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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  • Tuesday Morning, June 26, 2012 - Short Term Update - Bulls Need To Make A Stand Here 5 comments
    Jun 26, 2012 8:49 AM | about stocks: SPY, QQQ, DIA, TLT, SPXS

    Bottom Line:

    Regardless of which side I'm betting on, I always try and look at things from both perspectives. If I were a Bull (currently I'm not) I would be hoping for a some sort of support here. If the market can't gain some traction here, I believe the entire June 4th - June 19th rally will be retraced.

    Recent Articles/Long Term Outlook:

    1. Global Market Teeter: seekingalpha.com/article/662601-the-world-markets-teeter-ahead-of-greek-vote
    2. Long Term Indicators Show the Market to be Expensive: seekingalpha.com/article/655331-even-after-the-recent-pullback-the-market-looks-expensive

    Update:

    From the June 21 update, "next target is approximately 131.75, this is the 50% retracement level of the upward move, as well as some horizontal chart support. If we break this level, but I would expect the entire upward move to be completely retraced."

    Yesterday's action had prices testing this area. Just a few points below is the important 61.8% retracement level, which is just above the 200 day moving average. The point being, if I were a bull I would be thinking that the SPY should find traction here. Otherwise, as stated, the entire rally is likely to fall apart.

    (click to enlarge)

    Notes: prices are currently testing several technical levels of support.

    I'm still expecting the market to eventually make it through these various levels of support because the indicators that I watch still have room to run to the downside.

    Let's take a look, in order of most bearish, to most bullish:

    McCellan Oscillator:

    (click to enlarge)

    Notes: the NYSE Mcclellan oscillator (and NASDAQ for that matter) is by far the most bearish indicator I'm watching right now. It is only just coming off overbought levels, and has a bearish crossover of the three and five day moving average.

    Percentage Of Stocks Above Their 20 Day Moving Average:

    (click to enlarge)

    Notes: the most aggressive interpretation of this chart is that the decline is half over, however the five day moving average has only just turned lower. This would argue for several more days of weakness.

    Advancers Vs. Decliners:

    (click to enlarge)

    Notes: the five day moving average is just below the neutral line, I would interpret this as meaning that the decline is approximately half over, though as you can see from previous declines, they often end with spikes lower.

    Advancing Volume Vs. Declining Volume:

    (click to enlarge)

    Notes: similarly the up/down volume figure is just below the long-term mean. Again, I would interpret this as meaning the decline is perhaps 50% complete.

    NYSE TICK:

    (click to enlarge)

    Notes: the same.

    NASDAQ Trin:

    (click to enlarge)

    Notes: just above the halfway mark, though this indicator tends to end with a spike.

    NYSE Trin:

    (click to enlarge)

    Notes: the NYSE trin is by far the most bullish indicator, with a five day average exceeding levels that generally precede a bounce.

    Summary:

    Regardless if you're a bull or bear it is always helpful to look at the data with the contrary point of view from your own. For example, while right now I'm a bear and I'm expecting a continued decline, if I were a bull right now I would be looking at the horizontal support, important retracement levels, and the oversold trin. Furthermore, I would be extremely disappointed if markets continued to fall through this area were I assumed there would've been some sort of support. A decline through this area would most likely cause capitulation from short term bullish traders, causing the entire June 4 rally to collapse.

    One day at a time, and let's see what the markets do today.

    -Bill L.

    Disclosure: I am long BGZ.

    Stocks: SPY, QQQ, DIA, TLT, SPXS
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Comments (5)
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  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    Helpful update. Thanks for posting.
    26 Jun 2012, 06:58 PM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Bill - I'm following your blog with great interest and I hope you'll find time for further updates. I'm still concerned that the volatility is quite low even though we had two pretty intense downward days.
    26 Jun 2012, 07:53 PM Reply Like
  • Bill L.
    , contributor
    Comments (691) | Send Message
     
    Author’s reply » It could be that the low volatility is signaling that this decline is a false breakout, however it is equally likely that the market has become inoculated to the idea that corrections are temporary and the fed will bail out the markets over and over, thus there’s no need for high premiums on protection. Or perhaps it means nothing. This is unknowable to some degree so I do what I always do: I operate according to my methodology; I look at the aggregate picture, I wait and look for high reward to risk setups, and I always honor my stops. Thus the basics of a trading plan are all in place: a researched methodology, a higher degree of reward to the amount of risk taken, and a risk management strategy in place.

     

    -Bill L.
    27 Jun 2012, 02:34 PM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Here's another possibility: maybe low VIX actually supports your set-up (complacency as a contrarian indicator). About a month ago I found an interesting article on volatility cycles here on this site and I post a link to it below -- for the past two months the author's analysis was dead right.

     

    http://seekingalpha.co...
    28 Jun 2012, 09:27 AM Reply Like
  • Bill L.
    , contributor
    Comments (691) | Send Message
     
    Author’s reply » That's what I was getting, "market has become inoculated to the idea that corrections are temporary..." We'll see. Today looks pretty bad for the bulls. As soon as the market touched the tiniest resistance it turned around in a hurry and it breaking the trend line created by connecting yesterday's lows with the June 4th lows. Complete update tonight after the close. Good luck trading today!

     

    -Bill L.
    28 Jun 2012, 10:51 AM Reply Like
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