Weekend Update April 23rd, 2011

Zweig Breadth Thrust at  58.79, which is confirming the move. A rally on Monday will probably push ZBT back above 60.  When this happened recently, the market did a slow roll into last Monday’s low.

4wk New High/Low Ratio at 86.91 and like ZBT is confirming the current move. This only reached 90 back at the end of March and first of April and would probably need a rally on Monday and Tuesday to push this 90.  If the market should rally throughout the week, then this might get up close to 95, which is considered extremely overbought.

$VIX has closed below its lower BB for the past two sessions. Normally this would be a red flag with a ‘sell’ signal coming when $VIX closes back inside the BB and above the high of the candle that preceded the close, which in this case would be 15.83. At the moment I’m leery of this set up mainly because of what happened to $RVX and IWM last week.

If you remember, $RVX closed below its lower BB on 4/15 and then the market fell off a cliff on Monday, the 18th, but this turned out to be a total head fake rather than a legitimate ‘sell’ signal for IWM. I’m thinking the same thing could happen to the $VIX and $SPX. Time will tell.

Sell in May and go away?

There have been summer sell offs in six of the last eight years,  going back to 2003. These pull backs began anytime between the 1st of May and mid-June. Some were minor and some, like the drop in 2008, were substantial.  On the far left side of the chart below of IWM, you can see two more summer pull backs. All of this suggests that there may be a pull back of one degree or another starting some time in the next 30-40 days, if not sooner.

IWM Monthly Chart:

I mentioned the $RUT monthly chart a few weeks back and the chart below shows what I’m looking at. If you notice on the chart the number of red arrows that line up with times when the RSI has tagged or pushed above 70.  Most of those situations have resulted in some kind of consolidation period or pull back lasting for  varying amounts of time. With the RSI now at 67, it’s going to take quite a rally from current levels to push the RSI up to 70. Unless IWM screams higher before next Friday, that isn’t going to happen in April. But it may happen in May, or not. Just something to watch.

Next weekend I will put up my last post and go dark.

GL in the week ahead.

Quick Update April 1st, 2011

If the $SOX, $RITEC, and AAPL don’t get in the game soon, then the weight they are already creating will bring this market down. For the moment nothing is stopping the $TRAN, $RUT, $MID and fertilizers.

Chart of $NYA with Zweig Breadth Thrust readings above 60 noted with blue arrow. Since I am long the market via a couple of ETF’s and stocks, I don’t care whether or not the market consolidates a little in the week ahead, but the reading today of 61.76 for ZBT indicates that we should get some kind of consolidation or pull back. Time, of course, will tell.

If you look closely at the chart below, you’ll notice that the blue arrows coincide with large hollow candles. We had a lot of 90% up days in the run off the September lows and those candles probably represent many of those 90% days. Since the March 09’s lows, every bottom that this market has put in has been characterized by a 90% up day, every bottom but the most recent one.  This, along with no extreme oversold readings from $NYUPV and $NYUD:$NYUPV, matters to me but it doesn’t appear to matter to the market.

Also notice on the chart how extended the $NYA is above the 20MA.

(Adding the following on Saturday, April 2nd:

The 4wk New High/Low Ratio went to 91.07 on 2/18/11 while ZBT only rose to 59.14, a slight drop from the previous day’s reading of 59.40.

On 11/4/10 the 4wk New High/Low Ratio went to 92.45 when ZBT went to 62.26.

On 10/13/10 the 4wk New High/Low Ratio went to 94.69 when ZBTt went to 60.71.

If you catch my drift. Basically we’re not as overbought as we could be but we may be overbought enough.)

Chart courtesy of StockCharts.com

I will try to put up a post over the weekend, but may not have time for it. Ski season is wrapping up here and we just got a few fresh inches in the mountains over the past couple of days.

Be sure to check out ETF Investment Outlook.

Weekend Update March 20th, 2011

I hope you took some time to bookmark all those direct links I put up last weekend and to look over those various charts. Ultimately you should own those indicators as they will help you better understand the market and make better and more timely decisions. By owning them, you should also be able to overcome your personal bias, what ever that may be, and identify potential turning points in the market.  Your mileage will most certainly vary as nothing works every time but by becoming familiar with overbought/oversold readings from indicators like $NYADV, etc, you’ll have an edge over the vast majority of traders out there, most of whom trade by the seat of their pants.

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I am still waiting for a climax selling event as indicated by $NYUPV and $NYUD:$NYUPV. Since the March 09′ lows, these two have been on the money in spotting bottoms and I have come to rely heavily on them.  But…..there is a lot of other evidence that says we’ve had a climax selling event.

$NYHILO has dropped into the low 60’s and since the August/Sept lows this has been low enough.  I expect this to drop a little more in the week ahead. If it should drop into the low 50’s, then it could run into the 30’s. I’ll be watching for $NYHILO to turn up sometime next week.

Zweig Breadth Thrust: ZBT went to 37.06 on 3/16. 40 marks the oversold level for ZBT and this has worked very well at this level in the past.

4wk New High/New Low Index: This went to 8.56 on 3/15 when below 20 starts to mark oversold levels so this has gone to an extreme oversold reading.

$NYSI: The Summation Index dropped by 88 ticks on 3/16. During the April/July decline of 2010, $NYSI dropped by more than 100 ticks on several different occasions but aside from that period and since the March 09′ lows, when $NYSI drops by 80-90 ticks this has indicated a climax event.

$NYMO:  The McClellan Oscillator pushed through its lower BB on 3/15 and 3/16,  dropping into oversold territory. This should have signaled a pause or bounce for Wednesday, but obviously that didn’t work.

$TRIN: $TRIN closed at 3.06 on 3/16, its highest close since August 30th, 2010.  This shows that sellers were scrambling to get out at any price.

$SPXA50R:  $SPXA50R dropped to 27% on 3/16 when generally 25% or lower indicates the market is extremely oversold. 27% may be close enough, or not.

P/C Ratio: P/C Ratio closed at 1.18 on 3/16 so obviously just about everyone was convinced that the market was headed lower. 1.18 is high, but 1.2x is more convincing.

$VIX: In the way olden days before the 2008 meltdown, when the $VIX got into the 20’s, it usually meant that the market was about to reverse. We all know the $VIX can push into the 40’s and keep going, but it need not. Well, we’ll just have to see if new highs are in the works for the $VIX.

There appears to be enough evidence to support the idea that the market is in the bottoming process, if it hasn’t already bottomed. Since we have closed below $SPX 1276, I say the $SPX is now in a down trend until proven otherwise. Before I get all giddy, I need to see the $SPX get back above the 20MA and then have the 9EMA cross up through the 20MA because I think that waiting for that mini bullish X is prudent, especially given all the noise out there now.

My biggest concern at the moment is Big Tech, AAPL, HPQ, CSCO, FFIV, CRM, AKAM and all the other big tech stocks that are part of the 135 stocks in $RITEC.

Since peaking on February 17th, $RITEC  dropped 9.6%, on a closing basis, and has since rebounded somewhat. Big Tech is always important and $RITEC says there’s big trouble in tech land. The market might bounce without tech, but if the big tech players, like AAPL, don’t get back in the game, no bounce is sustainable.

As far as I know, TYH and TYP are the only two ways to play $RITEC. If there is or are other ETF’s that track $RITEC, please let me know. Anyway, the 60min chart below shows part of the problem. TYH just can’t seem to capitalize on an RSI 14 that dips below 30 by rising back above the 20MA.  The 20MA is flattening out now, but it flattened out earlier in the month and even so TYH was unable to stay above the 20MA for any length of time.

Chart courtesy of FreeStockCharts.com

Daily chart showing how oversold TYH is at the moment. The problem is that it got equally oversold back in early May and if you had bought that dip you would have been knocked out of the trade just a few days later. Best to wait for a 9/20 bullish X. By waiting until then, other indicators would be confirming the long side.

Weekly chart showing that $RITEC is hovering just above an important trend line. If this trend line should fail to hold, then it’s really anybody’s guess as to where $RITEC may go.

Charts courtesy of StockCharts.com

The bottom line is that the markets in general need big tech to participate in, if not lead, any move to the upside. Until key stocks like AAPL end their declines then the markets will struggle and no one likes to buy a struggling market.

At 7:21 P.M. this evening, Spring begins.

Gl in the week ahead.

 

 

Weekend Update March 5th, 2011

Longs are being robbed.

As I mentioned in my March 3rd post, pull backs don’t usually end without a capitulation event. Friday’s action looked good for such an event as many of the gauges and ratios that I track were set to give extreme oversold readings, but then the buy programs kicked in and that was that. IMHO, longs were robbed of a potential capitulation event and now we just have to wait for the next opportunity. The only thing that would change my opinion would be a close above the highs from Friday, February 18th.

On Thursday, I put up a link to a chart of $NYADV that I use and pointed out that, based on the reading above 2400, I expected a pause day for Friday. I guess I was smart by half on that, but that same chart can be used to watch for extreme oversold conditions, as well. A reading for $NYADV at are below 500 has been pretty good at marking when most of the heavy, panic-like selling is over. Friday’s reading of 1029 is just too high.

The chart shows what has happened following extreme overbought/oversold readings on $NYADV since the August/September bottom. The lowest reading we’ve seen since this pullback began was 725. Just as 2400 works on the high side to indicate the market is sufficiently overbought to bring about at minimum a pause day in the next session, a reading at or below 500 is necessary to indicate a selling climax.

Chart courtesy of StockCharts.com

When you use $NYADV along with $NYUPV & $NYUD:$NYUPV, you get a more complete picture. Back in November, when $NYADV dropped to 407, $NYUD:$NYUPV went to -13.25, but $NYUPV only went to 88,  just shy of the important 80 level.  A few days later, on Friday, November 26th, $NYUPV closed at 78.10 indicating a selling climax. Still, if you began to scale in long when $NYADV and $NYUD:$NYUPV gave their respective selling climax signals, you would have been okay as the market only dropped a few more points over the next eight sessions.

So at the moment I’m waiting for some kind of selling climax confirmation. If this pull back continues through the early part of next week or even longer, then we may get  Zweig Breadth Thrust to drop down below 40 and 4wk New High/Low Ratio may drop below 20.  The last time these two gave such readings was on 11/16/10, which was the same day $NYADV and $NYUD:$NYUPV gave their climax readings and just a few days and a few points from the bottom of that particular pull back.

Be careful. No one knows when this pull back will end and it could go on a lot longer than the froth-mouthed bulls expect. I do find it interesting that the smart money $OEX crowd was loading up on Puts on Friday, February 18th just  three days after the 55MA on the $TRIN tagged .96. Just sayin’.

GL in the week ahead.

Weekend Update February 20th, 2011

CAUTION

“Prediction is very difficult, especially about the future.”
Niels Bohr
Charts do not make the market.

The market makes the charts.

This is such a simple but overlooked concept.

There are thousands of TA experts out there drawing Voodoo and Nazca Lines on their charts as if those lines are predictive. They are not.

There are thousands more TA experts out there using long term charts looking for double tops or resistance based on something that happened 3-4 or even 5 years ago. BS. Total BS. You tell me one thing that happened in 2007 or 2009 or even 2010 that will have any bearing on what will happen in the markets in the coming week or weeks. You can’t and yet TA experts look at long term charts and think that what happened years ago will set the stage for what happens in the future. This is a waste of time.

Double tops, long term resistance lines, and etc, are completely irrelevant to what happens in the markets starting next Tuesday. What happened in the past has happened, it’s over and done with and has no bearing whatsoever on future market events. You can not travel back through time and trade the market in March of 09′ just as you can’t travel forward through time and trade the market next year.

There are people out there going short the market based on some mythical long term resistance line in the $SPX chart. Others out there are calling for a double top in the $COMPQ based on something that happened in 2007. These deluded fools, many of whom have bought in to E. Wave chicken scratchings,  suffer from an important component of brain washing known as ‘belief without evidence.’

When the market peaked in April of 2010 there wasn’t a chart out there that gave any hint of the seriousness of the decline into the July 10′ lows. No H&S pattern, triangle pattern, cup & handle, or any other  blah blah blah pattern indicated that  $SPX would drop from 1219 to 1010 over the course  the next two months.  All anyone knew for sure was that the trend line had broken and that the market was flagging off.

Be here now. You can only trade now and the only chart of importance is the one that starts at the September lows. The market adds a candle to this chart every day and the best we can do is watch the current chart for signs of weakness and/or strength and the best tool for doing this is a simple trend line. Until trend lines break in the current charts, then you’ve just got to Zen this thing.

But I digress, or, if you throw enough stuff against the wall eventually something will stick.

$BPSPX: As mentioned Friday, this has climbed to a record high of 89.20%. It could go higher, but why? I started saying back in December that $BPSPX would only get into the mid-80 level for a few weeks before rolling over because that is what has happened, historically. Well, fool me once, shame on you, but fool me ten times and I’m clueless.  This should be like the red flag of frothiness but you wouldn’t know this from the way the market is acting.

Stealth Distribution: Even though the $NYA was up 10pts on Friday, the $TRIN closed at 1.37 indicating quite a large imbalance between the number of shares offered vs those being bought. Advancing volume vs Declining volume was just about even so I’m not really sure where the selling was coming from. One day is no big deal, but stealth distribution has been present before every pull back since the March 09′ lows so I’ll be watching to see if there’s anymore of this next week. The big problem is that there have been signs of stealth distribution at various times since the September lows and this did not impact the markets, naturally.

P/C Ratio: P/C ratio closed at .72 on Friday, which would be considered slightly bearish for the coming session, but……..

$OEX P/C Ratio: $OEX P/C ratio rose to 2.33 on Friday. On the surface, this appears to be bullish for the following session, but one has to remember that the Big Boys trade the OEX options and if they’re getting concerned, then may you should too. However, they could easily flip bullish on Tuesday so this is just something to watch.

$TRIN w/ 55MA: The 55MA tagged .96 on Tuesday but then rose to .98 on Friday. The 55MA may recycle up, but if the markets should rally on Tuesday and Wednesday then that might be enough to drop this. It’s taken the 55MA almost four years to get to where it is now and it may take several more days or even weeks before the 55 drops below .95 or maybe even below .90, assuming that it’s going to. And this could be ignored like so many other things.

$VIX, $VXO, $VXN, etc: These are all sitting close to their recent closing lows and nothing says they can’t go lower. I’ve been saying for months that $VIX could drop to 10-12 and it just might before there’s any kind of meaningful pull back.

Fibonacci Expansion Targets:

$SPX 1350 is the 261.8% expansion target using the July 10′ low, the August 10′ high, and the August 10′ low.

$SPX 1352 is the 61.8% expansion target using the March 09′ low, the April 10′ high, and the July 10′ low.

This 1350 area of fib confluence is supposed to act as a resistance zone that will cause the $SPX to pullback, build strength, and then push on up and through. But this is theory and we’ll just have to see how it goes now that we’re a hare’s breath away.

AAPL: AAPL remains 20% of the $NDX and is an extremely important and influential stock. I don’t know why it sold off on Thursday and Friday but no long is safe if AAPL continues to get sold. Institutions own huge chunks of AAPL and they’re not likely to sit back while AAPL loses value unless, of course, one of their own has decided to take profit due to the uncertainty of Job’s health. Pull up a chart of AAPL with $NDX, $COMPQ, and $SOX in the background and you’ll see that as goes AAPL so go these important indexes.

$NYHGH/$NAHGH: We’ve had this negative divergence going on in these two and I was starting to think that maybe it’s too much to ask for these to make new highs day after day given the maturity of this rally leg, then I read this article from Carl Swenlin over Decision Point and it got me to thinking.

Zweig Breadth Thrust: This rose to 59.40 on Thursday then dropped slightly to 59.14 on Friday. It is showing overbought but 60 really has been the line in the sand. A nice green day on Tuesday could push this into overbought territory.

4wk New High/Low Ratio: At 91.07 this is close but like ZBT it’s just not the cigar. Again, a nice green day on Tuesday and this could rise to 95 which has worked well as a signal that the market is sufficiently overbought to initiate some kind of pull back or another. But we’re not there and close just doesn’t count, IMHO.

I have no idea how long this particular rally leg will continue as it’s gone on longer than I ever thought possible. It took me a while to recognize that the market was behaving in a way similar to the rally out of the March 09′ lows, but even that rally had a serious pull back in the June/July period and then multiple pull backs on the way to the April 10′ high. So this rally leg is writing its own history day after day and one day it will run out of green ink, I just don’t know when.

Watch AAPL and GL in the week ahead.