Friday, July 30, 2010
Volatility at a Low?
Highs and Lows
So what does this mean? In a bull market, when so many sotcks are getting sold down, that normally creates a bevy of opportunities. In 2004, the energy stocks were simply drilled into the summer and a multiyear rally followed. This time around it appears to be industrials and consumer discretionary that was thrown off the cliff - and the former is coming back with a vengeance over the past 2 weeks while the latter is coming back but nothing spectacular. As for the market as a whole, I am in the camp that things have bottomed for the year and we are in a rally phase off hte lows. Further every momentum indicator I use and those oscillators taht I have at my disposal tell me that the markets next place is somewhere past the previous highs at 1225. I hate to make predications so I will say that I just like stocks at this point. Supporting thsi point is the New Highs / new Lows index, uptrending again after downtrending for a good 7 months.
Wednesday, July 28, 2010
Let there be Bears!
This afternoon, after a very quiet day in the markets (I noted that the selling today was methodical), I received a "tweet" saying that the "resumption of the bear will be a slow tormenting process" opposite of the quick move higher the stock markets experienced. While I love getting feedback (who am I kidding, I love feedback!), I particularly like comments that are so mainstream. In short, the world feels like it stinks and smells like it as well - thus the stock market is the same and "should be sold!" I don't blame people for this thought process - when stocks were cascading in 2000, I heard the flip side of the coin...why are stocks selling off as "we feel good!"
The fact of the matter is this; anecdotal evidence at the moment argues the economy is operating and not dipping. Momentum within the spending side of the ledger shows a consumer spending slower - but still spending! Companies in the S&P 500 are trading at very cheap levels. Furthermore, if the stock markets wakes up and starts to move higher while rates return negative numbers again in 2010, stocks will sore on the asset allocation alone. Personally, I am not looking for anything dramatic but I can make a case for the S&P 500 trades over 1250 by year end (optimistic would be 1325). Technically, if the VIX breaks dow further, I will have an almost complete bullish model for stocks (ointment being the discretionary lag vs staples). Fundamentally and technically, I am bullish and have the data to back it up!
When I get comments though that we are going to experience something like japan has gone through going forward or another credit bubble is going to form or corporate earnings are not real (ie all government stimulus), I get the feeling that bears are all following the same tired arguments - just as the bulls did on the way down. They think they are getting confirmation of their bias with every sell off when in fact, the selling is a trade - not a fundamental shift.
So to the bears I say this; get some research that says profits are phony, a credit bubble is forming and government stimulus is the reason we have growth - then I will consider the arguments. Otherwise, come up with some original work!
The fact of the matter is this; anecdotal evidence at the moment argues the economy is operating and not dipping. Momentum within the spending side of the ledger shows a consumer spending slower - but still spending! Companies in the S&P 500 are trading at very cheap levels. Furthermore, if the stock markets wakes up and starts to move higher while rates return negative numbers again in 2010, stocks will sore on the asset allocation alone. Personally, I am not looking for anything dramatic but I can make a case for the S&P 500 trades over 1250 by year end (optimistic would be 1325). Technically, if the VIX breaks dow further, I will have an almost complete bullish model for stocks (ointment being the discretionary lag vs staples). Fundamentally and technically, I am bullish and have the data to back it up!
When I get comments though that we are going to experience something like japan has gone through going forward or another credit bubble is going to form or corporate earnings are not real (ie all government stimulus), I get the feeling that bears are all following the same tired arguments - just as the bulls did on the way down. They think they are getting confirmation of their bias with every sell off when in fact, the selling is a trade - not a fundamental shift.
So to the bears I say this; get some research that says profits are phony, a credit bubble is forming and government stimulus is the reason we have growth - then I will consider the arguments. Otherwise, come up with some original work!
Contradict the Bears
As we finish up june, I am left wondering if the markets have indeed seen a turn. Much of my trading buds sit on the bearish side of the ledger so they are calling this an opportunity to short. From that standpoint, they might have reason to be correct because the bounce from the severe oversold signals of June and early July have met hit their estimated first targets around the 1111 level. During bull markets, we move towards the second level or the 9 year MA at 1135. Stability above supports the bull.
I have demonstrated on this site how measure movement and the direction of the S&P 500. Each of these point higher. The momentum model has staged a solid reversal this month to join the renko chart and moving average models that were posted earlier in June. Thus I should have no cause for concern and since the NDX has climbed solidly over the 1800 level, I should be overly bullish, but in reading through all the reports from the press and the blogoshere, I can't help but wonder if I am not seeing through the fog! And there lies the problem - I do not or should not read any of these news items. To be bearish is in vogue which means the world writes with a bearish slant!
And perhaps that is where the opportunity will continue to sit. Be a contrarian if the indicators argue we are moving upward. When sentiment becomes extremely negative, buying is probably the best way to play things. So what to do about the cautious view such as today's trade? Follow the indicators and they argue we are moving higher.
As for the short term, I do not have any "skin in the game" at the moment but I am playing for a solid finish to the month of July. The 1120/1130 area in the S&P will be an area of solid resistance so getting through that area before month end could lead to an explosive finish. Otherwise, I see the range holding though month end.
I have demonstrated on this site how measure movement and the direction of the S&P 500. Each of these point higher. The momentum model has staged a solid reversal this month to join the renko chart and moving average models that were posted earlier in June. Thus I should have no cause for concern and since the NDX has climbed solidly over the 1800 level, I should be overly bullish, but in reading through all the reports from the press and the blogoshere, I can't help but wonder if I am not seeing through the fog! And there lies the problem - I do not or should not read any of these news items. To be bearish is in vogue which means the world writes with a bearish slant!
And perhaps that is where the opportunity will continue to sit. Be a contrarian if the indicators argue we are moving upward. When sentiment becomes extremely negative, buying is probably the best way to play things. So what to do about the cautious view such as today's trade? Follow the indicators and they argue we are moving higher.
As for the short term, I do not have any "skin in the game" at the moment but I am playing for a solid finish to the month of July. The 1120/1130 area in the S&P will be an area of solid resistance so getting through that area before month end could lead to an explosive finish. Otherwise, I see the range holding though month end.
Tuesday, July 27, 2010
Gold Break
Last Monday I noted that gold was closing in on major support and for the bulls, the 1180 area had to hold. Well, today the sellers came out swinging and broke the contract through support. Next major support is under 1100 though some are clamoring about 200 day moving averages and H&S patterns. From what you can see on the chart, the range is clearly defined in my opinion and thus the analysis argues for a move to the 1070/1100 region.I would imagine the 13 month comes into play around the 1100 level. For the bulls, this level must hold because the 13 month has supported the contract all the way up. Generally speaking if the 13 month is taken out by month end or by the end of any month for that matter, the trend has changed. The S&P earlier this month closed a few times below its 13 month but will close above it now putting in a reversal. Breaks below this key MA and then back above are normally pretty powerful.
via StockCharts.com
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Monday, July 26, 2010
Bullish on China....Not Yet
Earlier today I posted a note on the GBP/JPY cross rate. I argued that rates and the Yen, among a few other things, could see some good selling in the future, based on previous patterns that existed on the chart. Taking this analysis a step further, lets look at the Shanghai Comp which has changed direction over the past month after bigtime selling for the better part of the past year. First of all, the analyst community remains solidly bullish China even though investing in China since the beginning of the year would have hammered your stock portfolio. Today, I read another analyst report that says the bottom is in for china and a rally is now coming back to the levels we started 2010 around at 3200. The basis; the PBOC is done raising rates, liquidity is improving; a weak dollar is now occurring and profit margins are expanding. whoopee! How generic!My viewpoint on China is simple; I am bearish. The measures I use to look at trend for this index are bearish and while upside would not be a surprise, I don't believe this is an index that one should be buying hand over fist. There is a correlation to the US 10 year that I showed earlier in the GBP/JPY chart. Also with a weakening Yen, I think the SSEC will find buyers and move upward. Will this be enough to reverse the trend? Unsure so I will wait and see what the chart brings. Call me bearish still with some developments that could argue for a bullish bias.
The Turn in Pound Yen?
In looking at the chart attached, a few major things stick out to me. First this ratio has a funny way of leading stock market moves. When the Pound Yen cross peaks or troughs, stock markets tend to peak or trough - essentially reverse the movement of the intermediate trend its currently resides. For example, the peaks and trough in 1998 and 2000 were followed by immediate downside in the S&P 500 and in the latter a bear market. The peak in 2007 in the ratio was followed by an eventual market turn in equities later that year. The low so far in this ratio happened to coincide with the low in the S&P and the correction in stocks has followed this ratio lower - only to see a turn in the currency cross which if correlation follows, means stock markets have bottomed for the intermediate term.
On the rate side, the action seems to be equally muddled as previously a peak in the cross would imply rates moving upward in the US and a trough leading to the opposite. However, this cross peaked with stocks in 2007 and rates fell lower. When it troughed in the spring of 2009, rates came off their lows but not by any major amount. Interestingly, this looks like it could be related to the Yen as the Yen has followed this peak and trough story very well moving down when the cross rallies (GBP gaining on the XJY) and moving upward when the cross troughs. That held for the most part till the spring of 2009 when the Yen should have reversed course and started a multiyear downtrend - instead it has done the opposite which lines up with the Yen.
So the question is this; do stock markets explode to the upside as the Yen and 10 year follow historic norms? The low at this point for the cross is in and that would imply that the correlations that came off that low continue. However, 2 of the variables are "holding back" from following that trend. Perhaps it is as simple as this; if the Yen reverses course and moves lower, we see the stock markets reaccelerate to the upside and rates move upward domestically (and probably globally). One early indication of this is the current doji in the Yen cross - generally speaking a doji one month followed by a large candle the opposite way the next month argues that a high or low is in. Thus the change in direction could come next month.
Sunday, July 25, 2010
So Goes the Financials, So goes the Market? Part II
I posted a note a few weeks ago indicating the the market needed the financials to continue to motor higher as support for the underlying trend. As you can see form this chart, the financials uptrend is very much in place from this monthly renko view - one that I use as one of the key variables in determining market direction. Resistance is ahead around 60 which is also the point it breaks out past the 13 month. The renko RSI already turned months ago indicating an uptrend in financials was in play. With the 13 month on the regular chart being broken to the upside this week, that supports this charts upward trajectory.
The Retest?
At Resistance
Every once in a while, I come across an very interesting development in the S&P 500. Normally it is something within my software but today it is on the daily chart of the index. The chart shows an Head and shoulders pattern drawn with a 75 points range. Add 75 to the top of the range and one ends up with 1175...in other words a major breakout to the upside. Personally, I think the top of the range will be somewhere around 1170 as I think we are operating in a very wide range of 1025 to 1170 (previously I thought it was 1050 to 1150). In any event, Monday should be interesting. On the close Friday in the futures pits, someone made a concerted effort to make this breakout happen closing the futures above the fair value level relative to the S&P - meaning an arbitrage play would be to buy stocks and sell futures thus pushing it over the breakout level at least initially. I remain bullish overall and a breakout here would support such a thesis.
Saturday, July 24, 2010
Large Caps Going forward?
The one downside of this analysis is that risk taking will continue to take a hit leading to a more defensive posture in the marketplace. The previous three times this turn has occurred has led to market declines with a correction in 2006 and the crash in 2008. Previously, in 2004, markets became a bit overbought in this ratio and spent the next 1.5 years working off this conditions. Small caps really never gave up though and continued higher through 2006.
Thursday, July 22, 2010
Mr Market Speaks
As the markets cascaded yesterday on the confusing speech of Mr "big" Ben Bernanke, I asked myself how many HFTs entered short under the very visible 1075 support in the S&P 500? The SPUs collapsed once that level was breached and about 30k mini's were sold taking the cash down precipitously. When it hit support around the 1065 level (I thought that was weak support honestly) a bunch of my trader friends covered and went long - in looking at the action this morning, I should have done the same!
The action overnight in the SPs was strong. First, the market never breached the reactionary lows of the day session (at least not meaningfully). Second, the fact that they have taken the futures firmly through 1070 and filled the gap, argues that someone will be covering on such (they entered on the dive and probably used the gap for a stop level). As they march higher this morning, outperforming the European Bourses, which is not normal for a premarket move on no news, one has to wonder if a big trade, put on in the dive is forcing the SPs higher and if this action is sustainable.
With that said, earnings last night and so far this season have been strong so a rally or a continued move higher should be in the cards. That is if my stop gets tripped and I am positioned long! Till then, I am looking for some backing and filling. I do like the long side but based on the way things are going overnight, I am not so enthused about it. If we started from a lower base and climbed from there, I would be more bullish. One thing to remember - no market ever offers up the perfect setup so one has to take what Mr Market has to offer!
The action overnight in the SPs was strong. First, the market never breached the reactionary lows of the day session (at least not meaningfully). Second, the fact that they have taken the futures firmly through 1070 and filled the gap, argues that someone will be covering on such (they entered on the dive and probably used the gap for a stop level). As they march higher this morning, outperforming the European Bourses, which is not normal for a premarket move on no news, one has to wonder if a big trade, put on in the dive is forcing the SPs higher and if this action is sustainable.
With that said, earnings last night and so far this season have been strong so a rally or a continued move higher should be in the cards. That is if my stop gets tripped and I am positioned long! Till then, I am looking for some backing and filling. I do like the long side but based on the way things are going overnight, I am not so enthused about it. If we started from a lower base and climbed from there, I would be more bullish. One thing to remember - no market ever offers up the perfect setup so one has to take what Mr Market has to offer!
Wednesday, July 21, 2010
Looking at Apple
That does not mean the stock cannot move higher though! All the technicals I use to measure the movement of the stock argue that the action is still moving upward. The two measures I use for trend (shown on the box at the bottom of the chart) point to a higher stock price. The one fly in the ointment though is the loss in momentum of the stop trend model which if it break down through the 1.00 level, we could start to see a long consolidation for the stock - this does not mean a breakdown though! I do know that many traders are just waiting for the glow to fall off this stock and most defenders of this company continue to do so even as the stock underperformed the markets in the spring. I myself remain skeptical but one has to agree with one's methods and those methods argue the stock is moving higher.
Interestingly if you treat Apple like I treat the S&P (including cash), the stock is probably worth around $330. Now on the chart, if you extrapolate the range from the circle (looks like a triangle overall), you get an approximate target of $320 or roughly another 20% from current levels. Color me bullish on Apple and its products. This stock probably has more upside but at $320, one should consider taking some profits.
Tuesday, July 20, 2010
Where's the Resistance?
Perhaps though earnings are not the story and it is all about the continued bearish sentiment that I mentioned in the last note this morning. Perhaps this market's catalyst has nothing to do with earnings, the Euro or the Fed though the rumor of them pulling back interest on cash seems to be a very valid action to be honest - though at the same time the amount of money that would probably enter the system would be too much for the Fed to pull back (but that is another story). Bottomline, going back to the chart, the S&P needs follow through tomorrow for this move to progress - otherwise, the selling could be quick and efficient (ie high frequency) tomorrow.
All About Sentiment?
I track various measures of sentiment within the marketplace but one that I find of most interest is the ISE Sentiment Index (ISEE). From the ISE site
I smooth the index value with a 20 day EMA to avoid the spikes and pitfalls of the index that occur from time to time. From there I can get some information on whether the market is overly bullish or bearish. I then cross this information with my own models and attempt to see a turning point is coming in sentiment.
So what does the current measure of this index along with my own model tell us about sentiment? That it is very bearish. The 20 day EMA went out last night at 98.40, off a low of 89.5 in mid June. This essentially says that investors are buying a smaller amount of puts than calls for the market. Over the past 7 years that I have data for this index, whenever this index is below 100 (more puts than calls), the market bounces rather aggressively to the upside. At the moment, we are day 40 of this moving average remaining below 100. This is the second longest period of time where this average has sat below 100 with the period of early 2008 when Bear Stearns collapsed being the longest at 50 days. When the index resurfaced above 100 during that time, the S&P, in very choppy style, proceeded to rally about 100 points.
Thus with the measure rising a more sizable rally would not be unthinkable. However, since this is day 40, I wonder if we continue to have choppy negative action through the end of this month and an August September move upward? My other measure that I use to confirm this index usually leads the ISE index and at this juncture is not positive yet. Thus net net, the market rally is coming but it might be a month away...not days.
put/call value that only uses opening long customer transactions to calculate bullish/bearish market direction. Opening long transactions are thought to best represent market sentiment because investors often buy call and put options to express their actual market view of a particular stock. Market maker and firm trades, which are excluded, are not considered representative of true market sentiment due to their specialized nature. As such, the ISEE calculation method allows for a more accurate measure of true investor sentiment than traditional put/call ratios.
I smooth the index value with a 20 day EMA to avoid the spikes and pitfalls of the index that occur from time to time. From there I can get some information on whether the market is overly bullish or bearish. I then cross this information with my own models and attempt to see a turning point is coming in sentiment.
So what does the current measure of this index along with my own model tell us about sentiment? That it is very bearish. The 20 day EMA went out last night at 98.40, off a low of 89.5 in mid June. This essentially says that investors are buying a smaller amount of puts than calls for the market. Over the past 7 years that I have data for this index, whenever this index is below 100 (more puts than calls), the market bounces rather aggressively to the upside. At the moment, we are day 40 of this moving average remaining below 100. This is the second longest period of time where this average has sat below 100 with the period of early 2008 when Bear Stearns collapsed being the longest at 50 days. When the index resurfaced above 100 during that time, the S&P, in very choppy style, proceeded to rally about 100 points.
Thus with the measure rising a more sizable rally would not be unthinkable. However, since this is day 40, I wonder if we continue to have choppy negative action through the end of this month and an August September move upward? My other measure that I use to confirm this index usually leads the ISE index and at this juncture is not positive yet. Thus net net, the market rally is coming but it might be a month away...not days.
IBM - Swing and a Miss?
Monday, July 19, 2010
Another Long Term View
Now one word of caution or a warning sign of a possible trend change; that would revolve around the 13 month ma which the market is under heading into trade today. As you can see from the chart, from 2002 through 2007, the market was supported by this moving average and it became resistance during the move downward in 2002 and 2007-2008. Thus for the bulls to feel confident, the market needs to climb over this moving average and ideally speaking move higher than May's close - over 1100 should encourage some buying and conversely, lead to some selling in the US treasury market...a market that is so very overbought.
More Long Term Thinking
Last week I posted a chart on the S&P 500. It was through the lens of the Renko trading methodology at stockcharts.com; a method that solely focuses on price and ignores time. It is in other words, pure price action. the S&P chart, if you remember, showed the S&P correcting from its 1200 highs but remaining above the major trend moving average. Today, I look at the other three major indexes in the marketplace; the Nasdaq 100, The Dow Industrials and the Russell 2000.
Nasdaq 100
As the chart shows (along with the others), the trend of the renko chart for the NDX 100 is higher and broke out with price action over the past few months. In theory the market should migrate towards the next trendline drawn on the chart but that is rather simplistic as I use many other variables to confirm a trendline. The RSI model that the momentum is currently bullish and moves over the 2000 and to the 2500 level would not be unreasonable. With the move also over the 13 month MA, the bulls hold the ball. Key now is to take out the 2000 level as that would make a higher high and get the bears back on their heals rethinking this "double dip" talk that has swarmed the street and the airwaves over the past few weeks.
Russell 2000
The Russell 2000 shows the same bullish setup as the other charts mentioned with a move over the 13 month MA and an break above the 550 level that contained trade in the bull market of the 1990s. A move over the 750 level would argue that the new bull market is in full force and higher highs will be seen in the other major indexes (though the Nazz has a long way to go). RSI argues that the momentum is higher so this chart argues the bullish story as well from a long term momentum standpoint. In the past when the RSI has moved over 70 on this chart, we have seen the Russell move up appreciably. This is by far the strongest of the charts shown here.
Dow Industrials
The Dow Industrials chart shows a distinct double bottom and trading range for the most part with a false breakout above the 12000 level during the last bull market. Thus 12000 is the level that will provide the biggest resistance for the market. From an RSI standpoint, momentum has not confirmed on the upside and from a negative standpoint, if the momentum in this index peters out here, downside momentum could pickup. I would not argue that is a high probability at this point but it is worth mentioning giving the lagging momentum of this indicator relative to the S&P 500, the NDX 100 and the Russell 2000.
So on balance, taking these three indexes together with the S&P one discussed last week, the trend is higher for the markets from a momentum standpoint. Generally speaking, each downturn in the markets has seen the RSI get to an extreme point and then fall lower. We have not seen that in the Dow yet which argues stocks move higher before the possibility of a bear market kicks in. Thus I am bullish.
Nasdaq 100
The Russell 2000 shows the same bullish setup as the other charts mentioned with a move over the 13 month MA and an break above the 550 level that contained trade in the bull market of the 1990s. A move over the 750 level would argue that the new bull market is in full force and higher highs will be seen in the other major indexes (though the Nazz has a long way to go). RSI argues that the momentum is higher so this chart argues the bullish story as well from a long term momentum standpoint. In the past when the RSI has moved over 70 on this chart, we have seen the Russell move up appreciably. This is by far the strongest of the charts shown here.Dow Industrials
The Dow Industrials chart shows a distinct double bottom and trading range for the most part with a false breakout above the 12000 level during the last bull market. Thus 12000 is the level that will provide the biggest resistance for the market. From an RSI standpoint, momentum has not confirmed on the upside and from a negative standpoint, if the momentum in this index peters out here, downside momentum could pickup. I would not argue that is a high probability at this point but it is worth mentioning giving the lagging momentum of this indicator relative to the S&P 500, the NDX 100 and the Russell 2000.
So on balance, taking these three indexes together with the S&P one discussed last week, the trend is higher for the markets from a momentum standpoint. Generally speaking, each downturn in the markets has seen the RSI get to an extreme point and then fall lower. We have not seen that in the Dow yet which argues stocks move higher before the possibility of a bear market kicks in. Thus I am bullish.
1180
In any event, if 1180 is taken out, it argues that gold heads back towards the sub 1100s (roughly around 1080) and a break there argues for a move below 1000 and then 875. Trend models that I use (and not on this chart) still argue that the trend is higher so if this major support is taken out and a false breakout is confirmed, then many will be running for the hills at the same time because the trend is perceived to still be higher - something that candles do not care much about! One more thing: FoxNews broadcasts are littered with those who advertise to buy gold. I know it is not a contrary signal till it is but the conditions are in place for a sustainable move lower. With that said, if 1180 holds and a bounce is seen, I could be inclined to go long!
Hedge in the Long Term...buy in the short term?
The phrase in most investor brochures you find these days says that the "past is not a good indicator of future results." It is basically a cop out phrase for a money manager who on one hand displays his or her results over the past 3, 5 or 10 years of their investment prowess while on the other hand buys a put against those returns saying that while I am a good investor over the past, I might not be a good one in the future! In technical analysis, the same could be said for the basics of the art - essentially does a pattern that occurred in the past play out in the future?
So as I peruse the latest Commitment of Traders Report (COT) from the CFTC, I ask myself whether the behaviour of the commercial traders, the large traders and the small traders today, long or short, means anything in terms of market returns tomorrow. Before proceeding, I am in the camp that markets are dynamic and nothing is ever the same as it was before - thus one has to roll with the flow of the market and adapt based on changing environments...in short patterns to me are not that big of a deal.
With that said, in looking at the latest COT reports from the equity index futures that I follow (Russell, S&P, Nasdaq and Dow), I found some interesting tid bits of information. Here is a rundown.
- S&P 500: The latest numbers from this report show that commercial traders have not been this net long since the summer of 2008. Further, they movement upward over the past few weeks in their position argues that they are planning for a bear market, in similar fashion to the move in 2007 when it started to rise in the summer of 2007 near the market peaks and spiked upward in the fall when the market double topped out around 1550. In regards to the small traders on the mini side of the ledger, they were net short for much of the period from the collapse in 2008 to upward movement earlier this spring (after being long from 2004 through 2008). This movement to the long side argues that the bull market is still in force in my opinion. The last piece is the large traders in the mini side - they are about to go net short for the first time since late 2008. So on balance, what we have is the long side positioning for longer term troubles while in the shorter term, the retail side of the ledger (small traders) are getting more bullish while the large traders are hedging out their portfolios.
- Nasdaq 100: This future is very hard to read overall. I would say what is notable here is the movement in small traders on the large contract side. It jumped to net long for the first time since the flash crash. They were net long off the move in 2008 when the NDX 100 made its lows and remained so through the flash crash. Argues that the bulls control.
- Dow Jones: The one read I am getting from this is that commercial hedgers, having been net short since the fall of 2009 moved back to net long this past few weeks. Whenever they go net long in a bull markets, the markets move up appreciably while in bear markets the opposite occurs. The movement in the markets from here thus along with their movement could confirm what market we are sitting in.
So on balance, predictably the movements in the markets over the past 10 weeks has lead to positioning within the trader community that the probablity of a longer bear market is developing. However the movmeent upward in the ND futures argues that the dip buyers are in force which means we have the long term conflicting with the short term. The in between signal is the ultimate move in the stock marekts from here. Continued weakness could argue that the movmeent on the Dow side means a longer term movement upward/downward is coming (how is that for fence sitting?). I will be watching.
My cards by the way are on the bulls retaking the trend to the upside.
Friday, July 16, 2010
How Sentiment Shifts!
As you can see, we have had an quick shift on the index options side with the put call shooting higher this week into oversold territory....even with the S&P 500 having rallied strongly off the lows with the S&P futures hitting 1003 the day of the lows (that some are calling for the year). Is this a case of everyone overreacting to the information? I am thinking yes. Sentiment today on the bubblevision was so dramatically bearish that I thought we had fallen 1000 points again when in fact the market was just run down like we had been run higher over the past few weeks. I am looking to get long Monday over the 1075 level so we'll see how the market plays out. I am holding shorts but if that 1075 level is taken out, my guess we'll be heading back towards the 1000 level quickly as the shorts, like myself, run for the hills.via StockCharts.com
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Wednesday, July 14, 2010
Interesting Day on the Western Front
Monday, July 12, 2010
So Goes the Financials, So goes the Market?
In terms of going forward in this sector, the BKX has essentially held the key 13 month moving average and any extreme move beyond or below it, has been met with sellers or buyers. This month has featured a turn higher in the candle chart above the 13 month. This bullish reversal confirms the move in stock prices from the lows. NOw if the BKX could only get over the 50 level solidly, we could see a bigger financials and S&P rally.
Sunday, July 11, 2010
Momentum from a Renko Standpoint - Bullish
Another way I look at the S&P's momentum is via RENKO Charts. They are based purely on price and tend to show long term moving trends very well as the chart shows here. The S&P turned bullish with the move over the 900 level last summer with the bear market downturn occurring from 1300 in the previous year. This chart also shows us that the S&P has basically been range bound for the better part of the past 13 years. I have been reading that many thought the S&P would remain range bound for 10 years from the lows last year but what about the range since 1998! At the moment, this chart argues that price action, while negative at the moment, remains bullish overall. A move below 1050 changes that viewpoint - a move over 1200 and the bulls probably look for 1400 next.via StockCharts.com
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VIX Confirmation...not yet
At the moment, there is a warning sign that a bear market is developing within the model but nothing has been confirmed yet as the 21 has not crossed the 65. Thus net net, this overall model, when combined with the previous VIX chart, this combination would be neutral. In terms of the outlook for this model, given the extreme reading at the end of March, this argues that the next move is a bear market signal. At the same time, if the two moving averages converge and then the 21 bounces back upward, the signal would be taken out of play.
The VIX Overreaction?
While the previous two charts showed bullish market characteristics, this chart shows a rising VIX trend....not bullish for stocks. While this is a negative, the confirmation signal, one that is featured on a different chart, not yet posted, has not "confirmed" if you will a bear trend in stocks. This leads me to believe that this volatility spike we had was an vast overreaction by the marketplace. Thus a return to more normal VIX levels in the months ahead I think is the recipe going forward.
via StockCharts.com
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via StockCharts.com
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Saturday, July 10, 2010
Momentum Still with the Bulls
One fact the model does tell us is this - when there is a change in the trend, each of the four ROC's all roll over within three months (as they did in 2007 and upward in 2009). The current drubbing we are getting in stocks (the last few days not included) has not reversed the movement of the long term ROCs. Thus in conjunction with many of my other indicators, this is one major correction and the lows for 2010 are probably in.
Slowing Momentum in the S&P
Over the past few days, following the big move on Tuesday, the S&P's momentum has slowed, thru the view of the 15 minute chart. This could be an indication that a correction of sorts within the trend is coming. At the same time, so many traders hit the futures late Friday that you have to wonder if Monday will be just another "manic Monday" where the buyers emerge. I am long a ton at the moment but have tight stops on all.via StockCharts.com
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