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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, June 13, 2012 - Short Term Update 5 comments
    Jun 13, 2012 6:25 PM | about stocks: SPY

    Bottom Line:

    Currently, there is a non confirmation in my long-term trend model of the SPY vs. The NYSE composite. So currently it's tough for me to have a lot of confidence in either signal whether it be bull (SPY) or bear (NYSE). Still, if we are going lower, right now would be a good time for the market to top out.

    For more on the long-term trend, see my most recent article: seekingalpha.com/article/655331-even-after-the-recent-pullback-the-market-looks-expensive

    Short Term Indicators:

    Right now Mcclellan oscillator is very near overbought, and today at the close produced a moving average crossover to the downside in both the NYSE and NASDAQ oscillators.

    NYSE McClellan Oscillator:

    (click to enlarge)

    NASDAQ McClellan Oscillator:

    (click to enlarge)

    Notes: in both graphs we can see that the three day moving average has crossed below the five day moving average while being near the top end of the range. This is a signal I commonly look for when looking for a top.

    NYSE Advance/Decline Line:

    (click to enlarge)

    Notes: Today's close was strongly negative in the advance decline line, pulling the five day average downward after reaching near overbought status.

    Price Action:

    We also have a possible head and shoulders topping pattern forming in price action.

    $SPX:

    (click to enlarge)

    Notes: The textbook way to play this pattern would be to wait until prices break below the neckline, then place your stop at the height of the right shoulder. A more aggressive stop, would be to stop yourself out of the position if price rose above a trend line drawn from the head to the right shoulder.

    Summary:

    While not all of the indicators are lined up on the bear side, and there's currently a non confirmation in my long-term trend model, enough indicators are reading overbought or near overbought for me to take a small position on the bear side. Furthermore, one can't help but get the feeling that it any moment Europe could explode.

    Still, make sure to honor your stops on this one, while there's definitely potential for a big payout on this one if things really fall apart, but the setup isn't as perfect as I would like it. Furthermore, when a bearish pattern fails, those who traded the pattern prematurely will be trapped in trying to cover which could push prices quickly higher. Make sure to honor your stops.

    Overall, if the long-term sell signal on the NYSE composite is a valid, I believe taking small positions here on the bear side is warranted.

    Talk again tomorrow,

    Bill L.

    Disclosure: I am short SPY.

    Themes: Trading, reversal, top, head and shoulders, technical analysis, day trading Stocks: SPY
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This post has 5 comments:

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  •  
    Thank you very much for this post.
    13 Jun 2012, 06:58 PM Reply Like
  •  
    Bill,
    Good technical work, but as we have seen in the past, the FED can beat a "head and shoulders pattern" about same, leaving the followers of this indicator all beat, bleeding and battered.
    I am more on the macro and global side of analysis, and to me, things are shakier than ever.
    If we get a big rally on a Romney victory, it will be an ideal time to short.
    Of course, a lot can happen between now and then.
    Thanks for your good work.
    13 Jun 2012, 08:31 PM Reply Like
  •  
    You know... I didn't use to buy that argument, but the period between 2010 and 2011 was the first time that I can ever recall seeing massive outflows as report from ICI and still see the S&P rise consistently. I'm starting to warm up to the idea that the FED has gunned the futures knowing that correlation desks will program buy to keep the spread between futures and equities tight. Still.. one has to wonder what will happen when they one day stop. Maybe investors can't fight the Fed, but the Fed can't fight the market... at least not forever.
    13 Jun 2012, 09:50 PM Reply Like
  •  
    Good article and indicators. Looking like the small bear bet might well be a winner.
    13 Jun 2012, 08:48 PM Reply Like
  •  
    Bill,
    Thanks for your reply.
    The FED (and the ECB) can do almost anything they want because the FED is basically a private enterprise. What they do may be shady , unethical , politically motivated and devious but it is NOT ILLEGAL!
    That is why they should lose their sanctioned privileges and be broken up or at the very least audited.
    Don't hold your breath, I'm not.
    14 Jun 2012, 05:19 PM Reply Like
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