Bill L.'s  Instablog

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, January 7th, 2012 - Short Term Update 4 comments
    Jan 8, 2013 2:51 AM | about stocks: SPY, DIA, QQQ, TLT, FXE, UUP, IEF


    Results are in, I'm pleased to report I've passed the CMT III exam. In other news, All hope abandon ye who enter here. So this is the new fix? Really? *Gulp*

    Bottom Line:

    Despite the modest down day, most of the short term indicators I watch have reached extremes. Over the next several days I would expect the upside to be limited, with it being more likely that we see more of a drifting sideways to lower.

    Price Action:


    (click to enlarge)

    Notes: So the SPX is coming up against some resistance that was set back when the Fed agreed to prop up the market until they were satisfied. What ever that means. I think Junker already let the secret slip that they'll say whatever they think will have the most positive effect. What they're doing however... well, that may be something else. And no one has ever explained how the Fed is going to unwind its balance sheet without causing an equal and opposite reaction in rates.

    I do believe however that this level is psychologically important to the market; people are waiting to see if the market can get past this area before deciding whether to commit new money. The market has taken a few stabs and failed, and based on how overbought everything looks, I don't think we'll manage this time either. Honestly, I think it's pretty amazing that the ECB, the Fed, and the BOJ (the three circled areas) all came out in a very short amount of time and pledged an unprecedented amount of stimulus, and the market 4 months later is basically unchanged.

    Indicator Summary:

    • Bullish: 0%
    • Neutral: 5%
    • Bearish: 95%
    • Aggregate Interpretation: The VIX has set a new records in terms of back to back to back declines in volatility. Typically, such collapses in the VIX to such low levels result in poor market performance over the next 1 week to 1 month. The indicators hitting extremes at the same time adds to this message.

    Indicator Snap Shot:

    Percentage of Stocks Above DMA:

    (click to enlarge)

    Notes: Continues to be register overbought. This level is reached infrequently, perhaps 3-5 times per year.

    NYSE McClellan Oscillator:

    (click to enlarge)

    Notes: The 5 DMA has reached the 1 standard deviation mark, which I consider overbought. I never listen to any single indicator, and typically I'm looking for a strong consensus, which is what I'm seeing now.

    NYSE Advance - Line:

    (click to enlarge)

    Notes:The AD line has also reached overbought status.

    NYSE Up - Down Volume:

    (click to enlarge)

    Notes:Again, overbought.


    (click to enlarge)

    Notes: Overbought as well.


    (click to enlarge)

    Notes: The TRIN has been one of the more consistent indicators the last few months. While this can always change, it pays to know which indicator has the hot hand. It's not quite extreme, but close...


    Historically when the VIX collapses like this, it has been a headwind for the market for weeks lasting up to a month. Combined with the overhead resistance, and the overbought short term indicators I'm not seeing a whole lot of upside at the moment. That said, we're still in a cyclical bull phase which has carried on longer than I imagined, which is why I'm not getting more bearish. Over then next few days I might fire off a small short or two, or I may look at some SPY puts. I don't expect this position to stay open for more than a few days if triggered or to be very large. Those playing longer term bullish positions should use the low VIX to purchase cheap protection while it's on sale or reduce longs.

    Good Hunting,

    Bill L.

    Disclosure: I have no positions in any stocks mentioned, but may initiate a short position in SPY over the next 72 hours.

    Stocks: SPY, DIA, QQQ, TLT, FXE, UUP, IEF
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Comments (4)
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  • basehitz
    , contributor
    Comments (1541) | Send Message
    Bill, congrats on passing.


    On the rigged casino (pardon, stock market) I don't like the charts this morning for either long or short. R2K RSI very high. Others less so. But the blind faith in the CB cabal seems to preclude any legitimate repricing of risk. . . I suppose until an event disrupts the myth of CB omnipotence. . . then there could be some real opportunities.


    So for now, I continue to work on clearing the wooded area on my property. I think I'm going to plant a fruit orchard.
    8 Jan 2013, 09:05 AM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
    Bill - congratulations! What's next in your professional life?
    8 Jan 2013, 04:40 PM Reply Like
  • SeekingTruth
    , contributor
    Comments (1526) | Send Message
    Thanks and my congrats also.
    Beware of the TRIN without checking the A/D's and volumes separately because otherwise it can be very misleading.
    I have been thinking about creating some kind of an improved TRIN, such as one tagged valid, invalid, significant, ignore ,etc. , but haven't yet devoted enough time to it.
    In other words , a series of valid and significant, (high and/or low values, doesn't matter which) TRIN numbers with an appropriate MA could be very useful, which the current standard TRIN too often is not.
    Have you ever thought about this angle on TRIN?
    8 Jan 2013, 09:31 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9903) | Send Message
    Good overview as always. Potentially quite helpful.
    9 Jan 2013, 01:18 AM Reply Like
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