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Thursday, February 12, 2009

02/12/2009 Market Recap: Range Bound

Four points:

1. The violent bounce before the close today didn't mean anything. I don't know if you still remember the last year? So many times the market bounced violently right before the close when bulls were so desperate. What had happened afterwards? How many times the marked followed through with continuous rally? 1.2.0 INDU Leads Market, technically, damage was done today and I believe that SPX will follow, sooner or later. Also don't forget 1.1.7 QQQQ Outperforms SPY Good Sign?, QQQQ eventually has to payback, the price will be a big sell off.

2. Market still is range bounded. Just now bears are on the defense while bulls, pay attention to chart 7.1.0 NYSE Composite Index Breadth Watch for "equal up down strength" rule, have three days to prove themselves.

3. Range bound means the intermediate-term direction is unknown, so the market might have chances to breakout on the upside of the range, but, because of too many "topping signals", I doubt how much the market can rise. I'll review those "topping signals" again in today's report.

4. Market might pullback at least tomorrow morning.



First, why the market might pullback tomorrow morning:

1.0.3 S&P 500 SPDRs (SPY 30 min), lots of positive divergence which means good chances of further rally. Just the ChiOsc is way too high, so I believe the market could pullback at least in the morning. Please notice here, when I say pullback, I don't mean pullback right way, the market could open high then pullback, generally I cannot predict the next day's open. And likewise, when I say bounce, I don't mean bounce right way, the market could open low then bounce. 1.0.4 S&P 500 SPDRs (SPY 15 min), also ChiOsc and STO are way too high.



OK, now let's review why I believe there's not much room left on the upside:

2.8.0 CBOE Options Equity Put/Call Ratio, we've been watching this recently, now it has confirmed a top. This chart has never disappointed me ever since I "invented" it.


2.8.1 CBOE Options Total Put/Call Ratio, the normalized CPC bellow is too low, which at least mean that there's not much room left on the upside, unless we're in a bull market. Please refer to chart 8.1.2 Does extremely low CPC lead a market top? for the past accuracy. Why "normalized CPC"? Because the extreme values of the CPC are different during different time. For example, nowadays, readings bellow 0.8 are considered extremely low, but maybe ten years ago, readings bellow 0.8 meant nothing. So to solve these differences, we better look at the distance between MA10 and MA200. And so here comes the final MACD(10, 200,1) which is better than drawing MA10 and MA200 directly on the CPC chart. If you don't understand why MACD(10,200,1) can be used to replace the MA10 and MA200 on CPC chart, please read here:


3.0.0 10Y T-Bill Yield, ROC30 is far beyond 9, this usually means a market top (sometimes a month earlier though). Please refer to the chart 8.0.4 Market top/bottom by ROC30 of 10Y T-Bill Yield 2005-2008 and 8.0.5 Market top/bottom by ROC30 of 10Y T-Bill Yield 2001-2004 for the past accuracy of this signal.


1.1.4 Nasdaq 100 Index Intermediate-term Trading Signals, via indicators at top and bottom, draw conclusion yourself if the market is closer to a top or a bottom?



  1. Hey your pretty good at reading these indicators. :)

  2. thanks again for the top notch analysis.

  3. Cobra,

    I'm concerned that CPCE may disappoint you for the first time, because the probabilities appear to favor the U.S. equity market closing higher next Friday vs. today.

    Would that constitute a "failure" of your CPCE indicator, or is there enough "wiggle room" in your indicator to allow a higher high a week later?

  4. June 2008, there was a higher high, but the market eventually fell. There's wiggle room. As I said I just don't believe that the market can go very high.

  5. Please consider turning your analytical firepower on the Russell 2000 (IWM). I would love to see you expand your current IWM analysis portfolio from the Daily chart to include:

    - Weekly chart
    - 30 minute chart
    - 15 minute chart

    IWM lends itself well to analysis, presumably because it draws from a pool of 2000 equities (vs. 30 for Dow Industrials and 500 for S&P 500)...thus less idiosyncratic risk.

  6. Hi cobra,
    I wish to know can you please add me to your blogroll

    I give out free stock & etf picks on the blog
    many thanks if you can Cobra and Your blog totaly Rocks man!



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