11/21/2008 Market Recap: Is 3rd time the charm?

The Friday's later day surge was the 3rd time we had recently. The previous 2 were all sold off the next day. So is 3rd time the charm or still the same easy money for bears? Well, I tend to believe that the 3rd time will be different. So short-term, the bounce might live a little longer than one day. And as for intermediate-term, if the past experiences still work at this crazy time, I tend to believe that Friday was not a bottom. Reason: the later day surge was too fast, conventional bottom day reversal usually doesn't act this way.

 

1.0.4 S&P 500 SPDRs (SPY 15 min), chart says everything. Friday's surge was the 3rd time. And I do believe that the 3rd time will be different.

2.1.2 NYSE - Tick, note the blue thick line just hit the thin green line which always generated very good bounces in the past. The bounce usually carried the thick blue line above the zero before running out of the steam. The Friday's surge didn't push the thick blue line above the zero, so this probably means there's still some room left for the bounce.

3.0.0 10Y T-Bill Yield, ROC30 has reached an extremely low level which in the past always caused some big rallies, so this also supports that there might be some up room left for the bounce.

2.0.0 Volatility Index (Daily), possible Bearish Rising Wedge, plus STO hit resistance, VIX might drop further and this is good for the market.

1.0.3 S&P 500 SPDRs (SPY 60 min), how far will the bounce go? Look at tons of resistance ahead, period.

0.0.4 SPX and Breadth Divergence Watch, for above mentioned reasons, I myself have decided to ignore what this chart says, but it's my responsibility to let you know that on Friday, NYAD failed to confirm the surge. This was exactly the same pattern as that of Nov 13th which was sold off the 2nd day. So be careful here.

 

If we do get a further bounce, then here's a simple rule to verify if the Friday is a bottom.

0.0.2 SPY Short-term Trading Signals, in order to prove that this was a trend reversal instead of a bounce, on Monday, SPY should have a high which is higher than 86.87. Why? As my previous report described, 2 down days vs 2 up days, the latter should fully recover the previous 2 in order to prove that the up strength is stronger. By the way, STO, NYADV and TICK are still in the oversold area, so as well, they support a further bounce.

 

3.1.0 US Dollar Index (Daily), Bearish Dark Cloud Cover, US$ might pullback.

3.3.0 streetTRACKS Gold Trust Shares (GLD Daily), breakout, although the RSI2 above is overbought. If US$ pullback, gold will have good chances of going further up from here.

5.0.2 S&P Sector Bullish Percent Index, from the Bullish Percent Index point of view, all sectors are back to historical low level now.

11/20/2008 Market Recap: Uncharted Territory

The possibility of short-term rebound is still quite high.  Concerning the trend reversal in the intermediate term, we have a news unrelated to TA -- the discussion of bailout plan for the three automakers will be postponed to December.  With such a big uncertainty, I guess the mid-term trend reversal won't happen until December.

1.0.2 S&P 500 Large Cap Index (Monthly).  2002 low that everyone was talking about has broken without any battle.  Look at the possible supports underneath.  Around 1994 there is a significant consolidation area.  Therefore, only that region can provide decent support theoretically.  Of course myself doesn't even believe the market could drop there.

0.0.2 SPY Short-term Trading Signals.  All signals are oversold.

1.3.7 Russell 3000 Dominant Price-Volume Relationships.  Today's dominant price-volume relationships are oversold, 2058 stocks price down volume up.

2.1.2 NYSE - Tick.  TICK is still extremely negative, which means the market could bounce back in the early morning.

3.0.0 10Y T-Bill Yield.  This is about rebound too.  Note the green dashed lines, when ROC30 goes below -9, the market which is denoted by the green curve on the background of the chart has a high chance to bounce back up.  When the bond yield is very low, the money will consider the stock market is cheaper and flow to it.  Of course, I don't know if the money is still willing to flow into the stock market given such an extraordinary situation.  Today's 3-month US T-bill Yield (3.0.2 TED Spread) is almost zero, which shows that the money is extremely panic.

3.0.3 20 Year Treasury Bond Fund iShares (TLT Daily).  Look at TLT, such a monster candle.  The volume today is huge, and the moneys were really scared.  RSI shows that TLT is overbought, STO reaches the level where the reversal happened last time.  Therefore TLT might pull back, which means the market may bounce back up.

11/19/2008 Market Recap: NYSE TICK

Today the market was very disappointing.  It seems the pattern of single up day holds very well, and on the other hand the down days never appear as single day.

Recently it has been tough to write the report.  TA assumes the history repeats itself.  However the current situations seems the the market is writing the history.  So we should keep cautious when using all kinds of TA signals which were accurate in the past.  According to very negative NYSE TICK, I believe the market is approaching capitulation, and at least the market might bounce back up in the early morning.  However if the market sells off further without any rally, the chance is tomorrow might be a reversal day.

1.0.2 S&P 500 Large Cap Index (Monthly).  (it is unbelievably that we have to use the monthly chart for analysis)  Today SPX broke out at the down side and formed a new low in 2008, and it seems 2002 low will be tested.  SPX closed at 806, which is merely 38 points from 2002 low at 768.  If the market doesn't bounce back up tomorrow morning but sells off continuously, the possibility of testing 2002 low and forming a reversal should be very high.  Of course, will the market be bottomed out after the reversal?  I don't know, follow-through is the key, and recently we don't have it.

0.0.2 SPY Short-term Trading Signals, VIX ENV overbought, NYADV is still on the oversold level while NYMO is very close to oversold.  What is important is the TICK, which close is very negative today.  It happened four times in this year as marked by green dashed line.  If the history repeats itself, tomorrow we may see a big sell off (testing 2002 low?) but the trend may reverse during the day.

Here is the NYSE TICK 30-min chart since Oct 8th.  Usually the value of TICK below -1000 is considered to be very negative, and too negative usually means reversal.  As marked in green circles on the chart, many negative ticks are often local bottoms.  13th, a big reversal was triggered by a record-breaking TICK.  Note that negative ticks below -1000 in recent two days are quite intensive, and are even heavier than the Oct 10th bottom.  This is why I say in the beginning of the report, the market is approaching a capitulation according to TICK.

2.8.1 CBOE Options Total Put/Call Ratio.  Today CPC is above 1.4.  In the past this means the bottom of the market.  Of course it may not mean anything for the current situation.

2.0.0 Volatility Index (Daily).  VIX is still in the rising wedge.  But I don't have any hope on it.  It may break out at the up side, instead of at the down side.

3.0.3 20 Year Treasury Bond Fund iShares (TLT Daily).  Do you remember the last warning on the yesterday report?  Now we know the bond market is accurate.  Anyway, TLT is overbought, and the possibility of STO reversal is pretty high.

11/18/2008 Market Recap: Two consecutive up days needed

Again, not so much to talk about today.  In term of news and sentiment, it seemed an end of world and the market could go to zero.  However, from my experience and observations, because of oversold signals which have been corrected in some extent, the probability of short-term rebound is still higher than further selling off.  Over the intermediate term whether the market goes up or down, I still have no idea.  What I know is many newsletters are calling the 2002 low.  I also observed that the recent selling off often caused rebound during the middle of trading day, which is different from the past while the market never looked back to the upside.  Therefore, I am not willing to short without seeing a rebound of 1-2 days.  For people who are trapped by long positions especially if the positions are not very heavy, you may wait a while.

0.0.2 SPY Short-term Trading Signals.  Short-term oversold signals on this chart have been corrected.  In the past two days the market closed at a candlestick pattern which may cause reversal, which is the shooting star yesterday plus the hammer today.  The key is whether we can see a follow-through.  There is a long time we haven't see two consecutive up days, it will be good if the market goes up tomorrow.

2.4.2 NYSE - Issues Advancing.  Even if the market drops down tomorrow, it won't be too bad.  NYADV has not gone out of the oversold region, and it will be oversold once the market drops tomorrow.  After this period of testing, you may feel some confident to the oversold signal on this chart.

1.3.7 Russell 3000 Dominant Price-Volume Relationships, 1218 stocks price down volume up, so the market is oversold and the market might be due for rebound.

2.4.6 NYSE Volume Advancing.  The positive divergence on the chart hasn't changed.

 

2.0.0 Volatility Index (Daily), the bearish rising wedge is still there.

2.0.4 SPX and VIX Divergence Watch.  VIX and SPX show a bit positive divergence today.  In the past the divergence on the chart successfully predicted previous two reversals, so you'd better not overlook the divergence this time.  Of course, it isn't very significant and may not mean anything.  Just a reminder.

T2122 of Telechart, 4 week new high/low ratio.  This chart is similar with RHNYA on 0.0.2, but RHNYA is 52 week new high/low ratio, so you can see that RHNYA on 0.0.2 reached oversold level and never bounces back and then fails to be a good signal.  4 week new high/low ratio looks like making sense over the short term on the chart.  Note the green line does not stay too long after diving down under blue horizontal line, and then it will bounce back above the blue line.  Now the green line goes under the blue line again, which means the market may bounce back up.

3.0.3 20 Year Treasury Bond Fund iShares (TLT Daily).  The only negative signal for bulls today is that TLT rallied, and it was going up even when the market was bouncing back significantly prior to the close.  This is suspicious, and we should be cautious.

11/17/2008 Market Recap: No Title

Not so much to talk about today, we may just take a look at a few charts.  I think the market may have a chance to bounce back in the short term, and it may be too late to short or exit long positions.

NYSE - Issues Advancing.  It is oversold, and the worst scenario mentioned in the weekend was delay of three days in October.  Today is day one, let's see how long it will delay this time.

2.0.0 Volatility Index (Daily).  As some readers pointed out, VIX closed with a black candle which has a high probability of reversal,  Look at those places marked by green arrows, VIX might drop down.  Especially when the rising wedge is broken, it will be a good news to the stock market.

2.4.6 NYSE Volume Advancing.  On the chart every time after the positive divergence, a decent rally happened, and no exception so far.

Now SPY and TLT (bond) are almost mirrored trend.  TLT has formed two consecutive Doji (the cross), and might reverse.  This means SPY might bounce back up.  In addition, SPY formed a shooting star which also has the odd of reversal.

0.0.0 Signal Watch and Daily Highlights.  Here is the overview of all signals.  Today we have one more mid-term sell signal, which is the most important one -- NYSI.

11/14/2008 Market Recap: No follow-through but still a hope there is

It's a pity that there was no follow-through to the Key Reversal Day on Friday, and pattern of single up day holds very well.  Since it was Friday and the selling-off near the market close was very sharp, and the market closed at the low of the day, it might be an overreaction (http://quantifiableedges.blogspot.com/2008_10_01_archive.html first two articles), and the Monday may not be very bad.  You may remember that on Oct 17th the market also sold off near market close before the weekend, and then rallied significantly on Oct 20th.  Even if the market plunged on Monday, it might not be so terrible because the 2.4.2 NYSE - Issues Advancing is oversold.

On 0.0.3 SPX Intermediate-term Trading Signals there are several positive divergence which could be the last hope for the bulls.  In this weekend I did a research on rallies potentially caused by these positive divergences, and the result is not promising.  Unless the market is at a many-year bottom, very likely these divergences would only cause the rally to the starting point of November -- if we could ever see a rally -- for SPX, it is about 1000.

Conclusion: hopefully bulls who were trapped at 1000 could get out, but I have no idea if the Thursday low is a beginning of a tradable rally.

Firstly take a look at the oversold NYSE - Issues Advancing, and see how long the delay could be before a rally.  In the worst case (3 days of delay like what happened in October), long at Friday close should be able to get out.

0.0.2 SPY Short-term Trading Signals.  Take a look at oversold short-term signals.  Besides NYADV is oversold, VIX also breaks out ENV on Friday.  By the way, the potential target of bulls is 95.53 which looks a bit tough, but you never know.  If the intraday high by next Tuesday could be higher than 95.53, the situation will look fine enough.

1.0.4 S&P 500 SPDRs (SPY 15 min).  The pattern looks like a double top, and the potential target is almost the Thursday low.  But maybe it's not that bad.

1.5.0 Shanghai Stock Exchange Composite Index (Daily).  Some readers ask whether it's time to get in the Chinese stock market.  Frankly speaking, I have no idea.  On the chart, RSI is overbought, STO reaches a level where the rally were rejected many times by the 50-day moving average.  Also consider the descending channel and the resistance around 2000, the market should be due for a pullback, and then we can see if it can break the 50-day moving average.

Following is the research result on mid-term positive divergence.

0.0.3 SPX Intermediate-term Trading Signals, many positive divergence.

2.4.7 NYSE Advance-Decline Volume, obvious positive divergence on Breadth.

8.0.8 SPX and MA200 in 2000-2003 Bear Market.  Let's take a look at how those positive divergences played out in 2000 Bear Market.  Conclusion, except for the last pullback in 2003 (note that it was a higher low, which is different from the lower low at the time being) other positive divergences indeed caused rally but no rally formed a higher high.  So don't expect too much to the positive divergence on the mid-term signals.  On the other hand, I am not saying there won't be a year end rally.  On the chart 8.0.8, 200-day moving average are challenged many times by the bear market rally.  Hereby I want to show you that my research result disrespects the positive divergence as an evidence for mid-term bullish outlook.