Weekend Update December 4th, 2010

Just want to start with something I’ve said in the past but that bears repeating. The stock market and the economy are two separate animals and have nothing to do with each other. At times these two animals appear to be moving in sync with each other but this is pure coincidence. On Friday you saw this in action. While shortz were expecting the market to sell off big time due to the hike in the unemployment #, the market instead went up. This is because the market moves the way the big players want it to move and if THEY want the market to go up, it will go up. When the mad men at the helm want the market to go down, the market will go down and will probably do so during periods when there are good economic reports. Our #1 job as traders is to try to identify what the mad men are doing and to ride their coattails. Fortunately the mad men at the helm leave large footprints and right now those footprints are headed north.

Another thing that’s important to keep in mind is that when the market goes down it’s under accumulation and when it goes up it’s under distribution. I have shown several charts over the last few months where, in the 15min time frame, there were huge red candles and warned to never short such a candle or even a series of such candles because those candles are signs of manipulation by the big players. First, these big players are selling longs into the previous price increase and then going short. Next, these big players start to dump their remaining longs ‘at the market’ which causes others to do the same. This selling pushes the market down and as it’s going down the big players are covering their shorts and picking up shares on the long side at bargain basement prices. Then, once the big players have covered most of their shorts and have added most of the longs they want, they’ll start to buy ‘at the market’ which then pushes stocks up creating excitement and retail traders who don’t want to miss the gains jump on board which keeps the move going. When retail traders start to jump on board, the large players sell their longs to the retail traders and the cycle repeats. I believe that the computer systems that the mad men at the helm use trigger off overbought and/or oversold readings in the RSI 14 in the 15min and 60min time frames which is the basis for the 60 minute trading strategy.

******

Bulls vs Bearz

Wild cards: Groupon has rejected GOOG’s huge offer. I don’t follow GOOG that closely, but GOOG did move 20$ off it weekly low and if this was due to expectations of the Groupon buy, then GOOG could get hit pretty hard on Monday which would impact the $NDX and $COMPQ directly. POMO $$ as usual and no way to tell how this $$ is being used though it is intended to prop up equities.

Bearz:

$TRIN & 5 Day Arm’s Index: Well, $TRIN closed at .68 on Friday and this dropped the 5 Day Arm’s to 3.03. (Please see my November 27th post.) Last weekend, the 5 Day Arm’s Index had a reading of 8.32, which was showing oversold. This week’s 3.03 reading is showing the exact opposite. A reading around 5 is neutral and a reading near 4 would be considered somewhat bearish so this low 3.03 reading is cause for concern and you have to wonder if everybody’s in. Also, on Wednesday, the $TRIN closed at .27 which was telling me that there was a lot of forced buying going on. In other words, short covering, IMHO. So if the shortz have covered and all the longs are in, what’s next?

ISEE All Equities: Two very high readings this week of 327 & 296 which is telling me that the long side is getting very crowded. When we started to get very high ISEE readings back in April, the market ignored these for a couple of weeks, then fell off a cliff.

P/C Ratio: P/C Ratio closed at .79 on Friday which is bearish, though not extremely so. It closed at .70 on Thursday which didn’t seem to impact the market one bit. I think two days of readings in this area may be a little too much, but the market will make the call.

RSI on 60min Charts: RSI’s on the 60min charts for all the market leaders, $TRAN, $SOX, $RUT/IWM, IYM, and even SPY, all closed above 70 and this indicates that the market is very overbought at the moment. This overboughtness can get worked off in one of two ways: The market can pull back or it can consolidate sideways for a few days.

This chart of $SOX index looks very much like the chart of the $RUT I put up on Friday, and they both say that buying has pulled in just about every last buyer out there and that to attract more buyers you have to adjust prices lower.

Click here to open chart in new window.

Chart courtesy of FreeStockCharts.com

Bullish:

Commitment of Traders Report: If you’ve been following Alex Roslin’s COT Blog, link to your right, you know that the commercials are still short the large contract ES futures. So far they’ve been fueling each and ever short squeeze but haven’t given up yet. Here’s what’s interesting or maybe coincident about that. Last year during this same period the commercials were getting heavily short. I chronicled it on this site and it was pretty amazing to watch. And then suddenly, during the last two weeks of December, perhaps to clear the books going into the new year, they cried uncle and got out of all most of their short positions. Interesting that about two weeks later, around January 11th, the market topped out. I have no idea if this kind of scenario will repeat again this year. Just throwing it out.

$VIX: $VIX tagged its upper BB on Monday, closed above it on Tuesday, and has pulled back since then creating a new buy signal in the process. As long as the $VIX keeps dropping, then the market should keep rising.

$USD: The dollar may have peaked, though it’s probably too soon to tell. POMO $$ is supposed to weaken the dollar but POMO injections didn’t stop the dollar from rallying over the past month. Meanwhile, the Euro is setting up to give a new buy signal, per the 5/10EMA method.

90% Up Day: 93% up day on December 1st which is what you want to see at market bottoms. We also had a 90% up day on November 24th, which followed a 92% down day on November 23rd.

SG for $SPX: Three of the four indicators that I use to calculate the SG have started to move up which indicates a change in trend.

$BPSPX: $BPSPX hit a new rally high on Friday of 79.80 and its stochastic has now moved above 80. This is good for now and confirms the rally but we need to be watching for readings in the mid-80 area. Based on past history, when $BPSPX gets up into the mid-80 area, assuming that it does, it can stay up there for about three weeks. After that, when $BPSPX starts to roll over, it’s time to take profits. Just sayin’.

$SPXA50R: This moved back above 75 on Thursday and went to 77.80 on Friday, which confirms the market is moving up with broad participation.

Breadth Indicators: Every single breadth indicator that I follow, from $NYMO, $NAMO, Zweig Breadth Thrust, Cumulative Volume Index, etc, is confirming the move up.

Chart of $NYSI w/ ADX showing that the +DI line is moving up and that $NYSI is getting close to pushing above the 5EMA. BTW, you can substitute RSI 14 for the ADX and you’ll get the same reading. I just happen to like the visual aspect of the ADX along with the ADX line, itself.

Click here to open chart in new window.

Chart courtesy of StockCharts.com

The bottom line is that the market is moving up with strength and on pretty good volume, but that it may have gotten a little ahead of itself and may need to cooling off period based on very low Arm’s Index and very high RSI readings in the intra-day time frames. We could either pull back for a session or two or just go sideways to work off some of this overboughtness. If the markets do pull back, I would really want to see the $SPX hold above 1200 as this is an important pycho round #.  On the other hand, if $SPX pushes above the November 5th high of 1227 and fails, then this truly could be a double top signal which would first be confirmed by a break of 1200 and then 1173.  I have my doubts about a break of 1200 mainly because I think the PPT will intercede and save the day, but I could be wrong.

It’s always the Yin & Yang, the double edged sword, the dangerous opportunity. One day the glass is half full and the next day it’s half empty. As any paranoid trader knows, holding a particular view for too long can be costly.

GL in the week ahead.

Update December 2nd, 2010

First, thanks for your comments. I really do appreciate them and I’m glad that visitors to this blog find value in the information that I post.

Meanwhile, I’m thinking April and that means that we can run for a while but that when trend lines break this next time, it could get serious.  Subject to change at any time, of course. And okay, so no pause day today but if I’m going to be wrong better to be wrong like I was yesterday. For tomorrow I think we have a set up for a pause day and maybe a red day, but we’ll see.

ISEE All Equities & P/C Ratio: ISEE at 296 and P/C Ratio at .70 so again this is showing that the Exuberatti are in the building and that perhaps the long side is getting too crowded.

$TRIN: Closed at .43 which goes along with the low P/C Ratio and suggests that the Exuberatti may be a little too, well, exuberant.

RSI on 15min & 60min charts closed above 70 and was that way most of the day for $SPX, $RUT, etc, and suggest a cooling off period is probably in the works.

BB’s: $TRAN, $CYC, $SOX, & $RUT smashed through their respective BB’s today with most of these closing outside. Even though this doesn’t necessarily mean a pull back, it does suggest that a consolidation period may be in order.

Aroon Oscillator: A/O for $TRAN hit 100 today. Unlike the A/O for the $SPX, which can stay at elevated levels for several days, when the A/O on $TRAN hits 100, it generally indicates a consolidation is in the works. Since the transports are the de facto leader of this rally, then if transports go into a consolidation or into a minor pull back, then the market will just about have to go along for the ride, no pun intended. The A/O for the $SOX is also at 100 and you can look at your charts and see what happens over the course of the next few sessions when this has happened before.

$NYSI, $NASI, $NYMO, $NAMO: Upticks today for $NYSI & $NASI which pushes $NYMO and $NAMO above their respective zero lines for the first time in almost a month and is a sign that market breadth is truly improving which means that shorting right now would be the risky trade.

Chart of $SPX showing the important 1227 level. Every bull, every bear, and every computer is going to be watching this level for a potential double top. A break of this level, which may or may not happen on Friday, will need to be accomplished on very strong, convincing volume. If not, then it could be a head fake and failure. Shorts are going to be champing at the bit to short this level and will probably go whole hog if the break happens on light volume. This could lead to a major short squeeze which would bring in the volume as shorts cover.  Or, as Joe Granville would say, the obvious is obviously wrong.

Chart courtesy of StockCharts.com

SG for $SPX: Yesterday I mentioned that the momentum indicator that I use had been ticking up for several days. Today, two more indicators joined in with upward ticks.

Also, since I do expect some kind of consolidation over the course of the next couple of sessions, I did take profits today on TNA but am holding my other longs. I will look to re-enter TNA some time in the near future.

Update December 1st, 2010

 

******

I said yesterday that it seemed a no brainer to short the markets but that it was dangerous because of the manipulation, not to mention baskets full of POMO $$. Well, today’s action was the result of a beautifully engineered bear trap followed by a mega short squeeze, IMHO, of course.

ISEE & P/C Ratio: ISEE All Equities closed at 327 while P/C Ratio closed at .78. This combination has been pretty good at signaling at least a pause day in the following session, except for the ISEE #. That’s the highest ISEE number since April, which is a cause for concern.

$TRIN: Closed at .26, per Etrade, which is way overbought and is the lowest close in quite some time. It could be since April, though I haven’t taken the time to check back that far. This suggests to me that what we saw today was probably more short covering than organic buying. Okay, ‘duh’ on that. I just don’t think buyers  suddenly appeared out of the woodwork. Just my opinion. (I did check back a little and found some closing $TRIN #’s in this range back in September & October, and a couple of other times, but they are rare.)

90% Up Day: Actually looks like about 93% of volume went into advancing shares. This is what you want to see at market bottoms and we’ve had a couple of others lately. Also more evidence that market may be a wee bit overbought.

$VIX: BB tag yesterday was definitely part of the reason the market went green, but not all. $VIX in this 20-21 area just means you have to expect volatility, and we’re certainly getting that. Before this volatility ends, we’ll need to see the $VIX drop back into the teens.

$BPSPX & $SPXA50R: Both had nice upticks today, with $SPXA50R showing a lot of strength. Still need $SPXA50R to get back above 75 but 70 is pretty close.

$NYHGH & $NAHGH: These added huge numbers of shares today and this is both good and bad, the double edged sword. Good because this confirms the move up today, but bad because it hints that the market may have gotten ahead of itself. Interesting that yesterday $NYHGH ticked up while the market went down in a sign of positive divergence. I didn’t give it much thought and still really don’t.

$NYMO & $NAMO: Failed to get back above their respective zero lines, but they did get close. If today’s action was real and is going to last for a bit, then these should get above the zero line tomorrow regardless of what happens in the markets. The caveat would be a big down day, but a slight green day to even a flat day should get them back above zero.

$NYSI with ADX: The +DI line, which has been falling about two pts on average for quite a few days, dropped today by about 1/2 tick.

SG for $SPX: The momentum indicator that I use for this bottomed on the 24th, and has been ticking up since the 26th. It ticked up today, though not that much. Regardless, this can be as much as two weeks early in signaling a change in trend. Two of the other indicators that I use did slow their descents today. Like to see one of these turn up by the end of the week, if not sooner.

Also look at the following for signs of perhaps too much buying today:
$NYDNV
$NYAD, $NAAD, their daily #’s.
$NYUPV
$NAUPV

Chart of $SPX showing that it just barely broke above the Bear Flag pattern today. Really would like to see all the majors with an entire candle back above their respective 20MA’s before it’s time to get the ya ya’s out.
Click here to open chart in new window.

Chart courtesy of StockCharts.com

At the close of each day, I take my dog for about a 30min walk. After that I sit down and start going through numbers and indicators and putting together an evening post. If I didn’t enjoy it I wouldn’t do it and by going through all the things that I do go through I think I’m able to get a fairly good idea about what’s going on underneath the market hood. I learn as much in the process, if not more, than do the few visitors to this blog.  But it’s also very time consuming. Just to put this post together, a post that will take you 5 or 10 minutes to read, takes me more than 90mins.

For all I know and outside of the spammerz, there are only two people that read this blog so when I stop posting on January 1st it certainly won’t be any big loss. Having this blog has been a great learning experience for me and I will never regret having started it, but neither can I justify the time I spend updating it. Nothing has really changed in quite some time. I’ve been following and tracking the same things for months and months and if you’ve been reading this blog for any length of time then you know how to read and interpret these, things like $NYUPV, etc. I did add the 5/10 method over the last couple of months, but that’s about it.

Hope you weren’t short this morning.

Update November 24th, 2010

Enough with the politics:

******

$SPX = 7 vs 6

$COMPQ = 6 vs 6

Elsewhere on the very same planet:

$NAMO is now within about 3pts of getting above the zero line, and $NYMO is now within about 10pts of doing the same so $NASI and $NYSI are getting very close to having their first positive ticks since 11/8. If this should happen on Friday, then you just have to put away the bear outfit until the Summation Indexes reverse at some later date. Of course, anything can happen between now and the end of trading Friday so this isn’t a given.

P/C Ratio closed at 1.06 so we’ve got that “climbing a wall of worry” thingy going on.

ISEE All Equities closed at 248. I have found that when you get a low P/C Ratio reading and a high ISEE number, you should watch for a pause day or pull back during the following session. Since these two are not confirming one another right now, we’ll just have to see.

$BPSPX, $SPX50R, and all the other breadth indicators that I follow had good moves up today. $NYAD & $NAAD, the daily versions, might be a little too over loved so maybe a slight up to sideways day during Friday’s shortened trading session.

90% up day, looks like anyway.

60min chart of $SPX showing a break of the down trend and 1200 as the voodoo line in the sand. And when I posted this morning in a reply to Chris that it is imperative for $SPX to clear 1200, I didn’t mean today but was hoping for Friday. Regardless, financials kicked in today but they’ve got to follow through on Friday and next week. Also note the potential W-A pattern in the stochastic.

One last thing. The other day, must have Monday, I mentioned that the momentum indicator that I use on the SG for the $SPX looked like it was about to turn up, then we had yesterday’s big drop so no go on Tuesday. Well, it did turn up today. Not much, but it’s a start. It has been dropping since the 11th.

Enjoy your Thanksgiving.

Weekend Update November 21st, 2010

$SPX 7 vs 3
$COMPQ 6 vs 3

These are the number of days down from recent closing highs and the number of days up from recent closing low. If the market is indeed strong, then taking out the recent highs should be no problem in about the same number of days that the market went down.

Wild Cards in the week ahead include more POMO $$, with 7-9billion on Monday, $USD strength and/or weakness, Chinese interest rate hike, and a potential pre-holiday positive bias. One item that may set the stage for the week may be HPQ’s earnings which, if I have this correct, will be released Monday before the bell. LLTC, which is about 5% of the $SOX, & BRCD also report on Monday.

Bulls vs Bears

Bearish:

Lowry’s still has a ST sell signal in place.

P/C Ratio closed at .66 on Friday.

NDR Crowd Sentiment Poll, see Trader’s Narrative to your right, indicating extreme bullishness. This particular sentiment gauge is new to me.

$INDU, $COMPQ, $NDX, & XLF still below their respective 20MA’s. XLF looks to be the weakest of these.

IYR below its 50MA after a very high volume trashing on Tuesday.

97% up day on 11/4 could potentially be a blow off topping signal.

$NYSI & $NASI still putting in negative ticks so $NYMO and $NAMO remain below their respective zero lines. $NYMO & $NAMO put in lower lows vs the August/September lows and have been putting in lower highs since early September, which was the last time $NAMO came near its upper BB.

$NYHGH went backwards on Friday in a sign of negative divergence, but as we all know these divergences haven’t meant anything lately.

Bullish:

$RUT, $TRAN, $SPX, $CYC, $SOX, $NYA, $XTC, $XAL, and a few key sector ETF’s, like RTH and XLE, closed back above their respective 20MA’s.

All of the A/D lines, including those for the $NDX & $RUT, have been rising in sync with the markets.

Except for $NYHGH, $NYSI, & $NASI, all of the other breadth indicators that I track have been rising in sync with the markets.

$BPSPX has risen for the last three sessions.

$SPXA50R has risen for the last two sessions.

$VIX rallied for a few days over the past couple of weeks but is now back in its longer term down trend. It could make new yearly lows before reversing.

IYR: While IYR is languishing, it’s important to note that 76% of the components within IYR closed in the green on Friday.

*****

 

As usual, we have the Yin and the Yang, the dangerous opportunity. The trend off the September lows is being challenged at the moment and while each small blip in the market since the September lows has resolved in favor of the bulls, there is always the chance that this pull back will go to the bears. IMHO, it is absolutely imperative that the lagging indexes and sectors clear their 20MA’s on Monday and do so with gusto. $SPX 1232 is the next Fib projection target, which $SPX missed by 5pts in the recent run up. If $SPX can first get back above round # support at 1200 and then work its way back to 1227, then there is a chance that it will rise above 1232. A rise and close above 1232 would/might/could set the stage for a run to the next Fib target of 1277.

Every bull, every bear, and every computer on the planet is going to be on the alert for either higher lows for the major indexes or for a double top. Regardless of the camp you’re in, I think it’s important to reserve judgment on market direction until we see how the market deals with recent swing high levels.

Chart of $INDU showing how it has broken the minor down trend line along with direction changes in RSI, Histo, and Sto.

Click here to open chart in new window.

Chart courtesy of StockCharts.com

This chart of the SG for the $SPX shows the SG more or less flat lining for the past four days after the big drop on Monday.

Weekend Update, November 13th, 2010

Bulls vs Bears

The wild cards in the coming week are going to be the $USD and POMO injections. I have a buy signal on the dollar using the 5/10 EMA set up and the 9/20 cross method. I have seen many times in the past when the dollar went up along with the market and many other times, most recently August, where the dollar went up and the markets went down so we’re just going to have to see how this plays out. Dollar weakness has garnered a lot of bad karma lately so it could run higher for a while.

There will be a POMO injection every day next week with a minimum of about $31 billion dollars coming into the market. Going to be interesting to see where that money is put and how it impacts the markets.

Bearish:

All of the major indexes have either had a Bearish DI X or are on the verge of one. If there is no bounce Monday, then all the majors will have these Bearish X’s.

Using the 5/10 EMA’s, I now have legitimate sell signals on 13 of the 36 indexes and key sectors that I follow. $SPX and the other major indexes are closer to getting a sell signal now than they have been at any other time since the rally began and so if there is any red on Monday they will all get sell signals.

$USD buy signal, as mentioned above.

$VIX buy signal using 5/10 EMA’s, close to getting a 9/20 Bullish X, and already has a Bullish DI X.

$NYSI & $NASI had substantial drops on Friday indicating market weakness. As mentioned in my Friday post, the -54.54 drop for $NYSI was the largest since the -58.87 drop on August 26th.
Click here for current chart of $NYSI with ADX.

$NYMO & $NAMO both well below the zero line.

$BPSPX has dropped 3 out of the last 4 sessions.

$SPXA50R dropped below 75 on Friday. Could have peaked and getting ready to drop down toward the 25 area.

$NYUPV closed at 104 on Friday. While this does indicate that market is oversold it is not low enough to signal that selling has climaxed.

$NYHGH dropped to 43 on Friday. This is the lowest reading since early July.

$NAHGH dropped to 47 on Friday, which is the lowest reading since mid-September.

Zweig Breadth Thrust dropped to 43.78 on Friday. ZBT still has several points of downside left before it flashes an oversold signal.
Click here to open chart of ZBT in new window.

P/C Ratio closed at .97 on Friday. This is showing an increase of fear over what we’ve seen lately, but, IMHO, it just isn’t high enough.

Bullish:

RSI in the 60min time frame on almost all major indexes dropped below 30 during Friday’s session. As mentioned Friday, this has not happened since the September lows and is an important factor in the 60min trading strategy. If the various indexes that experienced this on Friday can rise to break their down trends and get back above their 20MA’s then this would be a bullish sign.

$NYSI dropped by 54pts on Friday. During the August decline, the biggest drop for $NYSI was 67 pts so either $NYSI is very near to giving a climax sell signal or already has.

$NYMO and $NAMO smashed through their lower BB’s on Friday. In the past, this has worked fairly well in signaling that the market is way too oversold. Will it work this time? Does anything work all the time?

$NYAD, the daily, dropped to -1954 on Friday. In the past, readings in this area have marked bottoms. Do your own due diligence on this one so you’ll know what I’m talking about. You don’t have to go further back than the end of June.

$NAAD, the daily, dropped to -1550 on Friday. See above.

$NYUD:$NYUPV dropped to -7.6 on Friday. As mentioned in my Friday post, this is in an area that in the past has marked bottoms but you really should do your own due diligence on this so you’ll see what I’m talking about.  A reading 4 to 5 pts lower would be better.

90% down day for the $NYSE. This is what you see at bottoms. You can use the Wall Street Journal link to your right and then go back and look at the days near the August/September lows.

ETF Investment Outlook is showing that many of the key ETF’s that it follows are very, very oversold. Some, including IYT, did not have a single stock close in the green for Friday. While this is a sign of weakness in the markets it is also a sign that the selling may be a wee bit over done.

4 Week New High/Low Ratio closed at 20 on Friday. 10 would be better and that may get hit on Monday. This is T2122 over at FreeStockCharts.com

The bottom line is that the markets are oversold enough at present to initiate a bounce but may need another day or two of selling to seal the deal. News out of Europe regarding Irish debt and news out of China regarding interest rates may already be priced into the market and if there is any good news out of either of these countries, then you would have to expect the market to react favorably. If there is some more selling early next week, then $NYA could easily drop below the 20MA and head down toward the 38.2% retrace, 50MA, and round # support level around 7400. Big Tech was the engine that powered the markets to their recent highs, and they’re going to have to take a leadership role again. Until then, the markets are at risk of further selling.

***Added Sunday, November 14th:
Chart of $SPX with support line and Fibs.

Chart of the SG for the $SPX showing how the recent up trend was broken. As long as it continues to move down, then longs are at risk.

There is no lasting cure for paranoia so don’t worry about it.

And remember, the difference between genius and stupidity is that genius has its limits.

Have a good weekend.

Weekend Update November 7th, 2010

The Exuberatti showed up again on Friday. This is both good and bad, the yin and the yang, the dangerous opportunity. Bulls and Bearz will want to see this continue. Bulls need others to pile on behind them and Bearz will be watching for too much exuberance which could indicate that the market may have gotten ahead of itself and may need a cooling off period.  Back in the March/April period, the Exuberatti  showed up at the first of April but this didn’t impact the markets for almost a month. Comparing the market to the March/April period may not be wise because I think the only other rally that is a valid comparison is the March/April/May/June rally of 2009.

During March of 09′ the Fed began its purchases of U.S. Treasury Bonds, only they didn’t call it POMO back then. Back then the Treasury sold bonds to GS  and after a couple of days, GS sold the bonds back to the Fed. The agreement between the Fed and GS is now obvious: provide liquidity to the equities markets or in layman’s terms, buy the dips.

Between the March 09′ bottom and late May of 09′, the market had eight 90% up days. And during this latest rally off the September/August lows the markets have had six 90% up days. No other time frames since the March 09′ low that I’m aware have had so many 90% days. My confusion with these days came about because one of the key characteristics of market tops is a 90% up day some time after a rally has been going for a while so when I saw that 90% up day on September 20th I figured the market was getting ready to roll. Then there was another 90% day on September 24th, and I was even surer. But obviously the market didn’t roll and that is because I was comparing the current rally to the wrong rallies of the past, or so it seems to me at the moment.

This past Thursday, we had a 97% up day and if my current thesis is correct then this has to be taken at face value and not as a climax buying event. But, of course, I don’t have a crystal ball and I could be very, very wrong about this.

P/C Ratio closed at .69 on Friday

ISEE All Equities closed at 251 on Friday

These two have in the past have worked well in warning of potential pull backs in the following session and lately these pull backs have been short lived buying opportunities so we’ll have to see if this holds true for Monday.

$SPX, $INDU, $NYA, $SOX, $COMPQ, $CYC, $RUT, and even XLF are either just at the upper BB or way above it. These probably need a rest and maybe a little pull back. Yeah, sure.

POMO Monday so who knows how this will play out. Maybe the only thing that will happen is that POMO recipients will, by agreement, buy the dip, should one occur, and contain the selling but not necessarily drive the markets back into the green. Next POMO schedule to be released on Tuesday and with QE2 then this will now continue for the next 7-8 months.

There was an article on the Nikkei Stock Exchange’s front page Thursday evening, their Friday session, that told how the Japanese govt was going to start buying ETF’s of the Nikkei.  I was shocked when I read this because it reeks of market manipulation which I, of course, do not believe in.

Lowry’s issued a ST buy signal this past Tuesday. I have been having a tough time reading the markets lately but when I think about  Lowry’s filp flopping back and forth over the past few weeks, with all their high powered computers, years of experience, and unimaginable data streams with Ph. D. math wizards to interpret it all, then I don’t feel so bad.

Op/Ex week so have to expect some volatility.

My simple mechanical trading system alerted that KRE was about to get a buy signal the other day. This has happened, and it happened in XLF, as well. I follow around 30 different indexes and sectors and using this system I can check them all in just a few minutes. Out of these 30 or so indexes and sectors, I only have Sell/Avoid signals on $VIX, $USD, $BDI, TLT, and BBH. Don’t be surprised if on Monday AMGN and & GILD find buyers and reverse the sell signal in BBH. I don’t know about TLT.  $USD had a nice bounce Friday but it’s done that before and nothing has come of it and in light of QE2 then it probably doesn’t mean much. Famous last words?

Chart of KRE using my simple mechanical trading system.

Click here to open chart in new window.

Chart of the Big Daddy of breadth indicators.  Note that the DI lines have had a bullish cross and that the ST EMA’s are already confirming the buy signal. If we really have started a new leg up, then $NYSI will rise over the course of the next few weeks to the 1200 level, +/-. This level has stopped $NYSI in the past but with the POMO wild card this may not be the case this time.

Click here to open chart in new window.

Next, a weekly chart of the $BPSPX. If you remember a couple of weeks back I was fairly certain that $BPSPX would rise into the low 80′s and then we might be getting over bought enough to initiate some kind of pull back. Well, the market consolidated instead of rising so that has now been pushed out. You can see on the chart that once $BPSPX gets into the mid-80′s it can stay there for three weeks or so before rolling over and bringing the market with it, or vice versa.  $BPSPX rose 4.40pts this past week. If that rate should continue, then $BPSPX will be in the mid 80′s before the end of the coming week. Then it could take one more week to get above the 85 level and once there could stay there for two three weeks. Of course, anything could happen in the mean time, but unless something comes out of the blue, then it does appear that this particular rally leg could last another 3-5 weeks. Pure voodoo speculation.

Click here to open chart in new window.

Fibonacci projection targets for the $SPX using the July swing low, the August swing high and then the August swing low:

161.8% = 1231.15

200% = 1276.36

261.8% = 1349.49

And here’s where the Fibonacci projection gets interesting. If you use the swing low from March 09′, the swing high from April of 2010, and the swing low from July, you get a 61.8% projection of 1352. So now you have two Fibonacci projection targets that are in the same area. This is known as a confluence area. This area, should the $SPX get there, would offer up some pretty tough resistance and it may be difficult to get through. Assuming that $SPX even gets up into this area, then this area might be the place where a major pull back would start. That pull back would be necessary to build strength to through this confluence area. However, once through this area then $SPX 1350, or so, would provide major support. I wouldn’t expect $SPX to be anywhere near these areas for several months, if then, and, of course, this is all pure voodoo speculation for now but something to keep an eye on.

Next is a weekly chart of  the $NYA from 2005 through the end of 2007. The main thing I wanted to point out is the RSI and the fact that the RSI rose up above 70 several times which would have certainly indicated a fast moving  strong rally. Note also the number of times $NYA either tagged or pierced the upper BB’s and market reaction when this occurred in conjunction with the RSI being above 70.

Click here to open chart in new window.

Now for a current chart of $NYA that shows that the RSI has yet to rise above 70. My point is that there is still plenty of headroom for the market to move up through. The fact that $NYA closed outside the upper BB may mean it needs to cool off for a bit but it also indicates market strength.

Click here to open chart in new window.

Charts courtesy of StockCharts.com

Time:

$NYSI could take 3-5 or maybe more weeks to rise to the 1200 level, stall, and then roll over. $BPSPX could take 3-5 weeks to make the round trip from below 80 to above 85 and then back below 80. $NYA could take several weeks to get its RSI above 70, if it happens at all, and then have the RSI roll over and drop below 70. If all of the above were to happen in the time I’ve laid out, that would put us into early December which is about when a Santa Claus rally might be expected. Pure voodoo conjecture at this point but can’t be ruled out as seasonality favors longs for the next few months.

Finally, a chart of the SG for the $SPX showing that after falling in a down trending channel for the last couple of weeks, it has now apparently bottomed, broken out of the down trend, and is now in the first stages of a new up trend.

Click here to open chart in new window.

Based on the breakout in financials, the rising $NYSI, and the breaking of the down trend in the SG for the $SPX, I have fired up my portfolio over at The lion. Anyone who has been following this blog for a while knows that I tried to short IWM via TZA back when TZA was around $28. I took a $2 loss on that trade and that was the last time I tried shorting the market even though, based on breadth indicators, etc, I really believed the market was going to roll over. In my Lion portfolio I went in all short and that proved to be totally wrong. So instead of looking at the losses in that portfolio, I decided to delete the entire portfolio, including my good trades, and start over. In the next week or two I’ll be adding several more stocks and ETF’s to that portfolio many of which will be based on strong Relative Strength readings. Here is the link to my Lion portfolio, if you’re curious.

Good luck in the week ahead. As any paranoid trader knows, the market constantly presents dangerous opportunities.

Weekend Update October 30th, 2010

It’s election week and FOMC/QE2 week and without a crystal ball it’s anybody’s guess as to how the market will react to these events. Earnings may have more impact.

Couple of charts of the $NYSI.

This first chart is from April of 2010. It shows the $NYSI starting to roll over on the 24th of March. This was a slow roll and while the $NYSI dropped below the 5EMA at different times, the 5EMA managed to stay above the 10EMA until the 16th of April. On the 16th, the $NYA dropped about 135pts.  From that point on until the market finally did roll over, the 5EMA stayed below the 10EMA. During this period of April there was a lot of euphoria with market participants certain that the rally would never end, but people watching the $NYSI and other breadth indicators knew that what was happening was more akin to Russian roulette.

I was watching the $NYSI and my own indicator during this period and I have to tell you that I began to doubt what I was seeing. The rally just went on and on and even though there were signs of weakness all over the place the rally really did seem indestructible. I feel that way now.

Click here to open chart in new window.

Now for a current chart of the $NYSI. You can see that back in August the $NYSI didn’t give any warning about what was going to happen. It fell off a cliff with the market. When the market bottomed three weeks later, the $NYSI with ADX and these ST EMA’s gave some good buy signals.

During the last couple of weeks, the $NYSI has been dropping and now the 5EMA is below the 10EMA and has been that way for the last two sessions.  The questions I can’t answer with absolute certainty are whether or not history will repeat and whether or not market participants are playing a game of Russian roulette. But one thing I do feel certain of is that until the $NYSI and other breadth indicators start showing strength, then the chance that history will repeat is more likely than not.

Click here to open chart in new window.

Now for a weekly chart of $NYA:

There are some obvious signs of weakness on this chart but you just can’t read too much into them without some real evidence of selling, except maybe the Bearish Sto X.  Back in April the Stochastic had a Bearish X during the week of April 19th. During the next week $NYA lost 201pts or 2.62% erasing almost a month of gains.

If you were to draw a trend line on this chart, you would notice that $NYA has broken the trend line, but this isn’t a decisive break.  For now it  is a warning, but, if in the week ahead, $NYA should close below 7417, then the break of the trend line takes on greater significance.

Click here to open chart in new window.

The following chart of $NYA is setup with what I call a mechanical trading system, or MTS. Its beauty lies in its simplicity. I’ve been working on this for several weeks and originally used only the 5EMA and the 20/20 Sto. I’ve added the 10EMA, which helps mute some of the movements in the Sto. There are several other indicators that will work with this setup, but for me the key is the 5/10 EMA’s. This is a work in progress but I think everyone needs a simple chart something like this. Maybe you’ll start with this setup as an idea and then put together something that works better.

Using this MTS, a buy signal is generated when after the %K has dropped below 20 it then begins to rise along with a rise in the stock, index, or ETF that takes the stock above the 5EMA. Confirmation of the buy  signal comes when %K crosses above %D and the 5EMA crosses above the 10EMA. Sell signals come when the %K crosses down through the %D and then drops below 80.  The sell signal is confirmed when the 5EMA crosses down through the 10EMA.

As you can see on the chart, $NYA is in the first stages of a sell signal but this is not yet confirmed by a 5/10 Bearish X. It is very close and any weakness in the week ahead will most likely end up confirming the sell signal. Until then, and IMHO, $NYA is a Hold but with caution.

Click here to open chart in a new window.

Charts courtesy of StockCharts.com

Finally a chart of the SG for the $SPX. This indicator is showing that there is underlying weakness in the market and that participants are at risk here. Even though the markets were essentially flat for the week, the SG lost quite a bit of ground. Until the SG stalls and reverses, caution is the word of the day. I want to point out that back in the March/April period the SG started giving warning signs long before the rally ended and that is why trend lines on daily charts are so important at the moment. Don’t get caught on the wrong side of the trade when or if trend lines break while the $NYSI is flashing warnings and the SG is falling, IMHO, of course.

Click here to open chart in new window.

Be careful in the week ahead. Could be a moon shot or Armageddon. Probably won’t be much more or any of this sideways action.

Lowry’s is updated. Not much change.

If you are not paranoid, please seek professional help immediately.

GL

Weekend Update October 23rd, 2010

Bulls vs Bears

Before I get started, I want to point out that while I would love to see a pull back of several percentage points I am not looking for nor do I expect any kind of bearish crash scenario. A 50% retrace of this latest move would take the $SPX down near the 50MA and that would be great. Pull backs are healthy and cleansing for the market as they give participants a dose of reality. If the rally is indeed strong and lasting in nature then it can certainly endure a pull back, should one materialize.

$USD doesn’t go in either category for the moment as the G20 meeting this weekend will probably play a role in its direction, so it’s a wild card.

Bullish:

Trend lines continue to hold and that’s really all that matters. MACD Bearish X’s, DI line Bearish X’s are merely cautionary events without a failing trend line. Sometimes markets correct through time rather than price and a MACD Bearish X becomes a MACD Bullish X in time. $SPX, $NYA, $INDU, & $RUT all have MACD Bearish X’s now but nothing has come of this yet. Momentum may be on the decline, but it hasn’t left to the point where trend lines are failing. Until then, party on.

50MA crosses up through the 200MA on the $SPX, $COMPQ, & IWM, though not the $RUT.  Thanks, Chris.

$SOX index rises 2% on Friday based on earnings from SNDK, I think, though SNDK did close in the red. If $SOX can take out the recent swing high of 358.47 on a closing basis, then this will doubtless have a positive effect on the $COMPQ, $RUT, and to a lesser extent the $INDU.

Huge short positions in the ES and NQ futures contracts continue to provide fuel for every step higher as shorts are forced to cover.

$NYUD, the cumulative, looks okay here. It needs to get some mojo or it risks rolling over. Click here to open chart of $NYUD in new window.

$BPSPX continues to climb. It did waffle on Tuesday which created a down tick on its Stochastic. The Stochastic is now trying to right itself but I hold that as long as the Stochastic continues to waffle then entering new long positions at this time is risky.  This was the case for last week.

$SPXA50R is at 88.40% and somewhat stable. It appears to have peaked but hasn’t really lost much ground since doing so.

P/C Ratio at .87 is slightly bullish.

$VIX has dropped for the last three sessions and could easily take out the recent low of 17.90. $VIX:$VXV doesn’t appear to be a factor at the moment.

$NYAD, the cumulative, closed at a new high on Friday while $NYA missed making a new closing high by less than a point. You could say this is positive divergence between $NYAD and $NYA, but it’s really too close for me to call.

$NAUD, the cumulative, made a new high on Friday while $COMPQ missed making a new high by a little more than a point. Again, you could say this is positive divergence, but for me it’s too close to call.

Earnings keep coming in better than expected, of course. Stocks that beat their already lowered estimates are being hugely rewarded but this is a double edged sword. If this trend continues, then these earnings will bolster the rally. On the other hand, if some influential heavy hitters start missing, the way GE did, then that probably won’t be looked upon very well.

Bearish:

AAPL . Something going on with this stock. Maybe just a one-day pull back, but if profit taking in AAPL continues, then it could pull the market down with it.

Volume. Where is it? Indexes had volume close to what it was on October 11th, which was also in extremely light volume day. IWM volume was the lowest of the year. If there are buyers out there, then why isn’t their presence showing up in volume?

Lowry’s issues a new ST sell signal this past Tuesday. See Lowry’s Data for details.

$NAAD misses making a new high by 500pts while $COMPQ barely misses making a new closing high Friday.

Lower highs for many indexes, including $RUT. But no lower lows yet.

XLF closed flat Thursday and Friday. How is that even possible? Financials continue to weigh down the markets.

Click here to see Cobra’s warning that Friday was an All Up Day. He says that this particular set up hasn’t failed since 2007 in bringing about a red day in the following session.

Zweig Breadth Thrust is not really confirming the last several days of this rally.

$NYHGH went to 404 on 10/13 and has been putting in lower highs since. It took quite a hit this past Friday as the $NYA seemingly rallied. The silver lining with $NYHGH is that it is putting in higher lows.

$NAHGH also put in a rally high on 10/13 and hasn’t matched that since. More troubling, though, is the fact that it dropped this past Friday while the $NDX and $COMPQ rallied.

$NALOW rose by one issue to 27 on Friday. 27 is more or less neutral, but this needs to be watched.

$NYSI, the Big Daddy of breadth indicators, has had down ticks for 5 out of the last 6 sessions. This is a warning that breadth is deteriorating but it is clear that breadth has not deteriorated to the point of causing the market to roll over. $NYSI can reverse and a new rally leg can start at any time. If you traded solely on $NYSI weakness back in March/April, you would have missed a good part of the rally, but all of the decline.

The following chart shows what longs are up against now. $NYSI can flat line for a while longer, like it did in March/April, or it can fall off a cliff, like it did in June and again in August.

Click here to open chart in new window.

Last weekend I said that I thought we could get two more weeks out of the rally. I also said that I thought this coming week would be choppy. Well, last week the rally did not live up to my expectations. I thought the markets would rally hard, get the bulls to the frothing-at-the mouth level of euphoria, and help set the stage for a pull back, none of which happened. Regardless,  I still think the market will be choppy this coming week, and it may actually pull back, though I will believe that when I see it.

Finally a chart of the SG for the $SPX. After essentially flat lining for a month, the SG has finally broken out of that parallel channel and is now in a down trend. This indicates that the strength necessary to keep it in this holding pattern is waning.  Longs will want to use extreme caution until the SG bases and then reverses, which could happen at any time.

Click here to open chart in a new window.

For people new to the blog, you can click on the spreadsheet link in the Blogroll section and follow this on a daily basis and make your own charts. I usually update the data each evening.

If you’re not wearing your paranoia on your sleeve, where are you wearing it? And never forget that money in the market is money at risk.

GL in the week ahead.

(Added at about 2:20pm, Sunday October 24th:

If you don’t already visit Trader’s Narrative to read the weekend post, you are missing out. Click here to open link in new window, and be sure to bookmark the site.)

Weekend Update October 16th, 2010

(*If you read this anytime before about 7:30pm ET on Saturday, October 16th, please scroll down to the Bearish section for what may turn out to be a very important addition from Lowry’s.)

Bulls vs Bears

Bullish:

Up trend lines are holding on all major indexes and most key sectors.

TLT has major sell signal and money leaving bonds may find its way into equities.
(You can thank Lance Jepson for the ideas behind the following three charts.

Chart # 1 of TMV

Chart #2 of TMV

Chart #3 of TMV 60min)

$NYDNV at 901 indicates slightly oversold market.

$SPXA50R at 90.60% and stable.

$NASI has strong uptick Friday.

$BPSPX at 71.80% and rising.

$TRAN with new ‘buy’ signal as ADX line crosses up through -DI line.

Cumulative $NAUD makes new rally high.

$NYHGH hits 404 on Wednesday, 10/13, suggesting that a new high for the $NYA lies ahead.

AAPL in negotiations  to buy Earth and make us all iPeople living in iVillages.

Bearish:

*Lowry’s issued a short term sell signal on Thursday, October 14th. Previously Lowry’s had issued a ST buy signal on 9/01/10.

P/C Ratio closes at .71 on Friday.

ISEE All Equities closes at 245 (See Friday’s post.)

$NAAD, the cumulative, goes backwards on 10/15 as $COMPQ puts in new rally high.

$NAA50 & $NAA150 go backwards on 10/15 which I find to be very interesting considering $COMPQ’s huge gain.

$NALOW adds a couple of issues, instead of shedding them.

$NYA down on increase in volume. This volume pattern is similar to 4/16, which was also an Op/Ex Friday. (See chart below.)

GE down on huge volume Friday, which is the same thing that happened on 4/16.

XLF, IYF, in serious trouble in daily and weekly time frames.

KRE is close to giving sell signal. Many of the small banking stocks in $RUT are in KRE.

$NYSI had a negative tick on 10/15 which pushes $NYMO below the zero line. Doubtless, this reflects selling and weakness in the financial sector. It will be important to watch that these down ticks do not persist for two more days. Three consecutive days of $NYSI down ticks would most certainly indicate a momentum shift in process or looming.

$XHB/XHB gives a sell signal. While not a key sector anymore, what begins as weakness in one sector has the potential to bleed over into other sectors.

RTH was very close to giving a sell signal on Friday but was saved by AMZN’s 9pt gain. AMZN makes up 10% of this index  while WMT and HD together make up 30%. WMT & HD are breaking down so any second thoughts about prices paid for AMZN on Friday, will spell trouble for this key sector, especially considering Christmas shopping is right around the corner.

Ceridian’s latest report indicates that 3rd quarter GDP will be in the 0.7% to 1.7% range. Their report also suggest that Industrial Production (IP) will be very close to 0.0% with a possibility of a negative %. IP will be released Monday morning at 9:15am.

Chart of $NYA shows some need for caution here. $NYA was one of the first of the major indexes to show signs of weakness back in April.

Click here to see chart in new window.

Chart courtesy of Stockcharts.com

Chart of CVI showing recent retreat. This is not a problem, yet, given that $NYA had red closes on Thursday and Friday; however, should CVI drop below support lines, regardless of price action in $NYA, then this would be very bearish, IMHO.

Click here to open chart in new window.

Chart courtesy of FreeStockCharts.com

The SG for the $SPX remains in a sideways channel. Since I have been following this indicator over the past 13months or so, this is the first time this has happened. It’s 2:00pm ET and I have errands to run. I will put up a chart later.

Click here to open chart in new window.

(The addition of the Lowry’s data above was not considered when I wrote the following paragraph in the early afternoon. If you click on the Lowry’s Data at the top of page and scroll down, you’ll notice that their recent calls have been prescient. Some of my expectations for the coming two weeks may be compressed into one week.)

The bottom line is that I think we can still get two more weeks, +/-, out of this rally before there is so much euphoria that the long side gets way over crowded and the last of the bears throw in the towel. If my analysis is correct, and it often isn’t, we should have at least one more 90% up day before topping out. Also, I do think the market will start getting choppy perhaps next week and most definitely the week after as the market looks for direction.

Bulls are starting to get convinced that this rally will last forever and that the market for Tulips and iPods will never reach a saturation point, despite high unemployment and potentially low GDP. In order for the market to make any kind of significant top, Bulls must get to the frothing-at-the mouth level of euphoria and  be happy with paying the day’s high price for AAPL, GOOG, AMZN, MON, & CF. They’re getting there.

TA/Chris has put together a very interesting Signal Watch data grid, which you can get to by clicking here.

If you are not paranoid, you are not paying attention.

GL in the week ahead.