08/06/2008 Market Recap: Speculation vs TA Signals

In the Monday report 08/04/2008 Market Recap, I put a chart to show what had happened when SPY down 3 days in a row.  Now let us look back and see how amazing it is.  Note that 3 out of 5 times the market went up for three days, and my feeling at the moment is this time the market may push up for 4 days.  Well, this is just my guess, no evidence though.

Next let us review the current TA signals.

The most powerful one is the 2.3.4 Nasdaq Total Volume/NYSE Total Volume, Wow!

The next one is 2.0.0 Volatility Index - NYSE (Daily), VIX MA(10) Envelop, which is a well-know indicator, is oversold.  Note the red circles connected with red dash lines, compare with the market denoted by the green lines, don't you think once the lower edge of MA(10) Envelop is broken, the green line has a high probability of pullback?

The old frield NAMO on 1.1.B QQQQ and VXN is going up as expected and very close to overbought region now.

And on the 1.3.7 Russell 3000 Dominant Price-Volume Relationships today 1147 stocks were price up volume down, which is quite bearish.  Note those red comments on the chart, the probability of getting a red candle next day is quite high.

Furthermore on 3.2.4 Yen RSI and the Market Bottom the Japanese Yen failed the battle with the US Dollars finally.  However, on the chart everytime at the red line level, the market denoted by the green line pulled back significantly.  Maybe this time is different, after all the relationship between the US Dollars and the Japanese Yen has changed.  On the other hand, any rule will be considered to be valid before it is disproved.  Therefore this signal cannot be ignored.

1.0.4 S&P 500 SPDRs (SPY 15 min), 1.2.7 Diamonds (DIA 15 min).  The pattern looks like a Bearish Rising Wedge.  Additionally MACD and RSI show negative divergence.

1.2.1 Dow Jones Industrial Average (Weekly).  On the weekly chart you can see how tough the test is that INDU is facing.

1.1.4 Semiconductor Holders (SMH Daily).  The challenges it is facing have not changed, overbought, bearish volume, RSI(14) testing resistance, and here is one more red candle which has high probability of reversal.  This situation is bearish to COMPQ.

1.1.6 PowerShares QQQ Trust (QQQQ Daily), yes, it is a breakout.  But it is now facing the challenges by MA(50), MA(100), Fibonacci 50%, and more importantly today is price up on decreasing volume.  If tomorrow it goes up further and volume still decreases, this pattern, as I said many times, has a very high probability of plunge afterward.  Remember that NAMO is close to the overbought region now.

1.3.0 Russell 2000 iShares (IWM Daily).  This is a breakout, too.  But it is also close to the resistance.  Additionally it is volume keeps decreasing on up day, too.  Therefore the situation is not optimistic.

1.1.A PowerShares QQQ Trust (QQQQ 15 min), 1.3.6 Russell 2000 iShares (IWM 15 min).  On the 15 min charts the patterns look like Bearish Rising Wedge.

According to the analysis, it is quite possible the market will pull back tomorrow.  What about if it still goes up?  Well, this is TA.  My feeling is, as I said in the beginning, the market will go further up for 4 consecutive days, because the previous pattern is Wall Street always full of surprise.  Do we believe in TA signals, or our own feelings?  Let me emphasis again, TA always bet on high probability.  Maybe aforementioned reasons would eventually be disproved, overbought could become more overbought.  However, over the long term does our own guts have higher chance of winning than the TA signals which have been statistically validated many times in history?  As a TA trader, I will strictly follow the TA signals instead of overriding TA signals by gut feelings.  This is the secret of how TA can get success, which wins by long-term sustainable probability.  Okay, let us take a look at 0.0.1, because of oversold VIX/MA(10) we are waiting for a reversal candle to trigger the short-term short, right?

3.1.0 US Dollar Index (Daily).  USD has passed the first fence and stopped at the second fence.  Now it is overbought.

3.2.0 Japanese Yen (Daily), Breakdown!  But it is overbought, and both STO and RSI(14) are at the support.

3.2.3 US Dollar/Japanese Yen Ratio.  Very good!

3.3.0 streetTRACKS Gold Trust Shares (GLD Daily).  Today it is a black candle which has a high probability of reversal.  Possible Bullish Harami formed at important support.  In addition STO is on the support, too.

3.3.2 streetTRACKS Gold Trust Shares (GLD 60 min), MACD divergence.  It looks like a V bottom.

As a result, shouldn't GLD bounce back soon?

3.4.1 United States Oil Fund, LP (USO Daily).  It is almost retraced to Fibonacci 50%, at where pullback usually finishes.  STO is on the support, too.

3.4.2 United States Oil Fund, LP (USO Weekly).  The oil is on the long term trendline, which can be seen on the weekly chart.

3.4.3 United States Oil Fund, LP (USO 60 min), MACD and RSI show positive divergence.

Note that 5.2.0 Energy Select Sector SPDR (XLE Daily) has started to bounce back.  XLE usually leads the oil, so the oil will likely go up too.

If the oil bounces back and so is the XLE, note the negative correlation between XLE and 5.3.0 Financials Select Sector SPDR (XLF Daily), XLF may pull back further.