest rates simply cannot hold given the CPI numbers this morning.¡± I disagree. The T-note rate has little to do with CPI but has a lot to do with the EXPECTATIONS of inflation rates in the next 10 years.

You stated, ¡°I'm not guaranteeing a rally but it's definitely a strong possibility.¡± I understand your style of writing. The only definitive statement I glean from your past posts under this thread is one written on Dec. 11, when you wrote, ¡°if China doesn't raise interest rates, you'll see a huge rally on Monday or Tuesday.¡±

Dr. Chen

 

[Nine_Ender]

Quote from DrChen:

Nine_Ender,

You stated, ¡°the stock market is also pricing in increasing earnings in 2011.¡± I disagree. If this were true, the market would have little room to rise in 2011 unless corporate earnings reports in 2011 would consistently beat earnings forecasts made in 2010.

You stated, ¡°your idea about higher interest rates simply cannot hold given the CPI numbers this morning.¡± I disagree. The T-note rate has little to do with CPI but has a lot to do with the EXPECTATIONS of inflation rates in the next 10 years.

You stated, ¡°I'm not guaranteeing a rally but it's definitely a strong possibility.¡± I understand your style of writing. The only definitive statement I glean from your past posts under this thread is one written on Dec. 11, when you wrote, ¡°if China doesn't raise interest rates, you'll see a huge rally on Monday or Tuesday.¡±

Dr. Chen

I am indeed saying that corporate earnings reports in 2011 will consistantly beat earnings in 2010. I am not alone in this sentiment.

I also don't think you understand the nature of speculative short term investment, even though your thread revolves around the idea of doing exactly that. You nor I can know for sure what the future effect of news will actually be the next day. What we must do is a risk/reward of the possibility and act accordingly. My "style" of writing is more in tune with reality then yours is.

I have in fact been very specific with respect to your calls on several occasions. "Covering your short" is a recommendation to close the position, in case this is a foreign concept to you. I didn't want to get even more specific at times because it would further highlight some weakness in your approach, specifically the lack of meaningful stop losses when the news tells you ( at least for a day ) that your position is ill advised. Scaling in and out of positions doesn't seem to be part of the deal either. Up until now, I decided not to bring this up because it was obvious that you were more of a hobbiest then a professional trader.

All that being said, the discussion of news events and outcomes is interesting and important. But the rigidity that you are using in discussion is not healthy to trading profits.

 

[DrChen]

Nine_Ender,

You stated, ¡°I also don't think you understand the nature of speculative short term investment.¡± I can neither agree nor disagree with your statement because you have not laid out your understanding of the ¡°nature of speculative short term investment.¡±

You stated, ¡°¡®covering your short¡¯ is a recommendation to close the position.¡± I believe that no trader can consistently place winning bets based on others¡¯ recommendations, and the trader has to make his own decisions and bear the consequences of his own actions.

Finally, I concede that I am not a ¡°professional trader,¡± as you might have thought I was, since, as you can see, I rarely ¡°trade¡± in and out of my positions so far.

Dr. Chen