01/29/2009 Market Recap: Bearish Engulf

Today's pullback was far more than I've expected, so the worst case, long expected sell off in chart 2.8.2 SPX:CPCE might have started. Tomorrow, the market might bounce back at least in the morning. However, since there're so many "top (at least short-term)" signals, although I'm not sure if the market can still go up a lot, it looks like bears have nothing to worry about at the current stage (at least a chance to escape without being punished). On the other hand, any bounce is a gift for bulls.

 

7.0.3 NYSE Composite Index Breadth Watch, this is how I measure the market.

 

Evidences for a possible bounce tomorrow (Not very strong evidences though):

1.0.3 S&P 500 SPDRs (SPY 30 min), STO oversold, so might be a bounce at least tomorrow morning.

1.0.4 S&P 500 SPDRs (SPY 15 min), might be a Bullish Falling Wedge, but since there are no positive divergence to support it, so don't hope too much.

 

Now the bad news:

2.8.2 SPX:CPCE, sell off might be ahead of schedule. It cannot wait until NYADV gets overbought which is a perfect "loading" chances for bears.

2.8.0 CBOE Options Equity Put/Call Ratio, remember how I called top here 01/07/2009 Market Recap: Intermediate-term Top?? Now this indicator comes back, so if market drops again tomorrow...

2.8.1 CBOE Options Total Put/Call Ratio, pay attention to the "Normalized CPC" at bottom, a little bit too low, right? Yes, I said CPC low readings are bullish, but I also said, there'll be a payback time as CPC cannot remain at 0.8 level for ever.

0.0.2 SPY Short-term Trading Signals, all the red circles, at least not much up room left right? And this is why I mentioned at the very beginning that any bounce is a gift for bulls.

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All I want to say are, guys, please don't point fingers to each other as we're all friends here.

Meanwhile, I just want you to know that it's really not easy for me to take minimum 3 hours a day to report my view of the market (and some of you may know that never was I missed a single report ever since I started it). I have my own job, and I back home around 7pm and the report usually finishes around 11pm, so virtually every report you see here are "all my leisure time". My wife and kid were away from me last year, so I got plenty of time. However, they'll be back soon and I'm not sure how HARDER it will be since I've determined to keep up doing the report no matter what happens. So please, if you really appreciate my work, try your best to make things easier for me. Let's talk about stock market ONLY, OK?

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01/28/2009 Market Recap: Higher High

Trading range breakout on increased volume, bullish, today. Under NORMAL conditions, market should pullback tomorrow. If however no pullback or just a minor pullback tomorrow, pay attention to the trading setup described in chart 2.8.2 SPX:CPCE, as eventually there'll be a big sell off.

 

7.0.3 NYSE Composite Index Breadth Watch, again this is how I interpret today's "Equal up and down strength" rule. Why is today bullish? 4 vs 4, bulls won. Now we need to see how the market pullbacks. If no lower low, then very good chances that the trend has changed from intermediate-term down to intermediate-term up.

0.0.2 SPY Short-term Trading Signals, trading range breakout and stand above MA50 again, very good. Although the RSI and STO are overbought, but since this is a pattern breakout, in which short-term overbought signals usually do not work, so I'm still watching the chart 2.8.2 SPX:CPCE which trading setup I mentioned in yesterday's report, as I suspect (or more precisely I wish) that the market will keep going crazily up.

1.0.3 S&P 500 SPDRs (SPY 30 min), possible Complex Head and Shoulders Bottom pattern, target around $90. Overbought though, might pullback at least tomorrow morning.

2.0.0 Volatility Index (Daily), VIX oversold, should bounce back which means a pullback in the overall market.

 

So, to summarize again, bulls need to take profits while bears best hopes are that the market keeps going crazily up until NYADV in chart 2.8.2 SPX:CPCE gets overbought!

01/27/2009 Market Recap: SPX:CPCE Trading Setup

OK, are everyone bullish when AH news came out? Well, I'm preparing to be bearish now (pay attention to "preparing"). Reasons:

1. Up 3 days, still couldn't recover the Jan 20's one day loss.

2. 1.3.7 Russell 3000 Dominant Price-Volume Relationships, again today has 1197 stocks price up volume down. Up 3 days in a row with volume down 3 days in a row, this is a typical pullback setup.

3. I mentioned here 01/23/2009 Market Recap: Extremely Low CPC Reading... about extremely low CPC readings are bullish, but this is only the half part. The other half is, a sell off generally follows. When will the sell off come? I don't know. But since we know a sell off usually follows, we should be careful here. Anyway, in today's report, I will talk about a trading setup which combines SPX:CPCE, CPC and NYADV together where at the same time we can see from the past, typically a sell off does follow.

 

7.0.3 NYSE Composite Index Breadth Watch, according to the "Equal up down strength rule", up 3 days in a row still no higher high, bears won. Also, volume down 3 days in a row which in normal market conditions, a pullback is due. For more examples about "Equal up down strength rule" please refer to chart 8.1.1 Buyable Pullback Rule.

2.8.2 SPX:CPCE, MACD buy signal, good, which is pretty accurate in the past. But if we simply follow the MACD here, we will lose lots of profits, especially when the MACD buy signal is generated by extremely low CPC readings as in this case a big sell off usually follows. Why big sell off? Simple, extremely (pay attention to "extremely") low CPC readings can hardly be lower so it eventually has to rise which means a pullback in the overall market. So is there anyway to take profits just right ahead of sell off? The answer is NYADV. Extremely low CPC readings tend tol make the market rise in an extreme way therefore usually cause NYADV to reach an overbought level. Today it seems that all these conditions are met, except the NYADV overbought, hopefully market can rise to the overbought level, which I doubt, by the way. Anyway, Fed day tomorrow, market typically roller coaster after 2:15pm, so before 2:15pm better take some profits. And also from the chart, we can see in the past the best case is up 5 days in a row and the market has been up 3 days now, so be careful.

2.0.0 Volatility Index (Daily), pay attention to STO indicator, if market up big tomorrow, this chart can be another reason to take profits.

1.0.3 S&P 500 SPDRs (SPY 30 min), could be a small Symmetrical Triangle, so might be up tomorrow. Just the STO is a little bit high, so price could rise then fall tomorrow. 1.1.5 PowerShares QQQ Trust (QQQQ 30 min), possible Ascending Triangle, could rise. The same, STO indicator is a little bit high.

Another no good sign

Forgot to mention, according to SP Energy Climactic Volume Indicator from www.decisionpoint.com, Energy sector seems pretty overbought, so could be a pullback tomorrow and therefore not good for the overall market.

01/26/2009 Market Recap: No Title

There is no clue today, let's see how the market goes tomorrow.  However tomorrow might not be a good day for bulls considering the bearish reversal of financial sector and 1196 stocks up on decreased volume in Russell 3000.

Firstly let's review the bad news.

7.0.3 NYSE Composite Index Breadth Watch.  Compare with the beginning of December, the rebound after the sell off on Jan 20th is weaker.

5.0.1 Select Sector SPDRs.  XLF is a bearish reversal pattern, and the situation will be no good should the dropping continues tomorrow.

1.0.3 S&P 500 SPDRs (SPY 30 min).  Although it could be a back test post to symmetrical triangle breakout, the MACD at the bottom of the chart could possibly give a sell signal if the market goes down tomorrow, and the MACD is quite accurate on this chart.  By the way, it has been two times that the market gapped down and rallied back up and even closed in green.  Will it still do so at the third time of gapping down?

Then we have two promising bullish signs:

2.8.2 SPX:CPCE.  If the market goes up tomorrow, MACD on the following chart will possibly give a buy signal which is also quite accurate.

The Institutional Buying and Selling from stocktiming.com shows that the institutions are in accumulation recently.

01/23/2009 Market Recap: Extremely Low CPC Readings

An inside bar again, three days in a row, indecision and emotion accumulation, the breakout will be violent either up or down. Well, I wish I could know the direction, although based on a few straws I've collected from my chart book, the guess is UP.

 

1.0.8 Extreme CPC Readings Watch, unlike the common believes, extremely low CPC readings are generally bullish. Only the ACCUMULATION of extremely low CPC readings are bearish and by the way, that's why I use "normalized CPC" in chart 2.8.1 CBOE Options Total Put/Call Ratio to help me identifying the possible top and bottom.

1.1.4 Nasdaq 100 Index Intermediate-term Trading Signals, green dashed lines, it seems that every time NAUPV crossover above NAADV, the market is in for a good bounce. Well, let's don't discuss how illogic it is to use NAUPV and NAADV crossover, please. I said in article here Does INDU lead market?, I don't care how illogic something may sound, I read only charts.

2.0.1 Volatility Index (Weekly), looks topped to me, may pullback and therefore is good for the overall market.

3.1.1 US Dollar Index (Weekly), looks topped too, a Doji. The pullback of $ is good for commodities which may help lift the overall market.

 

Oh, one more chart about Dow Theory: 1.2.1 Dow Theory: Averages Must Confirm, it's very interesting that the recent TRAN new low wasn't confirmed by INDU. let's see how things going.

01/22/2009 Market Recap: Inside Day

There is no so much to talk about today.  Inside bar for two consecutive days on 0.0.2 SPY Short-term Trading Signals, which means indecision or the momentum accumulation.  Once it breaks out, it will be massive no matter which direction it finally goes to.

7.0.3 NYSE Composite Index Breadth Watch.  Let's see the targets for bulls and bears on the chart respectively.  Rising up -- if it doesn't go beyond the top blue line then the situation will be bearish.  This is because three days' effort cannot even compete with the down on a single day of Tuesday.  Dropping down -- if it doesn't dive below the bottom blue line, bullish.  Why?  two down days fail to take out the rally on Wednesday.  It seems more difficult for bulls to go beyond the top blue line, especially on Friday not so many people are willing to hold their positions over the weekend.  Therefore the best hope of bulls is actually modest down tomorrow.

1.0.3 S&P 500 SPDRs (SPY 30 min).  It seems like a symmetrical triangle.  If we just read this chart, the probability of downside move is bigger.

0.0.1 Market Top/Bottom Watch.  A very simple criteria to judge the market bottom is fear.  How can it fear?  At least three down days in a row, right?  What the bottom isn't in place without fear?  Because without fear no one will cut with loss, and the big money couldn't get the cheap chips and they will keep trying.  Therefore, even the market goes up tomorrow and beyond the high on 7.0.3, bulls shouldn't be too happy because it is most likely a rebound.  If the market goes down tomorrow, there will be more hope since we get two down days already.

01/21/2009 Market Recap: Down 1 Day vs Up 1 Day

Two points to be noted today:

1. down 1 day vs up 1 day, so bulls lost the battle and tomorrow is the last chance and they have to push the market up big;
2. Intraday charts show that the market is overbought, and may pullback at least in the morning, which makes the mission of big up more difficult.

7.0.3 NYSE Composite Index Breadth Watch.  Tomorrow's high must be at least higher than that of yesterday's high in order to prove the bulls are in control.  One may refer to 8.1.1 Buyable Pullback Rule.

1.0.3 S&P 500 SPDRs (SPY 30 min).  TICK overbought, ChiOsc is a little bit too high, so the market may pull back tomorrow morning.

1.0.4 S&P 500 SPDRs (SPY 15 min).  All momentum indicators are overbought, which also means the market may pullback tomorrow morning.

01/20/2009 Market Recap: What bottom fish signals say again?

The setup of technical indicators is very similar with Jan 14th, where TICK closed below -1000, so tomorrow the market may reverse during the day just like Jan 15th.  In this report we will review several important bottom fish signals and see how far the market is from the possible bottom.  Again, bottom fishing is very risky even all bottom fish signals are pointing the bottom.

0.0.2 SPY Short-term Trading Signals.  Note what the green dashed lines are pointing to, if TICK closes below -1000, the market should sell off further in the next day but the probability of intraday reversal is very high.  The worst situation happened on Nov 19th, and the market sold off on the next day and didn't reverse until the very end of trading hours in 21st.

1.0.3 S&P 500 SPDRs (SPY 30 min).  Oversold, and the market may bounce back up at least in the tomorrow morning.

1.0.4 S&P 500 SPDRs (SPY 15 min).  Again oversold, and the market may recover in the morning.

1.0.5 Major Accumulation/Distribution Days.  Today is the second major distribution day.  According to the past record, there will be some decent rebound after two major distribution days, or the third major distribution day.  The possible rebound is of course not confirmed yet, but it's still better than having just one major distribution day.

1.3.7 Russell 3000 Dominant Price-Volume Relationships.  1631 stocks price down volume up, which means the market is oversold.  You may check the green comments and see what happens in the next day after the similar price down volume up setup.

2.0.0 Volatility Index (Daily).  Today VIX broke ENV 20 which is quite extreme.

As a summary, should the technical analysis still works the market may bounce back up tomorrow (in recent several months the market often goes extremely.  Before it gets very extreme, it's hard to say if these conventional TA signals still work or not although they used to work very well in the past)

OK, now let's review three bottom fish signals and see where they are, and how many days the market could still drop down in the most possible worst scenario.

2.4.2 NYSE - Issues Advancing.  Famous NYADV is not yet oversold.  It may take two more days to reach the oversold region.  At the worst scenario it may stay at oversold for three days.  So we might see five down days afterward if the market gets very very extreme.

T2122 from the Telechart, 4 weeks New High/Low ratio, not oversold yet.  If it is oversold, it may stay there for a while.

7.0.7 NYSE - TICK (30 min).  See those capitulation of TICK readings under -1000 in last November, compare with the current reading -- again, not yet.

01/16/2009 Market Recap: Follow-through, Yes, but...

OK, we got a follow-through on Friday, but I'm not happy, because the bounce was weak and on decreased volume. Maybe it's because of  the long weekend and OE day effect, but anyway, next Tuesday, the market must up big otherwise, bulls will be in trouble.

7.0.3 NYSE Composite Index Breadth Watch, this is the main reason why I'm not happy. According to "Equal up down strength" rule, bulls have 4 days left to prove themselves.

 

Let's see if by any chances this short-term bounce can last for awhile:

0.0.2 SPY Short-term Trading Signals, 2 hammers plus STO buy signal triggered very close to its oversold area, so under normal conditions the bounce is likely to continue.

Charts from www.stocktiming.com, from Liquidity Flow and Institutional "shift in direction" point of view, they're still at very low level.

Again, Institutional Buying and Selling Trending chart from www.stocktiming.com which I first introduced on Christmas day. Now blue curve is well bellow the red curve which means a distribution and therefore a downtrend in intermediate-term. The good news is that the blue curve is too low and therefore justifying a possible short-term rebound.

 

OK, now the possible rebound target:

1.0.3 S&P 500 SPDRs (SPY 30 min), potential Head and Shoulders Bottom, the theoretical target happens to be Fib 61.8 level.

Does INDU lead market?

Hey, my "brother" keeps lecturing me about how impossible would be that general (INDU) leads the market. And here is his lecture:

DJI usually does not lead real moves; DJI usually leads FALSE moves.

There's an old saying Generals (General Foods; GM; GE; etc) do not lead; they follow.  That also goes for the other large cap industrials in the DJI not named "General _ _ _"

Well, I'm a pure chart-ist (is this a real word? I know word "chartist" but it seems irrelevant form my English Chinese Dictionary with chart-ist). So here are my principles:

1. I see everything through the chart, I don't care if it sounds logical or not. So don't tell me, well, the world is going to end so this kind of breakout is a trap.

2. I try my best no to think that this time is different. Everyone knows that there aren't any 100% correct indicators, so many times we tend to think this time is different and therefore use this as an excuse to justify the trade that is against what the indicator says.

3. If an indicator works in the past, until proven wrong, I'll keep using it.

Hmm, I just realize that it sounds like all my principles are actually about: Try not to be smart.

OK, enough lecture. Let's see what makes me think that INDU leads the market. As usual, a chart. And again, it might not work this time, but hey, I'm not a smart guy. Happy long weekend!

01/15/2009 Market Recap: Reversal Day

Today is a reversal day, but we have to see if tomorrow is a follow-through.  Because of a few puzzles, the market may only bounce in the short term should it takes off from tomorrow, and the trend is still down over the intermediate term.

Four criteria for the reversal day are the following:

1. New low;
2. Close > Open;
3. Close > Yesterday's Close;
4. Heavy volume.

The reason we may get a follow-through tomorrow:

0.0.2 SPY Short-term Trading Signals, STO buy signal, and RSI is still oversold which looks promising.

1.0.3 S&P 500 SPDRs (SPY 30 min).  It stands above EMA21 for the first time in the past seven days, and MACD gives buy signal too.  So it looks good.

2.0.0 Volatility Index (Daily).  VIX seems turning down which is bullish to the market.

Why I think the intermediate-term trend is still down:

1.0.5 Major Accumulation/Distribution Days.  We saw a Major Distribution Day yesterday, and it seldom appears in single, which means the market might dive down one more time.

1.2.6 INDU leads the Market.  INDU has a lower low today ahead of SPX and COMPQ, and the latter two may follow afterward.

2.4.2 NYSE - Issues Advancing.  NYADV lower low means SPX may make a lower close compare with yesterday's close level.