Welcome to the 30′s
By
Rennie on Monday, July 19th, 2010 at 2:37 am
Friday marked the 22nd session over the past year in which the Dow Industrials posted an absolute daily change of 2% or more. That’s high from a historical perspective but downright tame compared to the outrageous 96 days with a 2%+ move recorded almost exactly one year ago in July 2009. Monstrous volatility like that has only been seen one other time in history – the early 1930’s. The number of 2% days peaked at 129 in July of 1932 when over half of the days in the previous year saw a 2%+ move (see 110-year chart). The stock market rallied off that ’32 peak for the next year, then proceeded to trade lower over the following year, dropping nearly 25% from its July 1933 high. We’re tracing out a very similar pattern this time around. After hitting a peak 96 reading in July ’09, the market rallied over the next year. Since the April top, the Dow has dropped about 13%, or roughly half of the drop seen back in the 30’s. Should we see a 25% move we’re looking at Dow 8,400, which sounds entirely plausible considering the Last Hour indicator has still not even begun to retrace the decline of the past fifteen months. Only when the retracement is complete would this smart money indicator suggest the bear market is over.
‘Large traders’, as classified in the weekly Commitments of Traders reports, historically maintain a net position contrary to the prevailing trend, short during market advances and long during declines. That’s what makes the last few years in E-Mini futures particularly interesting, as this formerly contra-trend group suddenly appears on the right side of the market, not just occasionally but on a regular basis (see chart). In the table below is each instance this group shifted from net long to short in ES futures since late 2006…
Large Traders Net Position in ES Futures
10/20/06 Long SPX 1368… +1.4%
03/02/07 Short SPX 1387… +4.1%
01/25/08 Long SPX 1330… +4.9%
02/01/08 Short SPX 1395… +33.3%
11/07/08 Long SPX 930… +25.4%
03/26/10 Short SPX 1166… +2.7%
05/14/10 Long SPX 1135… -6.3%
06/04/10 Short SPX 1064… -2.5%
06/11/10 Long SPX 1091… +2.4%
06/18/10 Short SPX 1117… +8.5%
07/02/10 Long SPX 1022… +4.1%
07/16/10 Short SPX 1064… ???
Note that large traders in ES opened up their largest net short position of the year this past week.
Welcome to the 30′s
By Rennie on Monday, July 19th, 2010 at 2:37 amFriday marked the 22nd session over the past year in which the Dow Industrials posted an absolute daily change of 2% or more. That’s high from a historical perspective but downright tame compared to the outrageous 96 days with a 2%+ move recorded almost exactly one year ago in July 2009. Monstrous volatility like that has only been seen one other time in history – the early 1930’s. The number of 2% days peaked at 129 in July of 1932 when over half of the days in the previous year saw a 2%+ move (see 110-year chart). The stock market rallied off that ’32 peak for the next year, then proceeded to trade lower over the following year, dropping nearly 25% from its July 1933 high. We’re tracing out a very similar pattern this time around. After hitting a peak 96 reading in July ’09, the market rallied over the next year. Since the April top, the Dow has dropped about 13%, or roughly half of the drop seen back in the 30’s. Should we see a 25% move we’re looking at Dow 8,400, which sounds entirely plausible considering the Last Hour indicator has still not even begun to retrace the decline of the past fifteen months. Only when the retracement is complete would this smart money indicator suggest the bear market is over.
‘Large traders’, as classified in the weekly Commitments of Traders reports, historically maintain a net position contrary to the prevailing trend, short during market advances and long during declines. That’s what makes the last few years in E-Mini futures particularly interesting, as this formerly contra-trend group suddenly appears on the right side of the market, not just occasionally but on a regular basis (see chart). In the table below is each instance this group shifted from net long to short in ES futures since late 2006…
Large Traders Net Position in ES Futures
10/20/06 Long SPX 1368… +1.4%
03/02/07 Short SPX 1387… +4.1%
01/25/08 Long SPX 1330… +4.9%
02/01/08 Short SPX 1395… +33.3%
11/07/08 Long SPX 930… +25.4%
03/26/10 Short SPX 1166… +2.7%
05/14/10 Long SPX 1135… -6.3%
06/04/10 Short SPX 1064… -2.5%
06/11/10 Long SPX 1091… +2.4%
06/18/10 Short SPX 1117… +8.5%
07/02/10 Long SPX 1022… +4.1%
07/16/10 Short SPX 1064… ???
Note that large traders in ES opened up their largest net short position of the year this past week.