Live Update

Thursday, July 23, 2009

07/23/2009 Market Recap: Bond Stock Ratio Buy Signal


A Head and Shoulders Bottom could be formed.

Bond Stock Ratio gives a long-term buy signal.

Intermediate-term still has some bearish puzzles.

  Trend Momentum Comments - Sample for using the trend table.
Long-term Down   Idea for trading intermediate-term under primary down trend.
Intermediate Up Overbought  
Short-term Up Overbought  

The stock market had a “convincing breakout” today, which to me means without a magnifier, I can clear see a new high. The achievement:

1. 1.0.0 S&P 500 Large Cap Index (Weekly), a possible Head and Shoulders Bottom. Well, the right shoulder might be too little but if the right shoulder is “too standard” then people might say it’s too obvious to play out.


2. 7.3.0 SPX Long-term Trading Signals, the Bond Stock Ratio in the middle has triggered a buy signal and also my formal long-term signal above seems about to trigger a buy very soon.


So the conclusion is long-term looks bullish now. Well, if it really is so? I’m not sure, let’s wait for a few days before come into conclusion because on chart 0.0.3 SPX Intermediate-term Trading Signals, there’re some bearish puzzles: the NYADV and NYUPV negative divergence, the VIX:VXV sell signal and various negative divergences. As for Broading Top widely discussed, I’ve put some statistics on the chart, it doesn’t necessarily mean a top.


Short-term, I still expect a pullback. Except for the reason mentioned in After Bell Quick Summary, the Zweig Breadth Thrust from Telechart, almost historical new high now.


Also, 3.1.0 PowerShares DB US Dollar Index Bullish Fund (UUP Daily), the US$ could rebound which usually means a pullback for the stock market.


2.3.4 Nasdaq Total Volume/NYSE Total Volume, just take a look, the ratio is way too high, not a good sign.



  1. I'll mention what I said before. Rising yields in the bind market, while typically a sign of recovery, will kill this rally. As the U.S. sells more and more debt, rising yields on the ten year bond will eventually kill any rally. Also, a weaker dollar will mean rising oil prices which, again, will hurt the anemic recovery.

    I don't plan on shorting this market, not for now anyway, but I sure wouldn't go long beyond a quick trade here.

    What are your thoughts on this?

  2. Cobra,

    I agree with you on the bond/stock ratio and also H-S pattern. But I believe that it is too early to come to any conclusion (not that I am saying that you are concluding but I am just sharing my views) until we see that the base is formed at 950. If we break 950 then there is still remote chance that we may form anohter H & S running into Sept-Oct (i.e. 956 (Ls), 980 H and whatever happens in next few months) but I doubt that we are going below 870 or say 920 very soon. Or am I having 5th Wave Optimist Syndrome?

    We will know in next few weeks or so. Let me know your thoughts on my views.


  3. Vinod, I agree that it's too early to come to any conclusion. It's possible that 956 is LS and 980 is H. So yeah, let's wait and see.

  4. Thanx cobra. The Fed has "increased liquidity" so much that some sort of rally should have been expected (though I never expected a 50% jump from the bottom)

    Still, it has not brought about improvement in the real economy. Commercial real estate has yet to collapse and even residential is not done falling. New waves of foreclosures are inevitable with 10% unemployment and we'll start the cycle again.

  5. It is now time for the other way. market has formed an inverse H & S, which is a bigger H&S formation then the one that failed last week. But if the previous one could fail, then this one could fail too. And if this one fails, we could go all the way to 800 as it's much bigger

  6. Hi Dan, to answer you question:

    I want to earn money at the stock market, and I’m not interested in cycles per se. I use cycles as mere indicators, which I can throw overboard any time. So I presume I am the wrong dialog partner for you.

    I believe the best indicators to make money are a) the P&F charts, which show the trend, b) support and resistance and moving averages for exit and entry points and c) cycles. By the way, one cycle I follow showed a big move for yesterday, so I went short for 10 minutes - until I noticed my mistake. Shows how stupid it is to have a bias…

  7. Qilang, The downside is more likely in the intermediate and short-term. Short term folks are investing on hope that the economy will recover soon. As hilarious as that is, I expect to see a nice pop today and a big slide in the afternoon. Might close green but I am more inclined to think red for today. The H&S pattern will be blown out and is a big head fake like the converse of it was a couple weeks ago when we tagged 887 area and rocketed up. Either way, today will be as interesting to watch as all the others.


  8. (I mistakenly posted note below to after hours comments, ..should have been here. sorry)


    Something to think about. On Thurs at 3:45 pm the VIX was positive. It then closed ever so slightly lower. But had it been calculated again at 4:15, it would have been positive again (as the futures were selling off in after hours on weakness in MSFT, AXP, etc).

    SO, take would be that it would be fair to view the VIX as being UP o the day, it was at 3:45pm, and would have been at 4:15pm,..etc.

    An UP VIX, and UP SP500 suggests a lower nnext day (Fri 07-24).

    Also, in support of a lower close on Fri,..I have AROON 14 Osc on $CPCE indicating a Market Top (w/in 3 days). Other short term indicators (STEM.MR, etc) are similarly overbought.

    Yesterday 07-23 was my 3 wk cycle (likely pivot) date, and I am viewing it as a HIGH,..with likely turn down from a high on Friday, into a LOW on Monday or so.

    Thanks for the sharing of ideas.

    Regards, Jim P.

  9. Jim, thanks, I agree with you that we'll have down day Friday.

    And Qiliang, Michael, I don't believe this rally, but H&S Bottom is H&S Bottom, the chances it failed yet again after the failed H&S Top weeks ago is even lower. I think I'll participate this rally if I see a reasonable pullback and wait for the right time to short this market.

  10. Hi Jim - what I addressed to "Dan Black" was actually an answer to your question yesterday. I guess I'm tired, time for me to relax and go away for a long weekend.

    And a message to all of you who are trying to second-guess the trend: remember what Lord Keynes said: The market can stay irrational longer than you can stay solvent.

  11. Thank Uempel,..Have a good weekend.

    Regards, Jim P.



The information contained on this website and from any communication related to the author’s blog and chartbook is for information purposes only. The chart analysis and the market recap do not hold out as providing any financial, legal, investment, or other advice. In addition, no suggestion or advice is offered regarding the nature, profitability, suitability, sustainability of any particular trading practice or investment strategy. The materials on this website do not constitute offer or advice and you should not rely on the information here to make or refrain from making any decision or take or refrain from taking any action. It is up to the visitors to make their own decisions, or to consult with a registered professional financial advisor.

This websites provides third-party websites for your convenience but the author does not endorse, approve, or certify the information on other websites, nor does the author take responsibility for a part or all materials on the third-party websites which are not maintained by the author.