Category Archives: TA
Gambling title seems oddly appropriate, especially after watching David Einhorn taking down $4.3M in the ‘One Drop’ WSOP $1M buy-in tournament (which he’s donating to charity, by the way).
If you’re checking in on the 4th after an Nth round of debauchery with levels of inebriation approaching ‘that one time in college’ levels, you might want to come back and read it later. There’s a bunch of numbers and charts here that are liable to put you to sleep and miss out on the next round of ‘hey, y’all !!! watch this!’ fireworks display.
Wanted to write a quick update on the assessment of where we are in the market at this point, especially since signals I described in my ‘I bet it all’ post have just triggered (If you haven’t read the original post, it might be a good idea to do that in order to understand the 1st signal here).
First, ‘Planes, trains and automobiles’ signal update. The breadth thrust signal triggered today. Here’s an update on performance of the signals I mentioned in that post:
- As you can see, there are 2 new signals for 7/2 and 7/3/2012 with one on 7/3 being especially strong and fitting well within Whaley parameters. Typically breadth thrust like this indicates the beginning of a new sustained move higher. However, there is indeed a caveat to that. As you can see, the one outlier of poor performance in the whole set of data (at least thus far) is the 7/1/2011 signal. It certainly appears that when a breadth thrust occurs near 52wk highs it is much more likely to indicate a blow-off top than a beginning of a new bullish move. I would be much more comfortable with levering up long had we had this thrust when the market was down 10% than at this point – we are not even 3% off 52wk highs.
- Is there anything else that can support the bull case then? Something that would increase one’s confidence in this ferocious rally? Well, there’s the 13EMA of NAHL that I like to use as the long term indicator of where the market is heading. Something like this doesn’t really catch the very tops or bottoms, but is a decent indicator for a long term direction. 13EMA first waded into the positive territory on 6/20 and after a brief dip has quickly recovered and is now firmly above 0. That has certainly been a bullish signal in the past and bolsters the bull case on intermediate and long timeframes.
- We are also approaching the earnings season, and with expectations that have been severely beaten down are likely to see a series of reports that are way over analysts expectations.
- 50SMA on SPY has finally started to tick up today, possibly indicating the end of the correction as well.
- And finally, election year seasonality is decisively bullish:
So based on these signals and assessment, should you lever up long and leave for a long vacation as it will be undoubtedly paid for (and more!) by the bountiful gains simply given to you by mother market?!
One thing to keep in mind is that we are severely overbought at this point, so much so that the value of NYMO reached 4th highest level in 14 years. Something like that absolutely has to be worked off through either price (moderate pullback) or time (few relatively flat sessions with indexes just drifting sideways). So hold off on getting that 2nd mortgage and selling wife’s jewelry to put it all in on a bunch of triple leveraged ETFs for just a few days.
When I look at the instances when NYMO reached very high levels (79+ in this study), short term picture (next few days) looks rather bearish (average 0.81% loss with 83% probability the next day and 1.75% with 70% probability over the next 2 days). Could it be skewed by horrendous losses of 2008/2009? Sure, but hard to guess just how much role that played in the overall picture.
Then there’s also the surprisingly well fitting analog of 2011 and 2012 charts of SPY (well, more precisely 9/2010-8/2011 with an overlay of 9/2011-now). I did cheat a bit by shifting this year’s numbers by about 2 weeks to ‘make it fit better’. While I don’t think there’s a great chance of repeating the last year’s summer debacle, especially in light of election year seasonality, considering that European shenanigans are far from over, keep this picture in mind.
So where does this leave us? While things can certainly change (even tomorrow since for some reason Europeans don’t celebrate the wonderful Independence Day of the United States and keep their markets open), as of the time of this writing things are looking up for the bulls on the intermediate and long timeframe. On the short timeframe we are WAY OVERBOUGHT and need to get these conditions relieved (through time or price). I did buy some TZA and SQQQ to hopefully take advantage of the pullback, but would not hesitate to cut them if it appears that we are just basing and not pulling back. Once the pullback is over (you’ll know it when you see it, but 1338-1340 levels seem like a good pullback target IF we pull back), I am certainly prepared to allocate a significant portion of my portfolio to the long side.
Enjoy the holidays, folks, and remember to let those bottle rockets out of your hand BEFORE they go off.
As 2012 revision of economical and financial Armageddon looms (again), let’s take a quick look at the $SPY and see if we can ascertain what’s going on here.
First we’ve got regular ol’ SPY daily chart, which shows a much-discussed-by-now-and-oh-so-obvious H&S pattern with a close below neckline.
Measured move for completion of this pattern is low 1280-ish. For those of you who’ve had a chance to read my Titanic Syndrome post, which calls for at least 10% decline off a recent high, this target – while, perhaps painful – should be of no surprise.
As clear as H&S pattern on SPY may be now, I first noticed it when I looked at the equal-weighted SPY index – SPXEW. I like to take a look at it every now and then as it represents a more accurate picture of breadth in the market. Here’s the same look on SPXEW chart:
We can take another look at the index by employing Renko charts. The beauty of Renko charts is that they filter out all the noise and allow you to see the price movement rather clearly. Some traders follow a Mechanical Trading System based on Renko charts, so if you’re interested, give it a read (h/t to @FibLine for introducing me to Renko charts) . As is pretty clear from this chart, we do indeed have a ‘Sell’ signal.
And yet another look comes from an Ichimoku chart of SPY. I have just recently started reading up on these and am far from being an expert, but from what I do know, being below this cloud thing is pretty bearish. You can also notice a ‘Sell’ signal issued on 4/17 when base and conversion lines crossed (or whatever the proper Japanese names for them are, I know I’m going to get some crap from the experts on this one ).
Well, there you have it. As well-liked-by-everyone-until-Sopranos-ended-with-their-song ‘Journey’ sings – ‘Any way you want it’… The picture is rather bleak. As I am not a permabear (or perma-anything for that matter), I do hope I’m wrong.
On a brighter side, we are due for at least a short term bounce. Bonds gapping up and closing above their BB and VIX being above its BB ( h/t to @ukarlewitz for pointing that out) as well adds to the probability of a short term bounce. However with May seasonality and the way the charts look at this point it may be but a short reprieve. What’s also a bit disconcerting is – as @chessNwine pointed out – we should be bouncing already, but we are not. In the meantime keep plenty of dry powder on hand until it’s time to be aggressive and good luck!