Weekend Update March 12th, 2011

This is not rocket science. By using $NYADV, daily $NYAD, $NYUD:$NYUPV, etc, I was able to predict with some certainty that shorts should take some money off the table on Thursday and that the market would most likely bounce on Friday. You can do the very same thing by getting to know these gauges and ratios.

When I first became aware of the power of $NYUPV back in August of 2009, I sat down and back tested it. I then logged the extreme readings and noted how the market reacted to these extreme readings in the following sessions. I then began to add more and more of these gauges, their extreme readings, and how the market reacted. This process took several hours of back testing but it was time well spent.

There are only a handful of you who read this blog with any kind of regularity and some of you probably thought that Thursday’s DOOM would lead to more DOOM on Friday, especially given Japan’s tsunami and the war in Libya, etc. But it doesn’t work that way. The market became extremely oversold on Thursday meaning that 90% (It was an 89% down day, BTW) of those who wanted to sell had done so. You had some residual selling on Friday morning but the $TRIN at .6x and .5x for almost the entire session indicated that buyers were stepping in and taking all the shares they could get their hands on and eventually all that buying turned the indexes positive. The Big Boyz, who were probably out on the back nine  at about 3:00p.m., called their respective trading desks with a one word message: “Sell!” That selling brings into question any more up days early next week. Just have to wait and see how that develops.

The point of all of this is that the market is all about probabilities and when you use things like $NYUPV, etc, it allows you establish a probability as to how the market might react. My call Thursday for a bounce on Friday was based simply on the fact that in the past when the market has gotten extremely oversold you have to expect a bounce is in the works. Forget the news, mute CNBC, and stop reading those mind altering message boards and forums. In this age of social networking it’s not easy to break away and trade in isolation, but news, either good or bad,  the opinions of others, especially E Wave perma bearz, will get you in nothing but trouble.

Below I’ve included some of the gauges and ratios that I follow on a daily basis. Some are better than others. Some reveal duplicate information. These are all direct links which you can copy and bookmark and then you can change the settings to travel back in time and back test them. Do it. It will be time well spent and what you learn can be applied time and time again and will be valid until you close up shop.

$NYUPV: This is one of my favorites.

$NYUD:$NYUPV: This one has not missed a bottom since March 09′, but you have to know the correct level at which it marks bottoms.

$NYADV: This lets you know when the market is overbought enough to bring about a pause day and also marks bottoms very well.

$NYDNV: This one goes hand in hand with $NYADV.

$NYAD: This is the daily and lets you know when the market has become way too oversold. It also will help you anticipate pause days.

$NAAD: Same as $NYAD, only different.

$NYMO: Used with BB’s to show when market is either overbought or oversold. Note last Thursday’s tag of the lower BB.

$NAMO: Same as $NYMO, only different.

$NYUD:  This is the daily and is similar to $NYADV.

$NYLOW: Notice that back in November this hit 150 area and marked a good entry area. It did the same in January with similar results. It’s most recent highs are just not high enough.

$NYHGH: Be sure to look at how low this went in the late June/early July period.

$BPSPX with Sto’s: The strategy here is to avoid buying when the  14,3,3 sto breaks 80.  The buy should come when the 14,3,3 sto rises back above 20.

$SPXA50R:  Could be headed back to its Sept. low. Might be headed back to its June/July lows.

$SPX w/ P/C Ratios:  Stolen from Cobra and certainly not as nice as his, but it gets the job done.

Zweig Breadth Thrust & 4wk New High/New Low can be found at Freestockcharts.com. Just type in T2 and you’ll see them in the drop down menu. You can also get Cumulative Volume Index there, which is the same at the cumulative $NYUD.

The reason I’m putting all this stuff up here today is that I am going to be logging off sometime in late April. The blog will stay for as long as WordPress will allow, but I will post no more. The tools above and a simple trend line have served me well and they should do the same for you.

These charts do not look so hot.  The 5/10 method represented in the first $SPX chart has been on a ‘sell’ signal since February 22nd.

On this weekly chart, you can see that the 20/20 Sto has only dropped below 80 two times since the March 09′ lows and if there is any more weakness in the week ahead then it looks likely that the 20/20 will take out 80. If it does drop below 80 it could take several weeks to bottom and recycle up.

Charts courtesy of StockCharts.com

I have no idea what’s going to happen next week, but if the market does bounce I don’t think it will present a buying op. My problem continues to be the absence of a climax sell signal. We need a wash out before the market can move higher as such a wash out will dose the frothed-mouthed bullz with some reality and then we can climb that wall of worry higher.

Wild cards, we’ve got ‘em.  War in Libya and earthquakes in Japan, high oil prices that will impact earnings which will start coming in at the middle of April. Ceridian’s last report shows that the economic recovery is slowing, but that was before the latest spike in oil prices.

Basically, uncertainty  is certain.

Cash is a position.

GL in the week ahead.

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