Update March 9th, 2010

Only the paranoid survive, and I just became very paranoid.

The ISEE all equities ratio of puts to calls hit 253 today, based on the 4:15pm number. If this number is not adjusted down into the 240’s, then this could become a very important number.

ISEE all equites numbers in the 240’s have often signaled pull backs about 2-3 days out. Going back to October of 2007, this 253 number is the only such number in the 250’s that I know of, but maybe I missed one somewhere. Regardless, 253 is probably high enough to trigger a pull back of some time and some price.

P/C ratio closed at .68 which is too low and is what you would expect with such a high ISEE number.

$TRAN broke out on huge volume so everything is wonderful, right? No. In fact if you look at your charts and isolate other times in the past when transports have moved up on huge volume, you will notice that this usually happens either at or near the top of moves in the transportation index and in the general market.

The momentum indicator that I use for the SG on the $SPX is starting to show a loss of momentum, though it has not had a down tick. If the market does not rally tomorrow, and I don’t mean one of these little 10-20point rallies, then this indicator could have a down tick. This indicator can and often is early, but if there is a down tick tomorrow, then it might not be too early.

Basically the market has done so far what I expected based on that very low $NYDNV number and that very high $NYAD number that I mentioned in my weekend post, except for the drop. Now there is a little more evidence pointing to a potential pull back. If the market does pull back, the pull back may be insignificant, but one never knows until the dust settles. For the moment, I think it’s time to be on extra high alert, what ever that might mean to you.

RTH came in a little today. So far, this doesn’t look like much.

I will have the spreadsheet updated by around 8:00pm. I don’t expect any surprises with the #’s.

8:30pm

Spreadsheet is updated.

$SPX = 78.73, up from yesterday’s 74.62
$COMPQ = 78, up from yesterday’s 74.35.

Moving up by about the same number of digits over the past two days, but nothing like the move we saw this past Friday.

$TRAN was not the only major index with odd volume spikes. Be sure to look at $NYA and note that even with tons of volume it hardly budged. Why, it’s almost as if the big boys are taking profits and leaving quietly by the side door.

Histo on $SPX had a lower bar today and it does appear that the histo’s for everything else have peaked.

$SOX looks vulnerable.

Be careful.

Weekend Update January 9th, 2010

(Sunday 1/10/2010. Here is the link to Terry Laundry’s web site where he has updated his target for the $SPX.)

Lowry’s data is updated. BTW, I get this from Jim Puplava over at Financial Sense and the weeks with no data are times when that crew takes a vacation. Be sure and scroll down and look at the high readings in May to get an idea about possible peaks in the BP Index.

It doesn’t escape me that Terry Laundry is calling for a move on the $SPX to 1150 and then a reversal from there. Because of the way Monday’s have been going since March, it’s possible that the $SPX will blow through 1150 on Monday. Terry Laundry may have to revise his T-Theory objective if the $SPX keeps on going, but then again, he could be right.

Here is what is interesting. The momentum indicator on both SG’s have been dropping for several days. If Monday’s mega gap up rally reverses and closes red, perish the thought, then the momentum indicators will continue to drop and if they continue to drop then by Wednesday or Thursday the trending indicator will start to roll. When this trending indicator starts to roll, then that would signal the beginning phase of a sell signal. What I’m saying is that Terry Laundry’s price objective and sell signal may be reached about 2-3 days before I start to get the first part of a sell signal on the SG’s.

Of course, anything can happen between now and the middle of next week. The $SPX can take out 1150 and keep on truckin’ forcing Terry Laundry to revise his forecast while at the same time the momentum indicators for the SG’s reverse and start moving back up. But, if the $SPX should stall out into the middle of next week, then maybe, just maybe, we could see the first phases of a sell signal in the SG’s.

I’m going to be adding stuff to this post over the next two days but in the mean time, take a look at the various Bullish Percent charts over at Stock Charts. With Bullish Percent near highs, this is not a good time to be adding to long positions, IMHO, of course. Also, while you are over at Stock Charts, be sure and take a look at $NYA50, $NYA150, $NAA50 & $NAA150 and compare their current readings to past readings of similar values and subsequent market reaction.

The spreadsheet has been updated and the link is to your right. You are welcome and encouraged to download that spreadsheet. Here are Friday’s #’s:

$SPX = 69.60
$COMPQ = 67.7

Here’s a bit of interesting info that I’ve seen in several placesl. Since the March lows, 80% of all the gains in the markets have occurred on Mondays.

Tom Drake’s 2CS Indicator is now at 61.28.

Here’s a chart of the SG for the $SPX. The trend is up. You can see other places on the chart where I could put trend lines and where breaks of those trend lines meant a change in market direction. But we’re not there yet so just stay with the trend until it clearly breaks.

Update November 25th, 2009

4:45pm

Here is the problem I’m having with the market right now. When the market came off the bottom in March, it moved up with strength which was easy for even us mortals to measure. You had the $BPSPX coming off a major low and rising quickly. The Summation Index had dropped to -1000, a signal of a major bottom, and then started climbing indicating the rally had strength. This was further confirmed by the $SPXA50R, etc. The $VIX was up in the 50’s and had pushed through the upper Bollinger Band, and then the $VIX began to drop. The market moved higher with strength and conviction. It then went into a consolidation period from May through early July, and then rallied hard up to the 2nd week of August. Again, that July rally came with strength and conviction. The same thing happened in September and it happened in October, at least for a while, until signs of weakness started making their way into the market. And now we have this rally off the Nov 2nd low that is devoid of any of the usual signs of strength, conviction, or broad participation. I think we’re currently in a topping process and that the market is getting ready for a pull back. Nothing major. Just another garden variety pull back with a nice buying op sometime in the not too distant future. But what if I’m completely wrong?

If you did not look at a daily chart of the $SPX and if you hadn’t ever looked at a daily or weekly chart of the $SPX but instead you just looked at breadth indicators and based your decisions on those alone, you would have to think that what you were looking at was a bottom in progress and not a top. You would see that the $BPSPX is languishing in the 70’s, that the Summation Index is below 500, and that buyers appear to be on strike but that sellers may have become exhausted. Is it possible that instead of putting in even a short term top that the markets are putting in a base from which to launch the next rally leg? I have no answer but because this is a possibility then it has to be considered.

Also of note is the fact that Bob Prechter is now telling his subscribers to go 200% short the market. This shouldn’t be surprising. I think he’s been calling a top ever since the end of March. At least he’s consistent.

In other news, looks like the SG for the $SPX is going to have a decent uptick today. I don’t know what to think about this as of yet, but if this should continue on Monday, then I will have to change the status on the SG for the $SPX. Two of the indicators have stalled but they have not reversed. They’re making new highs but the increments of increase are insignificant.

The SG for the $COMPQ is more or less in the same boat. One key indicator reversed today while two of the others are making insignificant new highs.

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

Entering transitional phase.

Maybe they’re going to transition back up. Just have to see.

$RUT and XLF underperformed the general market today so I wonder if they’re getting ready to head back south. IYR only up 3cents so no help there, either.

And they absolutely destroyed the $USD today.

I’ll see if I can’t put up a chart later for the SG on the $SPX.

7:00pm

Take a look at this. Just more fuel on the fire.

Pre-Market Update, November 24th, 2009

9:15am

I didn’t update the SG’s yesterday but there is no change. They are both in a transitional phase. This is a pure judgment call on my part because yesterday all four indicators did tick up and the SG for the $SPX did move much closer to the zero line. The reason for this is that there is quite a loss of momentum evident in two indicators on the $SPX. Only a mega rally today would correct this. I am second guessing the SG and as I’m learning through following it, this is not a good idea. The SG began to lose downside momentum on 11/4 and then on 11/5 the momentum indicator reversed. If I had entered the market then, when the SPY closed at $106.85, I’d be sitting on about a $4 dollar profit right now. I’d still be in the SPY today and waiting for a real reversal signal from the SG. In other words, the SG is a better trader than I am. Because of this, on the next dip buying opportunity, I’m going to set up an ideal portfolio to track the SG.

But as I’ve been going on about for the last several days, the market is not exhibiting internal strength. I found this article last night about the Summation Index in which Tom McClellan says that if the bulls are in charge then the the Summation Index should be above 500. The Summation Index hasn’t been above 500 since 11/3 and it just can’t seem to make up its mind about whether it wants to go up or down. Maybe that will all change today.

Weekend Update, November 21st, 2009

As I have said for the past couple of days, I’m expecting a pull back to develop over the next few sessions. I don’t think this is going to be the end of the world. I do think there is a very good chance that the $SPX could revisit the 1029 area from the November 2nd low, especially in light of the fact that the 20MA on the weekly chart is right now at 1029, but I reserve the right to change my view as market dynamics change.

The market has been very predictable since the August peak. It pulls back starting around the 20th of the month, takes back 50% to 70% of recent gains, then bottoms around the first of the next month, only to rally all over again. But as Pee Wee Herman said, “First your mind plays tricks on you, and then you play tricks back.” Or, maybe it will be different this time. Instead of a pull back that draws near the previous low, maybe this pull back will take out the low and keep on going. And of course, the market need not pull back any further. It could rally from current levels. Except that it is a little different this time.

This chart of the $NYA50R clearly shows a lack of participation with the latest market peak accomplished with 68% of stocks within the $NYA being above their 50MA’s. This is the kind of behavior you expect to see near market bottoms but not in an index that is just four days removed from a new rally high. It clearly shows weakness within the index. Compare the current 68% reading to the May, August, September, and October peaks where at least 84% of stocks were above their 50MA’s indicating broad based interest and buying. This chart looks more like the late June peak that led to the July lows. And that’s what I think we’re going to see.

And if you really want to be bothered, take a look at the $NAA50R.

This rally off the March lows has been broad based. It has been led by Big tech, small caps, transports, the cyclicals, & financials, and as the tide rose, the rally lifted all the other ships. But we now have trouble in two key sectors, the small caps and financials.

The $RUT, $BKX, & XLF all gave ‘sell’ signals on their weekly charts in late October, based on the full stochastic dropping below 80 and a bearish cross on the MACD, along with RSI 14’s that have peaked. Despite the action over the past two weeks, these sell signals persist. While the rest of the key sectors put in or nearly put in new rally highs in the last week, neither the small caps nor the financials did. This sets up an ABC down structure in the $RUT and XLF, etc. The same could be said for the $SOX, but it’s just not a leading sector anymore. Look at the chart of the daily IWM a couple of posts below this one for a hypothetical trajectory for IWM.

Adding fuel to the pull back theory are the weekly charts of the $NYA, $SPX, $INDU, $RUT, and IYR, which all have shooting star dojis, or at least the potential that the weekly doji is in fact a shooting star. You can clearly see on the $NYA chart below what has happened in the recent past when these shooting stars appeared. Also note that the PPO has a bearish cross, the full stochastic is below 80, and that the RSI 14 has broken its longer term trend line and that it is rolling over now and headed for the shorter term trend line.

So you’re thinking, “A pull back to $SPX 1029? Wow! What a buying opportunity.” But what if it’s different this time?

Those commercial futures hedgers are still net short 60k contracts. They took on 3900 new long contracts while adding 2500 new short contracts as of November 17th. They’ve gone from about 50k net short a few weeks back to 62K net short last week, to this week’s 60k net short position. Clearly they don’t think the worst is behind us. And neither do mutual fund investors.

Mutual fund investors are fleeing equity based mutual funds and flocking to bond-based mutual funds in record numbers. According to this article from Morningstar, the exodus began in earnest during the month of September and most likely continues to this day. Mutual fund investors who went through the trauma of a 401K meltdown regardless of whether they stayed in the market or not apparently have little appetite for any more risk. They would rather invest in a safe though low yielding bond-type fund rather than invest in an S&P Index fund. And who can blame them since many are baby boomers nearing retirement? They probably didn’t sleep well during the market meltdown and they’re simply not going to risk their retirements again. But their monthly contributions are much needed if the market is going to go higher or at least go higher and stay up there. If this exodus is continuing and if it continues, then end of the month window dressing by mutual fund managers just won’t be the same.

Which brings me to the $TRAN. During this week’s rally, the $TRAN failed to make a new rally high while all of the other majors, the $SPX, $NYA, $COMPQ, & the $NDX, did. The $TRAN only missed a new high by about 6pts, but how hard would it have been to get that? This is the first time in quite a while that the $TRAN did not lead the pack to a new high. Maybe this doesn’t mean much right now but we’ve had divergences in the financials, the small caps, and the semis and you just have to wonder if the $TRAN might be moving into that camp.

Finally, or until I think of something else, there’s the $CYC. The Cyclicals Index has been this rally’s poster child. Up 192% from the March low. The stocks within the Cyclicals Index represent a cross section of U.S. manufacturing, finance, transportation, technology, chemicals, etc. These guys are the core of the economy, have been pumped to the moon, and they need to be watched closely. If profit taking takes place in these core stocks, then the decline that I’m expecting could go a bit deeper than even I’m expecting.

So the SG’s are giving mixed signals and have entered a transitional phase. The markets appear stretched with fewer and fewer stocks participating. The Summation Indexes have rolled over, not something you want to see considering they just turned up a few days back, and the McClellan Oscillators are below the zero line and are pointed straight down. The VIX is still quite a ways above it’s lower BB and the A/D quartet, $NYUPV, $NYDNV, $NYUD, & $NYAd, are in flux. This is no time, IMHO, to be adding to long positions, and shorting this freight train is dangerous. If I was one of the lucky people who bought in March, I wouldn’t be too worried unless $SPX 1029 is taken out with gusto. Otherwise, this is just a re-pricing pull back and buying opportunity in progress.

Keep an eye on the $USD. There certainly does appear to be a correlation between dollar strength or weakness and the market.

Have a good weekend.

Update November 18th, 2009

6:50pm

The reading in the SG of the $SPX is -28 today. Yesterday it was -34 so it is drawing closer and closer to the zero line. But that’s not the whole story. The C Indicator showed a slight loss of momentum today. The others look fine.

Current status for the SG for the $SPX:

Moderating, partially confirmed, Phase IV, buy/hold signal.

Current status for the SG for the $COMPQ:

Moderating, partially confirmed, Phase IV, buy/hold signal.

IYR made a very nice recovery today, but did so on light volume.  Today’s move will need to be confirmed tomorrow…with volume. I don’t like the sector but I do watch it.

Today’s big story is the $TRAN. The transports came down just a little today but did so on a little bit heavier volume. The transports have been very good over the past several months at starting pull backs a couple of days ahead of the general market. The small drop in the transports today might not lead to anything, but it’s going to be important to watch them closely over the next few days. FDX came down hard but the volume wasn’t there. The airlines, AMR, CAL, LUV were also down pretty hard. The sector doesn’t look that weak, but it could tomorrow or Friday.

And wouldn’t you know it. THEY took IWM above 60 in the last 15min of the day. I just knew they wouldn’t let IWM close below 60, but I don’t know that it means a whole lot at this point.

What’s bothering me again today are $NYA50R, $SPXA50R, & $NAA50R. These are all trying to roll over from already low levels.  42% of $COMPQ stocks are below their 50MA’s.  This is not healthy. Even on a less than 1/2% pull back day like today, the $NAA50R should not have dropped, but it did. This is a symptom of internal weakness.  And it’s the same in the other indexes. Fewer and fewer stocks are participating.

Yesterday and today, advancers fell behind decliners in the $NYSE 12:17. I can understand today, but yesterday the markets closed green.  The Summation Indexes for the $NYSE and the $COMPQ are still moving up but the McClellan Oscillators for each are now pointing straight down.  The $VIX seems to be dropping like a rock and the P/C ratio at .84 says that complacency reigns. Maybe everything will resolve tomorrow with a broad based rally on good volume. Maybe not. And don’t forget that lurking out there somewhere is a huge net short position in the S&P futures. When are those guys going to make a move?

And when was the last time you saw the $NDX at the head of a southbound train?

Just be careful right now.

Adding the following at about 7:10pm

Look at the histogram on the $NDX and the $TRAN. You can see the same thing, though not as pronounced, in several other key indexes.

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 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.

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.