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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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  • Tuesday, October 18, 2011 - Short Term Update 12 comments
    Oct 18, 2011 12:15 PM | about stocks: SPY, DIA, QQQ, XLF, FXE, IYT
    Monday Recap:
    The bias should remain to the downside, although the shortest term Walter Bressert cycle study indicates there could be one more pop. That would most likely setup a head and shoulders reversal pattern on hourly charts.

    Tuesday:

    Unfortunately there was no follow through form yesterday's down move. I stopped myself out early with the huge early morning moves in the $BKX and the $DJT as their gains appeared to spread to the other indexes. By the close, I was glad I did. Furthermore, the spike on the "Europe is saved" (again) news erased the possibility of a head and shoulders reversal pattern in stocks. Interestingly enough, this pattern still stands out in the Euro, which also produced a bearish non-confirmation with equities, as it failed to retake its Friday highs.

    FXE 15 min:

    Notes: Bearish head and shoulders reversal pattern. Increasing its bearish potential: the right shoulder is lower than the left shoulder, and the neckline is declining.

    Despite the strong move in the banks today, the banking index has also been unable to retake previous highs, producing another bearish non-confirmation for now.

    $BKX 15 min:

    Notes: $BKX below last Wednesday's highs.


    Since we had a big up day, I think the trading indicators deserve to be looked at in depth again.

    Trading Indicators:
    SPY / 3 DMA ADVANCE DECLINE LINE

    Notes: The one day close was at +1.5 standard deviation above the mean,  meaning it only closes higher 6.681% of the time. The extreme close may pull up the 3 DMA tomorrow, but for now it is showing a bearish divergence.


    SPY / 3 DMA ADVANCE DECLINE VOLUME

    Notes: The $NYUD is showing almost the same exact condition, an extreme close with a possible bearish divergence in the 3 DMA.


    SPY /  3 DMA $TICK

    Notes: ''


    SPY / 3 DMA $TRIN

    Notes: ''


    Swing Indicators:
    SPY /  5 DMA McClellan

    Notes: The 5 DMA has been pulled over the +1.5 Standard deviation mark, indicating a pretty extreme market. In my experience, positive returns going forward the next few weeks are generally nil, and have a much higher probability of being very negative when this condition is met.


    Summary:
    Traders:
    Being bearish hasn't paid off the last few days, but this market has been equally frustrating to bulls. My read of the market hasn't changed, to me the market looks much more set up to fail than rally substantially. That said, wait for entries and honor stops, this is how we avoid getting hurt of the market defies the evidence and continues higher. I would consider getting short again if the market has an hourly close below 120.50, with a stop of 122.

    Investors:
    We are in a confirmed bear market. Typically, once the signal is confirmed there is a large rally that retests the break down level. I believe this is what is happening  now. Following the 2007-2008 confirmation signal there was nearly a 15% rally back to the breakdown level. We appear to be at a very similar juncture.

    SPY Long Term Trend Model:

    Use October to exit long equity positions. Bear markets are only bad if you're in stocks.


    Talk again tomorrow,
    -Bill L.
    Stocks: SPY, DIA, QQQ, XLF, FXE, IYT
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Comments (12)
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  • Hypnos7
    , contributor
    Comments (141) | Send Message
     
    Bonds may be a safer play here. 10-year yield did not follow equities.
    18 Oct 2011, 07:27 PM Reply Like
  • JCH57
    , contributor
    Comments (47) | Send Message
     
    Thanks again Bill, this work of yours is really helpful!
    18 Oct 2011, 10:47 PM Reply Like
  • ramstein
    , contributor
    Comments (5) | Send Message
     
    Really like your analysis. A technical oasis in the land of fundamental mish-mash.
    18 Oct 2011, 11:52 PM Reply Like
  • Mullen
    , contributor
    Comments (39) | Send Message
     
    Thanks Bill. I appreciate your clarity and insights. Very helpful.
    19 Oct 2011, 12:23 AM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » 12:30pm

     

    The $BKX and $DJT appeared to have reversed on 15min charts. Yesterday that was the first warning of the rising markets into the afternoon. Let's see if their weakness spreads today into the other "risk on" assets. Standard warning: the most volatile risk indexes give first warnings, but also the most false signals. Wait and see if this weakness spreads to the other risk indexes (SPY, DIA, QQQ, IWM, VTI, etc).

     

    -Bill L.
    19 Oct 2011, 12:47 PM Reply Like
  • slammalamma
    , contributor
    Comments (6) | Send Message
     
    Bill,

     

    Besides the $BKX and $DJT is there any other 'first warning' indexs you watch?

     

    Thanks for the update. I have learned alot from you.

     

    Sam
    19 Oct 2011, 01:18 PM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » I try to keep it pretty simple:

     

    First warning: IWM (high beta Russell 2000, IYT (higher beta/cyclical transport index), and since this is a banking/Euro crisis now the $BKX and FXE.

     

    My "Risk On" watch list: SPY, QQQ, DIA, VXX (or $VIX), JNK (junk bonds), JJC (copper), IWM, IYT

     

    My "Risk Off" watch list: UUP, TLT

     

    And sometimes certain stocks that are in focus. Today for example I'm watching MS, AAPL, BAC etc.

     

    Divergence often are first warning themselves, note the difference in price action between the SPY and VXX, TLT, and UUP. If the SPY is at new highs why is the VIX ticking up? Why is the dollar and treasuries rallying slightly? Also very curious that the Dow 30 is up today, while copper in getting killed and is at the lows of the last 10 day channel...

     

    While all the indexes moving in uniform generally means the move is more "believable."

     

    Another general observation, bond traders > stock traders. So if they are saying different things, I generally side with bond traders. The bond market is twice the size of the stock market. Furthermore, bond traders are very numbers oriented. Stock traders tend to buy into fanciful stories, headlines and watch Cramer. Bond traders are reacting to updated models. Not that they can't get things wrong, I just find that at peaks and troughs bonds saying something different than stocks, and tend to be a "right" more often.

     

    -Bill L.
    19 Oct 2011, 01:39 PM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » Oh and if there is a very fractured market I may look at the VTI total market index.
    19 Oct 2011, 01:44 PM Reply Like
  • jong82
    , contributor
    Comments (7) | Send Message
     
    Thanks Bill. This is all very useful information!
    19 Oct 2011, 02:25 PM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » $SPX has followed the $BKX and $DJT down, break down on a 15min chart. Lets see if the action follows through and break down on hourly charts.

     

    I may initiate a test short here and add if we can get an hourly close below 1210 - 1209.

     

    A frustrating market for both sides the last few days. Lets see if anything sticks.

     

    -Bill L.
    19 Oct 2011, 01:43 PM Reply Like
  • slammalamma
    , contributor
    Comments (6) | Send Message
     
    Awesome stuff, priceless info.

     

    I already pulled the trigger on some puts. Tight stop, we'll see how it goes.

     

    Thanks again!
    19 Oct 2011, 01:48 PM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » All "risk-on/risk-off" measures have completed the appropriate break downs on 15 min charts. Next step is follow through to hourly charts.

     

    -Bill L.
    19 Oct 2011, 02:26 PM Reply Like
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