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Being Short In 2008 Was No Picnic Either!

  • Written by Syndicated Publisher No Comments Comments
    October 5, 2011

    Just to put things in perspective looks at three nasty rallies within the overall downtrend on the SPX during the “fall” of 2008. Bear markets are vicious and certainly not for the faint of heart. Why should 2011 be any different? When you need rumors and old news to convince the “uninformed” to cover shorts and or go long you know times are desperate.

    Looks like another downtrend has formed

    Ever since breaking to the downside of the bear flag pattern which by the way has a target of about 1,000 (depending how one calculates it) the SPX has entered into a new downtrend as shown below (highlighted in green) with four touches so far. Bad news the upper end comes in around 1,160 but the good news is with each passing day the upper range falls by about 7 SPX handles. Notice the green line on the chart (middle Bollinger band, 20MA) which should also act as resistance before a test of the lower Bollinger.

     

     

    Surprise another divergence with the skew and SPX

    The beauty of the vix skew divergence is it helps call out bogus rallies like that on Tuesday. 1,000 on the SPX is beginning to look like a magnet on multiple asset / product correlations.

     

     

    Today’s nasty move lower in the Vix was also seen in 2008

    The vix was poised to test and break out above 48.00 today until it didn’t. The reversal on the daily looks as if 48.00 is no longer but the same was the case in 2008 as shown below. Look at the big red candles right before new highs were put in.

    Remember most people don’t understand options. They don’t know when they are buying an overly expensive option. With volatility so high there are huge opportunities for “market moving players like GS” to load up on cheaper puts during short squeezes and then sell them to retail on the next selloff into not only higher prices but much higher implied volatility (i.e. vix).

     

    Volume profile a little odd with AAPL today

    Notice the rising volume into the absolute nasty selloff in AAPL today with the “reason” being a disappointing iPhone 4S versus iPhone 5. AAPL took out support as if it never existed including the 100MA. Then notice who was “not” buying into the ramp job. Was retail buying what funds were dumping 30 minutes prior? Looks that way.

    Images: Flickr (licence attribution)

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