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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 Morning, August 22, 2012 - Short Term Update 8 comments
    Aug 22, 2012 9:05 AM | about stocks: SPY, DIA, QQQ, TLT, UUP, FXE, VXX, UVXY

    Bottom Line:

    Indicators are almost across the board bearish or showing a bearish divergence. Yesterday's reversal produced an outside day; at minimum I'm now expecting a multi-day correction. My long term work indicates there's a distinct possibility this is the beginning of a far bigger decline.

    Indicators:

    • Bullish: 0/20
    • Neutral: 6/20
    • Bearish: 14/20
    • Aggregate Interpretation: Most of the indicators I watch are registering bearish extremes or could be interpreted as having a bearish divergence. Another interesting phenomenon is that while stocks are advancing, the up-down volume indicators are not (also visible in the TRIN figures). This means that while more stocks are advancing, they are doing so on lighter and lighter volume, while the stocks that are declining are doing so on heavy volume.

    Examples:

    Percentage of Stocks Above Their 20 DMA:

    (click to enlarge)

    Notes: Both the one day close as well as the 5 DMA are above the "overbought" level of 70%.

    NYSE McClellan Oscillator:

    (click to enlarge)

    Notes: There's a bearish crossover of the 3 and 5 DMAs, though this is typically a stronger signal when it occurs above the "overbought" line.

    NASDAQ McClellan Oscillator:

    (click to enlarge)

    Notes: Overbought possibly showing a bearish divergence.

    NYSE New Highs - New Lows:

    (click to enlarge)

    Notes: New highs-lows is showing an overbought reading as well as a bearish divergence; it appears the market peaked internally several weeks ago.

    NYSE Advance - Decline Line:

    (click to enlarge)

    Notes: The AD line could be interpreted as neutral or showing a bearish divergence.

    NASDAQ Advance - Decline Line:

    (click to enlarge)

    Notes:

    NYSE TICK:

    (click to enlarge)

    Notes:Very overbought.

    NYSE TRIN

    (click to enlarge)

    Notes: Overbought with a small divergence.

    NASDAQ TICK:

    (click to enlarge)

    NYSE Up - Down Volume:

    (click to enlarge)

    NASDAQ Up - Down Volume:

    (click to enlarge)

    NASDAQ TRIN:

    (click to enlarge)

    Notes: the up - down volume indicators as well as the TRIN, illustrate the mysteriously weak volume. The TRIN is neutral, and closer to oversold than overbought. With the advance decline line overbought, and the TRIN closer to oversold, this must mean that the small percentage of stocks that are declining are doing so under very heavy volume.

    Put/Call Ratio:

    (click to enlarge)

    Notes: The put call ratio is showing a heavy skew toward calls. The VIX is at very low extremes...

    Price Action:

    SPX 15 min:

    (click to enlarge)

    In the short term Prices have broken down below the momentum bands, meaning price momentum has switched from up to down. Now prices are touching the lower bounds of the wider less sensitive bands. In a bullish trend prices typically find some kind of support here, in a bearish trend prices should keep moving lower. So how prices react today will be important.

    SPX Daily:

    (click to enlarge)

    First support is at 1396, breaking second support at 1355 would do some serious technical damage to this chart (since this would mean that prices have also broken through the rising trend lines).

    Summary:

    Most of the indicators I watch are overbought or are showing a bearish divergence, indicating declining momentum. Meanwhile but to put/call ratio is showing that investors are no longer hedged and have reached a high degree of optimism. Thus, I'm try to take a shot at the short side here. Stop at an hourly close over 1420 SPX.

    Good luck trading today,

    -Bill L.

    Disclosure: I am long SPXS.

    Stocks: SPY, DIA, QQQ, TLT, UUP, FXE, VXX, UVXY
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Comments (8)
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  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Great update, Bill. Thanks for the time you put into in. Very interesting technical picture, although as I mentioned earlier I think the decline is going to be constrained by the yields on US treasuries (e.g. TLT topped out at $130.00) -- unless stocks fall faster than the yields (unlikely, imho). Wicked effects of the Operation Twist?
    22 Aug 2012, 12:32 PM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » Reading the treasury market has become much more difficult in the last year... I use to look at 10s and 30s as confirmation to equities (or divergences), but now I look at them more and more as separate issues. When they confirm, good, but attempts to front run the Fed's open market operations has caused a lot more vol in the Treasury market. People use to buy treasuries as a risk hedge to equities, but now they are buying treasury futures as direct "risk on" bets on Fed policy. One could argue that yields rising is hinting no Fed action OR a rotation back into risk. Equally possible arguments, but with very different equity price implications. The point? -Just be aware the old rules are changing...

     

    -Bill L.
    22 Aug 2012, 12:56 PM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » Today was a good example...
    22 Aug 2012, 04:03 PM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Very interesting observations about treasuries, Bill. One thing I don't quite understand from the technical perspective is this: yesterday's reading on NYSE McClellan fell to -30 and that was just in one day (!) when the indices mainly recovered their losses and didn't really close that much lower. If -100 signals oversold levels we can possibly get there in 3 days. I guess I just don't understand how the oscillator can drop so much without the indices registering any significant losses...
    23 Aug 2012, 08:57 AM Reply Like
  • Bill L.
    , contributor
    Comments (682) | Send Message
     
    Author’s reply » $NYMOT is basically an MACD applied to the AD line, rather than price. So it's a combination momentum/breadth indicator. So even a sideways move can cause it to decline.
    23 Aug 2012, 04:25 PM Reply Like
  • untrusting investor
    , contributor
    Comments (9973) | Send Message
     
    Good article and summary as usual. Have been noticing the price-volume issue for quite awhile now. When price moves up, there is much lower than average volumes ... indicating lack of buying interest to us at high prices. However, when price moves down, the volume almost always exceeds the average daily volumes .... indicating sellers are quick to pull the trigger and get out of Dodge as fast as possible.

     

    Seems indicative of a virtually totally manipulated equity market with very very low LT or strong hand buying interest. Mostly momo players looking to ride any up trend, and then virtual total lack of any buying interest the minute any price weakness occurs. Thus the downside can be very very quick and brutal as soon as price weakness happens. Such as coal, natgas, miners, etc. driven to 50-80% downside from 52-week highs. Even the former high flyers like INTC, now down from $30 to $25 and still falling. They have tried to rally INTC numerous times, but every time any few day rally happens, it keeps getting sold hard and returns to the falling trend. Those who brought INTC at under $20 are looking to cash in profits and probably won't be buying INTC again until it goes back under $20 again. Similar type scenarios with plenty of other equities as well.
    23 Aug 2012, 03:25 AM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    Great call, Bill, as usual. Just two comments: how can S&P go down in any significant way if on a down day like today AAPL barely moves? And NYSE McClellan is already at -93 (of course, it can go lower but still -- we get to oversold levels pretty quickly). This market just doesn't go down, although individual stocks do. I was short BTU today and long RWM.
    23 Aug 2012, 04:28 PM Reply Like
  • sundate36
    , contributor
    Comments (291) | Send Message
     
    I know I'm being impatient, but what kind of market are we in if I can't even add two of my favorite biotechs - ARNA and AMRN - at a substantially lower price during the decline and an idiotic stock like KKD is up?
    24 Aug 2012, 12:08 PM Reply Like
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