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INDEPENDENT Financial Advisor / Professional Investor- with over 30 years of navigating the Stock market's "fear and greed" cycles that challenge the average investor. Investment strategies that combine Theory, Practice and Experience to produce Portfolios focused on achieving positive... More
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  • LT Chart Of The S & P 12 comments
    Jul 15, 2013 9:01 PM | about stocks: SPY

    I decided to illustrate the importance of using charting as one tool to assist in one's investment strategy .

    Below is the LT chart of the S & P. In Jan 2008 the avg broke the 20 month avg. (green dotted line) 4 months later it rallied back to that avg., then failed . Clear "danger" & sell signals. Look back to Oct 2000, trendline broken ,Jan -Feb 01 it rallies back to trend line fails & falls. In both cases a break of the longer term 50 month (blue line) ensued. For those that think charts are voodoo - think again . Nothing is the absolute tool , but charts should not be dismissed as some woul have us believe.

    Where we are now --uptrend still intact , so far no sign of a break or "rollover"

    Adding some meaningful numbers to chart. Aug 2000 S& P had a closing high of 1517. First break was at 1392 (8% lower), then in Dec 2000 it rallied back had a close of 1320 (13% lower) Caution flag at 8% , failed rally and more caution flags @ 13%. So one could have "acted" defensively during that 4 month period.

    Lets look at Oct '07, where S & P had a close of 1549. First break occurs in Jan '08 with a close that month of 1378 (11% drop) .Then a retest and fail in May '08 with a close of 1400 (10% drop) . Caution flags raised but one would have had 4 months to take action.

    This refutes the theories that defensive action cant be deployed. Caution flags were raised. Defensive action would have saved a lot of pain.

    (click to enlarge)

    Themes: S P500 LT Chart Stocks: SPY
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Comments (12)
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  • Land of Milk and Honey
    , contributor
    Comments (5032) | Send Message
     
    The only thing I never get is... the rollover IS the going down. So we'll have rollover & break WHEN we're going down.

     

    I don't see the ability to predict in it. So I don't see why not having it, is predicting the flip either, a continued bull.
    15 Jul 2013, 11:19 PM Reply Like
  • User 7415181
    , contributor
    Comments (817) | Send Message
     
    @ FG,

     

    Thanks. To be honest, never thought of using an MA of more than a year, much less fifty months. Then I got excited about crossover possibilities but noticed by the time the 20 crossed the fifty to the downside, the price had already tanked pretty well.

     

    Still giving a lot of thought to using that Nat Stewart swing trade strategy. I like the simplicity of it.

     

    @ Curls,

     

    If I'm understanding your concerns correctly, instead of using a chart as an absolute predictor of where the top is, you can use one to figure out if a price drop is a temporary correction or the start of a big market drawdown. At least that's how I look at them. I understand moving averages - I don't understand what a "cup and handle" looks like.
    16 Jul 2013, 07:39 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (6078) | Send Message
     
    Author’s reply » Curls, User
    agree we can't predict the "rollover" but u can see that when the S & P price point goes below that green dotted line, it should set up a red flag.
    Then again notice how the price traded right back up to the Green dotted line than fell back down again , signaling another caution.

     

    Agree "user" that once the two MA's cross a lot of damage has been done. but still "saved" one from more downside.. This chart doesnt shoow the "details" , I'll go back & post the actual price points & we can see exactly what type of drop we're talking about ..

     

    I would suggest that if we see something similar develop here, we should take notice and get prepared.. I'm not predicting anything here but always keep this stuff in mind.

     

    Curls,
    I'll try to dig up a Cup & handle pattern and display it here

     

    User , I'm more of the LT type investor, but I do have a portion that I use for intermediate trades, I'll take look at the "Stewart" strategy..
    Always room to learn something new :)
    16 Jul 2013, 08:48 AM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (5032) | Send Message
     
    FG , User

     

    "you can use one to figure out if a price drop is a temporary correction or the start of a big market drawdown."

     

    That answers my question succinctly. Very helpful. Now I get a lot more of the discussions I've read.
    16 Jul 2013, 04:34 PM Reply Like
  • User 7415181
    , contributor
    Comments (817) | Send Message
     
    Curls,

     

    Uh, assuming that's not the most vicious sarcasm I've ever read, you're welcome (I read some of your other comments today and your interactions). :)
    16 Jul 2013, 05:51 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (5032) | Send Message
     
    @ User

     

    Not at all sarcastic. I sincerely meant that it was exactly the succinct clear answer that summarizes the situation. I'm newbie enough that something like this IS helpful :-).

     

    I hope my day's comments didn't come through as sarcastic or biting. I try to be direct & honest... even if I'm unhappy in an interaction.
    16 Jul 2013, 07:32 PM Reply Like
  • User 7415181
    , contributor
    Comments (817) | Send Message
     
    Curls,

     

    No, your comments weren't. I just try to make light of most situations (except when I get mad myself or see something I consider to be BS). It's just the internet and it's not the best medium for communication.

     

    And like anything else, professionals have developed their own jargon. I've spent several years reading and trying to learn more about investing so I understand some of it. But at the end of the day I still want to distill things down to what's important and what isn't - kiss is a concept I try to live by.

     

    Oh. I'm spending time typing when I could be cleaning the kitchen and finishing preparing dinner so I can avoid getting yelled at by Woman. Have a good night!
    16 Jul 2013, 07:49 PM Reply Like
  • Land of Milk and Honey
    , contributor
    Comments (5032) | Send Message
     
    Oh thank you. It was a joke by you :). NOW I get it !!

     

    I have to go get to stuff too. Pitter Patter, off I go.
    16 Jul 2013, 07:54 PM Reply Like
  • User 7415181
    , contributor
    Comments (817) | Send Message
     
    FG,

     

    Thanks for your time. Here's a link to it:

     

    http://seekingalpha.co...

     

    I don't think it's anything new - I believe he stated that he learned about it in a book. I would view myself as the long term type, but the strategy looks like it could provide some downside protection during the worse type of corrections. And since I don't have to many options in my 401k but I do want the matching, this might be appropriate for it.

     

    Let me know if it seems valid or bs!
    16 Jul 2013, 08:56 AM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (6078) | Send Message
     
    Author’s reply » User,

     

    I went over the article , his system is reasonable, no BS, He does state that he uses it like an on /off switch . pretty much all in or all cash.
    Since I have along term view, i rarely get into that mode, but i like to get defensive and trade around these type of events.. Any system will help.

     

    He uses a 10 month avg. , similar to what i tried to show with the 20 month.. I am going to play around with this and overlay some shorter term trendlines and maybe refine the signals.. It looks like if we keep it simple , anytime we get to that 10-11% area using that chart its time to really get defensive or out to live for another day
    By the way , i'm getting a "feeling" that we may be putting in a "trading" top right here in the S & P , think the next few days might tell a lot.. market looks tired and very overbought..
    16 Jul 2013, 05:05 PM Reply Like
  • User 7415181
    , contributor
    Comments (817) | Send Message
     
    @ FG,

     

    Thanks again for your time. Nice to get a second opinion from someone who's been around a lot longer. Thinking summer 2011 again? I'm going to give this system a go using the 300 sma. Options in my 401k are the Vanguard Total Stock Market Index and their money market fund. I think his system recommends a short duration bond fund, but I don't have that available for my account.

     

    Looks like I've got a minute before I have to switch (assuming the link shows up correctly) -

     

    http://bit.ly/18m81Gq

     

    Wonder if playing around with standard deviations/bollinger bands might refine it a bit more? I remember messing around with the chart last fall when I first read the article and added them in but thought "why complicate?". Have a good evening!
    16 Jul 2013, 05:49 PM Reply Like
  • Fear & Greed Trader
    , contributor
    Comments (6078) | Send Message
     
    Author’s reply » I've added some data points to the dialog, easier to demonstrate the results.
    16 Jul 2013, 02:20 PM Reply Like
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