Stock Market Bottom November 2008 Tomorrow Price Action

Stock Market Bottom November 2008 Tomorrow Price Action

(READ ADDITIONS BELOW. Added in afternoon of Friday 21, 2008)

As we stated in the previous two posts during the trading session of November 20, 2008 (This post is being written in the night of November 20 to November 21, 2008), we should be at a stock market bottom today November 21 2008. A rally should appear from "nowhere" in the near future, most likely tomorrow Friday November 21, 2008.

The levels of the bottom areas are: SPX (SP500 index) 750, DJX (dow index) 7500, NDX (Nasdaq 100 index) 1050. The numbers are round numbers, and markets like round numbers for bottoms and tops as people usually place orders about round number areas.

We entered a retirement position in the banking sector in our retirement account (read previous post) at market close of November 20, 2008. Note that retirement accounts accept orders at close only. Therefore we cannot time market during the day. The financial sector ETF (XLF) closed at $9.32. If a rally takes place tomorrow (or later today as we are in early hours of November 21, 2008), we expect a big move in all market indices discussed in this post.

There is also the possiblilty of a market gap at opening.

ADDITIONS:

2:17PM (Friday November 21, 1008): THE SHORT COVERING IS ABOUT TO START. If this happens, hold until NDX touches at least 1060.

Conclusion:

The market behaved exactly as predicted! Notice the rally that started shortly after we called it during the trading day.

Profit Taking:

We stayed with the position until 10 minutes after the close (QQQQ EFT trades in after hours, and it was up an addition 0.5%). NDX closed at 1085. The after hours equivalent is then around 1095 NDX. We took profits for the extra position size we entered into towards the close of November 20, 2008, as well as for two of the quarters of the first positon size (the latter 2 quarters were done around 1075 NDX).

As a matter of fact, we were even more profitable than the above as we sold ITM puts that were expiring on November 20, 2008. Since volatility was very high, and our short strikes were 27 for QQQQ, the trades were much more profitable than we hoped. We did not do the calculations, but it was very good (as even trades we placed on November 19 with a higher NDX value were profitable because of options premimum).

We have rolled out to december expiration 2 QUARTER size positions that were established at NDX 1110, and NDX 1128 areas. With November premium, the cost basis of these are much lower (they were profitable at close). With december premium, the cost basis is down even further. The volatility premium for QQQQ $27 strike at close of Friday was about $1.90. This corresponds (top of head calculations) to 7% of the value of the QQQQs, which if translated to NDX would be about (top of head calculations) 75 NDX points.

A lesson from the above is that one should consider going long by selling puts (we prefer ITM puts for multiple reasons, and this post is getting too long to comment on this now).

To your profits!

Financials EFT (XLF), Fidelity Select Banking, Retirement Account Investing:

Financials EFT (XLF), Fidelity Select Banking, Retirement Account Investing:

Today November 20, 2008, should be a stock market bottom for trades that can be placed only at close. We are taking a long position back in Fidelity Select Banking as of today (November 20, 2008)'s close.

More details will follow, but we wanted the readers to know before market closes.

Fidelity Select Banking price at close is $12.32. Our entry is then at $12.32.

A sharp market rally is very possible tomorrow Friday November 21, 2008. This would be the start of what would be called a Santa-Claus rally!

What would the reason for the rally be? They (journalists/etc) would give a lot of explanations, but the truth of the matter is that none of those explanations matter. If our analysis is correct, the market will go up because it is a bottom as our analysis indicates, and as explained in the previous post. That is why we were very agressive today in building a long-side stock market position.

We will know what will happen tomorrow Friday. Have a good evening/night!


Retirement account trade confirmation.






UPDATE ON TRADE:

Today is Friday November 28, 2008. One week has passed since we initiated the trade. XLF is now about $12.70. Since XLF was at $9.32 when we initiated the position, the position is a winner, and gains correspond to 36%. We are closing the position today, as the order screen included below indicates.


Retirement account closing of trade confirmation.






NOTES:

1. Read the post on how we traded EUR/USD today November 28, 2008 in real-time. It is very educational, and led to HUGE pip gains. It is a must read in our opinion, and it includes copies of the trade screens.

2. Also, read the post on carry trade (The carry trade is back! How to take your piece of the action..). Link is: http://financialtraders.blogspot.com/2008/11/carry-trade-is-back-how-to-take-your.html

3. Read all the other posts including the most recent nailing of tops and bottoms such as the bottoms of October 10, October 16, October 23, and the nailing of the top of November 4 (election day). All are in list of posts or in archives section (scroll down and look at the side menu of this blog).

4. Do not leave without looking around here, and signing up for the blog insiders' list.

Stock Market Bottom November 20, 2008: Tomorrow Price Prediction Today

Stock Market Bottom November 20, 2008: Tomorrow Price Prediction Today

As explained in the last two posts of today during the trading session of November 20, 2008, our analysis lead to trading signal of a stock market bottom.

The areas of the bottom are then as follows: SPX (SPY index) is 750, DJX (DOW Index) 7500, NDX (Nasdaq 100 index) 1050.

We are writing this note in the night of November 20 to November 21. A major rally tomorrow November 21 is therefore a likely possibility.

XLF (the financial index) may lead to gains higher than 10%. We are not ruling this possibly.

The market should state the tone at open or during early minutes of trading. They may also gap up the market at open.

QQQQ, NDX, NQ, SPY, DOW Price prediction (November 19, 2008)

stock price prediction QQQQ, NDX, NQ, QID trading (November 18, 2008)

11:33AM: with NDX at 1131.ish, we are scaling in a QUARTER of normal size on long side of stock market.

11:37AM: with NDX at 1127, scaling on of the quarter size is completed.

12:27PM: with NDX at 1118, we are starting to scale in the SECOND QUARTER of normal size position. Direction: long side of stock market.

PROFIT TAKING:

1:06PM: with NDX at 1130, we took off quarter size entered into at 12:27PM when NDX was at 1118. Profits are 12 NDX points.

Re-entry of this quarter is planned if there is a restest of lows and fail.


1:31PM: with NDX at 1115, we starting to scale in in re-entering the QUARTER for wwhich we took profits at 1:06PM. Direction is long NDX.

PROFIT Taking:

2:48PM: With ndx at 1128, we took off the quarter size we entered into at 1:31PM with NDX when NDX was at 1115.

Profits: 13 NDX points.

We plan to re-enter if lows are retested and fail.

Re-entry:

3:22PM: with NDX at 1112, we starting to scale in in re-entry of the QUARTER for which we took profits at 2:48PM when NDX was at 1128. Direction of re-entry is long side of NDX.

3:38PM: with NDX at 1108, re-entry the quarter is now complete.

Third Quarter of normal trading size:

3:46PM: with NDX at 1097, we are scaling in the third quarter of normal trading size (Direction long NDX, stock market).

3:48PM: with ndx at 1095, entry for third quarter size is complete.


Fourth Quarter of normal trading size:

3:51PM: with NDX at 1092, we are scaling in the fourth quarter of normal trading size (Direction long NDX, stock market).

3:58PM: with NDX at 1090, entry for fourth quarter size is complete.

stock price prediction QQQQ, NDX, NQ, QID trading (November 18, 2008)

stock price prediction QQQQ, NDX, NQ, QID trading (November 18, 2008)


1:17PM: with NDX at 1131, we are scaling in on long side of NDX (Nasdaq 100) using a QUARTER of normal size position.

1:37PM: with NDX at 1128, entry of QUARTER size is complete.


1:49PM: with NDX at 1121, we are scaling in on long side of NDX for another QUARTER of normal size position.

Profit taking:

2:17PM: with NDX at 1131, we took 10 NDX points profits for position established at 1:49PM. We plan to re-enter in low is restested and fails.

3:12PM: NDX is now at 1135 after hitting the low of 1115. We re-entered the quarter size at 1118 after the breach of the low of 1:49PM which was 1121. Profits to this quarter re-entry is 17NDX points.

We plan to re-enter if restest of lows and fail.

3:19PM: NDX is at 1127. Bottom process is in progress. You may not that we did not take the Quarter we built in 1130 area even if it should 5 to 7 NDX points on three occasions. The reason is that one cannot rule out a large moment ferocious short covering, although if it were to happen we epexted it to be less ferocious than the short covering of last Thursday.

If this last moment short covering happens, I would stay till the end with the long position with a possible hit of the 1175 area.

3:23PM: NDX is now at 1141. The quarter size we established at beginning of the post is now posting 11NDX points profit. We will not take them, in case of a last minute blast off or a morning gap up tomorrow.

3:42PM: NDX is now at 1147. There would be a first resistance in 1147 to 1150 area.
Profits in position left are now 17 NDX points.

3:56PM: NDX is now at 1152. We are offloading the remainder of position. Profits for this part are 20 NDX points.

Total profits: (10 +17+22)=49 NDX points (25NDX points per quarter size). No bad at all for a couple hours of work. All trades have been profitable.

To your profits!

Who Move Markets Q: Hedge Funds, Mutual Funds, Individuals?

This is an education post. Read it completely. It contains some insight that can help you become a better trader, understand the market, and know why other traders lose in the market, and the nature of the market participant who make it (called smart money). The post contains a test question. Please answer it in the comments section. I will provide the answer once readers have had a chance to think the answer.

On a forum I visit often a thread was started on the topic of who moves markets. Excepts from the original post in his thread read:

" ...quite often we see the big movements of market without any big news...

I just wonder who moves the market. Are they hedge funds ? mutual funds or the collective of individduals....

...

Since hedge funds, mutual funds and individuals have different behavior patterns, if we know who determine the market, we can choose different strategies to play against them ...

"

The main question is worthwhile, but the person asking the question made some assumptions that seem to be rooted in the way he views the market, which may cause difficulties in understanding the market and become profitable.

The devil is in the details. The person seems to want to pinpoint the type of players who move the market most or are cause for the big recent moves. This may be wrong in the first place, as what he is searching for (same type of players) may not exist in the first place, and also even if this were to be the case how would one go about finding the player or type of player.

Therefore, the poster is off track. But let us go back to the question of why markets are making large moves recently.

The answer is routed in the nature of markets. I was surprised by the answers that followed in that thread, and thought to give my explanation.

One should distinquish two phases: the "birth" of higher volatility, and the phase that following it in which volatility decrease but take times to go back to previous levels of volatility. In other words volatility rises a short span, and dies in a relatively much longer span.

As for the birth of a high volatility, no one really knows the whys, be it is associated with periods of fear in which supply of stock is much higher than demand, and with uncertainty this causes the market to move lower at a faster pace.

Now the period after the initial shock is interesting. It needs to be understood better as it will help you know where to be and/or to sell.

Below are the comments In which I address the latter question:

1. Smart buyers, and smart sellers are farther apart of each other.

2. Same length of moves for the same period of time between sellers and buyers, for different volumes, give an estimate of the total number of losers in the stock market.

3. Point 2 invalides a remark in which a poster stated that price moves ONLY because there are less trades. As a matter of fact you will note that large moves in October were accompanied with higher trading volumen. Therefore, large moves can be with less trades or with more trades.

4. Once can think of price as a ball that goes from the side of smart buyers to the side of smart sellers (or vice versa). The medium on which the ball moves are the other traders (the one we did not classify as smart traders), a large number of them (80% of them) are losers and only small number (10 %) are winners.

5. Smart money wins no matter what. So you have 80% losers and 20% winners.

Note: 10% and 20% in above discussion are not exact but meant to illustrate that they are small, and may even be much smaller number.

To be make money in the markets, you need to be a smart buyer, a smart seller both, or a winner in the 10% (or less) who move prices.

That is a non-expert has a better chance to be a sellers after a rally in a bear market, be a buyer on retreats in a bull market, and have the ability to be to know whether we are in a bear or bull market.

I leave with this question that you should be able to answer based on the above post: are we now in a bear market (or a bull market), and what do you think a non-expert trader should do as of today November 18, 2008? Also if the person should be a seller (buyer), where are the smart sellers (buyers) located. If you can articulate an answer to this question, you will be part of half the smart money in the world--- not a small feat!

In a post I plan to post tomorrow, I will provide another educational post. This time, it will be on the root cause of making or losing money in markets. If you understand the next post you will be able to know which markets to trade and why, when to take profits and why, and why traders lose and are stopped out of their trades 66% if the time. (Think about that again, only ON AVERAGE 33% of the trades are stopped with a loss--- this is a mathematical fact, do not let anyone tell you it is not the case. We will provide the proof).

qqqq tomorrow price prediction trading (stock market November 17, 2008)

qqqq tomorrow price prediction trading (stock market November 17, 2008):

2:32PM: with NDX at 1163 we are scaling in a QUARTER of normal size position, direction is long NDX (long stock market (long SPX, DJX)).