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Technical Review: The Monday Ramp.

  • Written by Syndicated Publisher No Comments Comments
    November 29, 2011

    When the markets turned on October 4 a lot of things were different versus today yet many traders fail to realize that. Instead they are fearful of another such ramp and determined to get in front of this move. As a friendly reminder to those readers older than six Santa Claus is make believe.

    The two biggest differences between today and October 4 are NYSE short interest was a lot higher and margin debt a lot lower. Today the opposite is true. As Zero Hedge reported (see chart here) NYSE short interest is now at a three month low and recent FINRA data shows margin debt jumped 6% in October. In other words traders are positioned far more long today.

    I suspect this move after seven down days on the SPX did one thing and that is wipe out weak hands from this market. If true the move lower will be just as swift as the 150 handle move in four days during early August. Today had all the makings of an oversold bounce versus a true risk on trade as witnessed by the following asset classes.


    The demand for the USD is now at 2008 levels. Certainly hard to wrap one’s head around that reality as the chart of the USD struggles to catch a bid. As a reminder though this is exactly how the USD acted when the following chart of EUR basis swap was previously at such extreme levels before exploding higher.


    AUD/USD – Look at the ES divergence 100 bp rich


    EUR/USD – Up only .5% on the day

    Oil and Copper

    Does that look like a risk on candle on the oil daily chart below? When oil closes on the lows after being up over 3% and ES (SPX futures) is 100 basis points stronger all day than copper the risk on trade does not look so solid.




    Both the 10 Year Yield (TNX) and 30 year (TYX) filled the gap and kept on going after putting in major reversals today as shown from the following six month daily charts. Clearly not a risk on trade.

    Bottom Line

    Shorting this market has been a hair raising ride for sure but since May when the market topped it has been the correct trade contrary to what many may say.

    One valuable lesson I have learned in life is that right before success happens you are usually confronted with a final gut check. It is at those moments that weak hands are truly shaken from their goal. Whether that final gut check was today only history knows the answer. Based on the recent global asset liquidation and rising bond yields it is quite possible equities have in fact fought their last battle.

    For those who have stayed the course I share the wisdom of this weekend’s fortune cookie “your persistence will pay off.”

    Images: Flickr (licence attribution)

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