Diary of a Financier

Dusting off the SPX 2008 v 2011 Analogue

In Capital Markets on Wed 14 Sep 2011 at 23:45

I must admit that I got caught on my heels with the magnitude of today’s intraday equity move. My StockTwits Thought Reconciliation documents my read on the activity. Basically, I saw an intraday resistance on S&P 500 Futures (ES/) at 1180, which I expected to stand as the ceiling for coming days. I nailed it, because even SPX rebuked an 1180 high in the morning, then fell to an 1162 low before lunch…

At that point, I expected the 1180 high to hold. I knew of the “meetings” and “announcements” expected from Europe/Merkozy today. The market did too, since futures swung from -1.00% to +1.00% overnight. The news came before lunch. It was recycled content, jawboning from European officials. Nothing material, nothing actionable; simply politicians trying to buy themselves some time. Yet, markets rallied as shorts scurried to cover positions. That’s been the story lately, and so the cookie crumbles.

I closed my Treasury ETF (TLT) long +2.02% this afternoon. On its heels, I also sold my VXX position +5.50%, executing at my limit right before the close. My thinking was clear: book profits and let the storm pass by. More importantly, bonds are telling me something. I noticed 30-year Treasury yields (TYX) at the bottom of their historical trendline channel. It makes sense that short-term fractals are reversing for long-dated T-bonds, which must mean it’s time… QE3-lite draws neigh.

Beyond all that, I was looking out to see what’s next for SPX. It still looks bearish to me, but I noticed Copper (HG/) hitting rock bottom this morning, from StockTwits:

Epic opportunity to buy $HG_F in the coming wk. After a relatvly shallow pullback, Copper has entered btm of trading range before ES_F.

So HG looks to lead everything onward & upward. In searching for a guide, I dusted-off my 2008 analogue, in which I see 2011 still tracking on course:

SP daily (2008 v 2011)

SP weely (2008 v 2011)

That would suggest that SPX rallies from here to key resistance ~1260 (+6%):

ES daily (2005-11)- analogue suggests rally to resistance at 1260.

I’m not quite sure what to make of this yet. Capital markets are like a Jack-in-the box since April: everyone knows a clown with a crooked smile (Europe) is about to spring forth and scare the crap out of the world economy, but this delightful little melody keeps playing in the foreground, diverting our attention from the fright. Here are the tunes that have me distracted from Europe and lulled into a false sense of security:

  1. QE3-lite should be intimated as soon as next week.
  2. Long bond yields are reversing per shorter fractals and a monthly chart that shows TYX near historical trendline support. 30-year T-bond Futures concur. While there’s a sliver of room for a continued rally, I doubt it, since QE2’s announcement came around this trendline for TYX & TNX yields–don’t think these kind of macro indicators aren’t resonant to the Fed’s psychology.
  3. An aggregation of the aforementioned SPX 2008 analogue, SPX monthly fractal historically bailed out by monetary easing at this point in its descent, and Copper (HG/) having bottomed on its trading range.

I think I’m going to have to buy some Beta tomorrow morning to catch a piece of this short-covering rally ahead.


  1. […] week, I had mentioned HG bottoming in alarming advance of ES.  It’s a short-term mispricing in the […]


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