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Rin's trader friend's market crash indicator


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2022 Jan 22, 6:57pm   1,392 views  11 comments

by Rin   ➕follow (8)   💰tip   ignore  

I'm taking a passive-aggressive approach here because I don't completely understand all the mechanics of a 'would be' market crash scenario. I figured that this should have its own thread.

https://patrick.net/post/1343390?offset=0#comment-1813799

Ok, the following is not my opinion but that of another trader I know.

The large cap indexes, like the Dow30 or the S&P500, are weighted so heavily towards the behemoths of industry, that when a seismic change occurs, they tend to become lagging than leading indicators.

So after many years of easy money, the Fed is now tightening up. When that occurs, it's time to look at the forgotten index and that's that of the Russell 2000.

Here's Russ ...



The Russell 2000 represents the small to mid-cap companies which have a much more difficult time in raising capital, paying their vendors, etc, & can't rest on their laurels like let's say a Chevron or a Proctor & Gamble.

For one full year, the Russ was range bound & not able to make leaps and bounds like their larger cap peers in the Dow30 and S&P500. When this occurs, it gives a type of leading indicator that the market players have reached some level of exhaustion and the smaller firms feel it, long before the 'Big Dogs'.

The chart above is a weekly candle stick and thus, shows that the Russ is testing the lower end of the year long price box. If it's able to sustain, let's say 2 closes below the box, then for the most part, the market is in 'near crash' mode.

So keep an eye on this. If the Russ is able to stay within the price box and both the EUR and the GBP are able to counter the USD rallies successfully, then the market will go sideways and be 'ok'.

FYI, this is not my opinion but that of another trader.

Comments 1 - 11 of 11        Search these comments

1   Ceffer   2022 Jan 22, 7:23pm  

Thanks, Rin.
2   Dholliday126   2022 Jan 22, 9:48pm  

I've been short since it broke out of my tighter box on volume on the daily chart.



On my weekly, you can clearly see a volume void until the lower end of it's long term channel.


Basically, the fed either capitulates and goes dovish on Wednesday or the market is heading for a 20% correction, Growth (except the generals) is already off 50%, so I think it a matter of when everything catches up.
3   mell   2022 Jan 22, 9:51pm  

We will likely see a bounce on Monday, but it may be temporary. Still I'm bullish for the coming week.
4   theoakman   2022 Jan 23, 7:37pm  

I agree wholeheartedly with Rin and his trader. In fact, I've been short the Russel for a month. I've been shorting unprofitable tech stocks the past month as well. Basically, my view on it, is mean reversion seems to be happening in every stock that has already collapsed. Most stocks I've seen that happen to (Twitter, Peloton, DraftKings etc..) already reached their pre-pandemic levels. That's the target for everything until I see something avoid that. That puts my minimum target on the Russell at 170. I'm using the previous stocks as an omen for the floor. Maybe we hit the March 2020 lows.

Jeremy Grantham noted that the Russel will likely precede the other indexes. Moreover, the whole "buy the index" appears to be the bubble. People bought ETFs the entire time without ever paying attention to what made them up...forcing everything to rise in unison. Well, they will fall in unison if people start to sell which will force the ETFs to unwind their positions.
5   CBOEtrader   2022 Jan 23, 10:44pm  

This is analysis I did over 5 years ago, BUT the market had never crashed off a high. Market volatility, measured by the Vix, is a direct function of the number of days since the market attained its last all time high.

On average , the market attains a new high ever 15 trading days.

Big drops don’t happen until about 3 months of sideways movement after reaching its last all time high.

These last few weeks are among the most dramatic Dow moves off a high we have ever experienced.

If we can’t correct, chances of 5% and perhaps even a 10% daily corrections dramatically increase around the end of March. March and October have historically been crash months.

29% Vix is an inflection point. If vix breaks higher it could go to 50 or higher almost overnight.

Most likely we float sideways and higher for the next 6 weeks.


6   CBOEtrader   2022 Jan 23, 10:59pm  

The crash in 2020 definitely broke this rule and crashed almost immediately off the highs.
7   richwicks   2022 Jan 23, 11:48pm  

CBOEtrader says
On average , the market attains a new high ever 15 trading days.

Big drops don’t happen until about 3 months of sideways movement after reaching its last all time high.

These last few weeks are among the most dramatic Dow moves off a high we have ever experienced.

If we can’t correct, chances of 5% and perhaps even a 10% daily corrections dramatically increase around the end of March. March and October have historically been crash months.

29% Vix is an inflection point. If vix breaks higher it could go to 50 or higher almost overnight.


If you want to know how the market is going to go, just call the assholes that run the Federal Reserve, they have infinite amounts of money, and they drive it in whatever fucking direction they want.

There's no math or science to this - it's ENTIRELY artificial.

We are not a free market economy, this isn't goddamned capitalism, we have a CENTRAL bank running the whole fucking thing. We've been in communism for 20 years, at least. Welcome to central planning assholes!
8   Rin   2022 Jan 25, 8:53am  

richwicks says
If you want to know how the market is going to go, just call the assholes that run the Federal Reserve, they have infinite amounts of money, and they drive it in whatever fucking direction they want.


But isn't that the point? The Fed announced three rate hikes for 2022 and thus, wants to re-arm themselves (since free money doesn't give 'em wiggle room in the future) & to save the USD on the Forex against the major pairs.

The causality in this will be the bull market which started back in 2010.
9   Rin   2022 Jan 29, 4:33pm  

Rin says
If it's able to sustain, let's say 2 closes below the box, then for the most part, the market is in 'near crash' mode.


For this past week, it closed below the price box at ~1968 but the week was a minor 'doji', which isn't a confirmation candlestick, so let's see if it confirms again for the next weeks.
10   Rin   2022 Feb 9, 5:13pm  

After the dojo, the Russ is holding in the price box. The crash has been postponed!
11   mell   2022 Feb 9, 5:14pm  

Told ya so

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