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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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  • Wednesday, December 14, 2011 Short Term Update 9 comments
    Dec 14, 2011 9:00 PM | about stocks: SPY, DIA, QQQ
    Big Picture: SPY, Monthly

    In September the SPY broke below the lower bands, indicating a change in trend. So until a close above the bands, or I witness extremes all the indicators I follow signaling a bottom, we should be acting as if we are in a bear market. That means: 1) longer term investors should be selling into strength, raising cash, and thinking about safety 2) traders should be more interested in playing the short side when the market gets overbought. Some other general adjustments to consider, in a bear market the "oversold" levels are lower than in a bull market. Furthermore, some of the most dramatic declines in a bear market occur when indicators are oversold, so be careful not to try and catch the proverbial falling knife. I would only recommend a long position if the evidence were overwhelming.

    Short Term Trading Indicators:
    Advance/Decline Line:

    The 3 DMA advance/decline line has reached about 1.25 standard deviations from the mean, indicating a short term oversold conditions.

    Up/Down Volume:

    Notes: The 3 DMA up/down volume is below .786 standard deviations from the mean, a level that generally indicates an oversold market.


    Notes: The NYSE TICK relays a similar message.


    The TRIN has begun to recover from a very sold reading.

    Medium Term Swing Indicators:
    McClellan Oscillator:

    The McClellan Oscillator is starting to flirt with oversold levels.

    Stocks could fall further and push these indicators to even more extreme readings, but the high probability money has mostly been made in my opinion. I'm not quite yet interested in the long side. If we continue to grind lower with bullish divergences beginning to emerge, I'll note them here. I'm currently flat.

    -Bill L.
    Stocks: SPY, DIA, QQQ
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Comments (9)
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  • Is this saying there will be a ST Santa rally to 2011 year end?
    15 Dec 2011, 10:38 AM Reply Like
  • Author’s reply » The indicators I follow favor that outcome over a further decline, so that is the direction I'm trading for now. I'm keeping positions on the long side smaller than usual though because I believe that big picture, we are in a bear market.
    15 Dec 2011, 04:32 PM Reply Like
  • Bill,
    OK, thanks for reply and clarification. Personally, almost zero confidence in up market moves, but have placed a few ST & short medium term bets on PM temporary recoveries. Will be interesting and hopefully profitable to see how markets play out over next few weeks and into Jan/12.
    16 Dec 2011, 12:45 PM Reply Like
  • Author’s reply » TLT continuing to hit new highs today was the tell that we would see afternoon weakness. I'm hanging in there on the long side; banks are holding up as well as the Euro, which seems to be the major focus for the bears at the moment. Setting my stop just under yesterday's lows in the $SPX.


    -Bill L.
    16 Dec 2011, 12:37 PM Reply Like
  • All one needs to do is look at the DAX pattern each day and trade accordingly. We have no idea how to rally into DAX declines, and we don't.
    16 Dec 2011, 12:47 PM Reply Like
  • Author’s reply » Look to trim any long positions here. Most of the short term indicators are getting stretched and the McClellan is stating that most of the high probability money on the long side has been made. I may put out a longer note later tonight. We'll see, I sprained my wrist so typing is a pain. If not, I hope everyone has a merry Christmas!


    Bill L.
    22 Dec 2011, 04:42 PM Reply Like
  • Author’s reply » I've exited all long positions. The technical picture has basically completely reversed itself since my December 14th post. I am currently flat.


    -Bill L.
    27 Dec 2011, 12:44 PM Reply Like
  • Author’s reply » Indicators are stretched, stocks are having some trouble, while treasuries are starting to rally; I've entered a small test short position.


    -Bill L.
    27 Dec 2011, 03:55 PM Reply Like
  • Author’s reply » It should be noted that the Euro/USD has retraced almost the entire "Santa" rally. Stocks may accelerate if they follow. Strong rally in treasury bonds this morning as well. I may look to add to the test short if I can get a favorable intraday TICK.


    -Bill L.
    28 Dec 2011, 10:45 AM Reply Like
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