Last Thursday was a so-called 90% down-day for American stock markets (and many other bourses also recorded downward dynamics). A 90% down-day is defined as a day when downside volume equals 90% or more of the total upside plus downside volume and points lost equal 90% or more of the total points gained plus points lost. The historical record show that 90% down-days do not usually occur as a single incident on the bottom day of an important decline, but typically on a number of occasions throughout a major decline. As far as the very short term is concerned, 90% down-days are often followed by two- to seven-day bounces.
The stock market is on a knife’s edge at the moment as seen in the chart below, showing the long-term trend of the S&P 500 Index (green line) together with a simple 12-month rate of change (ROC) indicator (red line). Although monthly indicators are of little help when it comes to market timing, they do come in handy for defining the primary trend. An ROC line below zero depicts bear trends as experienced in 1990, 1994, 2000 to 2003, and in 2007. And 2010? With the ROC delicately perched just above the zero line, the primary trend is still bullish, but barely so.
Regarding seasonality, I have done a short analysis of the historical pattern of monthly returns for the S&P 500 Index from 1950 to August 2010. The results are summarized in the graph below.
Source: Plexus Asset Management (based on data from I-Net Bridge).
As shown, the six-month period from May to October has historically been weaker than the period from November to April as seen in the average monthly return of 1.05% for the “good six months” compared with 0.25%% for the “bad six months”. Importantly, when considering individual months, September (-0.18%) and October (-0.19%) have historically been the only two negative months of the year. (A word of warning, though: one should take cognizance of seasonality but understand that it is not a stand-alone indicator and it is anybody’s guess whether a specific year will conform to the historical pattern.)
Where does this leave us at this juncture? Considering an array of indicators, we are somewhat in no-man’s land regarding whether the bull or bear will…
The SPX continues to trade below both the 50 and 200 day moving average (MA) but yesterday rallied to close above the once solid support level of 1040. The market bounce off the lows of July 2 also correlated with the Dark Cross formation which occurs when the 50 Day MA crosses the 200 Day MA downward. As we discussed in the Dark Horse Hedge, this has not traditionally held up as a good foreshadower of bearish activity. Nonetheless, it is worth noting that it took place.
With a low volume rally on Wednesday, and the lack of any follow through midway through Thursday, combined with the rally lacking any real quantifiable economic basis, the charts lead us to believe that Wednesday’s action was a relief rally so far. To begin even a modest short-term uptrend, the SPX will need to hold above the July 2 close of 1023 on any downward close and then break the close of Wednesday at 1060 or close today, whichever is higher. The 14 day RSI is slightly bearish at 41.68 and would need to cross 50 to become a bullish technical signal. As one other confirmation of the weak technical chart, I have added the 12-26-9 MACD which is currently -17 with the bullish signal line being a break of 0.
So in conclusion, the SPX had a earnings foreshadow or relief rally on Wednesday, with Volume below the 50-day MA. The index itself is remains securely below both the 50 and 200 day MA which have crossed. The confirmation by RSI and MACD lead us to believe that based on our reading of the current chart, the rally of Wednesday will have to retest 1040 and more importantly 1022 before it can move higher. If the next down move breaks 1022 and seeks what should be technical support from Sept 2009 of 995, we are technically in a downtrend.
The DDH started with a 67% SHORT tilt last Thursday which is confirmed through this chart analysis. On Tuesday, both LONG positions were up and the 4 SHORT positions were down creating the “Perfect Storm” for that day. DDH attempts to build a L/S portfolio with the best fundamental companies held as LONG positions and the worst fundamental companies held…
Small Caps again took charge and dragged Tech indices with the help of the semiconductor index. Bulls used rising support to launch their attack as the Russell 2000 added another percentage point. Supporting technicals made modest gains but are mapping bearish divergences with lower highs – but bulls won’t be complaining too much.
History tends to repeat itself, and trend lines, triangles, and other patterns do work in TA. Charts show the collective opinions of all market participants for that day, month, or whatever timeframe that is used. Charts are direct evidence of the trader’s beliefs and feelings, and each movement reflects a bit of human emotion (or at least it did before speed trading – HAL9000). So, it should be no surprise that patterns repeat themselves over and over.
In Figure 1 below, typical up trends and down trends are shown. These zigzag patterns are seen all the time, but why do they form? Let’s say someone bought a stock at a certain point. If that stock went up, but pulled back to the original purchase price, they will often think that it’s an opportunity to buy more at their original price, thus adding to their position. This is also the same for shorts when they are able to short a stock at the same price they shorted previously. Then why do peaks form? People sell (or cover) to take profits. Obviously, any increase in selling will pull the stock back. Those who bought at a lower level may start buying again. This repeats and repeats until 1) there is no more stock left for people to buy, or 2) there is too much supply and not enough buyers. On a larger scale, this is how bull and bear markets begin and end.
Small Caps and Tech continued their good form. Technicals continue to support the move higher for Small Caps (Russell 2000) with new highs for the MACD and +DI line. The Russell 2000 would have to give up 25 points (or 4%) just to test breakout support at 650.
The prior underperformance of the semiconductors was undone with today’s 2% gain.
This revival helped keep the rally in the Nasdaq ticking over
But Large Caps didn’t quite live up to the gains of Tech and Small Caps
Last Friday’s breakout gap remains the most tempting pullback zone.
This morning the market soared higher after the Gross Domestic Product (GDP) report by the U.S. government. Reportedly the GDP increased 5.7 percent in the final quarter of the year. This news was much better than economists had expected, and a rally was underway to start the day. This was another day when the good news just kept pouring in and the media headlines looked great. Then one might ask, why did the market reverse after making a 10:30 am high? Please realize that the NASDAQ was trading at 2202.00 during the morning peak and is now below 2175.00, and negative on the day.
Often when a "buy the rumor, sell the news" type event takes place it is usually because price is already built into the market. However, today many leading technology stocks have rolled over intra day even as they are at major daily chart support levels. Leading stocks such as Apple Computer (NASDAQ:AAPL) have reversed to the negative side by selling off more than eight points intra day from today’s early session highs to the recent intra day low. Sandisk Corp (NASDAQ:SNDK) is another leading stock that is getting punished today by traders and investors. However, this stock gapped lower and has continued to sell off into its daily 50 moving average at 25.80 which should be some short term support. Microsoft Corp (NASDAQ:MSFT) is another stock that supposedly had very good earnings and was trading higher to start the day. This stock gapped up higher at the open by trading at 29.90. Since that opening print the stock has sold off and reversed to the negative side.
What is this telling us when good stocks can’t hold their gains after good news? Often it tells us that conditions have changed. The market has obviously priced in the good expectations from earnings and even the economic data. It is prudent to remember that the market is similar to a pendulum. Often the markets swing to one side too far, and then to the other side too far, and rarely finds that common middle ground or equilibrium point.
With that being sad one should always realize that you can’t fight the tape and the market is always right. Therefore, price action is king and…
Here are the leading options as I see them. Again, there are no slam-dunk winners here and still several ways to count this rally.
First is my preferred count:
Pros: Listed here (Alternate Count Possibility - now the preferred count)
Cons: Wave 1 is now much longer than is proportional to the size of the A wave it will be part of in this count (I believe the long term wedge trendlines are *extremely important* and will be mostly respected until the final finishing wave where we might get an overthrow).
Alternate Count 1 – Columbia’s Option
Pros: Very elegant. Look at the trendlines for this count in his post (Week-end thoughts, A Fresh Prospective!!!)
Cons: None. I really like this count. And am really thinking about making it my preferred. Col’s trendline observation is the most insightful analysis yet I have seen on this rally.
Alternate Count 2 – Large Ending Diagonal
Pros: I think a huge wedge *wants* to end with a diagonal (Alternate Count (Very Speculative))
Cons: That is one big freaking wedge. It is way out of proportion with the rest of the waves in the rally
So did today’s action give any clues?
Like I mention above, **if** the move today is a Minute degree Wave 1 completion (as opposed to a A wave or a completed C), this has a few implications.
1. This will be the start of a very large rally, and will likely take us past the 7-month wedgelines.
2. I believe the wedgelines are *extremely important* will be respected, with only minor excursions, until the final move. If we get a significant break to the downside, I believe P2 will be over. If we get a significant break to the upside, then that will be the final rally before P2 is over.
I, of course, may be completely wrong. But this is a key assumption I am making.
So before jumping into some counts, lets look at Weekly and Daily charts.
For me, trading is not a hobby, not a game of chance not some intellectual odyssey filled with clashing egos and chest pounding pissing contests. No, for me, trading is a way to make a living, doing something I love and am good at. So my approach is a little different then some of you may be used to.
Yet every so often a communication from one you impacts me with frustration and dismay. By now I would think that if you have been with me for six months, or a year, or longer, you would be making money trading, using some ideas and techniques that I have described over the months and years of writing AllAllan. But I hear something else from these communications, I hear that many of you are not getting it.
Today I am going to present to you three ways to trade using the simplest of strategies based on end of day prices and a minimal of necessary hardware or software. I am going to use an unleveraged ETF and remove all of my more sophisticated (read: expensive) tools, using only Market Club Triangles and 3 Line Break Point charts, both very similar in their construction and entirely objective in their application.
You can trade this going forward on XLF and probably not need anything else to be successful month to month, quarter to quarter and year to year. But it is my hope you will instead, glean from this the very basic premise of a simple rule-based system that can be applied and tweaked to any number of tradables, a simple trend following trading system from which anything is possible if you only have the discipline and desire to make it work.
XLF – Market Club Triangles -Daily Chart
Their are actually two systems shown on the chart:
(1) Enter trades on appearance of WEEKLY TRIANGLES and exit on appearance of reversing DAILY TRIANGLES. If flat, RE-ENTER on appearance of DAILY TRIANGLE in direction of most recent WEEKLY TRIANGLE;
(2) ENTER/EXIT on appearance of WEEKLY TRIANGLES (disregard DAILY TRIANGLES).
This is a non-trading topic, but I wanted to post it during trading hours so as many eyes can see it as possible. Feel free to contact me directly at email@example.com with any questions.
Last fall there was some discussion on the PSW board regarding setting up a YouCaring donation page for a PSW member, Shadowfax. Since then, we have been looking into ways to help get him additional medical services and to pay down his medical debts. After following those leads, we are ready to move ahead with the YouCaring site. (Link is posted below.) Any help you can give will be greatly appreciated; not only to help aid in his medical bill debt, but to also show what a great community this group is.
In general, over the last several decades the world has experienced an unprecedented era of peace and prosperity. The opening up of relations with China and the "end of the Cold War" resulted in an extended period of cooperati...
U.S. Senate Democrats included $225 million for Israel's Iron Dome rocket interception system in an emergency funding bill on Tuesday, which, as Bloomberg reports, in addition to the $351 million that’s already under discussion for Iron Dome in fiscal 2015 would bring the potential new funding to $576 million, compared with the $176 million currently requested by the Pentagon. "Iron Dome has saved countless Israeli lives," Defense Secretary Chuck Hagel told Senate Majority Leader Harry Reid in a letter dated yesterday and while the Iron Dome system is built by ...
Key indexes around the globe are exhibiting little volatility in the wake global conflict. The Nikkei and Dow closed the day down 0.10% and 0.16%, respectively. The Eurozone's STOXX 50 was up 0.12%.
The S&P 500 took center stage for US indexes, setting new intraday and closing records despite ongoing tensions in Europe and the Middle East. The index opened higher, quickly sold off to its -0.05% intraday low and then rallied to a record intraday high, up 0.29%. After a minor lunch-hour dip, it spent the afternoon in a narrow trading range to its 0.18% gain for a record close.
The yield on the 10-year note ended the day at 2.48%, unchanged from yesterday's close. It is now only 4 bps above its interim closing low of May 28th.
Here is a 15-minute chart of the past five sessions. The S&P 500 is up 7.50% year-to-date.
The Environmental Protection Agency is considering a review of its 1977 rule that limits the amount of whole-body radiation that any member of the public can be exposed to as a result of the uranium fuel cycle.
While they have not made any immediate determination to change the current level of 0.25 millisieverts per year of allowable radiation, they are reviewing the scientific data to decide if changes need to be made.
Items under review include water resource protection, spent fuel storage facilities and alternative technologie...
A large call spread initiated on Orexigen Therapeutics, Inc. (Ticker: OREX) on Monday morning looks for shares in the name to rally approximately 30% by September expiration. The September expiration is noteworthy as the company awaits the results of the FDA’s review of its resubmitted New Drug Application (NDA) for NB32, an investigational medication being evaluated for weight loss, after the review was extended for three months back in June. The upcoming Prescription Drug User Fee Act (PDUFA) date is September 11, 2014, according to a press release issued by the company. Shares in Orexigen today are up roughly 0.40% at $5.34 as of 2:15 p.m. ET.
Despite a highly eventful week in the news, not much has changed from a stock market perspective. No doubt, investors have grown immune to the daily reports of geopolitical turmoil, including Ukraine vs. Russia for control of the eastern regions, Japan’s dispute with China over territorial waters, Sunni vs. Shiite for control of Iraq, Christians being driven out by Islamists, and other religious conflicts in places like Nigeria and Central African Republic. But last Thursday’s news of the Malaysian airliner tragically getting shot down over Ukraine, coupled with Israel’s ground incursion into Gaza, had the makings of a potential Black Swan event, which in my view is the only thing that could derail the relentless bull march higher in stocks.
Nevertheless, when it became clear that the airline...
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This post is for all our live virtual trade ideas and daily comments. Please click on "comments" below to follow our live discussion. All of our current trades are listed in the spreadsheet below, with entry price (1/2 in and All in), and exit prices (1/3 out, 2/3 out, and All out).
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We tried holding up stock prices but couldn’t get the job done. Market Shadows’ Virtual Value Portfolio dipped by 2% during the week but still holds on to a market-beating 8.45% gain YTD. There was no escaping the downdraft after a major Portuguese bank failed. Of all the triggers for a large selloff, I’d guess the Portuguese bank failure was pretty far down most people's list of "things to worry about."
All three major indices gave up some ground with the Nasdaq composite taking the hardest hi...
Reminder: Pharmboy is available to chat with Members, comments are found below each post.
Well PSW Subscribers....I am still here, barely. From my last post a few months ago to now, nothing has changed much, but there are a few bargins out there that as investors, should be put on the watch list (again) and if so desired....buy a small amount.
First, the media is on a tear against biotechs/pharma, ripping companies for their drug prices. Gilead's HepC drug, Sovaldi, is priced at $84K for the 12-week treatment. Pundits were screaming bloody murder that it was a total rip off, but when one investigates the other drugs out there, and the consequences of not taking Sovaldi vs. another drug combinations, then things become clearer. For instance, Olysio (JNJ) is about $66,000 for a 12-week treatment, but is approved for fewer types of patients AND...
I just wanted to be sure you saw this. There’s a ‘live’ training webinar this Thursday, March 27th at Noon or 9:00 pm ET.
If GOOGLE, the NSA, and Steve Jobs all got together in a room with the task of building a tremendously accurate trading algorithm… it wouldn’t just be any ordinary system… it’d be the greatest trading algorithm in the world.
Well, I hate to break it to you though… they never got around to building it, but my friends at Market Tamer did.
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