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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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  • Thursday Morning, November 15, 2012 - Premarket Short Term Update 15 comments
    Nov 15, 2012 9:27 AM | about stocks: SPY, DIA, QQQ, FXE, UUP, TLT, IEF

    Bottom Line:

    Indicators are almost all unanimously oversold. Sentiment has plunged. Most bulls are losing their heads. Now that they're distracted with news that hasn't been news in over a year, it's time to go through their pockets.

    Indicator Summary:

    • Bullish: 80%
    • Neutral: 15%
    • Bearish: 5%
    • Aggregate Interpretation: Most of the short term technical indicators are lined up on oversold territory. The shorter term/faster sentiment indicators have plunged. I haven't been a long term bull for months, but this is not the time to go short. If anything, the market looks poised for a short term bounce.

    Indicator Snap Shot:

    Percentage of Stocks Above their 20 DMA:

    (click to enlarge)

    Notes: One of the most deeply oversold conditions since this summer's sell off. The first of many. Notice how when the market bottomed in June, it was during a similar reading.

    NYSE McClellan Oscillator:

    (click to enlarge)

    Notes: Another extremely oversold condition... Ideally though I'd like to see a new low or a test of a low with a McClellan divergence.

    NYSE New Highs - New Lows:

    (click to enlarge)

    Notes: The 5 DMA has moved solidly below the 1 standard deviation mark, again, the first time since this summer's correction.

    NYSE Advance - Decline Line:

    (click to enlarge)

    Notes: And the risk of sounding redundant, another, very oversold reading.

    NYSE Up - Down Volume:

    (click to enlarge)

    Notes: Etc.

    NYSE TICK:

    (click to enlarge)

    Notes:Etc...

    NYSE TRIN:

    (click to enlarge)

    Notes: Interestingly, the TRIN hasn't gotten extreme, which could perhaps be a bullish divergence, meaning the market isn't as internally weak during this most recent leg down when compared to the first leg. Still, I'm grading this "neutral."

    Put / Call Ratio:

    (click to enlarge)

    Notes: The 5 DMA of the Put/Call ratio is very close to the 1 standard deviation mark. Leave it to the option speculator to buy puts once the majority of the decline has already been booked.

    Rydex Nova/Ursa NAV:

    Notes: The NOVA/URSA ratio has sunk to it's lowest point all year, and a level generally only seen perhaps two or three times per year.

    Other Notable Notables:

    • According to the most recent Hulbert, newsletter writers in aggregate are now advising readers to get short. Historically (and ironically), this has actually been a very bullish occurrence, with the market typically gaining about 5% over the 1-3 months when this has occurred.
    • The days ahead of Thanksgiving tend to have a bullish bias.
    • Both the Dow Industrial and the S&P 500 have closed in the bottom half of their perspective ranges for over 5 days in a row, this is a historically rare occurrence, and has almost always generated at least a few days of relief rally.

    Summary:

    The short term technical indicators I follow are almost all lined up for a bullish rebound, sentiment has tanked going from supreme confidence to chicken with their heads cut off territory. I purchased some SPY in the afterhours session, though in retrospect I should have waited for some sort of short term price reversal during tomorrow's day session. That said, just about everything I watched has lined up in the favor of the bulls (in the short term). Keep the stop tight, as similar failures have almost all occurred (looking back in recent history) in the 2000 and 2007 bear markets.

    -Bill L.

    Disclosure: I am long SPY.

    Stocks: SPY, DIA, QQQ, FXE, UUP, TLT, IEF
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This post has 15 comments:

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  •  
    Again, apologies to readers. This week updates won't be as frequent as I'm busy helping my parents as my father is recovering from hip replacement surgery. I appreciate the messages wishing my family well. I'll have at least one more full update this week, most likely a Friday wrap up of the developments this week. I'll be back to the normal schedule Monday.

    -Bill L.
    15 Nov 2012, 12:07 PM Reply Like
  •  
    What I'm looking at this morning:
    The Euro looks like it's rebounding, a good sign for risk assets. The US Dollar looks like it's making a short term rounded top. The 10 and 30 year also look like they're making short term double tops or rounded tops. So we have some risk assets starting to bounce and the safety assets losing momentum. Now we just need stocks to follow.

    -Bill L.
    15 Nov 2012, 12:15 PM Reply Like
  •  
    Bill -- thanks for the update! One of my favorite speculative plays right now is JO (a coffee-tracking fund) -- took a small speculative position this morning. Coffee prices are very depressed right now and could rebound somewhat...
    15 Nov 2012, 04:08 PM Reply Like
  •  
    -December tends to be the best performing month for coffee, averaging over 4%.
    -According to the commodity public opinion poll, coffee is at the lowest point I've seen.
    -Looking over the commitment of traders report, commercial hedgers (the smart money) have been accumulating long positions in coffee for a few weeks now.

    Bill L.
    16 Nov 2012, 12:01 PM Reply Like
  •  
    I love coffee here and have been accumulating over the last few weeks, though I definitely don't qualify as "smart" money.
    28 Nov 2012, 03:37 PM Reply Like
  •  
    Very interesting, Bill. I had no idea that coffee as a commodity has on- and off-cycles until I read this article...I guess that's why I like to dabble in financial markets...

    http://on.barrons.com/...
    16 Nov 2012, 12:17 PM Reply Like
  •  
    By the way, Coffee Trader by David Liss is a very entertaining and well-done novel (in case your dad needs some easy reading... :))
    16 Nov 2012, 12:24 PM Reply Like
  •  
    Bill -- everyone must have read your technical update :) Did you take the profits or you are staying long?
    19 Nov 2012, 04:12 PM Reply Like
  •  
    The very very short term stuff is nearly overbought now while the 20dma indicator and McClellan are barely at the "halfway" point. In a perfect world the way this resolves is that we have a pullback or small sideways consolidation that recharges the short term indicators, then we have another leg higher pushing the McClellan and 20dma indicator to overbought levels.

    Selling half here are the highs, and holding the rest to see if the trend continues.

    -Bill L.
    21 Nov 2012, 01:55 PM Reply Like
  •  
    Back at the desk, out of my long completely today, more after the close.

    -Bill L.
    27 Nov 2012, 03:38 PM Reply Like
  •  
    Taking a small shot at the SPXS here, stopped at 17.75.

    -Bill L.
    27 Nov 2012, 03:59 PM Reply Like
  •  
    Looking forward to it, Bill. I was just about to write you a note. Hope you had a nice Thanksgiving.
    27 Nov 2012, 03:58 PM Reply Like
  •  
    OK, thanks. JO (coffee) is still in the doldrums...
    27 Nov 2012, 04:01 PM Reply Like
  •  
    Bill, I wanted to mention that another commodity I'm looking at is uranium. Uranium prices are also quite depressed for various reasons and I think that might change with Obama's next trip to Russia. Like coffee, uranium also seems to be highly cyclical. So, as a speculative play on the rebound in prices I took a small position in CCJ (at 17.50) -- the funny thing is that CCJ is trading at the same levels now as last year; then it rebounded in Dec-Jan. Uranium prices is a very political issue, it seems...still, it's interesting how it works.
    http://bit.ly/QJPLi4
    27 Nov 2012, 04:26 PM Reply Like
  •  
    Looking at the chart for URA I almost want to say that the uranium ETF is showing signs of bottoming out (maybe it's self-deception ;)).
    27 Nov 2012, 06:01 PM Reply Like
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