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).
Burger chain Shake Shack Inc's <SHAK.N> shares fell as much as 11.3 percent on Thursday after the company said it would convert about 21 million of its Class B shares into Class A shares, allowing pre-IPO investors to cash out.
The investors, including top shareholder Leonard Green & Partners LP,...
I remember the first time I walked into Henry Blodget’s new startup, Business Insider, back in 2009. Twelve fresh-faced kids were crammed into a room about the size of my bedroom, pounding away on laptops, creating a new destination website. He took me over to a corner; we sat down in front of a few cameras; and he began shooting question after question at me, later turning the session into a series of interviews.
You walk into his office today and it’s still packed wall-to-wall with fresh-faced kids (the older I get the younger they look), but the offices are much larger, and it seemed to me last time that there had to be at least 150 people in them. But the interviews are still quick-paced, even if they’re now conducted in a special room, with upgraded equipmen...
As the odds of a Fed rate-hike this century drift asymptotically back towards zero, the stability-desirous central bankers of the emerging world are suddenly facing soaring currencies as hot money floods back into Emerging Asian markets. The Rupiah and Ringgit are up almost 3% overnight as everything from the Baht to the Won are surging against the USD. Asian FX is up 6 straight days against the USD (and 8 of the last 9) for the biggest 9-day gain since May 2009.
The China devaluation spike in The USD against Asian FX is rapidly being unwound...
What do S&P 500 bull and bears have in common? There opportunities are being limited by a tight range!
I started sharing with members several weeks ago that the patterns suggested the S&P would be in a “Chop House” environment for a while and that I doubted bulls nor bears would be that happy of campers.
In this type of an environment, unless you are really quick, nimble and accurate, its a time and place to take it easy and let this play out. For the majority of traders, the distance between the close on 8/25 at 186 and the close of 200 on 9/16...
1) The shares of one of my largest short positions (~3%), Exact Sciences, crashed by more than 46% yesterday. Below is the article I published this morning on SeekingAlpha, explaining why I think it’s still a great short and thus shorted more yesterday. Here’s a summary:
The U.S. Preventative Services Task Force’s Colorectal Cancer Screening Draft Recommendation issued yesterday is devastating for Exact Sciences’ only product, Cologuard.
I think this is the beginning of the end for the company.
My price target for the stock a year from now is $3, so I shorted more yes...
Bulls can be happy with today's progress. What weakness emerged today was reversed by the close, a change on yesterday's action where sellers dumped in the last few minutes of trading. Volume climbed to register an accumulation day.
The S&P finished at the 50-day MA, but beyond that there is plenty of room beyond that to run to the next level of resistance at 2,045. Technicals are net bullish.
The Nasdaq pushed off its 20-day MA and has another 50 points of maneuver before it gets to its 50-day MA. Technicals are not yet net bullish, but they are close.
Uncertainty about the health of the global economy led investors to flee U.S. equities during Q3, primarily driven by worries about China's growth prospects and the Federal Reserve’s decision to not raise rates. Sure, there are plenty of real and perceived headwinds, but on balance it seems that a recession here at home is not in the cards. And when you consider sentiment and the technical picture, it appears that a continuation of Friday’s bounce is in store. The question remains as to whether the seasonally strong Q4 will be able to propel the bulls through levels of resistance that have built up.
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Baxter Int. (BAX) is splitting off its BioSciences division into a new company called Baxalta. Shares of Baxalta will be given as a tax-free dividend, in the ratio of one to one, to BAX holders on record on June 17, 2015. That means, if you want to receive the Baxalta dividend, you need to buy the stock this week (on or before June 12).
Back in December, I wrote a post on my blog where I compared the performances of various ETFs related to the oil industry. I was looking for the best possible proxy to match the moves of oil prices if you didn't want to play with futures. At the time, I concluded that for medium term trades, USO and the leveraged ETFs UCO and SCO were the most promising. Longer term, broader ETFs like OIH and XLE might make better investment if oil prices do recover to more profitable prices since ETF linked to futures like USO, UCO and SCO do suffer from decay. It also seemed that DIG and DUG could be promising if OIH could recover as it should with the price of oil, but that they don't make a good proxy for the price of oil itself.
Kim Parlee interviews Phil on Money Talk. Be sure to watch the replays if you missed the show live on Wednesday night (it was recorded on Monday). As usual, Phil provides an excellent program packed with macro analysis, important lessons and trading ideas. ~ Ilene
The replay is now available on BNN's website. For the three part series, click on the links below.
Part 1 is here (discussing the macro outlook for the markets)
Part 2 is here. (discussing our main trading strategies)
Part 3 is here. (reviewing our pick of th...
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.
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