04/19/2010 Market Recap: Bullish Reversal Bars Everywhere

TREND INDICATOR MOMENTUM INDICATOR COMMENT (Click link to see chart) Long-term 3 of 3 are BUY     Intermediate 3 of 3 are BUY 4 of 6 are OVERBOUGHT Non-Stop Model is in BUY mode Short-term 1 of 1 are BUY 6 of 6 are NEUTRAL SPY ST Model is in BUY mode

ATTENTION 0.2.3 NYSE McClellan Oscillator: Negative divergence. 1.0.6 SPY Unfilled Gaps: 16 unfilled up gaps. (max was 18) 0.1.1 SPX Intermediate-term Trading Signals: Could be an Ascending Broadening Wedge in the forming. BULLISH 4.1.0 S&P 500 Large Cap Index (Weekly): Head and Shoulders Bottom, target 1246. BEARISH 0.1.1 SPX Intermediate-term Trading Signals: CPCE and CPC MA(10) too low. 4.0.4 Dow Theory: Averages Must Confirm: NYHILO too high. 4.1.0 S&P 500 Large Cap Index (Weekly): BPSPX too high. 0.2.2 Extreme Put Call Ratio Watch: CPCE and CPC MA(5) too low. 8.1.5 Normalized CPCE: New record low. 04/14 Market Recap: Smart/dumb confidence spread at sentimentrader is too large. 04/14 Market Recap: Too many bearish extreme signals at sentimentrader. 0.0.2 Combined Intermediate-term Trading Signals: CPCE broke the trend line, so top confirmed? CONCLUSION If it’s the same post Major Distribution Day pattern then the market was bottomed.  Just with the put call ratio this extreme, I don’t know how the market is going to handle it? In wait and see mode.

SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE. TRADING VEHICLE: SSO/SDS, UPRO/SPXU ST Model 02/26 L 04/08 low Reversal Bar   *Long if SPY closes in green tomorrow. Be careful buying this dip though as various measures of put call ratio shown above, option traders are simply way too bullish. The stop loss will be 0.9 x ATR(10) in case you need it to calculate the position size. NYMO Sell     Non-Stop     Newly added setup, will give signal on this setup the next time it’s triggered. OTHER ETFs TREND TRADE COMMENT – *New update. Click BLUE to see chart if link is not provided. QQQQ UP   4.1.1 Nasdaq 100 Index (Weekly): BPNDX too high. *Hollow red bar, could rebound. IWM UP     CHINA ?   *Big red bar always led to more red days, so expect more pullbacks. EMERGING UP   *Hollow red bar, could rebound. CANADA UP   4.1.5 iShares CDN S&P/TSX 60 Index Fund (XIU.TO Weekly): BPTSX is too high. *Bullish reversal bar, could rebound. BOND DOWN   *Testing resistance. DOLLAR UP Head and Shoulders Bottom, target $24.28. 4.2.1 US Dollar Index Bullish Fund (UUP Weekly): Hollow red bar, rebound? GOLD UP   GDX UP   *Hollow red bar, could rebound. OIL UP *Hollow red bar, could rebound. ENERGY UP   *Bullish reversal bar, could rebound. FINANCIALS UP   REITS UP *Bullish reversal bar, could rebound. MATERIALS UP   4.4.4 Materials Select Sector SPDR (XLB Weekly): BPMATE too high. *Bullish reversal bar, could rebound.

*Please make sure you understand how to use the table above. The main purpose of this report is to provide information so contradictory signals are always presented.

SEASONALITY: NO UPDATE 

CYCLE ANALYSIS: THE NEXT IMPORTANT DATE IS 04/20

The market could rebound to 04/20 (+-) then pullback to 05/06 (+-)? See 04/16 Market Recap for more details.

INTERMEDIATE-TERM: EXPECT ROLLER COASTER AHEAD

Maintain the forecast for Roller Coaster ahead for 3 reasons:

1. According to the II Survey, too many people expected a correction, so the stock market should rise to a new high first before actually pulling back (See 03/19 Market Recap for more details). Since we’ve seen the new high so now it’s the pullback’s turn.
2. Statistically when the market has been up, especially at a 52 week high, entering the earnings season, the average performance during earnings season is usually not good (See 04/09 Market Recap for more details).
3. 6.1.0 Extreme CPCE Readings Watch, take a look at how the market behave when CPCE was extremely low. I expect no difference this time (choppy ahead like past) especially when there’re simply so many bearish extremes accumulated in the table above.

SHORT-TERM: IF STILL THE SAME OLD MAJOR DISTRIBUTION DAY PATTERN THEN THE MARKET WAS BOTTOMED

As mentioned in the 04/16 Market Recap, if green or small red today then according to the past Major Distribution Day pattern, most likely the market was bottomed. However, because there’re still too many bearish extremes in the table above, so my guess is that the market may not go too far this time, therefore today might be just a short-term bottom (assume there’s a follow through tomorrow).

From various daily chart, I see Bullish Reversal Bars everywhere so the chart pattern also argues that the market was bottomed, of course a follow-through is needed tomorrow to confirm the reversal. The chart below shows all the past hollow red bars on the QQQQ daily chart, take a look at what happened thereafter yourself.

 

STOCK SCREENER:  For fun only, I may not actually trade the screeners. Since SPY ST Model is in BUY mode, only LONG candidates are listed. For back test details as well as how to confirm the entry and set stop loss please read HERE. Please make sure you understand the basic risk management HERE.

Looks like it’s too late to long stocks now as the market is way too overbought. Waiting for a better chance.