It has been quite some time since I have put up some charts without a strategy being involved. I have not done so mostly because The Chart Addict has been doing a great job and has been covering technical analysis of the indices in his posts.
However, I’m seeing some things that I have not seen The Addict discuss, and so I want to cover those topics tonight.
The 200 day moving average has generated some interest as a target for the current or developing bear market rally. From Friday’s close, a rally to the 200 day average would equal a ~22% move up. As the average is falling, the rally would be less than 22% as it will take it more than a few days to get there.
A rally to where the 200 day average currently sits would equal a gain of ~19% for 2009. It seems unlikely to me that the indices will see gains that large so early in the year (February).
My gut feeling combined with some analysis and some fairie dust thrown in for good measure says $100 on the SPY would be a good initial target as that is the 38.2% Fibonacci retracement from the May 08 highs to the November lows. The $100 target would equal a gain of 15% from Friday’s close, and a gain of 9% for 2009.
The 50% retracement level ($108.00) corresponds with the big breakdown gap in October and might make a decent target area. I maintain that it is too early in the year to achieve that level.
The Triangle
Another pattern that has been forming for several months and is worth keeping an eye on is the large triangle. I expect that $90 will therefore provide some resistance both from the top of the triangle, whole number resistance, and because that level has provide resistance since November.
MACD
MACD must make a strong move here. Period. It must break above the downtrending line draw on the chart. A strong uptrend will not be established as long as MACD cannot rally significantly above the zero line.
RSI
Green vertical lines are drawn on the more recent months to show what happens when RSI2 is above 90. Selling short the SPY on Friday’s close would give a 68.94% chance of a close lower than Friday’s close with the trade lasting an average of 5 days.
Volatility
As demonstrated by ATR(10), volatility is down significantly from the Armageddon trading period a few months ago. Because the indices have been trading in a tight range, I would not be surprised by a big move, but for now it seems the market is content to drift innocuously upward. If volatility continues to decrease, the bulls should be the beneficiaries.
What Does It All Mean?
Short term, I’m bearish. I’ll be selling short the SPY or an equivalent on Monday’s open.
Intermediate term, over the next month or two, I am still slightly bullish. I expect that the indices will drift upward, and go positive on the year.
Long term, over the next 6 months to 1 year, I’m bearish. I believe strongly that the November lows will be breached again.
Still got the eye Shed.
You know what I like about this post best?
That your vertical green lines perfectly mark the three major swing trades I’ve made this year, all timed rather well.
It has been too easy Danny.
You know I’ve taken the same trades.
I think the more hedgefunds that blow up, the better these trades will work.
Retail simply does not sell strength. The buy it. The hedgies know better.
Cuervo has me convinced that the low volatility of 2003-2006 was due to the hedgies ALL trading mean reversion strategies. They sucked all the volatility out by selling spikes and buying dips.
With them gone, I’m hoping this will keep working for some time.
I know. Thats an interesting point about the HFs, what a fucking joke. I think it’s because most retail traders in the “short term trading sense” have a difficult time acquiescing to the fact that everything they “know” about the market, with reguards[sic] to breakouts and price action is probably wrong.
There are 2 main dynamics to the market:
1. strength [weakness] begets strength [weakness] – momentum strategy works best.
2. Buy Dips [short rips] sell rips [cover dips]
There are 3 phases:
1. Up
2. Consolidation
3. Down
If you know which numbers we’re in, + risk mgt and a little gut, you print the monies.
Great post
So, are you going to be on TV?
Oh, don’t forget: this is the Bill Miller bottom.
Yep, the show should air in June.
I think you guys are spot on, and IMO Fly will need to change the masthead again real soon. In addition to the detrended oscill’s flashing red for the last 3 days, the magnitudes of the daily momentum has decreased over the last 90 days (also forming a triangle), in addition to the SD of the daily momentum. Shannon made the comment last week that people will start to give up on the market if this uptrend fails, and I think that’s true.
I’m trying this sucker’s trade on EMC, if EMC will get to $13–I hope I don’t get stopped out at $13.4–It’s a potential 11% gain!
http://zstock7.com/wp-content/uploads/2009/02/emc2-9aaaa.jpg
zee
Tonight I look at U.S. stocks trading average of $10 million daily or more.
I find 124 with 2-day RSI of 97.5 or more and only 6 with 2-day RSI of 2.5 or less.
If I use 2-day RSI of 90 or more, I find 385, against only 26 with 2-day RSI of 10 or less.
Makes me think we go down in the indices this week.
Pistolero,
I used to track that ratio. I quit because it didn’t seem to have an edge. It is certainly helpful to know, but I couldn’t figure out how to trade it.
What I found is that the market would make tops and bottoms and show more extreme RSI readings when it did, but the readings weren’t consistent enough to set any sort of threshold.
Track it for a few months and you’ll see what I mean.
You’re the laziest blogger south of Penn.
Did ya pick up that jar of BBQ sauce yet?
I’m working on a post right now, boss man.
Between your post and the Food Channel show on now about BBQ (Diners,Drive-Ins and Dives) makes me want to pull out the smoker and do a briskit, Texas style.
A midnight snack.
I know TC. Its making me hungry too. And I even had some good oven fried pork chops tonight. Might have to get up and snack…