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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, August 8, 2012 - Short Term Update 5 comments
    Aug 8, 2012 11:11 PM | about stocks: SPY, TLT, DIA, QQQ, FXE, JJC, UUP

    Bottom line:

    The indicators that I follow have elevated from a "neutral" reading to a "neutral-bearish" reading, indicating caution, while not being outright bearish. The divergences in the transport index and copper continue, while the picture and treasury yields is a bit more muddled.

    Indicators:

    • Bullish: 1/20
    • Neutral:9/20
    • Bearish: 10/20

    Indicator Summary: The market is bouncing from the oversold reading I flagged on July 24. As it stands today, the best interpretation is that the market is lightly overbought, though there appears to be a bit more room to run. If I had to put a number on it, I would say the current rally leg is about 75% complete.

    Examples:

    Percentage of stocks above their 20 DMA:

    (click to enlarge)

    Notes: Edging towards overbought territory, but not quite there yet.

    NYSE Mcclellan Oscillator:

    (click to enlarge)

    Notes: Similar story... The best interpretation is neutral, with room to run higher.

    NYSE Advance Decline Oscillator:

    (click to enlarge)

    Notes: Elevated, but nothing to get excited about yet.

    NYSE Up-Down Volume Oscillator:

    (click to enlarge)

    Notes: Neutral.

    NYSE TICK:

    (click to enlarge)

    Notes: Near overbought.

    NYSE TRIN:

    (click to enlarge)

    Notes: While this doesn't look overbought yet, it should get overbought tomorrow as the extreme August 2nd reading drops off.

    The "NewHigh-NewLows" indicators are still showing divergences, which typically precede turns.

    NYSE NewHighs-NewLows:

    (click to enlarge)

    Notes: Coming off overbought with a bearish divergence.

    Amex NewHighs-NewLows:

    (click to enlarge)

    Notes: Just below overbought, but I grade this as "bearish" due to the bearish divergence.

    Update:

    The Dow Theory non-confirmation remains:

    Dow Industrials:

    (click to enlarge)

    vs.

    Dow Transports:

    (click to enlarge)

    vs.

    Dr. Copper:

    (click to enlarge)

    vs.

    10 Year Yields:

    (click to enlarge)

    Notes: Back near the recent highs of the previous range, though this certainly does not look like the rally in equities.

    Summary:

    Many of the non-confirmations remain, while the leading index (utilities) is losing steam. The indicators I follow aren't quite at a place where I would recommend an all out short position, but we appear to be getting there. If they all line up, I'll note it here.

    Talk again soon,

    -Bill L.

    PS - Sorry about the short update, I've begun preparing for the CMT lvl 3 exam, I'll continue to put out notes as my schedule allows. While I may not be able to write daily, whenever a high degree of indicators line up and I'm looking to initiate a trade, I'll certainly update the blog.

    Stocks: SPY, TLT, DIA, QQQ, FXE, JJC, UUP
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  •  
    Good luck with your exam. I'd be curious how you deal with the heavy handedness of the central planners who have the habit of "coincidentally" floating a rumor or making a statement at precisely the time when technicals are breaking down. And their current practice seems to be, once the initial move is reversed, to follow it with daily jawboning to continue the move.

    They have already made fundamentals irrelevant. Now they seem determined to ensure that technicals don't matter either.

    If would seem to me that their strategy is self-defeating as frustrated investors/traders abandon markets as all the former rules of investing are disabled.
    9 Aug 2012, 09:31 AM Reply Like
  •  
    Bill -- thanks for the update. I find your perspective/analysis immensely helpful and the best on seeking alpha. Just a small favor to ask -- if S&P starts coming off of these levels could you please comment on the technicals? Hope your exam preparation is going well!
    9 Aug 2012, 11:46 AM Reply Like
  •  
    I took a tiny position in EPV -- seems to be at the bottom of its trading range.
    9 Aug 2012, 11:53 AM Reply Like
  •  
    It is ironic that as the Fed hints at more monetary easing, investors pile into risk in anticipation. By doing so however, their bids raise prices to where the Fed is no longer compelled to act. That's a cycle that can't last forever...
    9 Aug 2012, 12:22 PM Reply Like
  •  
    Bill -- sorry to bother you again but I was wondering if you still think the market is stuck in neutral gear, so to speak. I took a small position in MWN (midcap short) today and - please don't laugh - will try out a 'pair trade' for a year: I'm long ARNA (they have a magic fat pill) and long KKD (Krispy Kreme) a company that basically produces fat!
    14 Aug 2012, 03:40 PM Reply Like
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