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Bill L.
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Methodology: setups require certain criteria to be met before trades can be executed, which include weighted statistical studies on several indicators of price, breadth, volume, and sentiment . Amount of risk taken is proportional to how many indicators are aligned. I mainly trade market... More
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  • Monday, November 5, 2012 - Short Term Update 3 comments
    Nov 6, 2012 12:47 AM | about stocks: SPY, QQQ, DIA, UUP, FXE, TLT, IEF

    Bottom Line:

    Thus far markets have failed to rally despite the plethora of oversold indicators. That said most of the indicators still favor a rise vs. a decline.

    Indicator Summary:

    • Bullish: 50%
    • Neutral: 50%
    • Bearish: 0%
    • Aggregate Interpretation: Many of the most sensitive short term indicators that I watch have had some recovery from their oversold conditions. It's never good sign when indicators recover and price cannot follow. That said, looking at the overall picture, I believe the odds still favor higher prices rather than further declines.

    Indicator Snap Shot:

    Percentage of Stocks Above their 20 DMA:

    (click to enlarge)

    Notes: Despite the big setback on Friday, this indicator still favors higher prices rather than a further decline.

    NYSE McClellan Oscillator:

    (click to enlarge)

    Notes: The McClellan still appears to be basing. The McClellan oscillator in combination with the percentage of stocks above their 20 day moving average tends to be a pretty powerful trading indicator when they're both alined, as is the case now, and one of the reasons I'm leaning towards higher stock prices, at least in the short term.

    NYSE New Highs - New Lows:

    (click to enlarge)

    Notes: New highs minus new lows also appears to be recovering from an oversold condition.

    NYSE Advance - Decline Line:

    (click to enlarge)

    Notes: In the middle of the range.

    NYSE Up - Down Volume:

    (click to enlarge)

    Notes: Also in the middle of the range.

    NYSE TICK:

    (click to enlarge)

    Notes: Neutral.

    NYSE TRIN:

    (click to enlarge)

    Notes: The Trin got very oversold, despite only a mild pull decline, now it's holding near neutral.

    Price Action:

    Dow Industrial:

    (click to enlarge)

    Notes: The Dow has moved out of its upward trend channel, though not with any substantial bearish momentum. Prices are thus far being supported by a previous horizontal and Fibonacci support. RSI is rising, possibly showing a small bullish divergence between the first and second test of this support area.

    Dow Transport Index:

    (click to enlarge)

    Notes: The picture in the transport index is kind of mixed. Prices are testing resistance and short term RSI recently touched an overbought level. On the other hand, the transport index did not fall nearly as much as the main industrial index, and one could arguably draw small rising trend line connecting these two rising pivot lows.

    Other Notable Notables:

    • The election ends tomorrow, and the reaction on Wednesday tends to be fairly predictive of the next several days. If the market's rally Wednesday, that should provide a bullish bias for the next several days. Likewise, a decline on Wednesday would add a negative bias over the next several days.
    • Watch the Euro here, as it has had a strong positive correlation with risk appetite here in the U.S. markets. Today the FXE officially dropped to the, "will do anything it takes" remarks gap. If it continues lower, that will be a negative sign going forward.

    Summary:

    Previously I attempted a small long position that was stopped out with a small gain in only two days. I'm taking another shot on the long side, though the position is smaller due to the fact that the setup doesn't look as strong as it did last week. Longer term, it will be a negative sign if the market fails to rally off oversold conditions. This will be a change in the character of the market, as the market has rallied strongly off even the most mildly over sold conditions in the last several months. As Connie Brown likes to say, "if the indicator rallies, and the market doesn't, you're on the wrong side."

    So, in the short term am still leaning towards a short term rally, especially if markets react positively to the election outcome on Wednesday.

    -Bill L.

    Disclosure: I am long SPXL.

    Stocks: SPY, QQQ, DIA, UUP, FXE, TLT, IEF
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Comments (3)
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  • Ok, thanks for the update. Still doesn't look like volumes support any type of bullish continuation, but time will tell. And maybe seasonality will prevail with an upside bias.
    6 Nov 2012, 07:28 AM Reply Like
  • Author’s reply » Believe me, I'm not a long term bull, and I agree... though unfortunately volume hasn't worked as an indicator since the low set in 2009.
    6 Nov 2012, 11:33 AM Reply Like
  • Good work Bill.
    These are good supplements to my own TI's.
    The TRIN reversal is interesting and supports your mildly bullish case.
    6 Nov 2012, 09:51 AM Reply Like
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