Sunday, April 17, 2016

Resistance Is Futile



The market moved ever higher this week, breaking through, what was expected to be, the final line of resistance. 

Volume continues to decline and my technical indicators also show that technical momentum is not there to support higher prices.

Assuming that nothing goes up forever, I'll continue holding my SDS position (two time inverse S&P 500).  Fortunately, my accounts are being saved by long positions in gold, silver and gold stocks.  The rise in these assets seem to verify the continuation of easy money in the markets and the increased potential for a much lower dollar and inflation.

In the end, you can't fight the Fed.  And just this past week, Fed Chairman Yellen met with President Obama and Vice President Biden.  What they discussed was not revealed.  Other Central Bankers were on the move, meeting in high level meetings.  Lots of news that has not been accentuated:  Puerto Rico debt, Austria Bank debt, big banks failing to provide workable living wills.

Lots of potentially disturbing news out there but the market rally has gone on far too long, despite lots of negative news in between.  In the end, if the Fed wants the markets to go up, they will go up, no matter what.  It's my guess that the markets will maintain at least until November.

Seeing how I already shot my bullets claiming a top, and now have been proven wrong, I will work on other more rewarding activities.  I expect this will be my last post for the year unless something interesting develops.


Wednesday, April 6, 2016

The Top is In !!

 


Surely you are laughing at the headline, The Top Is In!!!  But in my work, it's worthy of adding to my Two Time down position on the SP 500 (ticker SDS). 

Failed three period tests normally indicate a top or bottom but in this crazy world of Fed manipulation, can anyone actually make an accurate prediction?

Sure, the guys (and gals) working at the Fed trading desks.

But today's action, a sharp rise that occurred when one of the Fed Presidents, Bullard, famous for several previous Fed rallies, got on tv and jawboned the market.  Don't quite know what he said as that's not as important as the SP failing to take out the high set three days ago.

Supporting my call is declining momentum in the 20 day moving average.

 
 


This indicator actually provided me with a great buying entry point.  Notice the underline at the three period test of the low.  Now we see, that while the moving average is still positive, it is now losing steam and a significant down day would push it back into negative territory.
 
A review of other world markets show that many of them are already down significantly from recent rally highs.  Just the US continues to maintain so well.  Whether it is because the US is the cleanest dirty shirt in the hamper?  Or if it's Fed manipulation?  Or what?  It's no secret that corporate earnings will be down this year and even GDP will be lucky to eke out a positive number. 
 
Oh yah, the market looks out six months ahead.  So if you believe this market, you can be expecting nice raises and great job offers allowing you to cash in on the growing economy.
 
Well, if you don't agree with that, perhaps it's time to lighten up significantly on stocks.  The next move down is sure to be a doozy.  Don't leave your accounts unprotected.

Wednesday, March 30, 2016

Goal Seek Mission Continues



Nothing new to add from my last post.  The goal-seek to the channel line continues after Fed confirms what many have been thinking all along - The Economy S#cks and that a return to zero interest rates or more QE might be coming.

Momentum is picking up here but will it break through the downward sloping channel and make new highs?  A review of other markets around the world suggests - NOT.

Sunday, March 20, 2016

Stocks "Goal-Seek" Channel Top


Stocks continued to advance for the fifth straight week.  The Dow Industrials led the way moving ahead 2% on the week.  SPY, the ETF that replicates the Standard and Poor's 500, appears to have lagged but when adding back the $0.80 price reduction for ex-dividend day on Friday, it managed to advance 1.2% overall last week.

In my last post, I suggested that we might be seeing a top as 1) the 202-204 price gap on SPY was being filled and 2) some price derivative indicators where giving signs that a reversal might occur.  Yet the market continued onward.  From closing lows, marked on February 11, the Dow has advanced 12% and the SP has advanced 11.76%.  Gold and silver have done nothing in that same period and 10-year and 20-year government notes/bonds, as reflected in IEF and TLT, have posted negative returns.  For the year, Gold and Silver have led the charge while stocks continue to post negative year-to-date returns.


Price on the SPY appears to be dead set in reaching the upper channel line as illustrated above.  The move however defies my momentum indicators which show the price should begin reversing.


The chart above is the weekly measurement of the Size of a 20-da standard deviation.  As price rises, one needs to stay with the trend as price is rising faster than the moving average.  When Size reverses, the generally indicates that it's time to exit the move.  I can't recall ever seeing a Size chart that looks like this though.  Size generally is cyclical and doesn't show waves higher or lower as we see in recent weeks.

For those who follow waves, the recent series of A-B-C down and now an A-B-C up, might be of some significance.  In the end, it just goes to show that nothing works forever.  But keep in mind, I developed this method back in 1988 and it seemed to have worked well for almost 30 years.  So the dynamics of the markets are changing.  It is no longer a secret that Central Banks are now active in the world equity markets.  High Frequency Trading, Spoofing, low volume and other elements really make it hard to be in the market any longer.  Rather unfortunate. 

Another chart that needs to be seen is the weekly standard deviation chart.


This chart has been respecting the upper trend line but now we are right at the top.  Will it break out?  Not sure, without further analysis of that specific indicator. 

I could say that it is more evidence that we are topping, but in this new world of continued low rates in the US and negative rates elsewhere, the free money must continue to find a home and the US is the best place, or so it seems.

Still, as mentioned in my last post, I added some SDS (double SP short) to my account and will stand pat as we test the 207 channel.  Not sure what I will do then.  Quite frankly, I grow bored with these one-way markets.  Five weeks now more or less just in one direction, zzzzzz.

Best of luck in your trading.

Wednesday, March 16, 2016

Signs of a Top

Stocks managed to continue higher but how long can this last?  Recent daily market action has shown that the market has been opening up lower but then working its way back up to close higher.

What is significant about that?  Well, the market is much different than it was years ago but in the old days, some 40 years ago, there were Specialists on the floor whose job it was to make a market when there was no buyers or sellers.  These players were no different than Sears or any other retail merchandising operation.  They buy low and sell high.  Some would say that they even manipulated the markets and would orchestrate big rallies and sell offs.  So the thinking would go, if the intention was to take the market lower, and they accumulated a volume of stock on these initial declines, they wouldn't want to be holding this inventory as they took prices lower.

Thus, the rallies to distribute stock until their inventory is depleted and they can begin short selling the stock.  What is important is that they are clearing out these price levels so that they can drop prices much lower without having to accumulate much inventory.

So while the game may be different now, the market action reminds me of this archaic process and thus, my caution flags are raised.

Other factors also provide clues to the top.


The market may have filled the gap today and if not exactly, any move above today's high will definitely invite selling.  This was the first price objective I was looking for and it appears that it is complete.

Another, not so obvious, sign is the chart of the 20 day standard deviation.


Here I see a FAILED three day test of the high on the indicator.  Although price made a higher high, the standard deviation appears to have topped.  Today!

Finally, the chart of the change in the moving average has started to break down.


My bullish call started when this indicator made a successful three day test of the low.  The line illustrating this bottom is still in place.  Now, we are breaking through the moving average after reaching high levels reached during the last rally.

Needless to say, this rally has gone longer and further than most have imagined but by now, the shorts are getting shaken severely.  Another factor possibly hurting the shorts in the SPY instrument is that it goes ex-dividend on Friday so tomorrow might see some short covering, especially in the options market as those with in-the-money short calls will be forced to deliver the stock.

Should this occur early, I will be buying some SDS, this is a 2X down instrument for the Standard and Poor's 500 index.  For every 1% the index goes down, SDS goes down 2%.

Tough calling a top here as the market as been steadily rising, but the evidence provided here leads me to believe the time might be right for a decline.  If higher prices continue, then 207 for SPY would be the next target.

Saturday, March 12, 2016

Rally Continues


Stocks continued advancing this week with SPY rallying above 202.  There has been little to add to my previous commentaries as it appeared that the next two price objectives would be closing the gap that is seen between the 202 and 204 price points.


The gap appears at the start of the down move, at the beginning of 2016.

Could be that once that gap fills, the market might begin retracing the recent up move.


The next price level would be seen at 207.  That would provide major resistance as the daily close price channel appears to be well defined with the upper limit confined at the 207 level.

Tuesday, March 1, 2016

Huge Upside Day for Stocks


Big day in the market today with prices surging over 2%, across the board.

As mentioned last time, it appeared that SPY could surge as high as 207, another 9 points but there is some strong resistance overhead.


As seen here, there is apparent resistance around 200.  Should SPY surge beyond that, there is yet another target before 207.


Notice the "gap" from 202 to 204 occurring when the downtrend began.  This would be a likely "next" target should price break above 200.  Definite point to position yourself for some downside move.  Hard to say how low the next downtrend will go.

This could merely be a very sharp rally in a bear market, as many are predicting.  As we know though, when too many are calling for the same outcome, the masses are usually wrong.  I was very skeptical when sentiment turned bearish so quickly.  That got me thinking that we could possibly go to all time highs.  Anything is possible. 

Sunday, February 28, 2016

Market Rally Continues


The market continued rebounding this week with major averages rallying briskly.  SPY closed up more than 3 points on the week, 1.6%.  Gold eased slightly but silver melted down more than 4%.


I mentioned last week that the 20 day average could provide support on the downside and that is exactly what we saw.  The market dropped to the 190 level but then immediately reversed and began the next move up.

While the market turned down on Friday, it does appear that this action was merely testing the breakout level of a possible reverse head and shoulders chart formation.


While my line drawing is crude, it does appear that on Thursday, price closed above the line connecting recent highs.  This line had previously served as a resistance level but on Friday, it proved to be support.  If this is true, then one can expect price to continue rising about 12 more points, or up to 207 on the SPY.

*************************

WEEKLY VIEW


The weekly bar chart shows price continuing to rise to the trend line.  The Stochastics indicator on the bottom of the chart shows that momentum continues sharply to the upside, indicating further positive price movement.

One of my derivative charts also lends support to the continuation of upward price movement.


This chart reveals the weekly change in the 20 week moving average.  If you see where I drew the red line, observe a three week test of a low point in this indicator, implying that next week, the indicator will move higher possibly into positive territory, meaning that the moving average, after falling since last August, will now be rising!  Is it the start of something bigger?

Most everyone is on board for a continued move down.  At the moment, the only indicator that I have that shows that the downtrend might resume is the Size indicator, or my measurement of volatility.


As mentioned, the rule is, as Size increases, stay with the trend.  But as mentioned above, the trend might turn as soon as next week.

Fact is, I've never seen size this large.  My current weekly data covers some four to five years.  While the number, 8.31, is the largest, in percentage terms, Size as a percentage of price, is starting to go down.  Two weeks ago, Size, as a percentage, peaked at 4.35%.  It reversed the following week to 4.29% and this week, it closed at 4.26%.


Here's what that chart looks like.  The previous peak, at 3.69% occurred during the August meltdown last year. 

So as an aside, it's interesting to note that the VIX index, an index of volatility based on option prices, does not reflect this increased volatility.


What does this mean? Imply?  Could be that options are cheap compared to the amount of risk that's currently in the market.

In summary, it looks like prices will continue higher, based on the breakout and test of the inverse head and shoulders formation and the change in moving average graph.


Wednesday, February 24, 2016

20 Day Average Offers Support

 
SPY gapped down today and momentarily broke below the 20 day moving average.  Not for long.  Strong support kicked in.

SPY fell as low as 189. 32 before rebounding up to 193.53.  It closed at 193.20, up 0.88.

Three day test of the high tomorrow.  A break above the 195 level could see a surge running to 210.  Failure at 195, back down to the lows.

Tuesday, February 23, 2016

Resistance At Expected Point


Is the rally over?  Notice how price has been repelled from yesterday's close, 194.78.  Notice how the line drawn connecting previous low levels has not been penetrated.

This could mean that the downtrend will now continue.  Some are calling for an apocalyptic drop into the 160s, some 30 points or 15% lower. 

I'm not certain of that scenario.  Two other obvious scenarios exist.  The first is that the market finds support at the 20 day moving average, 189.90, which is rising.  The second is a further drop down to the 185 level.  That would build a reverse head-and-shoulders formation, using 195 as the neckline.  Should that formation play out, the market could move up to the 206 level. 

I currently have been selling SPY call credit spreads over the past few trading days so a downward move will enable those calls to expire worthless, leaving me with the credit amounts.  Below 192 I am 100% successful.  I also have some longer term puts, positioning myself for a continued move down.  To be safe, I will probably establish call spreads either at 190-195 or 195-200 to take advantage of any up move, should that play out.  That will be a game time decision when price hits the 190 level.

Sunday, February 21, 2016

Market Rebounds


Stock markets surged this week, recovering from oversold conditions.  Silver and gold backed off from recent gains. 

Markets seem to still be under the whim of Central Banks, their actions and statements.  Many experts believe that the world-wide economy is nearing or actually in recession.  While the job reports continue to reflect increasing employment, doubt lingers regarding the quality of these jobs as well as seasonal adjustments, which add or subtract from the real numbers based on historical factors.

It's easy though to be convinced that economies are terrible and the markets have nowhere to go but down.  I, for one, have been seeing signs of deterioration all the way back to 2005 when pundits cheered the weakening economy since it led to lower interest rates and home refinancing and wealth harvesting was all the rage. 


This long term chart illustrates the 10 year interest rate.  Yes, over the past 10 years and actually, much much longer, interest rates have been falling.  These falling rates have added to market momentum but how much lower can rates fall?  And more than that, what do falling rates actually reflect? 

I left the financial planning/money management industry years ago when it was clear that markets were being manipulated and that there seemed to be no real place for individual investors in these markets.  Most cheered as they viewed their quarterly investment reports seeing that everything was going up.  But that means just one thing to me, and that's the flip side of this.  When things start falling, everything will be falling.  There will be no place to hide.  It's not rational that both stocks and bonds rally to their highs at the same time.  A strong economy will reflect high stock market prices but also, the demand for money will increase, causing interest rates to rise and bond prices to fall. 

When we see both investment areas at their highs, one has to ask, which market is telling the truth?  In the past, the sheer size of the bond market would prove that the bond market is the true indicator of what is happening.  Low interest rates and high bond prices reflect just one thing, weak economies and a lack of demand for money.


This chart shows the daily price of TLT, an ETF that allows the investor to trade the 20 year bond.  Observe what happened last week when the market was falling.  Bond prices surged even though they are already at very high price levels.  The spike we see shows that the US bond is the global catch-all of money. 

The upward trend of this instrument, to me, reflects either a flight to safety as many expect the stock markets to continue to decline, or a reversal of central bank policies and either a hold on the Federal Reserve raising interest rates any further, or the Fed eventually moving to Negative Interest Rates, similar to what other central banks around the world have been doing.  Bonds rise when interest rates fall.

So, where does this all put us with the stock market?  First of all, let's look at the long term chart.


Price continues to fall however at the end of last month, it appeared that we tested and held a previous low level.  The stochastics indicator, at the bottom of the chart, shows momentum is moving to the downside.  I've noted in the past that each time we touch the 40-month moving average, the moving average in this chart, the market has held support and rallied.  So for the long term, I still believe that it is prudent to buy at or below this trend line. 

Should SPY end the month up, it will appear that we have formed a monthly base.  That would be fairly compelling to be invested in this market.  I would also be looking at my various indicators to add support to this call.


On the weekly chart, we see support holding at the trendline, however, it appears that we are merely bouncing with some very strong resistance coming in a few points higher.


This chart, which illustrates momentum, is still rising.  The rule remains, as the momentum increases, stay with the trend, which on the weekly basis, remains down.  So this is a negative and a reason to be cautious.


On the daily chart, one could expect that prices will move to the neckline shown, a couple of points higher than the current level.  This will be important resistance.  On the surface, I would expect prices to fall from that level but how far it will fall is anyone's guess.  I'd still go with the 40 month moving average as support.

If you notice the 20-day moving average, it is now moving higher.  We will have to watch this more closely to identify a change in trend.



We identified, early on, this change in momentum.  I underlined the successful three day test of the low on the moving average change chart.  Yes, that was a significant turning point marker.  The average change in the moving average trend is up and breaking into positive territory. 

In summary, we need to see what happens at the 195 level, if that level provides strong resistance or not.  Then we see how price moves against the 20 day moving average, whether that will now provide support.  While next weekend doesn't quite market the end of the month, there will be just one more day left, Feb 29.  The monthly view may shed more light on where we will be moving for the long term.

And of course, watch for jaw-boning by the Fed or other central bankers, to get the game going again. 

Saturday, February 13, 2016

Market Pauses After Volatile Week

Stock markets opened down this week, testing previous low levels before bouncing back on Friday.  On the week, SPY closed down 1.32 to 186.63.  Last week, we saw that major markets could have been testing the weekly closing low.  Early action this week brought that basing action into doubt.  Markets did surge sharply on Friday however, paring losses and giving a valiant attempt to close up for the week. 


That was not to be the final outcome as SPY, an exchange traded fund that replicates the Standard and Poor's 500 index, closed down 0.7% on the week.

For those who watch the market throughout the day, the volatility of the week as well as through much of the year, has been providing outstanding profit opportunities as markets have continually bounced from extreme oversold to overbought conditions. 

For those looking for longer-term growth opportunities, the situation remains unclear.


Viewing the weekly line chart, we can see that price is trying hard to break down through the current support line.  It might have closed slightly below but the significant breakdown, similar to what we saw when price broke below the 20 week moving average, has not yet occurred.  And, if we view the daily bar chart, it does appear the we held support at the previous interday lows.


So next, what happens again at the 20 day moving average?  Looking at my normal scenarios, I would look for some continuation of the upmove on Tuesday, when the market returns from it's holiday weekend.  Will it find resistance at the moving average? 

One chart we have been looking at recently is the standard deviation of the moving average change.



This is a derivative of a derivative of price so it's significance my be minimal, however, it does show that even though the 20 day moving average is still moving down, the intensity of the move is moderating and should this trend continue, we could see the moving average go flat.  That would be more indicative of basing. 

Moving back to the weekly view, we see that Size, the measurement of volatility, continues to increase.


As mentioned in the past, as long as Size continues to increase, one must stick with the trend, and right now, that trend is moving down.

Sunday, February 7, 2016

Deja Vu?




As I review how I want to approach the market this week, I'm seeing some similarity to the last basing process and am seeing some similarities in various derivative views of the market. 

One such view is the rate of change in the 20 day moving average.


As you can see, this measurement appears to be rallying after making a three period test of the low several days ago.  It is now well above the 10 period moving average, which is now rising.

I broadened the view to see what was happening with price the last time such action took place.

I found that yes, SPY was working on a base at this time.


I have circled the areas on the price chart that coincide with the MAD bottoming cycles.  As you might see, the last time MAD was rallying, price was bouncing around the 20 day moving average, just as it has been doing now.  Price continued down but successfully tested the lows.  This was the last three week test of the low process in August.

Will the market do exactly what it did last time?  No one can ever say.  But in my world, I often get signals based on derivative charts of price.  Sometimes they lead as in this case.

So it's safe to expect that there might be some further testing of the recent lows, but the MAD chart along with some other indicators I watch imply that the downward momentum is diminishing for the moment. 


This is the daily bar chart of SPY.  I'll be watching this week to see if the market can attack the previous low at the 181 level.  If so, it will present a long term buying opportunity below the 40 month moving average.


While some question this indicator, I have used it for more than 30 years and it has proven to be a very good measurement of fair value over the long term.  I will probably be adding again to my long term SPY position at or below 185.

Saturday, February 6, 2016

Market Tests Successful!!! Now What??

In my last posting, I mentioned that the coming two Fridays would be "telling" in my world.  On Friday, January 29, we would be testing the August closing low on the monthly basis.  A successful monthly test of the lows is quite rare and could indicate a long-term basing formation.



The monthly line chart shows this successful test here.  The closing low for January was not below the August low.

What does this mean?  Simply this.  If you don't look at the market on a day-to-day basis, but only once a month, at the end of the month, it is my expectation that going forward, the market will be up.

While most seem to be guessing that the worst is still yet to come, I believe that there is a good shot for the Standard and Poor's 500 index and the accompanying Exchange Traded Fund (EFT), SPY, to go to new highs.  That surely would leave most scratching their heads.

The next important test was completed yesterday with the three week test of the low.

This, being a weekly indicator, in an intermediate-term signal, where the monthly test is a long-term signal.  I can recently remember that last year, we got a three month test of the HIGH, followed by a three week test of the high and then finally a three day test of the high before the market started going down.  It was as if the market just didn't want to go down and was trying every conceivable way to continue going up. 



This is the weekly line chart showing the recent test of the low.  If you look to the left, you can see that we previously had a similar formation, a three week test of the low that marked the bottom before a rally to the top of the range.

Of note, after the last three week test of the low, the market dropped significantly the following Monday but that was it.  The market then rallied for the next 6-7 weeks.

One must keep in mind but one important thing and that is that the weekly momentum is still increasing.


My general rule is that when the Volatility Levels are increasing, you need to stick with the trend. 

This chart is the 20 week volatility measurements.  It is at its highest point and expanding.  That is a troubling indicator.

But if I look at shorter time frames, volatility is decreasing.


This is the 20 day volatility level.  And even though it appears that market volatility has been high because of the large point moves, this can be deceiving.

How else can we look at this volatility level?

One way is by viewing a chart of the Bollinger Bands. 


Look at how these bands are moving together.  From this chart, we can expect that the daily fluctuations would range between 185 and 195 on SPY, translating to roughly 1850 and 1950 on the S&P 500 index.

The weekly volatility bands still reflect the extreme volatility level.


The weekly bands show that the realm of possibilities range from 185 (we are currently at 188) to a high of 216.

The all time weekly close high was 212.99 so there is some possibility that the market could go to all time highs here.  And if it did, it would happen in a hurry as the volatility levels are high. 

If we would see the market move higher at an orderly pace, then the volatility levels would diminish and the possibility of new highs would also diminish.

SO, I think that there are exciting times ahead.  Of course, I don't know and at this moment, I have positions both for the possibility that we experience a blood bath in the market.  But given the information that I just provided, there is the possibility that the market surges to the other extreme.

Many are saying that earnings are dismal, the Federal Reserve is no longer accommodative, etc.  But for the past couple of years, I have believed that the market would collapse because the reality of the market being an actual market has disappeared.  That reality has not returned.  The market is a casino, in my opinion, with the High Frequency Traders and institutions continually gaming the system.  Even Congress can trade based on secret information they receive.  Not too long ago, a vote came up to prohibit "insider trading for Congress" but that measure was soundly defeated.

You must realize that the cards are stacked against you if you wish to be involved in the markets.  You must buy low and sell high.  If you are not willing to be nimble, then I suggest that you shouldn't really be in the markets.

The risk of collapse is too great and when the collapse does happen, there will be no way for you to escape, unless you hedge your positions.

Think about it.  If you have other sources of wealth, do you not protect them with insurance?  Of course you do.  You determine a deductible that you can afford and protect the rest with insurance.  Your investments should be no different.  You can protect yourself.