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, July 17, 2012 - Short Term Update  6 comments
    Jul 17, 2012 6:55 PM | about stocks: SPY, DIA, QQQ, TLT

    Summary:

    Despite several dislocations and non confirmations in the overall market the S&P has decided it wants to go higher. The steep retracement is likely to stop me out tomorrow, though there are enough red flags that prevent me from adopting an outright bullish stance.

    Update:

    The S&P closed ever so slightly above the level I outlined as my stop, though the broadest measure of U.S. equities remains ever so slightly just below that area.

    Dow Jones Wilshire 5000 Composite:

    (click to enlarge)

    One of the "red flags" I have observed has continued throughout this most recent rise is a Dow theory non confirmation.

    Industrials:

    (click to enlarge)

    Notes: Peaks A, B and C also tend to have a head and shoulders pattern look to them.

    Transports:

    (click to enlarge)

    Notes: While the Dow Jones industrials set their closing high in May, the transports set their high back and February, and have been unable to progress any further. In more recent price action, the same A,B,C peaks have come at lower and lower levels, producing both a long-term and short term non confirmation. There's also a possible triangle forming.

    Utilities:

    (click to enlarge)

    Notes: the utilities index has exceeded the May closing high set by the Dow industrials. Possible double top, or ascending triangle.

    If I were in institution that had to be long stocks, yet I believed the economy was faltering, I would have a bullish stance on utilities since they typically pay a reliable dividend, a more neutral stance on industrials, and the most bearish stance on the transport index since they tend to be the most economically sensitive. That seems to be what is playing out in these charts.

    Taking a quick look at yields, both the 10 and 30 year slightly exceeded their June 4 lows but bounced today. I still believe the best interpretation of these charts is a high degree of fear among bond investors, with a relatively high amount of complacency (VIX, Money Market,etc.) in equity investors (bond investors tend to be correct).

    10 Year Yield:

    (click to enlarge)

    30 Year Yield:

    (click to enlarge)

    Complacency:

    (click to enlarge)

    Notes: Assets in money market funds has declined past the level that occurred at the May top in equities. Despite the modest decline thus far in equities this summer, investors seem more certain than ever of the Bernake put.

    Summary:

    It looks likely that I'll get stopped out tomorrow, that said there continues to be quite a few divergences, non confirmations, and red flags that prevent me from adopting a bullish view. So for now I'm relegated to watching and waiting for the next high probability setup to appear. My guess for now is that the alternate scenario which I laid out in my previous update is likely to occur; the test of the highs or near highs, with short term overbought conditions, and intermediate term indicator divergences. I'll note them here should they become apparent.

    We'll talk again soon,

    -Bill L.

    Disclosure: I am long SPXS.

    Stocks: SPY, DIA, QQQ, TLT
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Comments (6)
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  • untrusting investor
    , contributor
    Comments (9903) | Send Message
     
    Ok, good update.
    17 Jul 2012, 11:20 PM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Bill -- did you close your short position? I decided to hold on to mine. FAZ held on yesterday despite the market strength. Will add more as things unfold. Interesting fact: Bespoke Group just published a cheat sheet of short ETFs.
    19 Jul 2012, 10:17 AM Reply Like
  • Bill L.
    , contributor
    Comments (691) | Send Message
     
    Author’s reply » McClellan is back to overbought but with a rather large divergence. Let's see if this pans out. Full update today after the close.

     

    -Bill L.
    20 Jul 2012, 09:43 AM Reply Like
  • Bill L.
    , contributor
    Comments (691) | Send Message
     
    Author’s reply » Some other observations this morning:

     

    1) before reversing higher, the BKX index failed to set new lows, yesterday they failed to rally with the S&P.

     

    2) cyclical sectors and indexes continue to under-perform while staples and defensive sectors and indexes continue to outperform.

     

    3) BKX and XLF have already taken out 7/17 pivot low.

     

    4) 5 year note is at a record low... 10s and 30s are close to following.
    20 Jul 2012, 09:55 AM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Looking forward to it, Bill. Just for fun, take a look at the chart for JNJ over the past three years. Doesn't it steep curve look eerily similar now to what it was in 2010 and 2011 before significant market declines?
    20 Jul 2012, 10:02 AM Reply Like
  • Bill L.
    , contributor
    Comments (691) | Send Message
     
    Author’s reply » Oh yea, and Euro at new lows...
    20 Jul 2012, 10:05 AM Reply Like
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