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What type of markets do 4% up days happen in?

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May 10, 2010 – Comments (40)

I will give you a hint: it's not bull markets.

Huge up days are most likely reactions within bear markets. We had a s***oad of them in the move down from 2007 to 2009.

So as a bull, days like today (despite a nice bounce to kick the bears in the crotch for a few hours) are *not* what you want to see. Besides, the bears got wise and started wearing a cup.

40 Comments – Post Your Own

#1) On May 10, 2010 at 11:58 AM, EnigmaDude (92.95) wrote:

What type of market do you see 1,000 point drop in the DJIA in one day?  Not sure you can draw a rational conclusion from today's activity. 

Paraphrasing Mark Twain, history does not repear itself but it sure does rhyme.

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#2) On May 10, 2010 at 12:05 PM, JaysRage (89.07) wrote:

I tend to agree with your analysis....especially when you see where the huge surges are....a lot of very bad companies jumping up by double-digits.    Sorry, I'm not going to jump on that sinking ship.   The jump into risk has officially become irrational.    This has all the makings of a near term top.   I'm even more convinced that we are in for a very serious correction.    

 

 

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#3) On May 10, 2010 at 12:05 PM, biotechmgr (34.54) wrote:

Perfect comment for the day and quite correct.

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#4) On May 10, 2010 at 12:09 PM, rexlove (99.44) wrote:

Never realized you were such a bear binve. Just so you know - there have been big up moves in bull markets. You dont have to go back too far - I can remember some big up days during the tech bubble.  

Being somewhat of a bull - I kinda liked today's action. It just goes to show you how much this Greek default was weighing the market down. While I don't think today is a great buying opportunity like last thursday and friday were - I do see the market making another bull run here.  

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#5) On May 10, 2010 at 12:11 PM, binve (< 20) wrote:

EnigmaDude ,

Fair retort. However, Thursday was always going to be a severe down day, despite the HFT mishap. I called a major selloff hours before the crash, based on simple chart pattern analysis: http://marketthoughtsandanalysis.blogspot.com/2010/05/1-2-heaven.html.

Was 1070 a "legitamite" low print on the SPX? I argue no, but I think that move would have likely gone down to 1110-1120 based on the analysis I was doing. That makes this move not an unexpected reaction. That's really all I think it is, which is the point of this post.

JaysRage ,

Thanks! I am on board with everything you wrote

biotechmgr ,

Thanks man! I appreciate that!!..

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#6) On May 10, 2010 at 12:15 PM, binve (< 20) wrote:

rexlove ,

Yes, I am very bearish, and the more this rally moved up, the more bearish I got. We are "solving" an unsustainable debt problem in Europe with more debt. On top of that, out of the trillion only 60 billion or so is acutally money, the rest is "loan guarantees". More worth-less (literal interpretation) debt is being printed and thown after more worthless debt. This is further encouraging more systemtic and global debt risk, not solving any problems fundamentally.

>>While I don't think today is a great buying opportunity like last thursday and friday were - I do see the market making another bull run here. 

I of course disagree. I guess that's what makes a market :)..

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#7) On May 10, 2010 at 12:19 PM, bigcat1969 (92.29) wrote:

Markets responding to the first trillion buck bailout promise in world history?  Markets responding to the EU throwing out all the rules they established and promising to cover the debt of every member of the Eurozone?  Those are the types of markets that gain 4% in a day.  Its like asking what kind of day led the Japanese King-cult to surrender, the answer would be the world's first atomic bomb.  Promise a trillion bucks and lots of things happen the next day.

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#8) On May 10, 2010 at 12:19 PM, Griffin416 (99.98) wrote:

Hey, Bears. Ahh, how you guys like to forget history. Do you people remember the late 1998 crisis. Wasn't that within a 20 years bull run, and a few years within an insane bull run?

Why don't you look at the percentage gain in the S&P after that crisis was over. For those too lazy, they were 2-4% days for 6 weeks straight. Going from 960 to 1200 in 10/9/98 to 11/23/98.

Enjoy, Griffin

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#9) On May 10, 2010 at 12:23 PM, Momentum21 (94.21) wrote:

This move doesn't prove anything one way or another...when volatility is high these moves will happen. We have had 24 days with 4%+ gains on the S&P (20 days with 4%+ losses) since 2000. 

The 5 biggest gains and losses happened in Oct/Nov of 2008 (minus the 6.5% increase on 3/23). Volatility was extreme...

If I am invested long I do want to see 4% up days...we did have a pretty down week last week... : )

You know much more about TA then I do binve but I would expect to see this upside after fear was escalated to such levels. The proof will be in the follow through of course... 

And no I don't think we solved a problem over the weekend we just removed a good deal of uncertainty.  

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#10) On May 10, 2010 at 12:24 PM, galtline (33.04) wrote:

Binve, your score has been bouncing like a yo-yo in the up and down swings.  ;)

Most of my holdings I snagged at the last bottom, so I'm comfortable with what I have...but will take some gains off the table just in case.

I've been expecting more of a re-trace (much earlier than now), but we never seemed to get it...perhaps we'll see that soon though. 

If not, I won't complain...but I'd like to be prepared if we do. 

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#11) On May 10, 2010 at 12:31 PM, binve (< 20) wrote:

bigcat1969,

I agree, and that is a fair point. But my larger point is that this move is a reaction. Maybe I will be proven wrong, but this does not see like a brand new bull market move

Griffin416,

>>Why don't you look at the percentage gain in the S&P after that crisis was over. For those too lazy, they were 2-4% days for 6 weeks straight. Going from 960 to 1200 in 10/9/98 to 11/23/98.

So is it your contention that the crisis is over?

Momentum21,

Those are very good comments

>> You know much more about TA then I do binve but I would expect to see this upside after fear was escalated to such levels. The proof will be in the follow through of course...

That is what I am saying. This is the perfect spot for a reaction based on the extreme negativity last week coupled with the unpredented bailout over the weekend. That is why this seems more like a reaction that an "honest" move.

My $0.02..

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#12) On May 10, 2010 at 12:33 PM, binve (< 20) wrote:

galtline ,

>>Binve, your score has been bouncing like a yo-yo in the up and down swings.  ;)

LOL! That's the truth :)..

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#13) On May 10, 2010 at 12:43 PM, angusthermopylae (39.26) wrote:

As far as the EU bailout is concerned, hasn't the timeline gone something like this?:

--Greece has debt-->Everyone worries-->markets drop.

--EU considers doing nothing-->Everyone waffles-->markets drop.

--EU says "OK...but they are never going to actually use it.."-->Everyone cheers-->Markets rise

--Greece says "Gimme!"-->Everyone shrugs-->Markets rise.

--Everyone says "Not big enough!"-->Markets drop

--(last week) EU considers doing nothing-->Everyone worries-->markets drop

(hey..have we seen this before?)

--(Today) EU says "OK...but they are never going to actually use it."-->Everyone cheers-->Markets rise.

 

Forgive my stupidity and stubbornness, but how in the world can anyone consider this flow of events rational, improving, and indicative of a bull market?  The fund is bigger, but the "They'll never actually use it" refrain is just the same.

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#14) On May 10, 2010 at 12:44 PM, Griffin416 (99.98) wrote:

I believe the panic portion of the crisis is over, but that was not neccessarily my point. Big moves happen in bear AND bull markets. My comment was made to refute your title, not the underlying news.

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#15) On May 10, 2010 at 12:47 PM, binve (< 20) wrote:

angusthermopylae ,

>>Forgive my stupidity and stubbornness, but how in the world can anyone consider this flow of events rational, improving, and indicative of a bull market?  The fund is bigger, but the "They'll never actually use it" refrain is just the same.

That is a *VERY* good question.

Griffin416,

>>Big moves happen in bear AND bull markets. My comment was made to refute your title, not the underlying news.

I accept that. My title was a over the top. So I myself even refuted in the body of my post

Huge up days are most likely reactions within bear markets...

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#16) On May 10, 2010 at 12:49 PM, bigcat1969 (92.29) wrote:

I tend to bear, so you'll get no fight from me.  It sort of goes to my thoughts on tech charts.  They have some value, but they are somewhat useless when facing BP and the oil spill, Fannie and Freddie and what happens if they get cut off, the Fed having to turn over its books or the EU one day throwing out all the rules they wrote 13 years ago.  Certain one time events (or at least very rare events) throw all that out the window.

Basically the markets and the Euro tanked (did you see the Yen/Euro chart for thursday?), the governments discovered a lack of buyers for stocks and bonds and the EU was pressured to make like the US and bail-out.  Anyone wanna guess the number of hours The Prez spent on the phone over the weekend to other government leaders? Now to the sound of much cheering and the silent hum of printing presses (well in metaphor or something), the market is back to its early Thursday numbers.

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#17) On May 10, 2010 at 12:55 PM, binve (< 20) wrote:

bigcat1969 ,

>>I tend to bear, so you'll get no fight from me.  It sort of goes to my thoughts on tech charts.  They have some value, but they are somewhat useless when facing BP and the oil spill, Fannie and Freddie and what happens if they get cut off, the Fed having to turn over its books or the EU one day throwing out all the rules they wrote 13 years ago.  Certain one time events (or at least very rare events) throw all that out the window.

I agree. We are navigating iceberg filled waters here both fundamentally and technically.

>>Basically the markets and the Euro tanked (did you see the Yen/Euro chart for thursday?), the governments discovered a lack of buyers for stocks and bonds and the EU was pressured to make like the US and bail-out.  Anyone wanna guess the number of hours The Prez spent on the phone over the weekend to other government leaders? Now to the sound of much cheering and the silent hum of printing presses (well in metaphor or something), the market is back to its early Thursday numbers.

Nice comments, I agree. So it took 1 trillion dollars to get back to where we were last Thusday. I really just don't see that as terribly healthy..

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#18) On May 10, 2010 at 1:00 PM, PDTBiotech (92.31) wrote:

Historically the best indicator of a 4%+ up day has been big down days in the previous week or so.  Here's 60 years of daily % change on the S&P, I trimmed to 10% so you could see more clearly.

Photobucket

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#19) On May 10, 2010 at 1:03 PM, binve (< 20) wrote:

PDTBiotech ,

GREAT CHART!. Thanks for sharing!..

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#20) On May 10, 2010 at 1:06 PM, JaysRage (89.07) wrote:

My problem isn't with the move, it's how it is happening.   If it was primarily with value, I would have a different opinion.   The problem is that the market is overpriced and so people are looking for any opportunity to throw money at something that might go up.    Home builders, crappy retailers, consumer discretionary companies and debt-laden piles of steaming dung all went up like rockets today.   People are throwing money at risk without any analysis of reason.   It's this type of irrational behavior and lack of risk analysis that most accurately is displayed in a market top.   If people can't get value with quality, they turn to riskier and riskier opportunities to try and find somewhere that they can get an upward surge in price.  

Meanwhile, McDonalds has some great news and it doesn't even keep up with the S&P.   Google and AAPL barely beat the averages.    It's purely irrational, and it will correct.  It's simply a matter of time.   There has been a huge surge toward more and more risky companies, because there is no valuation opportunities anywhere else.   

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#21) On May 10, 2010 at 1:20 PM, rexlove (99.44) wrote:

One mans trash is another mans treasure.

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#22) On May 10, 2010 at 1:20 PM, binve (< 20) wrote:

PDTBiotech ,

Thanks again for the chart!. I added some notes with a source credit to you. Thanks man!



ENLARGE
..

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#23) On May 10, 2010 at 1:22 PM, binve (< 20) wrote:

JaysRage,

>>People are throwing money at risk without any analysis of reason.   It's this type of irrational behavior and lack of risk analysis that most accurately is displayed in a market top.   If people can't get value with quality, they turn to riskier and riskier opportunities to try and find somewhere that they can get an upward surge in price.  

I totally agree. Junk bonds have been the best performer lately. That is very telling.

rexlove,

:).

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#24) On May 10, 2010 at 1:32 PM, russiangambit (29.16) wrote:

Today's market is a classic short-squeeze. I don't feel too bad being down on  my short ETFs due to STD being up something like 25%, crazy. This market is unhinged, 5% daily swing are not normal.

What bothers me is that mainstream politicians and economists time their moves to maximizes the potential short squeeze and then they show it as a validation of whatever they decided to do was right. What is more, their actiona target markets first and economy second.

In the normal world politicians and economists should care about longterm health of the economy, not about what the market will do next day.

This is a classic Tylenol solution - you see these commerical on TV all the time and they annoy me to no end. You are in pain? Don't bother about finding out what causes it and how to make it better, just take Tylenol every day.

 

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#25) On May 10, 2010 at 1:37 PM, IIcx (< 20) wrote:

something is still broken, the container index just dropped 99.95%?

http://shipping.capitallink.com/ 

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#26) On May 10, 2010 at 1:37 PM, IIcx (< 20) wrote:

something is still broken, the container index just dropped 99.95%?

http://shipping.capitallink.com/ 

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#27) On May 10, 2010 at 1:40 PM, binve (< 20) wrote:

russiangambit ,

>>What bothers me is that mainstream politicians and economists time their moves to maximizes the potential short squeeze and then they show it as a validation of whatever they decided to do was right. What is more, their actiona target markets first and economy second.

In the normal world politicians and economists should care about longterm health of the economy, not about what the market will do next day.

*EXACTLY!!!*. My comment here is similar in thinking: http://marketthoughtsandanalysis.blogspot.com/2010/05/what-type-of-markets-do-4-up-days.html#comment-49355072.

>>This is a classic Tylenol solution - you see these commerical on TV all the time and they annoy me to no end. You are in pain? Don't bother about finding out what causes it and how to make it better, just take Tylenol every day.

Exactly! Another *perfect* russiangambit comment. Thanks man!!.

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#28) On May 10, 2010 at 1:41 PM, binve (< 20) wrote:

IIcx ,

>>something is still broken, the container index just dropped 99.95%?

Wow, that is odd...

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#29) On May 10, 2010 at 1:43 PM, IIcx (< 20) wrote:

very - looks like a bug on their site - all the stocks the index is based on are doing well today

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#30) On May 10, 2010 at 1:44 PM, IIcx (< 20) wrote:

isn't technology Great ; )

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#31) On May 10, 2010 at 3:42 PM, outoffocus (22.80) wrote:

Hey Binve,

In an attempt to capitalize on the recent volitilaty I bought an out of money call option (DEC) on SLW.  I don't know how you feel about options but I was curious what people thought about that.

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#32) On May 10, 2010 at 4:00 PM, binve (< 20) wrote:

outoffocus,

Hey! I tend not to play with options very much. And with gold and silver and GSMs, I don't even trade them. In fact I have certificates for most of the miners I care about and consider as investments (SLW definite being one of those). Sorry, that is not much help :(..

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#33) On May 10, 2010 at 4:33 PM, goalie37 (90.55) wrote:

Whether 400 points to the upside are bullish or bearish, I have no clue.  But what I do know is that the intrinsic value of American corporations did not increase by 4% over the weekend.

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#34) On May 10, 2010 at 4:35 PM, binve (< 20) wrote:

goalie37 ,

>>But what I do know is that the intrinsic value of American corporations did not increase by 4% over the weekend.

I concur. 1 trillion dollars (mostly in promises) buys you a nice rally / bounce. But does it buy you a bull market? I think no. But we will see if the market spits in my face again..

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#35) On May 10, 2010 at 4:54 PM, JaysRage (89.07) wrote:

I think the clarification that is needed is that 4% market moves don't occur in stable up or down trends.   Bear or Bull, these kind of moves represent instability in the current trend.    They occur at times when the market is preparing for large correcting movements in one direction or the other.    It's market capitulation and it happens at large market tops and bottoms.   The more intense the volatility, potentially the more violent the change in direction.  

We have been in a relatively stable up trend for quite some time.   Now we are looking at some pretty serious volatility.  Market moves of 3% or more are very rare.   Market moves of 5% or more are intensely rare.     Market volume upward has been stagnating.   Risky market assets have been screaming upward.  Valuations are at or near all-time highs from a P/E perspective.   Analysts are nearly unanimous in their assessment that we are free and clear in our recovery.    If you were marking off a checklist of a coming downward movement, we're looking at around 9 of 10 indicators all lined up.

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#36) On May 10, 2010 at 5:00 PM, binve (< 20) wrote:

JaysRage ,

>> I think the clarification that is needed is that 4% market moves don't occur in stable up or down trends.   Bear or Bull, these kind of moves represent instability in the current trend.    They occur at times when the market is preparing for large correcting movements in one direction or the other.    It's market capitulation and it happens at large market tops and bottoms.   The more intense the volatility, potentially the more violent the change in direction. 

Thanks man. See my comment #22 above, this is exactly what you are talking about. I appreciate the thoughts!.

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#37) On May 10, 2010 at 8:42 PM, Tastylunch (29.22) wrote:

Sssssh Binve

you're scaring the kids. ;)

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#38) On May 10, 2010 at 9:00 PM, binve (< 20) wrote:

Tastylunch ,

LOL! Crazy uncle binv is telling ghost stories around the campfire :)..

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#39) On May 16, 2010 at 10:27 PM, dpdoor (28.88) wrote:

I have notice a similar pattern and am researching it for possible day trading. Sharp up leads to a slow but stronger down. It is like the wind on a sand dune, The leeward side is steep the head wind (windward) side is gradual. Don’t know if it works for day trading but it is something I am looking at.

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#40) On May 16, 2010 at 11:01 PM, binve (< 20) wrote:

dpdoor ,

Right on man. Well, if you are interested in, I have a site where I do TA on a lot of markets mostly Elliott Wave based. If you are interested please feel free to check it out: http://marketthoughtsandanalysis.blogspot.com/. Thanks!..

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