“In China, free markets are the bird; the government is the cage. And the cage can be shut tightly.” Randall Forsyth
Shanghai Composite on Monday fell 2.55% after enjoying four days holiday. That is what you get when you come back from holiday or returning home from shopping in Japan – “Konnichiwa, Arigatou Guzaimasu”.
We had a holiday here on Monday – September 7th, 2015 to celebrate Labor day. So we do not know yet what the markets’ reaction will be on Tuesday. As of this writing futures are trading higher.
Last week markets went on a yo-yo ride, down 500 plus points then up, then down again on Friday not much only 272 points in Dow Jones, better than 1000 points drop. These days 300 points up and down is normal. 100 points move in Dow Jones is so 2014.
We have been taught by our forefathers of trading that we must be aware of yearly highs, yearly lows, anniversaries, swing highs and swing lows etc.
Currently for short-term trading purposes, we have four reference points in the markets. These are:
1. August 24th Low – S&P 1867
2. August 28th High – S&P 1993
3. September 1st Low – S&P 1903
4. September 3rd High – S&P 1975
S&P closed at 1921 on Friday, September 4th, 2015.
Based on above if market is to go down from current level then it needs to first break 1903 low and then 1867 low and close below 1867. Not only S&P needs to close below 1867 but should not come back above 1890. Then S&P should move towards 1750-1740 target.
On the other hand, lets say markets move up then it needs to cross above 1975 and then 1993 and close above 2000. As 2000 is a BIG FAT round number. Markets react weirdly on round numbers. It is like one big fat guy swimming in the pool and from time to time he just puts his hand on little guy and pushes him down. The little guy goes down 2 feet and then comes back up but have a hard time swimming on the surface of the water. Above 2000 are 2017 and 2034 resistances. 2034 is the high of August 21st and that is one of the days when markets dropped big.
It looks like that during the remaining four days of the week market could do Hickory Dickory Dock just like it did last week:
Tick Tock, Tick Tock
Hickory Dickory Dock
The mouse went up the clock
The clock struck one, the mouse went down
Hickory Dickory Dock
Next week Fed decision will be announced about interest rate hike. It seems market will make another top then and will travel down till September 23rd. September 23rd is not only Autumn Equinox date but has relationship with the markets previous move. So this date fits well with markets changing its mood. If market changes its mood on September 23rd after starting to drop from either September 14th or 17th then once again markets could start to rise starting September 23rd.
Incy Wincy Spider
Went up the water spout
Down came the rain
And washed the spider out
Out came the sun
And dried up all the rain
So Incy Wincy Spider
Went up the Spout Again
In other words, starting September 14th market goes down and makes a low on September 23rd and then crawls its way back up slowly and later dives hard and make ultimate low of the year on October 9th, 2015.
By the way on October 13th, 2014 S&P made a low of 1820. So this is another number investment community will be watching if 1867 is broken.
And if markets do make a low in October then markets could rally during the last three months of the year and close near the high of the year.
Then comes 2016 and markets rise till February, March.
S&P goes to 2250-2265, Dow Jones goes close to 20,000, NASDAQ 100 goes to 5000 and Bam, all bulls are trapped and then markets ultimately crashes down for a year or two.
But only God knows. I am just sitting here and rowing my boat:
Row row row your boat gently down the stream
Merrily Merrily Merrily Merrily
Life is but a dream
Recently we traded GPRO via Puts while it was going down and made money. On September 1st, Raymond James Financial – a wealth management company issued “OutPerform” rating on GPRO while lowering their price target from $71 to $50. On September 1st, GPRO was trading at $44 level. Next day GPRO gapped down and continued going down and closed at $36.83 level on Friday September 4th 2015. So much for issuing OutPerform rating!
May be they have clients who are holding GPRO and their clients were nervous about GPRO fall from $99 level. So they issued their rating to calm them down. If they liked it earlier at higher prices, then they were definitely liking it at $44 level and for sure at $37 level (bargain) and definitely when GPRO falls to $25 level (that is like mucho percentage off). After all, how low can it go?
I know of one stock which was trading at $2200 level and now trading near $3. I am sure the same question was asked about this stock when it was trading at $1500 level or $1000 level.
From time to time guys and gals appear on CNBC and say “We have a long-term horizon, we hold for 30 years”.
In other words, they do not get out of the market. Their portfolio goes up and then goes down and then up.
Otherwise how they will make commission if nobody is buying it. Since I do not know their inner workings so I am just guessing here and feeling the pain what their clients may be feeling and who knows what their clients will feel when markets make ultimate top in the spring of 2016 or may be not.