Pre-Market Update, November 18th, 2009

9:20am

Just a couple more concerns.

$TRAN: Look at the volume pattern in the $TRAN. Since the Buffet/BNI bounce, the $TRAN has been rising on ever decreasing volume.  Compare that to other rally legs, especially the September leg, and this lack of volume raises a red flag. There is a possibility that the $TRAN may be topping out around the current levels. FDX lost its leadership role last week and then regained it. If FDX should start to roll today or anytime soon, that will be the canary in the coal mine.

These same bothersome volume patterns are visible for the $NYA, $SPX, $INDU, and then there’s the volume problems with IWM and XLF that I mentioned yesterday.

IWM: IWM should NOT close at 59.99 or less before it closes at 61.01. IWM looks to be under pressure this morning but it’s the close that will matter most. If it can close green and especially if it can close above 60.51, then there would be a good chance that it will close above 61.01 before the week’s out, but a break into the 59’s would spell trouble.

IYR: IYR should stay above 42.99.  If it should break into the 42’s, then there is 9EMA support at 42.95 but if it breaks decisively into the 42’s, then the 9EMA probably won’t offer much support.  The 20MA on the 60min chart is sitting right at 43.78 and would offer some resistance if IYR starts to move up. If IYR can break above 43.78, then all’s well. If it can’t, then it could drop into the 42’s.  That’s still a ways below where it’s trading in the PM and that market maker is a crafty S.O.B. so you just never know what’s going to happen with IYR until the close.

Only the paranoid survive.

Update November 17th, 2009

5:50pm

Slight uptick today for the SG for the $SPX. The key is that it is headed in the right direction. Yesterday’s reading was -38 and today’s is -34 so there is a slight loss of momentum but not enough to cause concern. As long as the SG’s continue to move up, then buying dips should work.

I want to point out that both SG’s will most likely only go from ‘partially’ confirmed to ‘fully’ confirmed at about the time this particular rally leg is nearing its end. That has been the case in the past and this isn’t likely to change.

Current SG status for the $SPX:

Moderating, partially confirmed, Phase IV, buy signal.

Two indicators on the SG for the $COMPQ had bullish confirmations today.

So the current SG status for the $COMPQ is:

Moderating, partially confirmed, Phase IV, buy signal.

The $TRIN indicated yesterday that there would be a pull back today. The pull back didn’t last very long nor was it very dramatic, but it did happen as expected. Volume was light all around but you can really see a major drop off in volume in the IWM and the XLF. Really need those two to stay in step or get back in step. I want to see IWM close above 61.01 before it closes below 59.99. I’d be very concerned about this rally if IWM closed below 59.99 any time this week and wasn’t able to break back through that round # resistance level. I am keeping a close watch on those levels.

I may have some more later if I see anything troublesome. So far I don’t really see anything except for the fact that IYR had a meltdown at the close. Bears scrutiny.

* * * *

7:40pm

IYR. I’m not sure why, but almost all of the top stocks within the index that IYR tracks took a pretty big hit today. The sell-off started right around 3:00pm. There must have been some news, though I don’t know what that was.

Take a look at SPG, VNO, PSA, NLY, BXP, HCP, EQR, to name a few. REIT’s were down 1.7% and was the worst performing sectors today.  Interesting because $BKX and $KRX were some of the best.

Take a look at $NAA50R and $NAA50.  The $COMPQ is lagging the other major indexes, again, and I can only imagine what the $RUT would look like if there was a symbol available to track this same kind of data. It’s not the end of the world, but the $COMPQ is going to have to pick up the pace or jeopardize this rally leg.

And the $USD was up today.

Update November 16th, 2009

6:10pm

Sign of strength in the SG for the $SPX. The reading today is -38.44, up from -51.44. That’s the closest this SG has been to the zero line since 10/23. I would have been surprised if this SG had gone backwards today, especially after the broad based rally. Two of the indicators, the B and the C, have had bullish crosses, and the D Indicator continues to move up. The D Indicator will most likely have a bullish cross by Wednesday, as long as this rally doesn’t fail before then. The B Indicator started moving up on 11/5 and that should have been good enough for me, but it wasn’t. I got shaken out of all positions on Friday and didn’t do anything today.

I was very concerned about this rally off the late October lows due to lack of participation; however, it appears my concerns were misguided. If the SG is right, the markets could actually be setting up for a substantial move up. It has the potential to be as powerful as the move off the July lows. That sounds crazy to me and would mean that the $SPX could rally above 1200 before the rally ends, but that’s what the SG is indicating right now.

Current status for the SG for the $SPX is:

Strengthening, partially confirmed, Phase IV, buy signal.

The SG for the $COMPQ did not have any bullish confirmations today, but all of the indicators moved up with strength today so the current status for $COMPQ is:

Strengthening, unconfirmed, Phase IV, buy signal.

I expect that this will become a ‘partially’ confirmed buy signal tomorrow.

I have to expect a pull back tomorrow based on a number of things. First, the $TRIN dropped below .39 and stayed below there for about the first twenty minutes of trading. Doesn’t seem like much, but often times this will bring the rally into a pause mode on the following day.

The P/C ratio is at .84 and that might just be bullish enough to cause some kind of pause tomorrow.

But with the $VIX miles away from its lower BB, any pull back tomorrow, if it should happen, might just be an intra-day buying op.

Weekend Update, November 15th, 2009

As I posted a few days back, one or more of the oscillators for the SG on the $SPX is about to have a bullish confirmation. It could/should happen early in the week. I’m not sure it’s going to happen and I’m not sure it’s going to mean much.

As everyone knows, there are some serious problems going on within the market today. This last rally leg has occurred on increasingly lighter volume. The financial sector and the small caps are not participating overtly and the $COMPQ is not participating covertly. This past Thursday, the 11th, the $COMPQ drew within 11pts of its rally high of 2190 set on 10/23, but did so with only 43% of the stocks in that index holding above their 50MA’s. Look at the $NAA50R and notice that only 38% of the stocks within the $COMPQ are currently above their 50MA’s. There is just no participation. The $COMPQ is being carried up by fewer and fewer stocks. You could say that this is what happens at bottoms and maybe that’s what’s going on, but I’m skeptical.

And don’t stop with the $COMPQ. Take a look at the $SPXA50R, the $NYA50R, and the $NDXA50R and you will see the same kind of disparity. I can only imagine what I would find if there was a way to track similar data inside the $RUT.

How hard is it to pump the $INDU with its 30 stocks? Not hard at all. How hard is it to pump the $NDX with its 4 stocks? Not hard at all. It’s no simple feat to push the broader indexes to new highs with fewer and fewer participants, and yet it is being done. How long can this go on? Probably as long as the pro’s want it to go on. But one thing is certain. Either participation improves or the markets will collapse under their own weight. Period.

And then there’s the COT Report. According to the latest report, the S&P large contract commercial hedgers unloaded 5,504 long side contracts but only covered 1,467 of their short contracts leaving them net short, as of this past Tuesday, 62K contracts. That is the largest net short position they’ve had in quite some time. It may be the largest net short position they’ve had since the late May or early June. I think that is the case but you can check for yourselves. Essentially it’s like this: The more the big commercials sell, the more they make. It is a win/win situation for them but clearly they are betting more heavily on the short side now than they are on the long side.

And then there’s the $. If you ever hear one of the Fed Heads say that a weak $ has been good for the economy, then that will be the day the $ starts to strengthen. Until then, expect the $ to weaken further and as the $ weakens, our markets tend to go up. But then there are all those big players in the futures who have bet that the $’s slide is near its end. Time will tell.

I have added several new tools to my tool kit. One is the Summation Index and I find that I’m becoming more and more concerned with the lack of confirmation by the Summation Index with regard to this last rally leg. In the past, the Summation Index has confirmed each of the rally legs by making an abrupt U-turn and heading up with the rally. It isn’t doing so this time. It tries but just can’t seem to get going. That should be no surprise with the lack of participation. This has to change…soon. The Summation Indexes for the $NYA and the $COMPQ have to break out of their sideways paths one way or the other, up or down. If they don’t very soon head up, then they’re just going to head down, with the market. I am watching the Summation Indexes like a hawk and you should be, too.

Along these same lines, I have started using Bollinger Bands with the $NYMO and the $NAMO. As interesting as the $VIX with BB’s.

I’ve also added the following tools:

$NYUPV
$NYDNV
$NYUD
$NYAD

I mentioned a couple of these the other day and this weekend I’ve been back testing them to the first of the year. They give some very interesting signals. I have had trouble in the past calling climax signals on the SG’s but with these tools I don’t think I’ll be having that problem anymore.

I highly recommend you go to Stochcharts, pull up landscape-size charts of each of these along with a chart of the $SPX and establish parameters for extreme readings which you will find lead to either buy or sell signals. One thing I will tell you about $NYUPV is that early in the year sell signals came when it would hit the 1600 area or higher, but after the middle of May sell signals started hitting when the $NYUPV hit the high 1200’s to low 1300’s and even in the 1100’s. I’m not exactly sure why this is.

I have found that when two or more of these gauges hit extreme readings, then the buy or sell signal that is generated is very powerful. Many times, if not every time, the buy signals come after heavy distribution days where the indexes come down hard on volume and close at the lows. September 1st and October 1st come to mind. Inversely, the sell signals tend to come when the market rallies hard and closes up at the highs. You can easily see this in the last week of October through to the close on November 13th.

As of right now, three of these gauges gave ‘sell’ signals on November 9th, $NYDNV, $NYUD, & $NYAD. It will be interesting to see if these signals prove to be correct and if they lead to a buy signal in the days ahead.

Lowry’s Data is updated.

Update November 13th, 2009

4:20pm

Not a good day for me. I hedged my TNA with some TZA and ended up selling both. I’m certainly not a very good trader. No question there.

The SG may flip up today. Sure seems that way. These up and down moves are the hardest for me to interpret. There has been a lot of volatility lately and that really messes with the main indicator.

Take a look at these. They may prove to be very helpful in the future picking turning points in the market. You can find them at Stockcharts.

$NYUPV & $NYUD

I’ve been playing around with these the past few days and they look promising.

I’ll have a chart up in about an hour. Maybe the SG’s will produce a sign of strength today. Just have to see.

* * * *

Very slight upticks on all four of the indicators for both SG’s today. Hardly a sign of strength. The rally is not building on strength and so it has to be eyed suspiciously, IMHO.

I have some errands to run and won’t be back for several hours. I’ll try to put up a chart then.

8:50pm

All I can say is that the SG for the $SPX is moving up. It is not moving up on strength. During the October rally leg, I kept saying that the rally was happening on a reduction of weakness instead of strength. That rally failed with a nice topping pattern that resembles what’s going on now in the $SPX. If the markets do not produce a sign of strength soon, then this rally is destined to fail, as well. Be careful. We could get a sign of strength on the negative side of zero before we get one on the positive side.

Current status for the SG’s for the $SPX and the $COMPQ:

Weak, unconfirmed, Phase IV, buy/hold signal, with emphasis on HOLD.

Here’s the direct link for the chart below.

Update November 12th, 2009

4:20pm

Sold 60% of my TNA at a loss today. Have a stop loss set at 38.85 for the rest. I expect to get stopped out tomorrow.

Based on the the damage done to the $TRAN, the $CYC, the financial sector, and especially to the small caps, plus the extreme negative breadth with 23 stocks down for every 6 that were up, I’m expecting a slight reversal today in at least one of the indicators and if this does happen then I think this has to be taken as a major red flag.

Just as in the October rally, this rally leg has never had a sign of strength. Not even close. A rally today may have provided a sign of strength but obviously that did not happen.

AAPL and FDX seem to have lost their leadership roles and the market is  going to have trouble going anywhere if this doesn’t change.  This started to happen yesterday.

The question now is whether or not the pull back will be a one to two day affair or something lasting several days that takes out the November 2nd lows.

* * * *

5:40pm

Time to go. SG for the $SPX  has gone backwards today. Yesterday’s reading was -56.4 and today’s is -67.  I’m not 100% certain that the SG has topped and won’t know that for at least two days, but I think it’s probably close enough. This shouldn’t be happening this early in a rally leg and is evidence that strength is not likely to materialize and that underlying weakness is getting the upper hand. This is telling me that even if the markets do bounce tomorrow in reaction to  oversold conditions on the 15min and  60min chart, the bounce is just going to be sold.

Since the $RUT is running with the weakest sectors, I’m putting in a sell order in the AH for my remainder of TNA shares. Why wait to get stopped out tomorrow at 38.85 when I can get around 39.50 or so in the AH?

I would suggest hedging if you don’t want to sell, just to be on the safe side. The SG could be wrong by a mile.

I don’t have the time to do the calculations for the $COMPQ, but if I did, you would see that it’s actually worse on the $COMPQ than on the $SPX.  Whereas with the $SPX only one indicator has dropped today, two indicators for the $COMPQ have dropped.  On second thought, maybe I will try and do some of the calculations for the SG for the $COMPQ, at least over the past few days.

I will put up a chart ASAP for the SG for the $SPX.

6:10pm

Here is a direct link so you can get a better look at the chart, if you care.

Just my opinion, but regardless of what you decide to do, now is not the time to be adding to long positions. I would wait for the dust to settle. Maybe it already has, but I don’t think so.

Update, November 11th, 2009

5:35pm

Upticks in all four indicators again for the $SPX.  For the $COMPQ, today is the first day that all four indicators have moved up for its SG.

* * * *

Current SG status for the $SPX:

Strengthening, unconfirmed, Phase IV, buy signal

There is still no sign of strength but all indicators are showing improvement.

* * * *

Current SG status for the $COMPQ:

Weak, unconfirmed, Phase IV, buy signal

* * * *

Later, I will put up a chart of the SG for the $SPX.

6:20pm

Today’s reading is -56.4. Monday’s and Tuesday’s readings were -63.  As far as I’m concerned, the reading itself is essentially irrelevant. It’s the direction that is key. If, big IF, the market continues to rally, then in about 3 or 4 more sessions the SG should have its first bullish confirmation.

Next week is Op/Ex week which, according to urban legend, usually has a positive bias. If the markets can continue to crawl up this wall of worry through to the close on Friday, then we may have more green next week.  The SG suggests that it’s possible and with most, if not all,  of the major indexes and sectors managing to stay above their 20MA’s on the 60min charts, then for certain there is less risk on the long side now than on the short side. But those 20MA’s can give way at any time and only the paranoid survive.

Update November 10th, 2009

5:30pm

Obviously, this is not July. If it had been, then the stochastic and the RSI 14 on the 60min chart would still be pegged to the ceiling.  The $TRIN initiated sell-off did occur just as predicted.  The close was not very impressive and leaves me wondering if the market may pull back a little more tomorrow morning before moving up. Course, it does not have to move up at all.

I took advantage of the pull back to scale into to some TNA.

There is no change for the SG for the $SPX, except after the decimal point, which is a rare event.  I haven’t done the math for the $COMPQ yet, but it does appear that there may have been a slight down tick to its SG reading. However, all four of the SG’s  indicators moved up today, though very slightly and so the status for the SG for the $SPX changes again.

* * * *

Current status for the $SPX SG is:

Weak, unconfirmed, Phase IV, buy signal.

* * * *

Pre-Market Update, November 10th, 2009

Here are a couple of 60min charts from the mid-July period. One is of the SPY and the other is of the IWM. I saved these, fortunately, because of the way the RSI 14 and the Stochastics were behaving.

Usually when the RSI 14 gets above 70 and the Stochastic gets above 80 on the 60min chart this indicates an extreme overbought situation which all the algorithms recognize and which usually flips the computers from buying to selling. But this did not happen during the July rally.

During the July rally, the RSI 14 and the Stochastic on the 60min charts stayed at elevated levels for days on end. There really were no dip buying opportunities. If you wanted in, you just had to bite the bullet and hope that the next day the market wouldn’t pull back.

The point of this is that the 60min charts for the $INDU, $SPX, and $COMPQ are currently very overbought, the $TRAN and $CYC are overbought, and IWM and XLF are very close to being overbought. If we’re looking at a July-like rally, then this shouldn’t make any difference. The pull back that seems to be setting up in the PM market will be bought and the indexes will close in the green. On the other hand, if this is a regular rally, then after 5 days straight up with the $INDU already up 500pts for the month, then the markets should pause a little before heading higher. All to be known in about 7 hours.

* * * *

I forgot to update the SG’s yesterday. Three of the indicators are now moving up so their current status is:

Improving, unconfirmed, Phase III, buy signal.

* * * *

This first one is of the IWM from July 15th. Here is the direct link.

And here is the SPY from July 16th.

Update Monday, November 9th, 2009

Just a couple of things that are bothering me about today’s rally. First is the volume. I don’t have the final volumes yet, but it does appear that this is another low volume rally. Over the last five sessions, the volume has been dropping off. For instance, last Tuesday, 11/3, IWM went up on 83mil shares but then came down last Wednesday on 93mil shares. The final volume isn’t in yet, but so far, as of 4:15pm, it looks as though volume for IWM will be around 46mil. That is a considerable drop off in participation. I don’t want to read too much into that but it bears watching. And IWM isn’t the only ETF or sector that is suffering from the same lack of volume. It’s almost like everyone’s in.

The TRIN hit .27 at 9:41am. It then stayed mostly below 40 for the rest of the day. For most of the last 15min of the session, it stayed either right at .30 or just under and then closed at .28. We’ll have to see what happens, but in the past readings this low have led to a pull back on the following day, but that pull back need not happen until late in the day after prices have already gone higher so it may not mean a thing.

Of course I’m very interested to see if the SG produces a sign of strength today. It ought to. Might get a stall or turn around in one or both of the two lagging indicators. No question the SG is moving very slowly this time.  It did bottom this past Wednesday, a couple of days after the market put in its lows. But you wouldn’t have known that until about Friday. ( I am not saying I saw it as of last Friday, because I didn’t. I am fairly certain now that the SG has bottomed as of last Wednesday, but only as of today.)

___________________________________________________________
5:10pm

I wouldn’t call it a sign of strength, but the A Indicator had a nice move up today. The B continues its upward move. The C appears to have stalled, and the D Indicator has come off the bottom.

The SG for the $SPX had a reading of -73.46 on Friday and today it has a reading of -63.16. It is moving in the right direction.

I went to cash on Friday and didn’t do anything today. I’ll be looking to buy any dips we get from here on out as long as the SG continues to move up. I’ll put up a chart some time later today.

* * * *

6:20pm

Volume did increase on most of the major indexes, just not in the SPY, IWM, or Q’s during the regular session. I guess based on PCLN’s earnings, the Q’s  AH volume is pushing the Q’s total volume much higher now. Still, the market had a good showing today and the rally was broad based. As I posted earlier, I do expect some kind of pull back tomorrow, though it may not be much. Based on what’s been happening lately, I imagine they’ll first have the obligatory gap up and then after the dust settles then maybe the pull back. Who really knows? Asian markets will rally hard tonight which will lead to rallies in Europe and then here.

Here is the latest chart of the SG for the $SPX. As you can see it had a nice move up today. The direction is really the only thing that matters. Whether or not the SG gets above the zero line before the market pulls back again is anybody’s guess. As long as the SG is moving up then it confirms that the market is moving on increasing strength.  BTW, the SG for the $COMPQ didn’t move up as much as the SG for the $SPX.

This chart just goes back to the 1st of September to make it easier to see.