Joined Nov 11, 2007
1,458 Blog Posts

Another Tradeable Bounce, or Lower Lows?

In several recent posts I discussed how I use a couple of breadth indicators. The last post, Now I’m Looking for a Tradeable Bounce, was spot on:

The good news is that both indicators are now aligned which means I feel comfortable looking for a tradeable bounce. This means I expect a bounce that will last 3 to 5 days.

So the bounce lasted 3 days and we have fallen for 2 days. The indicators are again pointing to a tradeable bounce. But will we get the bounce again?

The short, honest answer is I don’t know.

There are examples of the indicators working over and over again in rapid succession. See September and October of 2012 in the chart below. However, when the market is correcting, eventually a lower low will occur. I believe the market is in a corrective phase, so it makes sense to me to expect lower lows. Will they come after another tradeable bounce?

A couple of factors worth considering: The 50 day average will act as an area of support, and the expectation is NOT for the economy (or the market) to completely fall apart. Those of you who remember well what it was like to trade from 2007 – 2009 should note that we are not staring down an Armageddon. Instead, the odds are that we are simply having to shrug off a garden-variety market correction. If you didn’t trade during the Great Recession, then you should be accepting that market corrections are just part of the game.

Breadth 6_13

We are focused on the green “decline line” indicator and the red “number of stocks above their 5 day moving average” indicator. Both are aligned at levels that typically indicate an imminent bounce that may last 3 – 5 days.

My best guess is that we see some stabilization around the 50 day average. I would not be surprised by another quick and small bounce. But ultimately I am expecting $SPY to trade beneath the 50 day average, within a week.

Comments »

Top 5 Fidelity Sector Funds

Pardon my absence this weekend. I was detained by the government due to being flagged by the NSA.

Below are the top 5 Fidelity Sector Funds as ranked by my Fidelity sector fund rotational system.

  1. FSPCX (Insurance)
  2. FBIOX (Biotechnology)
  3. FSPHX (Healthcare)
  4. FPHAX (Pharmaceuticals)
  5. FSCPX (Consumer Discretionary)

I still find this to be a weird mix. I’m not sure what it says about the coming Obamacare implementation, if anything.

Year-to-date, the system has returned 13%. For the record, Sell in May would have once again not been a bad idea, assuming one didn’t sell at the beginning of the month.

$SPY has returned 15.7% year-to-date.

Comments »

How to Conduct Business on the Internet Free of Government Surveillance

I don’t know how. But you figure it out, or find the company that can guarantee it, and that is your next hot stock.

On the 64th anniversary of Orwell’s 1984, we find out that the government has been all up in our craw, for years. Fitting.

I don’t much feel like writing tonight. Instead, I’m taking to twitter, and burning up the NSA servers with 140 characters of anti-government ranting. Follow me if you care: @Woodshedder



Comments »

Now I am Looking for a Tradeable Bounce

In two recent posts, Short Term Breadth Pointing to a Bounce, and So We Got the Bounce. Now What, I discussed how to interpret two of the indicators I use and walked the reader through my thinking when interpreting them. You’ll see that the indicators were accurate in predicting the first three days of this week.

The good news is that both indicators are now aligned which means I feel comfortable looking for a tradeable bounce. This means I expect a bounce that will last 3 to 5 days.

Let’s have a look…Click on the chart to enlarge it.

Breadth 6_5

Note that the very short term decline line indicator (green line) is above 99, which means a bounce (or stabilization) is imminent.

The short term “number of stocks above their 5 day moving average” indicator (red line) is also beneath the trigger area of 650 with a reading of 449. This is the lowest reading for this indicator in 2013. The last time we had a reading lower than this was November 14th, 2012, at 388. This date was two days before the absolute low of the Fall 2012 correction.

These indicators do not guarantee a tradeable bounce, but the odds are on our side. Couple the odds with the 50 day average just beneath Wednesday’s close and I’m looking for a bounce.

Comments »

Woodshedder and Tickle

My wife said, “Oh my God, I married Tickle!”

I don’t think it was a compliment.

Woodshedder and Tickle

Son 2 was taking the picture and was obviously a little nervous to be in the company of Discovery Channel’s greatest moonshiner. Number 3 is poking his head from behind my autographed “If you really love your country you’re gonna have to love moonshine” t-shirt.

Baseball and Moonshiners. Good times!

Comments »

So We Got the Bounce. Now What?

Last night I wrote about a couple of my indicators, one of which was pointing towards a bounce being imminent.

Well we got the bounce, so now what? Let’s look at the updated indicators, and I’ll walk through my thinking process.

Breadth 6_3

As I mentioned last night, I use the red line indicator, which is a measure of the number of stocks trading above their 5 day moving averages, to gauge how sustainable a bounce might be.  The indicator bottomed out around 900 or so. A glance back through this year shows that tradeable bottoms have occurred much lower than the 900s. In February, it was 501. In April it was 620 and 459. In general, I start getting excited at any reading beneath 650.

So what does this mean for the next few days?

With the decline line indicator reading neutral at 49, the imminent bounce has been had. The red line did not reach a level which makes me get excited about the possibility of a sustainable bounce. Therefore, my thinking is that I wouldn’t be surprised if the bounce continues, what with Ben Bernanke and all, but I’d be less surprised by a lower low.

Another pattern than I’m watching is that $SPY has been touching down on and then bouncing from the 50 day average, every couple of months.

The one caveat is that today’s candle, a hammer, and on good volume, has traditionally been one of the candle patterns that I trust the most to signal a low. It has been such a strong signal for me that I’m tempted to allow it to override my red line indicator. What’s a few hundred stocks that are not beneath their 5 day moving average when the day’s candle is bullish? I don’t know the answer to that. We’ll have to wait and see.

This is not an exact science. We couple our experience with our data by using our previous experience to help us interpret our current data.

Comments »