Market Commentaries

The current snapshot of S&P 500 3-Day Advance Issues, Tick16 Short Term + Long Term as of 2012 Nov 19 close.

Reading

1. Long Term Tick16 (yellow line) rejected neutral zone and stuck in bearish zone

2. Short Term Tick16 (red line) in compression for more than a month now

3. 3 Days Advance Issues (green line) popped back up to overbought zone from divergence bottom

Inference

a. #1 still in trend sell mode

b. #2 points to breakout in the making

c. #3 in the context of #1 points to another push down in the making

d. if #2 resolves to the upside, #1 will follow and create a very powerful upside breakout

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I was asked a question in my real-time chatroom about the 3-Day Pattern Odds Reports. Specifically if there is something wrong with the tables for Dow, S&P500, Nasdaq 100 and of course the derivatives (DIA, SPY, QQQ, and futures YM, ES, NQ) as they are all blank for today.

I answered that there was no match at all historically based on the 3-day pattern thus today could be something unpredictable.

How true the unpredictability has proven!

All morning the indices were pushing higher and the midday sideway move was totally expected. Then by 2 pm, there was no fireworks. No short squeeze whatsoever. Slowly, drifting lower and lower and then collapsed in 3 pm and sold off to new low of the day.

Very glad that I kept the surprise factor in mind and walked away when 2 pm does not unfold as expected.

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In the news, Rochdale Said to Be in Rescue Talks After Apple Trades Sour.

Rochdale claimed than due to unauthorized trades made by a rogue trader has caused major stress on the company's financial position and that it is looking for investors to rescue the firm.

Regarding the situation, we know that

a. Apple earning was reported back on Oct 25th

b. Apple swinged down to right above 590 and back up to 610 on Oct 26th

c. Apple then gapped down to below 590 on Oct 31st and bounced back up to above 600 briefly before another wave dropping Apple straight down to 575 on Nov 1st

My questions,

1. Why is there no firm-wide real-time warning on sudden increase in margin usage? Their trading portfolio is supposed to be quite small so it makes no sense that such margin usage increase is not detected immediately.

2. Why is there no authority limitation on the trader? A mid-sized hedge fund or even a small prop firm has authority limits on traders.

3. When did the people at the top find out about the trade? It is total nonsense that the firm is still holding the position if the people at the top found out about the situation before the bounce in Apple happened on Oct 26th.

Logical conclusion is that the firm chose to hold onto the Apple position as of Oct 26th close even if the trade is really as claimed that it was unauthorized, if its people in charge already found out about the trade that day.

I guess we will never be able to find out what happened exactly, just like all the other famous Wall Street trades that went bad.

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