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Tuesday, October 19, 2010

10/19/2010 Market Recap: Immediate lower low or lower close guaranteed?

Long-term 2 of 2 are BUY  
Intermediate 3 of 3 are BUY 3 of 5 are NEUTRAL SPY ST Model in BUY mode; Non-Stop in BUY mode.
Short-term Model is SELL 6 of 6 are NEUTRAL The trend is down but I hold no short position overnight.
10/26 10/22 : 10/23 Next pivot date: 10/21 – 10/22, 10/25 – 10/27, 11/04
BULLISH 0.1.1 SPX Intermediate-term Trading Signals: Head and Shoulders Bottom breakout, target 1242.
09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months.
10/01 Market Recap: Positive September plus mid-term election means 11%+ up to year end.
10/05 Market Recap: 16 more trading days upswing?
BEARISH 1.0.6 SPY Unfilled Gaps: 19 unfilled gaps, the max was 20.
10/15 Market Recap: AAII bull ratio (4-week average) too bullish.
10/15 Market Recap: Commercial (smart money) short Nasdaq 100 heavily according to COT Report.
10/08 Market Recap: Up off-season usually means down earning season.
10/15 Market Recap: Institutions are selling into strength.
6.2.3 VIX:VXV Trading Signals: Record low.
0.2.2 Extreme Put Call Ratio Watch: CPCI too high, topped?
6.2.2a VIX Trading Signals (BB): Short setup triggered on 10/13.
10/13 Market Recap: % SPX stocks 1 std dev above MA(50) is too high.
6.1.9a Extreme ISEE Index Readings Watch: SPX will close below 1176 within 2 days?
10/15 Market Recap: ISEE Index is way too high.
10/15 Market Recap: AAPL is way too stretched.
10/15 Market Recap: Euro may retreat which may cause US$ carry trade unwind.
*6.4.2c Extreme TICK Readings Watch: TICK too low, lower low or lower close ahead?
*1.0.0 S&P 500 SPDRs (SPY 60 min): Double Top, target $114.77.
*10/19 Market Recap: IBM dropped after ER may mean SPX will be red in 5 weeks.
SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE.
Non-Stop 09/07 L N/A Partial profits on 09/24.
ST Model 09/24 L *10/07 Low *Adjust stop loss.


A 1-2-3 trend change pattern is formed on SPY 60 min chart so at least short-term is not very bull friendly, especially now the ChiOsc is way too high, see dashed red lines, all had led to a pullback thereafter, and accordingly the rebound before the close can be seen as a back test of the Double Top neckline (see SPY 15 min chart at bottom) which means the market may continue pullback tomorrow. Overall, I think pullback to between Fib 23.6% at $115.15 and Double Top textbook target at $114.77 is quite likely.


Another not so bull friendly signal is an extremely low TICK was recorded today that some exchangers even reported it as a record low TICK readings. The chart below should be very clear that the red dashed lines overwhelm the green dashed lines which means an immediate lower low or lower close ahead is almost guaranteed.


On the other hand, bulls have 2 hopes, however after the 2nd and 3rd and 4th and (put whatever numbers you like here) thoughts, my guess is that they may not entirely bull friendly.

Since the rally started on 08/27, there’re total 3 big pullbacks each dropped 25 SPX points so the pullback could be over today. However, bears could argue that the 3rd time would be the charm therefore the pullback isn’t over yet.


Another bull’s argument is a back to back unfilled gap was formed today which theoretically should be filled within days, but the problem is bear too has a back to back unfilled gap that should be filled long time ago.



One more bad sign today as IBM dropped after ER which according to Bespoke means 80% chances that SPX will be red in 5 weeks.


The chart below is to follow up AAPL, although AAPL dropped after ER but unfortunately MACD is still way too stretched which probably means a top for QQQQ.


Besides, I wouldn’t hope much that AAPL could rebound huge because ChiOsc is way too high now, see what happened after the red dashed lines in the chart below.


Maintain the intermediate-term bearish view, the pivot date could be either around 10/22 or 10/26 or 11/04, see 10/15 Market Recap for more details. Below are summaries of all the arguments supporting my intermediate-term bearish view:

  1. As mentioned in 10/15 Market Recap, commercial (smart money) holds record high short positions against Nasdaq 100.
  2. As mentioned in 10/15 Market Recap, AAII bull ratio (4-week average) is way too bullish.
  3. As mentioned in 10/15 Market Recap, institution selling keeps increasing.
  4. As mentioned in 10/08 Market Recap, statistically, a strong off-season could mean a weaker earning season.
  5. As mentioned in 10/11 Market Recap, VIX:VXV is too low and statistically VIX at 1 month low going into October was not a good sign.
  6. As mentioned in 10/15 Market Recap, US$ may rebound which is not good for the broad market.


For October Seasonality chart please refer to 10/01 Market Recap.


  1. The market appears a little stretched as lots of ETFs weekly %B are way too high.
  2. With possible Euro pullback, watch potential weakness on commodity related ETFs like XLE, XLB and XIU.TO.
NDX Weekly NDX to SPX ratio too high. %B too high. Neither had any edges though.
IWM Weekly %B too high.
CHINA Rejected by downtrend line, watch…
CHINA Weekly Extremely high %B.
EEM Weekly EEM to SPX ratio too high, %B too high. Neither had any edges though.
XIU.TO *DOWN TOADV MA(10) too high. *Hollow red bar on trend line, rebound?
XIU.TO Weekly Fib 61.8% plus %B too high with negative divergence.
TLT *UP 1-2-3 trend change? So TLT could be in an intermediate-term downtrend. Be careful.
TLT Weekly
FXE Weekly Stalled at Fib confluences area, %B too high with negative divergence, too high above MA(40).
GLD Weekly %B too high.
GDX DOWN *On support, BPGDM sell signal though.
GDX Weekly GDX to SPX ratio too high, %B too high with negative divergence.
USO *DOWN *Breakdown below a consolidation area, bearish.
WTIC Weekly
XLE Weekly %B too high with negative divergence.
XLF Weekly Head and Shoulders Top in the forming?
IYR DOWN *Multiple reversal bars stalled under Rising Wedge resistance, not good.
IYR Weekly Home builders are lagging.
XLB Weekly %B too high with negative divergence.
  1. Please make sure you understand how to use the table above. The purpose of this report is to provide info so contradictory signals are always presented.
  2. Position reported in short-term session of the table above is for short-term model only, I may or may not hold other positions which will not be disclosed.
  3. Conclusions can be confirmed endlessly, but trading wise, you have to take actions at certain risk level as soon as you feel the confirmation is enough. There’s no way for me to adapt to different risk levels therefore offer no trading signals will be given in this report except the mechanical signals such as SPY ST Model.
  4. * = New update; Blue Text = Link to a chart in my public chart list; UP/DOWN = Short-term trend; L A = Lateral Trend
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