June Swoon Looms Soon

Today was the second worst start to June in 50 years, a 90% down day, and a surprise as we have tended to see positive rises on the first few days of each month. Short weeks (Monday was a holiday in the US) tend to rise on light volume, but maybe not this week. Today's meltdown at the close was ominous. Taken together, these factoids increase the odds of a June Swoon, which we may confirm by the end of the week. Daryl Montgomery posits in SeekingAlpha that the first few days of a month are a tell:

Money tends to get reallocated at the beginning of the month. The behavior is more pronounced at the beginning of the quarter and most pronounced at the beginning of the year. In bull markets, much of this money gets allocated on the buy side for stocks. In bears markets, a higher percentage of investing money will go to safe haven assets. So in a bull market the first four trading days (not five as many sources claim) of the month tend to see a nice rise in stock prices. The first couple of days are almost always positive.

He counts four negative signals in the Hope Rally: July, September, February and May. A poor opening here or there indicates caution, but four such months indicate that the Rally has a weak foundation, especially combined with lessening volume to the upside and rising volume to the downside. Two down months in a row would pretty well confirm a bear market. We have until June 4 - Friday.

Lots of trouble brewing. Japan PM resigns. Israel stumbling into conflict. Criminal investigation into BP. Obama losing his most ardent supporters (eg. Chris Mathews, Maureen Dowd). Eurozone seems nearing an implosion as Euro bounces along the $1.22 level, getting as low as $1.211 this morning and bouncing, perhaps on central bank intervention. Rumors swirl of France being the next PIIGS. 

The Shanghai market did a death cross. Chart here. Maybe it is not predictive of US and Euro markets, but the drop in the SSEC can now be seen as having preceded the slowing down of manufacturing which has now shown up in the Chinese PMI. In any event, a few more days like today and the Death Cross (50 DMA crossing below the 200 DMA) will happen here, too. 

Waves are pointing to at least hitting the 62% retrace at Sp1065. Walter Murphy's newsletter comments that a break below that likely drives us to and below to recent low at Sp1041. EvilSpeculator notes that 1041 on the low side and 1104 on the high side mark the June Swoon vs Big Tease scenarios.

Comments

[min]

June Swoon?

Maybe not yet!

NDX100 should lead to the downside when the swoon gets ready to rip. It didn't today.

Still long, although I could've (and would've) taken some nice gains had I been able to hover over the computer screen today.

Well at least I'm able to keep busy...

[Cooter]

Has the Hinderburger Hamburger Oven triggered yet?

If im not mistaken the Hinderbirger needs an up sloping moving average to trigger a crash. Sooooo, one more rally probly?

[bob m]

Hey Min, check the Russell. IT was down 3.12% ! I use TZA when I see weakness. IT was up 9%. Despite the rally of the rest of the market during the day (causing me to worry about the printing of a pretty bullish candle), the Russell only went green for about 20 or 30 min.
(In hopes that you don't think I'm trying to paint myself as some great trader, I am still in the red from a few bad trades this year and down more than my humility allows me to reveal as a result of expecting a bear market and living thru a rally a few years back.

But check out that Russell. I was using it for shorts and the NDX or financials or gold for longs awhile back. It worked good.

[min]

Thanks bob m.

TZA is new to me I'll have to check it out and see if it has predictive value for my situation, appreciate your kindness in sharing.

We all get into bad trades now and again, at least you feel comfortable admitting that you had some bad trades. That's a big step forward you know. You'll work out of it I'm sure.

I understand "humility". My initiation was to the tune of -$400k from 2000 to 2004. I can only bring myself to write it now because I've managed to turn it around in a big way. That was one big, long, painful lesson though and I'm glad to have survived it with my marriage intact!

I've been trading NDX/QQQQ long and short for a while and have gotten a feel for it's estrogenicly capricious tendencies in relation to SPX/DOW. I'll check out and see if Russell/TZA can point out a few more telling things. Once again thanks.

This fledgeling market rally is countertrend. It should have some more to go on the upside (perhaps 4% from Tuesday's close) but, being countertrend, it won't be an easy trade to keep open —that, I'm pretty certain of.

My plan was to get in and out a few times with worthwhile profits until it's time to re-short perhaps August or sooner (or later) as things can change on a dime with all that's going on in the world.

I wanted to take profits on Tuesday but wasn't around and had my sell limit a tad too high. No big deal, will catch the top of the next swing.

Good Luck to you.

PS: If there are any Newbys out there acheing for a trade, please do not follow my lead. I am wrong on average 4 times out of 10 and have disciplined money management policies that prevent me from taking too big a hit.

Unlike those that would ridicule it, I'm totally in favor of Paper trading (or trading small amounts) untill you are dead certain you know how to get in and out of good and bad trades. I wish I had taken this advise when I first started —hindsight is 20/20.

[Mamma Boom Boom]

>Today was the second worst start to June in 50 years, a 90% down day, and a surprise<

I don't think so. Merely completing a pattern.

[Account Deleted]

Dow Jones Triangle in 2 hours time frame

http://niftychartsandpatterns.blogspot.com/2010/06/dow-triangle-in-2-hours-chart.html

[Trader123]

Anyone that was sitting in front of their trading screens going into yesterday's last 40 minutes of the session could clearly see that there was low volume and essentially a buyer's "strike".

Daryl Montgomery has no idea what he's talking about. His alleged 4 "negative signals" since July 2009 is worthless. In fact, the SPX made a LOW last July. Sounds like someone that has clearly been biased towards the short-side during a bull move.

He should go back to being a full-time Professor.

[Be Careful, Please]

My advice --which I struggle to follow, myself!-- is

Don't try to time the crash.

I think we will see the markets seize up and shut down but we might not and if it happens it might take years. So avoid puts and short positions, which can eat you up. It's much safer to be long. If, like me, you're reluctant to get very long, then keep cash ready for the crash and, if you liike, hedge against inflation with a little gold and/or with a mortgage. And get a skill you can employ other than trading.

It stinks to see a storm on the horizon and watch it arrive and not profit from it. But it hurts much worse to see a storm on the horizon that takes years and years and years to get here.

[Molecool]

"So avoid puts and short positions, which can eat you up. It's much safer to be long."

Ever heard of a short position? LOL - yeah, go long and see what happens. Welcome to the other side of my trade :-)

[Bird]

Be Careful,

Your advice sounds very well intended. I'm not sure, however, that it is safer to be long. For half a century buy and hold has been really fine. But for the half century before that, probably not. We are at a strange place in world history. The markets completely fell apart 2 years ago, the debt balloon problem has not worked itself out, and yet the market screamed back (part of the way anyway), not really because of investor confidence, but most likely because of QE and the not so invisible hand of the plunge protection team. Thus, this remains a high risk juncture. Some timing approaches, not all of them EWT, also highlighted the end of April as a high risk juncture, in advance. So to me caution is merited on the long side, and at least a little caution should be thrown to the wind and we should position ourselves for a possible move down from here.

[marketman]

Anyone that sold out of their long investment positions in the first 10% decline of a bull run, wound-up watching the market go higher within the next 6 months. That is a fact.

[Be Careful]

I'm not advising people to go long. I'm reminding people that, when you're long, market moves hurt but, unless you're leveraged, you can't be forced out of a position. And something like 90% of puts expire worthless.

So one approach, and the approach I advise people to take is this:

If, like me, you think we'll see wealth disappear and markets seize up and shut down, you would be wise not to try to time it. Let the market decide when it happens. And, when it happens, play it from the long side when everyone is certain the world is ending.

[nspolar]

Mama Boom Boom;

Are you long gold stocks at the moment? What do you think lies dead ahead for gold stocks?

ns

[Trader123]

Market grinding higher, climbing a wall of worry and most bloggers are Bearish. Typical.

[DG]

Market grinding higher, climbing a wall of worry and most bloggers are Bearish. Typical.

The market has made zero net gain in how many months now?

And, in terms of "profits per unit of time", shorting has been the better trading style since the beginning of the year, with the market having no problem wiping out weeks or months of gains in days.

So, why don't you lighten up, already. Cheering on the market isn't going to make it go higher.

[Trader123]

DG,

Admittedly, you are not a stock trader.
Thus, I don't believe that you are much of an expert when it comes to discussing this topic. For you, the market is the S&P and as a result, I believe that you miss out on actual stock and industry sector trading.

As for your "profits per unit of time", that is an absolutely meaningless metric because it involves hindsight with no factor for "timing" being taken into consideration whatsoever.

In fact, I'm rather surprised that as "quantitative" as you like to think of yourself, you have fallen prey to naively tossing out such a "metric".

It's a meaningless metric because it assumes that you have a high degree of certainty when it comes to timing.

[DG]

Thus, I don't believe that you are much of an expert when it comes to discussing this topic. For you, the market is the S&P and as a result, I believe that you miss out on actual stock and industry sector trading.

That's fine. It is definitely true that "there's always a bull market somewhere". However, the same could be said on the flip side and I'm sure there are sectors out there that have underperformed (I was looking at a chart of "consumer discretionary" vs. "consumer staples" and discretionary has definitely been lagging) and individual stocks that have been crushed over the past four months. So, while your point has some validity, you're missing the flip side of it, which is also valid.

It's a meaningless metric because it assumes that you have a high degree of certainty when it comes to timing.

No, it assumes that you have a set of rules for getting in when the market exhibits the first signs of a specific behavior. I never try to go short the top tick or go long the bottom tick. If I were, then your criticism about the assumption of accurate timing would be valid. In fact, I have posted here before (and just recently) that I think the worst trading performance among e-wavers is probably among those who try to do exactly that (short the top tick, go long the bottom tick) because there is no way to accurately time the market to that level of specificity.

However (and it really is this basic) it's mathematically impossible for the market to go down, e.g. 100 ES points, without first going down, e.g. 30 ES points. If, on the way up, the largest decline was 29 ES points, that 30th ES point is your entry. No assumptions about timing the top tick whatsoever.

[Mamma Boom Boom]

nspolar, I'm flat. The short term is neutral with a downward bias, but it's not going down. My guess is that long term buyers are keeping it afloat, and they may be correct.

[Account Deleted]

SP 500 Approaching resistance area

http://niftychartsandpatterns.blogspot.com/2010/06/sp-500-approaching-resistance-area.html

[Roger D.]

The triangle in MCD

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/a27a0529-6e1f-4230-98d4-658f9a87a306

[Roger D.]

Extend and pretend the Euro

Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/3687d190-caab-46b6-a371-1adac04960d3

[Account Deleted]

Hi DG !

Welcome back to this board.Missed your posts.

What is your current take on the SNP Wave count? If u could just enlighten a few followers like me with your Wave count.

Just to give u my own view.I am with your FLAT pattern from 2008.With A and B of the Flat already over and believe tht we are in the C of the Flat. The 1st Wave ended at 1066 and are forming Second Wave as Irregular FLAT post the BOT BOTTOM(1st Wave) at 1066. The c of the Second wave FLAT currently going on which could potentially be a failure giving it a necessary thrust down for the 3rd Wave to follow.

Regards
VB

[Roger D.]

The Dow currently

http://www.screencast.com/users/parisgnome/folders/Default/media/b3e7156a-57f2-4257-955b-aeaddb2ee7a7

[nspolar]

Roger, a bit more then a fear driven plunge, eh?

With that are we going to enter the meat of this first down move?

Down til late July or early August ... if she goes here.

ns

[Roger D.]

ns, If anybody thinks this market isn't manipulated, I've got a bridge in Arizona. If the euro fats the market smells it, lol.

those that live by the BS die by reality.

Computers kiss my ass.

Roger D

[Roger D.]

The euro

http://www.screencast.com/users/parisgnome/folders/Default/media/da233cae-8ff3-495e-86be-2b52bbb4e319

[DG]

VB,

I have set up another blog for real-time trading. Send me an e-mail at papertradingcollegekid at gmail dot com if you're interested in viewing.

Anyway, I do have concerns that the initial drop was not Impulsive to begin the necessary 5-wave move down for the C of a Flat. Still, I could definitely be wrong there, it's just that I try at all costs to avoid labeling waves as Impulse waves, since I have found that believing waves are Impulsive is one of the things that kills "amateur" e-wavers.

If you click the URL at the bottom of this post, it should take you to a picture of my current count and the rationale for it. The past couple of days have not really forced me to change it in any way, which is always good! We'll see if we get my "sideways to up" market for the next few weeks that the count implies.

http://yelnick.typepad.com/yelnick/2010/05/inverted-head-shoulders-pattern-worked.html?cid=6a00d8341c563953ef01348280dbfa970c#comment-6a00d8341c563953ef01348280dbfa970c

[marketman]

Perma-Bears once again caught looking down today . . .

[Roger D.]

The day is over yet.

http://www.screencast.com/users/parisgnome/folders/Default/media/6b320985-0826-408e-b0cd-13958c66a5b0

[Trader123]

"No, it assumes that you have a set of rules for getting in when the market exhibits the first signs of a specific behavior. I never try to go short the top tick or go long the bottom tick. If I were, then your criticism about the assumption of accurate timing would be valid." - DG

Sorry, but you completely missed the primary point, and in doing so failed to address your "profits per unit of time" metric and how it is an absolutely meaningless metric as you have applied it to ACTUAL trading.

That metric may seem to be a fun stat to look at, but it is far too simplistic and literally meaningless when applied to real-time trading.

[anonymous]

Dow Jones +160 and Daneric was certainly looking DOWN yesterday. The guy is totally lost.

[DG]

Sorry, but you completely missed the primary point, and in doing so failed to address your "profits per unit of time" metric and how it is an absolutely meaningless metric as you have applied it to ACTUAL trading.

That metric may seem to be a fun stat to look at, but it is far too simplistic and literally meaningless when applied to real-time trading.

How is it meaningless? YOU are the one constantly berating people for even daring to trade short in what you continue to see, despite all evidence to the contrary over a period of nearly 8 months now, as a raging bull market. Point being that people who ONLY looked for conditions under which shorting was a good idea, i.e. the rules I laid out above plus some other factors, have made just as much, if not more, than the bulls over the past 8 months and have been exposed to market direction risk much less. I know that for a super-trader like you ("We're not worthy!!!") risk is a non-issue because, as everyone on this board knows, you've never had a losing trade, but for the rest of us, risk is a factor, if not THE factor and, quite frankly, anyone will tell you that simply being in the market exposes you to risk. So, making the same return with less time in the market is actually BETTER trading. AND, since the only way to measure that is "ex-post-facto", your point about "real-time trading" doesn't even begin to address this issue.

In fact, if I had to pinpoint ONE factor that makes me think you are as phony as a $3 bill (other than the fact that you post under a number of different usernames), it's the FACT that you NEVER address risk-adjusted returns. NEVER. It is literally one of the oddest things I've ever seen coming from someone who claims to have so much trading experience.

Go ahead, now, go post as "DG's Dad" or "Glenn Loser Neely" to change the subject.

And, as I pointed out above, simply shifting the locus of the discussion to individual stocks doesn't matter. Anyone who's been short the solar sector since January, for example, has already made their year.

[Trader123]

DG,

Once again, you failed to address my point. Interestingly enough, you went on yet another 500 word "essay" and didn't even mention your "profits per unit of time".

I repeat: That metric is meaningless because it presupposes that a trader will be correctly positioned for the maximum point of price capture during the least amount of time. And yet you've held it up as a metric that holds value when being applied to trading the market/stocks in your original post.

If such a style of trading was realistic, you'd undoubtedly be seeing much better results from your beloved Glenn Neely since last Summer.

Not surprisingly, you've been unable to comprehend such a significant point.

[David Peterson]

My count on the SPX:

http://img38.imageshack.us/img38/267/chartf.gif

[DG]

I repeat: That metric is meaningless because it presupposes that a trader will be correctly positioned for the maximum point of price capture during the least amount of time.

Actually, since it's been the case since February, a trader should, as an assumption, be looking for an opportunity to go short.

If such a style of trading was realistic, you'd undoubtedly be seeing much better results from your beloved Glenn Neely since last Summer.

Neely's been doing it wrong. And, I said it's been the case since January, not last summer. In that time, there have been 10%+/- declines which retraced the 10% rises to those levels faster than the rises occurred. Yet, not a peep out of you about shorting them, despite your many claims that you "trade what you see". Are you unable to see declines on your charts?

[Roger D.]

I went 100pct short at the close, The setup is just too good here,a classic ramp job at the end with no volume. We will see.
Roger D.

http://www.screencast.com/users/parisgnome/folders/Default/media/f7687fa8-5da5-4a39-80ef-6ce777fe91c6

[Mamma Boom Boom]

> went 100pct short at the close,<

100pct? You must be working with the worlds smallest portfolio. Short for a day or two but not 100pct.

[Trader123]

"Actually, since it's been the case since February, a trader should, as an assumption, be looking for an opportunity to go short." - DG

Yeah, that makes total sense.

"Look to go short" since FEBRUARY, even though the S&P was trending STRONGLY above all significant moving averages and wound-up rallying 160 points in less than 3 months!

No wonder why Neely has it so utterly wrong.

Given your methodology you wound up sitting on the sidelines and not capitalizing on a huge price move because you were "looking to go short" since February and not trading what you SEE.

That's why your metric of "profits per unit of time" is totally meaningless. It's an unrealistic metric for someone that is an ACTIVE trader. Moreover, it is especially meaningless to a trader who trades high beta stocks that average 5-7% daily ranges.

Feel free to take a look at the chart of CLF or WLT ... and then come back and tell me how significant and valuable your metric of "profits per unit of time" is.

It is meaningless to the ACTIVE trader that is scalping and daytrading.

[upstart]

Bounce in June and second-half of correction in July.

[Roger D.]

"100pct? You must be working with the worlds smallest portfolio. Short for a day or two but not 100pct."

No thanks, I allready have one asshole I don't need another one.

Roger D.

[cloudslicer]

I have an idea for you guys.

There is a closed end fund I've been looking at called ASP (http://www.cefconnect.com/Details/Summary.aspx?ticker=ASP) it pays a 21% div/yld of 100% income and its trading at a discount.

If I bought this and also set aside money for downside protection using KRS (inverse regional banks) I think this would be a good strategy.

Of course the trick is what ratio of KRS to ASP. It looks like a 30/70 ratio would do it to hedge if need be.

At 21% div/yld I can live with no net price change.

ASP has a good looking chart, and its hard to find any long position that can say that.

[Cooter]

Here is the Hamburger Oven blog...they are keeping daily tabs on the Hinderburger....

http://seekingalpha.com/instablog/98115-john-lounsbury/67453-the-hindenburg-omen-may-2010

[Mamma Boom Boom]

>No thanks, I allready have one asshole I don't need another one.

Roger D.<

And I believe it's under your nose.

[DG]

"Look to go short" since FEBRUARY, even though the S&P was trending STRONGLY above all significant moving averages and wound-up rallying 160 points in less than 3 months!

Geez, don't get all hysterical like a girl on me. I know the S&P trended strongly. Until it didn't. And when the "until it didn't" happened, anyone who went short made as much as anyone who'd been long the whole 3 months it was "trending strongly", only the short-sellers did it in a couple of weeks.

Plus, you seem to ascribe some magical ability to pick bottoms to the bulls but don't allow the same possibility of picking tops for the bears. Am I to believe from your breathless description of the 160-point, 3 month rally that you caught every tick of it? Well, then, fine, I caught every tick of the 180-point, 3 week decline.

I'm guessing you hung out with a bunch of morons your whole life and never really got the hang of logical consistency.

That's why your metric of "profits per unit of time" is totally meaningless. It's an unrealistic metric for someone that is an ACTIVE trader. Moreover, it is especially meaningless to a trader who trades high beta stocks that average 5-7% daily ranges.

Feel free to take a look at the chart of CLF or WLT ... and then come back and tell me how significant and valuable your metric of "profits per unit of time" is.

If the metric is so meaningless, then why is it the basis for the "annualized profit" metric, which is one of the best OBJECTIVE comparisons between trading methods (trading days per year/average trade holding period times trade expectancy times percentage of capital at-risk per trade)?

And, again, one of the things that it shocks me that an experienced trader such as yourself talks about is the size of the moves in certain stocks. Who cares? If the only thing that matters is the daily movement size, then we'd all be trading stocks with much higher betas than CLF, of which there are many. And if the number of points per day movement were important, we'd be trading Berkshire Hathaway. Of course, again, we all know that you NEVER get caught on the wrong side of a trade, so the fact that CLF can just as easily move 5-7% off of an intraday high certainly wouldn't impact your position sizing.

For me, it doesn't matter if I'm trading CLF and it's beta is 2X the SPY. All that means is that my position size is half what it would be if I were trading SPY to keep my risk the same. Again, that volatility seems to play NO ROLE in your trading method except to enhance the upside of the trades you claim to make is extremely suspicious. Having worked in risk management before, I would be HIGHLY skeptical of someone who only saw the upside of volatility without seeing and acknowledging the potentially-adverse effects.

Anyway, go ahead and dismiss this as a 12-paragraph rant.