Chat Junkies

[wjrusnak 10]

When you sold for the second time, how did you know we were not going to break R? Unless I'm mistaken, you shorted on the way up right? But how did you know, at that time, price was not going to break higher but fail instead?

 

Apart from that, what can I say... beautiful trade, nice and early, quick points in little time... the 'trade of the day'

 

On the minute bar that I sold, price hit 1201.25 and fell shortly after. That is why I took the 1200 trade (after the rejection at 1201.25) with 1201.75 stop. That way, in the case that I were wrong and it would break 1201.50, I'd lose little.

[lewtz1520887470 10]

Lewtz: Given our discussion of whether or not to take the following trade, you should probably think about it now or this evening, while it's still fresh in your mind.

 

 

 

 

I did take that trade and I exited at B/E because A: I was impatient and had a horrible entry at 32.50(can't miss the move!) and B: Where my entry was bad, I didn't feel confident in the placement of my stop(didn't want it too wide). I felt price was coming back to kiss support again, however it ended up missing my stop by 2 ticks then resuming.

 

I'm disappointed in my lack of patience on this one -- had I just put a limit closer to 31.5-31 I still would have been filled and would've been much more confident in my entry and stop placement. This bad entry led to a whole different psych aspect of this trade and facilitated a feeling of fear which caused me jump out.

 

That is my analysis of the trade at the end of the day, however I forgot about this thread, which is why I'm posting it now.

 

I didn't follow the rules on that play and I ended up paying for it. I have to say I'm glad I paid for it because it reinforces the concept of, you know, not breaking the rules! DON'T BREAK THE RULES!

[wjrusnak 10]

Anyone else feel like this is one of those "big" times for the dow?

 

It has been holding the 7000 area since 1997. Should be interesting.

 

[DbPhoenix 42]

Regarding comments made in chat, this is where I'm getting my "targets" for the Dow. I've taken snapshots over time using more or less the same timeframe so that one can see where the final trendline comes from.

 

 

 

 

 

 

 

 

If we do reach 6000, one should keep in mind that reversions often overshoot, and we could go all the way to 4000, something like jumping off a diving board, diving underwater, then swimming back to the surface. One hopes that none of this will occur, but the possibility should be at least entertained.

[DbPhoenix 42]

Bears and bulls locked in trench war

 

By Jon MarkmanMSN Money

 

Can it really be only mid-February? The stock market this year has featured enough left turns, spinouts, reversals and explosions to fill out a NASCAR race card. It's one of those years so far that only a day trader could love because the concept of a multiday move in one direction has become quaint, as trends are lasting about as long as President Barack Obama's nominees for commerce secretary.

 

The feeling in the market is much different than in 2008, a year that featured pitched battles between bulls and bears ranging up and down the countryside at full gallop. This year has been all about trench warfare, as optimists and pessimists opted to battle over a narrowing stretch of territory: the 802 area of the Standard & Poor's 500 Index on the bottom and the 867 area on top, with one excursion at the start of the year to 940. Now the battlefield looks ready to shift lower, to the still-narrow range of 740 to 820.

 

To keep it simple on your score card at home, the median, until Tuesday, was 850: If bulls could have pressed their advantage in early February and kept the market above that line in the sand for a week, we would have seen an explosive rally that moved toward January and even October highs. But the longer we spend below it, the more likely the index will test November's lows and then, after a brief bounce, probably drop well below. According to independent credit analyst Brian Reynolds, bonds are already trading at levels that are the equivalent of the 600 to 700 area of the S&P 500.

 

Why have battle lines narrowed since last year? In 2008, there were big differences in bulls' and bears' opinions, while this year the differences are relatively minor. Scary as it seems, bulls and bears are starting to agree about two things: that the global economy is truly a mess and that earnings at big companies are likely to get worse -- possibly much worse -- before they get better.

 

Puzzling, uninspiring leadership

 

Last year, you may recall, bears had high conviction that stocks were overvalued and likely to be hit hard by slowing revenues and thinning profit margins. Bulls, in contrast, had conviction that the bears were out of their minds, and they were happy to try to take advantage of big dips in March and July to buy stocks with abandon, causing two-month squeezes. Don't forget that, until autumn, bulls were so sure of their point of view that they were still insisting there was no recession and complaining that the Federal Reserve should start to raise interest rates to keep the economy from overheating.Now there is consensus that the Fed is likely to keep rates low all year and continue to pump money into the system. The difference between bulls and bears now has narrowed to the questions of what size boost the economy will get from the stimulus package and lower interest rates, and when that might happen.

 

The bears continue to think that stimulus measures will have a very modest effect, while the bulls think that the stimulus will energize the economy to the point that we'll see positive gross domestic product growth in the third quarter. These differences of nuance are a lot smaller than they were last year, with bulls now mostly dispirited and bears mindful that they could be wrong, so the two sides are willing to squabble over a much smaller amount of territory.

 

One of the maddening things about this development is that, with general agreement that business is awful, the debate has shifted from topics with which investors are comfortable -- product innovation, market share growth and earnings -- to the devilish swampland of politics. And even worse, investors need to be able to judge not only how the new administration is thinking of changing the rules of the game but how major overseas fund managers and creditors would react to that.

 

The sense I get from talking to fund managers and veteran analysts, as well as watching price and volume trends, is that investors fear that the new president has lost control of the stimulus package to Congress, lost control of the bank rescue package after hitting resistance from both banks and the Fed, and lost control of his hiring process after losing four key high-level nominees on personal and philosophical issues that should have been worked out in advance.

 

Managers don't understand why Obama did not insist that Treasury Secretary Tim Geithner come up with a specific, easy-to-understand plan for the banking system, and at the same time they don't understand why Obama let congressional leaders write the stimulus package instead of his own staff. It's all very puzzling and uninspiring, and neither of those emotions are conducive to any confident urgency about betting on a quick U.S. economic recovery and buying stocks.

 

Compounding the concerns over confidence is a rising sense of dread over what might happen if Geithner goes ahead and throws a bank loan party in a public-private partnership, as proposed last week, and no one comes. Or even worse, investors are wondering what may happen if politicians and bureaucrats exercise their newfound populism by imposing really Draconian limits on banks that decide to sell their lousy assets to the feds in exchange for new leases on life. Current thinking is that a newly recapitalized banking system that is run mostly by the government would return to the pre-2000 and even the pre-1990 culture: It wouldn't lend money to anyone who needed it.

 

Not 'great' -- and not good

 

Another source of concern making the rounds is that there will be far fewer creditworthy corporations left in expansion mode by the time the banking system is functioning normally again. And because leverage will be much tighter -- with no "shadow banking system" of hedge funds and structured investment vehicles to provide a lot of low-class money via securitization -- there will simply be a lot less credit to go around. At that point, the concept of cheap money generated by the recycling of petrodollars and the Chinese trade balance will be as old-fashioned as a Wall Street ticker tape. If this ends up being the case, trillions will have been invested in the U.S. banking system with little to show other than a restoration of some retro version of the early 1980s, replete with mean, miserly, squinty-eyed loan officers and demands for 20% down. That's not good, by the way, as it means you can say goodbye to deals that allow you to buy now and not pay for three years, or to use your primary residence as collateral for a summer home, new furnishings or a boat. We may feel like we've paid a lot of money for a faded antique that doesn't work as well as we remember.

 

Now you can see why the battle lines in the market are so close together: Bulls don't think they have much to be optimistic about even in a best-case scenario, and bears recognize that the situation now is so grave that a desperate, emboldened, populist government could do something crazy, like nationalize the banks, or at least change the rules in an unexpected way.

 

So as we go forward, don't get too excited about a move higher unless it surpasses the 870 area of the S&P 500, and don't get too excited about a move lower unless the S&P 500 falls below 740. Here in the middle, where we may stay for quite some time, it's a sort of increasingly apathetic wasteland that will ultimately wear down the resolve of one side more than the other.

 

Indeed, as you watch the bulls and bears slug it out, perhaps you should think of it not as investing but as a special financial entertainment for our special kind of depression -- one that is much different than the Great Depression of history books. It's a depression without vast poverty, due to government assistance programs, and without deflation, because the Fed knows how to neutralize that. But it's certainly a prolonged recession featuring deleveraging within a secular bear market, which makes narrow-gauge trading emblematic of our very own Not-So-Great Depression.

 

The next phase of concern, and potential for new leg lower, will be despair over poor first-quarter 2009 profits, which ought to kick in around the third week of March. If you want to play it safe until bulls prove their case and any stimulus money kicks in -- and trust me, there are plenty of major investors doing just that -- keep your investment portfolios at an allocation of 20% diversified big-cap stocks and 80% high-quality Treasury, muni and corporate bonds, or simply wait this out in cash. Conservative investors will add to stocks only on a sustained move above the 870, 940 and 1,125 levels of the S&P 500, and cut stock allocation to zero on sustained moves below 800.

 

In short, there will be plenty of time to take advantage of the next bull market soon after it begins, so unless you're a seasoned, nimble risk taker, there's still no need to be a hero and jump the gun.

[DbPhoenix 42]

Treasury may save the day after all

 

By Jim Jubak MSN Money

 

They're dead wrong.

 

You've read them. Treasury Secretary Tim Geithner's plan to end the financial crisis is a disaster. The Obama administration has even less grasp of the issues than the Bush team.

 

You've seen them on TV. The Geithner plan is folly. The administration is in meltdown.

 

And, of course, Wall Street has weighed in, first with a 382-point drop in the Dow Jones Industrial Average that began even as Geithner was still reading from his teleprompter and second with an orgy of finger-pointing. If only the plan had more details, more originality, more money for Wall Street.

 

Sorry. But the doomsayers, the nattering nabobs of negativism and the self-interested Wall Street experts are all wrong. The plan isn't perfect. It does represent a last-minute change in direction, and essential details are still to be announced. The presentation could have been better. (Who's Geithner's media coach? Lurch? Keanu Reeves?) And the administration should have done a better job of lowering expectations.

A decent plan

 

Despite almost everything you've read or heard, the Geithner plan stands a good chance of working. It tackles, head on, the three big problems that anyone trying to end this financial crisis must face.Of course, because it's the best plan that anybody could come up with at the moment -- the team that came up with this plan included the Federal Reserve, White House economic advisers such as Lawrence Summers and the skeleton crew running the Obama administration's Treasury -- we're really in trouble if it doesn't work.

 

OK, you probably disagree with almost everything I've written so far. So let me tell you why I think this is a good plan.

 

From all accounts -- and The Washington Post has done a great job at explaining what ingredients went into this piece of sausage -- discussions to come up with a plan to stabilize the financial system originally focused on two ideas: A so-called bad bank would buy up distressed financial assets to get them off other banks' balance sheets. And the government would extend more guarantees to banks against catastrophic losses on their portfolios along the lines of the guarantees already offered to Bank of America and Citigroup.

 

Sent back to the drawing board

 

But that plan kept running up against three problems, problems so big that they doomed it to failure, the Treasury team finally concluded:

• It would be so hugely expensive that the administration would have to ask Congress for more money at a time when any bailout for Wall Street and the banks was horrendously more unpopular than the stimulus package that had just scraped through the Senate.
  

 

• It would leave the government with the job of deciding how much any of the banks' distressed assets was worth. Not exactly an easy job when many of those assets have stopped trading.
  

 

• It wouldn't give the government much negotiating muscle with the banks. The banks, in fact, might still think of themselves as in the driver's seat if they concluded that the government believed they were too big to fail. That would cost taxpayers money and make it just about impossible to craft a deal with any teeth. Without teeth -- something to take a bite out of banks, their CEOs and their shareholders -- it would be impossible to sell any plan to Congress and voters.
  

So instead of the bad-bank/guarantee plan, we have the Geithner plan, understandably vague in its details because it was hastily put forward as a replacement. But even in its vagueness, the Geithner plan promises a successful solution to the problems that sank the Bush administration plan and the original bad-bank/guarantee plan discussed within the Obama Treasury.

 

Diagnosing banks, dispelling uncertainty

 

First, the Geithner plan addresses the political impasse. Everybody hates the idea of giving the banks any more money. Nobody in Congress would vote for another cent to bail out Wall Street. To fix this problem, the Geithner plan relies on a risky strategy: Government regulators have just started to apply a "stress test" to 20 of the country's biggest banks that's likely to show that some of these brand names are insolvent under honest accounting rules. Currently, many people suspect this, but suspicion and belief aren't enough to carry the day. We need to know to a gut-wrenching, headline certainty. We need to turn on the TV and see channel after channel intoning, "The banks are broke."In short, we need a demonstrated increase in the seriousness of the crisis to build political support for doing something. There's no guarantee that even scarier headlines would get Congress to act or convince enough voters that the emergency requires action. That's the real risk: that the stress test will show the banks are insolvent but that no one will do anything about it.

 

Second, forcing the crisis would change the balance of power between government and the banks. Once the assets on their books were honestly valued and banks were facing the specter of insolvency, they'd have to abandon their hope that if they just hold on long enough this stuff will be worth 80 cents on the dollar again. To buy time, they've hoarded every cent the Federal Reserve has thrown at them to build up capital so they can write down these assets a bit at a time instead of selling them off.

 

The Geithner stress test will look at the performance of bank assets over two years instead of focusing on a bank's current condition, as bank regulators have done in the past. A bank that fails that test can't say, "After all, tomorrow is another day," with any conviction. Also, the stress test will look at assets, such as derivatives, that aren't currently reflected on bank balance sheets.

 

And third, Geithner's idea of having the government provide guarantees against loss to private investors who buy assets off the balance sheets of troubled banks is the best and cheapest way -- indeed, maybe the only way -- around the problem that nobody really knows what this stuff is worth. And it's this high degree of uncertainty, the possibility that an investor could be paying 40 cents for something worth only 20 cents, that has kept private money on the sidelines even as banks have been desperate for capital.

Potentially a profit for taxpayers

 

By guaranteeing private investors against loss, Geithner has proposed that the government buy the downside risk in these assets. And by buying the downside, the Geithner plan would make these assets much more valuable. They would become options on the potential upside for the asset over time.

 

This wouldn't make it any easier to calculate the "real" price of assets for which there is no actual market. And it wouldn't make the future price of these assets any less uncertain. But it would do a pretty good job of converting that high degree of uncertainty from a liability into an asset. Yes, you still might be buying an asset worth only 20 cents with your 40 cents, but thanks to the government guarantee against loss, you wouldn't worry about that possibility. What would be valuable to you would be the chance that the asset you bought for 40 cents could go up. Uncertainty and volatility would go from being negatives to positives.

 

Of course, the government -- which, we all know, really means the taxpayer -- could get stuck with massive losses if it guaranteed a lot of assets at the wrong prices. Geithner's plan to have the government co-invest in these assets with private investors, after the government has stress-tested the assets, promises that investors would get some profits. If we were lucky or government regulators were really good, taxpayers could even make a profit from these investments.

The solution that shall not be named

 

No one in the Obama administration wants to say that some banks will be nationalized if they fail the stress test, because the term is as emotionally charged as "communist" and "Red Sox fan" are. But -- call it what you will -- taxpayers could wind up owning a majority stake in the most insolvent big banks.

 

It's taken me a while to work out this understanding of what Geithner is up to. It sure would have been nice if he'd simply come out and explained the plan in these terms, but you'll understand why he couldn't if you think for even a minute about the political task facing the administration.

 

If you're the Treasury secretary, you certainly can't get up at a news conference and say, "We're going to force some of the nation's biggest banks to admit they're insolvent, so we can get the money we need to fix this problem." Exactly how many points do you think the Dow industrials would have tumbled after that speech?

 

So Geithner has to stand there and quietly take the heat . . .

 

• As regulators from the Federal Reserve and the Office of the Comptroller of the Currency fan out to stress-test the national's 20 largest banks.
  

 

• As regulators decide whether to expand the stress tests to more of the country's 8,500 federally insured financial institutions.
  

 

• As regulators look at the effects of worst-case scenarios on bank portfolios.
  

 

• As off-balance-sheet assets come back onto balance sheets.
  

 

• As the crisis overseas gets even deeper.
  

But that's why he gets paid the big bucks, right? By the way, the secretary of the Treasury makes $191,300 a year. The position isn't eligible for a bonus from the federal government.

[cowseathay 10]

Saturday Night Live: Don't Buy Stuff

 

[DbPhoenix 42]

This is the trendline for the S&P.

 

 

 

 

 

[firewalker 10]

... back at the trendline

 

[jasont 10]

Haha just after you said that we dropped a few points in the ES with huge volume for premarket... you must have a large market following

[firewalker 10]

... back at the trendline

 

And now... the continuation:

 

Yesterday finished wildly, hitting resistance in the low to mid 1180's, finding lots of supply, but we still broke the trendline...

Edited February 26, 2009 by firewalker

[That One Guy 10]

Eliminate the worst of the bubbles, and returning to the trendline doesn't seem so outlandish after all:

 

 

 

Is it valid to place trendlines on this same chart like so:

 

 

 

 

Which would be fanned up to indicate increased momentum to the upside. If my picture is valid, then we are still seeing the up momentum from 95 lows.

[That One Guy 10]

Hah!! ignore the above post because I failed to read the words

 

"Eliminate the worst of the bubbles, and returning to the trendline doesn't seem so outlandish after all"

 

Oh well, another notch in my idiot belt and confirms what everyone already knows.

[Gringo 10]

I've been ignoring you for a long time TOG.

[DbPhoenix 42]

Hah!! ignore the above post because I failed to read the words

 

"Eliminate the worst of the bubbles, and returning to the trendline doesn't seem so outlandish after all"

 

Oh well, another notch in my idiot belt and confirms what everyone already knows.

 

And over the past few days, a number of players have started to agree with my targets: 500 on the S&P and somewhere between 6000 and 4000 on the Dow. As for the Naz, that's a bit more difficult to say.

 

What I find most perplexing is why so few financial "professionals" understand that this is not an ordinary recession, and we won't recover from it in the usual way. It can't be just lack of experience.

 

Edit: As for the Naz, here's a shot:

 

 

Edited March 6, 2009 by DbPhoenix

[Gringo 10]

What I find most perplexing is why so few financial "professionals" understand that this is not an ordinary recession, and we won't recover from it in the usual way. It can't be just lack of experience.

 

Could it be these professionals are losing money fast and to keep afloat they need new influx of funds? Hence, their only option to keep their jobs and funds from debacle is to continue to drum the nearness of the bottom.

 

As Omar Khayyam said a thousand years ago about this Credit crunch:

 

Some for the Glories of This World; and some

Sigh for the Prophet's Paradise to come;

Ah, take the Cash, and let the Credit go,

Nor heed the rumble of a distant Drum!

[firewalker 10]

Friday night rally, who would've thought

 

Apparently price found new support around 1045 (NQ), I've been thinking why and then I realized I overlooked the obvious, it's just about in the middle of the November lows (around 1020) and the last support of the most recent range (around 1075)...

Edited March 7, 2009 by firewalker

[DbPhoenix 42]

Friday night rally, who would've thought

 

Apparently price found new support around 1045 (NQ), I've been thinking why and then I realized I overlooked the obvious, it's just about in the middle of the November lows (around 1020) and the last support of the most recent range (around 1075)...

 

TOG pointed this out yesterday in chat, but you were probably busy counting your money.

[firewalker 10]

TOG pointed this out yesterday in chat, but you were probably busy counting your money.

 

Ah sorry, I must have missed that!

 

Indeed

 

credits to TOG!

Edited March 7, 2009 by firewalker

[DbPhoenix 42]

Ah sorry, I must have missed that!

 

Indeed

 

credits to TOG!

 

Actually, I think you'd left by then. I popped in and out for a while. But this may make Monday more interesting. It's unlikely that the Naz will resist the pull of the S&P and the Dow.

[wjrusnak 10]

This is the dL I am talking about.

 

[firewalker 10]

The DOW then, and the DOW now.

 

The 'target' of the hinge has been reached.

[DbPhoenix 42]

This is the dL I am talking about.

 

 

Okay, that's what I thought. But those aren't demand lines. The swing points are much too far away from the lines.

 

Demand lines may be of no value to you, but if they are to be of value, they have to track demand in real time. If demand departs from your line, then you're adrift.

 

I'll modify the chart later and show you what I mean.

[DbPhoenix 42]

 

Will add comments later.

[DbPhoenix 42]

Now as for this chart.

 

That first little line at the very beginning of the day could be considered a demand line since there's no real trend in place yet.

 

However, price quickly departs from this area, and focusing on any extension of that first 5 or 6m line would be of no help whatsoever in either entering or managing a trade. The only line that's going to help you trade price action is one which closely follows the price action.

 

Therefore, the first line is drawn, as steep as it may seem. When it's broken (and it will be broken), that tells you that momentum has changed. You can either exit one contract , exit all, or you can wait to see what happens.

 

Here price makes only a ret, then makes a new high, at which point you can fan out your original line or draw a new one from that point. Your choice. Either will also be broken. When it is broken, again you have a number of choices, but it's important to note that price finds S at the last swing low. This is good.

 

So price makes a new high and the line is fanned out again. Or you can start a new one to track just this segment. Doesn't matter. What does matter is that when price breaks whatever line again, it again finds S at the last swing low. It then stalls at the old high and makes a new one, enabling you to fan your line again.

 

This time, however, the new high fails to hold, and that now becomes R. This is important stuff to know whether you're in a long trade or looking for a short trade. But much of it will likely escape your attention if all you have is that first line drawn during the first few minutes, or any lines that do not closely track the progress of price.