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H. T. Love
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Spent over 30 years in computer systems work, many different functions. Owned my own business for awhile. Got tired of it (managing employees is not my baliwick) and stopped doing it professionally. Did other things, off and on, for some more years and finally bumped into this investing/trading... More
  • More Thoughts on the Market 1/29/2009 20 comments
    Feb 1, 2010 7:26 PM

    Back on November 30, 2008, I tried my hand at something other than natural gas and UNG in "Some Notes About Observed Market Activity".

    With the apparent correction underway, I thought it might be time to take another look and see what the charts might tell us (or at least how a new guy like me might divine one or more future possibilities, to be more accurate).

    This article will be much shorter, and maybe less useful, but I did want to at least offer them up for folks that might find it useful.

    Before proceeding, I want to thank all those that commented on the previous article and furthered my education in this arcane art.

    Since that previous article, the trend lines forming the rising wedge have become obsolete. I had a three-year daily I had been working with, so I updated it and took a look. I know I should have used a weekly chart for this time-frame. But I didn't feel like starting over.

    Here's the prior chart, for a quick review.

    (Click to enlarge)

    Prior S&P From 11/30/2009 Instablog "Some Notes About Observed Market Activity"

    When you view the new chart, the things that I feel you should notice are:

    • The trading pattern *after* the break *above* the top yellow line and how similar in many ways it is to the uptrend beginning at the vertical white line at the left of the blue up-channel lines, after doing some consolidation. Could this portend entry into another uptrend of 3%-7% up and down moves on a monthly basis? I can't say, but I'm going to be alert for behavior similar to what was highlighted in the other article.
    • The first three support levels denoted by the horizontal yellow lines. There are two more nearby support levels below these which I've not marked, but you can easily identify them. My thinking is that if the market is to do more than the 10% correction (Freya suggested 20%), it's going to need some help in the form of some absolutely horrible news out of Washington or elsewhere. 20% down is certainly reasonable as it leads to one of the oft noted critical levels around $980. This is two support levels down from the bottom yellow line. If we get below these, it's unspeakable, so I won't.
    • The upward trend denoted by the parallel blue lines (constructed based on a suggestion from Freya - thanks). Since the support line of this channel is about to intersect the $1070 support line (middle yellow line) on or about 2/14, I think this will be a key forecasting point. If the S&P is below that intersection then I think we're headed to $1030 or so, which would be 11% off the $1150 high, about 3.7% down from the Friday 1/29 close of $1074.
    • The downward sloping straight red line - three year trend. Note that it will also intersect the $1030 support line around 2/14 - another critical support point I think. Again, this is around the 10% correction point that folks have been considering.
    • The 200 day SMA is at $1013 and will soon intersect the 3 year downtrend line (red line) and the bottom support line at $1030. My best guess is that this intersect will also occur around 2/14, or maybe a little after. But I think it will hit then as the average is going parabolic (but only very slightly) at this point.
    (Click to enlarge)
    Partial 3 Year S&P500 Daily 9/24/2009 - 1/29/2010


    My summary thought is that around 2/14 is a very critical juncture. 10% correction, 3 year trend, 200 day SMA and a support are all meeting for coffee and to discuss with the market whether or not to put the big hurt on us.

    Note that the top yellow support of ~$1070 is untested. So Monday's behavior may be important. It may not be that important if it breaks that as long as the blue support line is not violated more than a day or two.

    When comparing the monthly cyclic patterns note that there was a down move after an initial run up before the monthly cycles began. We may be observing a miniature version of this right now. I don't know yet, but I'm watching.

    Update 2/1: we got good news in ISM and foreign production, the dollar weakened a bit, Obama is making noises as if he will actually be concerned with deficits, it seems that healthcare reform is going to receive at least a good re-working before anything of major destructive value occurs and we had gold, metals and market all go up on the same day. Somewhat unusual and surprisingly pleasant.

    My gut feeling is that we won't see much more down without some really bad vibes to offset the good news and overcome the critical inflection point(s) that should occur on or around 2/14. If this holds, then I think we start some kind of uptrend moving towards the $1100 or greater area. Many pundits have been calling for $1200 on the S&P500 by year end.

    It is somewhat disturbing that with the conditions today we didn't come closer to the much-desired $1100 S&P500 level. I'm thinking that folks are minimizing risk by taking profits and that is holding the market in check. I think that this may be overcome if the things I've focused on hold.

    And no "black swans" or major disruptive catalysts appear.

    I welcome all constructive views and appreciate you taking the time to help me along.

    HardToLove

    Disclosure: long some bio-science, some capital equipment, some gold miners and a couple speculative energy stocks.
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Comments (20)
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  • doubleguns
    , contributor
    Comments (9691) | Send Message
     
    HTL My take is the fear has not left the markets and the dollar will continue its climb up the ladder to the top of the high dive. There are to many "ifs" that no one can predict the future but I don't see the fear going away tonight.

     

    More down. Lower PM prices and a buying opportunity when the dollar gets to the end of the diving board for another plunge. I just don't know how many steps there are to the top.

     

    I am patiently waiting for the reversal to get into the metals again. Double long gold and silver.

     

    We shall see what happens. There are too many wild cards in this poker game and that really makes it tough going.

     

    I am curious if this was simply another monday bounce or if it was a smack at the dollar with all the talk about the budget and another 1.5 trillion more deficit spending. That could not have helped the dollar in my opinion but it will be forgotten in a couple of days.

     

    Lets see what tomorrow brings..........
    1 Feb 2010, 08:54 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19491) | Send Message
     
    Author’s reply » What I've heard about the $ is that it's really fear about the Euro, which has weakened substantially. And they say it's got more to go.

     

    I agree about the fear too. That's why I think the "risk management" being used is to lock in profits and contributing to keeping the market sort of down even when theoretically good news comes out. It's the same strategy I intend to used for any larger investments/trades I do until I have confidence in our system again.

     

    But there are folks who trade on the numbers only (almost quants?) that we hear on the boob-tube daily. If they have the money, the ear of those with money, ... they might be able to move the market the way they believe (or say they believe) it's going.

     

    I guess I'm sort of in a "don't fight the tape" mode.

     

    I don't really have a strong feel for which way it'll go, but from what I can see, around 2/14 ought to give us a pretty good hint.

     

    HardToLove
    1 Feb 2010, 09:09 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
     
    Yeah, I can't take it anymore! Tomorrow this, tomorrow that. The long term trend is up. I got whacked but good out in the shed two and a half weeks ago.

     

    Was truly hoping this is the major correction of which we've all been waiting, waiting, waiting to happen. Was fully prepared to short the markets full tilt. Glad I did not. But then again, I bet even the big trading houses are jittery, evidenced by the low volumes recently.

     

    Wells Fargo's cautious play revealed today (in OG's insta) indicated early on that they were protecting themselves.

     

    Below, and I'm sticking my neck out here, my findings lead me to think that the major correction is off the table for now. Last Friday, I would have said otherwise, but I had not researched the charts.

     

    If what the charts portend, then cash is indeed not king, the charts are. They rule. We'll see by the end of this month.
    2 Feb 2010, 12:28 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Hi HT - Great stuff…

     

    Your second support number is 1074. That's the same number I got from a different method. Obviously, the two methods are somehow related. I need to look into that. Your interpretation is the same as mine…. without some really bad event, the market floor at the current time is around 1074.

     

    What is the time period for your moving averages?
    1 Feb 2010, 08:54 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19491) | Send Message
     
    Author’s reply » 20/50/100/200 - Green, Blue, Yellow and Red corresponding.

     

    Reading the precise numbers on the chart is difficult sometimes. When I get a $1070, that's "close enough for government work" results.

     

    HardToLove
    1 Feb 2010, 09:11 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    HT, the reason our different methods came up with highly similar results is because the lines you are drawing from lowest values to lowest values are graphic approximations of the lower Bollinger limit of the S&P. My method uses a statistical approach to mathematically predict the lower Bollinger limit of the S&P based on a surrogate for the price of oil, BP. So our numbers are very similar because they are based on the same underlying information.

     

    I found out quite a few very interesting things over the weekend as well… I will get that information out as soon as I can.
    2 Feb 2010, 10:59 AM Reply Like
  • tripleblack
    , contributor
    Comments (13581) | Send Message
     
    HTL, I tossed out a 1070 in my crude estimates and charting a while back, then User via his BP charting came up with essentially the same number in roughly the same time period (his was much more precise, of course, while mine was "between Christmas and March", to lay out the overall area where I expected a correction, and then I estimated 1070 last Tuesday as a likely spot for some support).

     

    I have been figuring a 5-15% drop, with 8% as the obvious middle ground, which yields a 1058-1060 estimate.

     

    Look over the Dollar charts, I spotted a recurring low spot occurring on the first day of many months, followed by a fairly sharp V recovery for a week or two. With the markets moving in an anti-dollar relationship for the most part, those dollar recoveries were matched with down periods for the stock markets. Once again, Feb 1 saw the dollar lose, and the markets win. Will we also see a sharp dollar recovery extending the rest of this week, and perhaps the next?

     

    IF the ECB doesn't regain some sort of handle on the Euro (they have been slipping fast), this could create dollar "strength" simply by comparison, which I have also been expecting - there are now quite a few people talking down the Euro, just as there were last month talking down the dollar. In fact, BOTH currencies have big problems and should be weak. Lack of competition will default in favor of the dollar, just from the fact that so many powerful economies peg to the dollar - or manipulate their currency to match dollar swings (yen).

     

    Now we will also see how much of the speculation regarding Gold is based on fundamentals, and how much on geopolitical risk - and particularly, how much upon the idea that Gold would soon displace the dollar as the reserve currency. Will we see the "usual" flight to Gold when if the markets correct strongly - and the Euro sheds some weight?

     

    2-14 is an interesting date indeed, it is smack dab in the middle of where I expected the correction to occur, rather than late January.
    1 Feb 2010, 10:58 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19491) | Send Message
     
    Author’s reply » Well, that's disturbing. Too many of us have essentially the same results. If we are representative of the larger market, there's too many on one side of the trade! A strong contrarian indicator! =>:-O

     

    Seriously, I don't have much to add to what you said. I have been watching DXY daily before market open as one of my tools for guesstimating what might happen that day. There was a very short period where the inverse relationship broke down, but it seems it's back.

     

    As for the monthly action, bookkeeping or margin related?

     

    For the Euro, it was the "golden boy" for a while, and then Greece popped up. Here we are just a couple of weeks later and the dollar pops up. Maybe that's what caused Gartman's call for the dollar to start and continue to rise.

     

    HardToLove
    2 Feb 2010, 08:11 AM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
     
    HTL: From a purely technical standpoint, I worked up a S&P 500 chart. In other words, you have me going about where the markets rest right now.

     

    Note: Unfortunately, the platform I use to creat charts is QuoteMedia, and they prevent non-professionals like me from importing to SA charts. So I have to do this through the written word. Or, y'all can just trust me.

     

    If you pop up a year chart for the S&P 500 and draw a line from the 3/6/09 bottom of 666 through the bottom of 1027.19 on 11/02/09 and extend the line to today's date, we, technically speaking, should be at 1161.37 right now. But then start another line on the 2/09/09 top and attach to the same 1161.37 level, and we find that only THREE TIMES has the S&P 500 pushed above that line during this 60% run; from 9/16/09 through 9/29/09, from 10/14/09 through 10/26/09, and for even a shorter duration from 11/15/09 t0 11/23/09. The were only a few days where intraday highs went above this line (from 11/23/09 to 12/03/09).

     

    In January the technicals walked this line like a tightrope. Then, on 1/20/10, the bottom fell out, dropping to today's closing, still well below the line, even after today's 23.85 gain.

     

    We are still 22.25 beneath the 50 day moving average, 30.06 beneath the 20 day MA. But, (this is where it gets interesting) we are still 73.46 above the 200 day MA. Oddly, I'm very near both you and User in the support of 1074 & 1070 level, as I come up with 1067.76. Next down support level is 1015.54, the 200 day MA.

     

    So lets checkout some other methods to figure out where we are.

     

    Stochastic for the S&P 500 are at a low, only exceeded during the first few days of last March, and matched only once since by the November lows. Right now, stochastic is at 20, indicating strongly oversold.

     

    REI is also oversold at level only achieved since early November, and only since last March has RSI been more oversold.

     

    MACD Histogram shows the selling is also in the red only exceeded since last March.

     

    If we are in a technically driven market, (save all the political DC bank bashing, tax raising, spending money like crazy mumbo jumbo, which, with China tightening, brought about this dive in the first place) then the big trading houses are seeing what I'm seeing; that this is a time to buy.

     

    Did today prove this theory to be true?

     

    Guess I have to start buying tomorrow--most of the technicals say so--especially because Cramer told me a week after I had sold everything in my e-gamer account, to start selling last Wednesday, last Thursday, last Friday....

     

    But then, recent history states that every year recently, February ended up down from where it started. I sit here, e-account all cash, twisting in the cold winter wind.

     

    As long as DC keeps quiet, the final trading session in January, should be the low going forward, if this V-shaped, technically driven recovery keeps on course.
    1 Feb 2010, 11:28 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19491) | Send Message
     
    Author’s reply » Maya.

     

    I constructed a chart as you suggested and noted some substantial improvements in your results, compared to the first chart in my original. Your rising wedge seems to track much more closely than my original in the prior article.

     

    I guess I've got to get back to studying up and see what I've forgotten about proper construction.

     

    Thanks for taking the time on that.

     

    I had also noticed all the oversold indicators, but didn't have the confidence that they wouldn't be trumped by recent fears. So, I didn't want to make a prognostication on this. Still having a lack of confidence in my on charting skills probably also added to that reluctance to make a call.

     

    HardToLove
    2 Feb 2010, 09:17 AM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
     
    Thanks for taking the time, HTL. I was quite surprised by my findings. The construction of that chart induced a double take on the community notion that we are in THE correction.

     

    All the oversold indicators acted as a verifier to those findings.

     

    I'm going to work on your tips, and am grateful for receiving them.
    2 Feb 2010, 09:28 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Maya, I had the lower support level between 1077 and 1069. So you are one point lower than my lowest possible number. A one point out of 1069 point difference....
    2 Feb 2010, 09:05 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19491) | Send Message
     
    Author’s reply » Maya,

     

    I'll try and visualize what you describe later today but I wanted to offer a tool. I don't import my charts. I take a snapshot of the screen and store that as a ".png" image - other formats are supported a SA. In the instablog facility, you would us upload image rather than upload chart.

     

    If you are on windows, there is a free utility for this - MWSnap 3. There's a brief show about it here.

     

    www.youtube.com/watch?...

     

    Google mwsnap3 and you'll see lots of download sites. If you're on a Mac, I don't know, but I suspect it might be available for that too.

     

    I hope this is useful for you.

     

    HardToLove
    2 Feb 2010, 05:16 AM Reply Like
  • doubleguns
    , contributor
    Comments (9691) | Send Message
     
    Elliot wave on gold. Still looking down. From LFB here at SA

     

    seekingalpha.com/insta...
    2 Feb 2010, 06:49 AM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Davos Weekend: China to Maintain Current Monetary Policy
    By Kelvin Schulle

     

    … The recent worry on Wall Street is that China is ready to start a new monetary policy tightening lending and hence the world economy is going to shrink, and a double dip is coming. Sounds like the Great Depression is coming back among us if China starts to act now…

     

    The message from China at Davos over the weekend was to "maintain current monetary policy in 2010 and target 8-9% GDP growth". Even more clearly, China will not start its exit strategy until "the rest of the world is ready", said the head of the Bank of China.

     

    So why was there such a misinterpretation of China in the last 2 weeks? China started to raise a 3-month bill yield 2 weeks ago by 0.04%. Wall Street senses that tightening is coming, as a result, commodities such as copper, coal, gold, silver, and steel fell hard on that speculation. China's CPI added 1.9% in the 4th quarter. Wall Street again believed China will raise interest rates on Friday (Jan/22). It didn't happen (is 1.9% CPI really that bad?). The fact is that the Bank of China froze the 3-month bill rate on the week after.

     

    The most powerful tool on Wall Street is rumour, and it may have played a big role in the panic sell off in the last two weeks.

     

    seekingalpha.com/artic...

     

    "The most powerful tool on Wall Street is rumour." Rumour as a tool implies that rumours are being used to stampede the market in a direction favourable to the people responsible for spreading the rumours. I wonder how many of those rumours were planted by people that make their living by shorting the market?
    2 Feb 2010, 10:04 AM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
     
    HTL: I uploaded the Snap program and was actually able to capture the QuoteMedia chart I designed. Still having problems importing into a new Instablog.

     

    I'll keep banging away at it. There must be one more trick to this pony I have to learn, or, maybe more.
    2 Feb 2010, 12:33 PM Reply Like
  • H. T. Love
    , contributor
    Comments (19491) | Send Message
     
    Author’s reply » When you are editing the instablog, there's little icons at the top of the text entry panel. The one just to the left of the smiley is the one you want. If you hover over it, it should say edit/insert image.

     

    Click that. That opens an Image Properties Panel. Before or after entering the Short Description, click on Upload Image. That will open another panel that let's you browse and select what you want to upload.

     

    You can either browse, or enter a url in the bottom text area, e.g. if you want to get an image from the web or from SA that you used in another article.

     

    If you browsed to find, click the Upload button. If you entered a url in the lower area, click the Get Image button. That will close that box and bring you to the Image Properties. Click OK.

     

    If I missed a step, the Image Properties text box has instructions.

     

    HardToLove
    2 Feb 2010, 12:57 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    Maya, you may have to convert it into a format that SA likes... for example a
    .gif..... Here is a package we use the Mac... it also runs on Windows... Its like a graphics utility knife. You load the picture, than save it as a .gif file.
    Now use the SA import tool. Let me know if it works.

     

    www.graphic-converter.net/
    2 Feb 2010, 01:00 PM Reply Like
  • Mayascribe
    , contributor
    Comments (11198) | Send Message
     
    HTL: I got to the Image Properties Panel, hit the upload button, but then couldn't find the snapshot, so I'm getting close.

     

    User: Thanks for the suggestion. I will look into it. And you may be right about the jpeg.

     

    You guys may not want me knowing how to upload my charts; you'd probably freak at some of the stuff I come up with, especially when it comes to day trading. I've been noticing a lot of potential technical trading, lately. Only today did I trust myself enough to buy 4000 shares of Patriot Coal off a technical bounce this morning @ $16.00 when indicators said buy! That was when PCX was DOWN about 4%! After beating earnings handsomely. Sold the shares 20 minutes or so later for $16.50, and banked $2000. Quite the nervous experiment to do. Scared the bejesus out of me.

     

    With that in the pocket, I decided to give this stuff as whack. Always more to learn.
    2 Feb 2010, 01:24 PM Reply Like
  • FocalPoint Analytics
    , contributor
    Comments (6282) | Send Message
     
    There is no substitute for real world experience Maya... I am sure I will learn much from what you are doing.
    2 Feb 2010, 01:45 PM Reply Like
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