Sunday, October 19, 2014

Large Caps Fall, Small Caps Gain in Wild Week


SPY, the ETF proxy for the Standard & Poor's 500 index, fell more than 1% this past week, a week that for the second week in a row, saw wild gyrations both up and down.  In the end, SPY closed down 2.07 to 188.47

There were some bright sides though.  Small and Micro Cap stocks gained, with the Micro Cap ETF (IWC) advancing 3.2% to 68.62


The Slow Stochastics indicator on both charts indicate that a bottom may be forming but further investigation shows that IWC merely rallied to it's 4 week moving average, and is likely to resume it's decline next week.

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SPY WEEKLY VIEW
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Despite a big rally from the bottom, which came in around 182 (and closed at 188.+), the weekly close chart still appears in free fall.  The 4 week average crossed the 10 week average.  This momentum increased this past week. 

One way I measure this momentum is with my Size indicator.


This chart illustrates Size based on both the 4 week and 10 week moving averages.  In simple terms, this shows me that Price continues to move away from the moving average Faster than the moving average is moving down.  As long as this persists, and increases, I've got to play this market to go down.

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SPY DAILY VIEW
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While the weekly data indicates that we can expect the down trend to continue, the daily chart shows that price is turning up.

We can see a few areas of resistance.  The first one would be the 191 level.  Should price manage to rally above this level, Serious resistance would appear at the 20-day moving average, currently at 193.83.  The moving average is moving down rapidly, currently at an average of 0.48 over the past 10 days. 


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During the week I began accumulating SPY December puts, anticipating a decline down to 170.  I will continue accumulating on any subsequent rallies, should they occur. 



Thursday, October 16, 2014

Fed-Speak Saves Markets From Further Decline


(Source:  http://danericselliottwaves.blogspot.com/ )

The market opened sharply lower this morning and looked on target to meet my 181.46 objective.  Instead of letting the markets play out their natural course, once again,

"Remarks from St. Louis Fed President James Bullard also helped perk up stocks. In an interview with Bloomberg TV, Bullard said that the Federal Reserve should consider putting off winding down its monthly bond purchases this month as planned."
Source: (http://finance.yahoo.com/news/asia-stocks-sag-us-fears-europe-stabilizes-080429350--finance.html_

The Fed can't but help themselves in trying to manage the market.  But the effects were less than what could have been in the past, OR TOMORROW, when Janet Yellen speaks.

It should be obvious that there is little effect that more QE could provide, other than to continue to make the market rise.

I'll just post Daneric's chart from today as it is similar to my thoughts on the market.  I sold some November calls accumulate yesterday and bought some November 185 puts in anticipation of a move to the 170s.  Daneric marks this level as (V).

My view:


I see some definite trade ranges and expect that before the down move is completed, we will move to the bottom range and possibly even lower, to the 163-164 level.

Wednesday, October 15, 2014

Some SPY Views to Consider

The market was all over the place today but after being down significantly, SPY closed at 186.43, down just 1.27.  The final results can't describe the intense volatility that took place today.

Some feel that the rise from 181.92 to the close at 186.43 indicates that a bottom might have been found and that the bulls are starting to take control.  This may be true and I also "nibbled" on some November calls this afternoon as it appeared that the market had made its final low.  But I'm not sure.

THREE DAY TEST OF THE LOW

Although a new low in price was made today, the Standard Deviation, a measurement that the price is away from the moving average, might be making such a pattern.


Here is a chart of the standard deviation with to possible test of the low drawn in.  Like most of the charts that I look at, when I see a support hold, a rebound usually follows.  I don't expect this to be any different.

For the standard deviation to reach this level though, price will need to fall back down to today's low and hold.  The exact price for SPY to reach -2.51 on the standard deviation is 181.46.

The price chart would look like this:


Ugly!  But that is what it looked like inter-day today so the market would not be too shocked to see it again.

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Some other views I've been looking at.  Comments welcome.


I had been looking for a head and shoulders setup and here is that view.  As we have already broken through the neck line, not sure if this is still something to be considered. 

But I had been looking at a head and shoulders with a declining neck line.


Well, looking at it, while I was looking at it from a head and shoulders standpoint, it could also be labeled a broadening top, wedge or a reverse symmetrical triangle.

http://thepatternsite.com/EWRevSymmetrical.html

According to this site, price would be expected to again go to a high to complete the formation. 

One thing though, price broke through the support level but rallied back but may currently be failing to break above resistance.

Whatever happens, we can see channel lines below and I suspect that sooner, rather than later, we are going to test these lower levels.

Saturday, October 11, 2014

SPY Weekend Update for 10-10-14

SPY, the ETF proxy for the Standard and Poor's 500 Index, fell sharply this week after riding a roller-coaster of highs and lows.


When it was all over with, SPY found itself down nearly 6 full points to 190.54.  Price broke below the -2 standard deviation level on the 20 week moving average for the first time since May 29, 2012!

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Right now, from my anecdotal findings, the Bulls that I know have been shrugging off the downturn, proudly proclaiming, "I'm buying more here on the dip."  I had to chuckle the other day when one well-known economic prognosticator commented on CNBC that he felt that the market was now going to start going down until people start to puke.  So where are we now?


The weekly chart looks a bit different than the daily chart that I usually post.  On the daily chart, we were able to see a well-defined, long-term, area of support and resistance at the 190.5 level.  It appeared the be a very good setup for a head and shoulders top formation which has likely been discussed in a previous commentary here.

The weekly chart though shows a declining neckline but still a head and shoulders possible set-up.

It's been quite a long time since we had a decline so I went back to see how the previous decline, back in June, 2011, played out.  I was surprised to see quite a few similarities.


Last time, which we will call P2, we can see a top formation that also resembled a head and shoulders with a declining neckline.  We can observe that price broke through the 20 week moving average to go to an oversold level (at the #40 marker), then rallied back up to form the right shoulder of the formation, then dropped down dramatically.

In both cases, we see that the Standard Deviation level of price went to an oversold -2 level but this oversold level came rapidly because for the previous period of time, volatility had been shrinking.


This chart shows the current picture of 20-week volatility.  One would probably scratch his/her head to see volatility so low when we've had so much daily volatility but based on weekly data over an intermediate period of time, we have been relatively flat.

What is interesting though is to go back and look what was happening back when the market made its last series of lows.




The arrow shows the relative position to where we are today.  You can see that the last time the market started to go down, volatility was also very slow.  This causes the market to be oversold quickly and often can result in the oversold bounce that we saw in P2, resulting in the Right Shoulder.



What happened next in for P2 Standard Deviation was quite dramatic.  Standard deviation fell to nearly a -3!

I often use Standard Deviation as the emotion indicator.  When I used to train futures traders at a bank in Mexico City, one of my first exercises was to allow the new trader to trade freely without any guidance or restrictions.  At the end of the day, we would review the trades, now analyzing the trades with my standard deviation tool.  Almost always, we would see that the trader was buying when there was euphoria, at the +2 standard deviation and generally, the trader was selling at the -2 level, when there was panic.  These emotions cannot be avoided, even for the most experienced trader.  That is why I use this tool as my guide.  It's hard to be buying when the news is horrible just as it is hard to sell when everything looks great and there is no apparent reason to sell.

There's more though.  While the +2/-2 (easily viewed using Bollinger Bands) works as a great buy and sell signal on hourly or daily time frames, when we start getting into longer time frames, we then move to volatility measurements.  This is where I use the rule, when the volatility is rising, especially after a weekly positive or negative 2 reading, you stay with the trend until the volatility turns and begins to decline. 

If I look at a shorter time frame though, the 4-week and 10-week readings, I can see that Volatility is skyrocketing!





This is the weekly chart with the four and ten week moving averages. 

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So quite a bit going on here.  The setup looks very similar to the P2 time frame, starting with a potential head and shoulders top with a declining neckline, declining volatility on the long-term measurements, and a quick oversold condition.  Other levels of support seen on a daily chart are the 200-day moving average and the daily head and shoulders neckline.

On the short-term weekly chart, with expanding volatility, one could expect the market to continue free-falling.  On the longer-term weekly chart, one could expect a similar setup to P2.

As for me, I closed all of my October puts and most of the November ones as we approached 190.55 on Friday as that was the previous SPY daily low.  I am still holding some Nov 190 puts and some Oct 24 and 31 calls, just in case we get some pop. 

Wednesday, October 1, 2014

World Stocks Fall

Stocks across the globe fell today with US stocks declining about 1.4%.  SPY, the ETF proxy for the Standard and Poor's 500 fell 2.67 to 914.35 (-1.36%) while DIA, the ETF proxy for the Dow Industrial Average, fell 2.39 to 167.78 (-1.41%).  The biggest loser in my ETF universe was Brazil (EWZ) which fell 3.54% to 41.91.

We see a very dramatic move here in the past month.  Will the US equity market follow this pattern?

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 While the drop seemed quite dramatic, it was not unexpected.  I illustrated this chart over the weekend and mentioned that the 194 level, the bottom of this well-defined channel, would present some formidable support.  Sure enough, prices appeared to want to collapse even further at the end of the day but managed to stay within the constraints of the lower channel line.

I had been looking for the three-day test of the low yesterday and prices held firm.  But I didn't want to broadcast a buy signal as I had read that there was something like $400 billion in Federal Reverse Repos, whereby banks can get their hands on short-term cash to pump up the markets at the end of each quarter to make their portfolios look good.  I thought that if the investment banks really had this much ammo and the market still closed down, had the Fed money not been available (at negative interest rates mind you where the Fed was paying the banks to take the money), the market might have really tanked.

Sure enough, this morning the market opened down and continued down taking out several areas of support.  Another key area of support was the 196 range which is the 20 week moving average.  This has held firm over the past two years but today, the market cracked through.


I mentioned over the weekend that I thought that it might be possible for the market to first hit the bottom of the channel early in the week, then rebound to maintain the 20 week moving average. 

Tomorrow, Mario Draghi, the head of Europe's ECB, will be making news about Europe's QE activity.  Like in the US, they also are expected to be buying bonds, adding liquidity to the markets.  Thus far, this hasn't had much effect on Europe's economy, but they really don't know what else they can do I guess.  The bottom line is that whenever a Central Bank announces something, pretty much anything these days, the computers kick in and start doing program buying.  Will that happen tomorrow?  Or will they do a switcheroo and tank the markets?

When I look at the daily standard deviation chart of SPY, I see a higher low pattern forming.


And although it appears that the Standard Deviation is poised to rise, it might not make a difference because of the Size chart.


Size, or volatility, is rising now so it's possible for the market to continue lower if size continues to expand, even if standard deviation begins to rise.

To illustrate this better, you can look at a daily chart with the Bollinger Bands included and you will see that the bands are now widening.  This is represented by Size.

As I mentioned before, one of my rules is that you stay with the trend when Size is rising.  It is, so this is an argument for holding bear positions for the market.

I am not yet seeing the 20 week Size expand yet.  It would take a move to 188 or lower for the 20-week size to begin expanding.  If that were to happen, I think that we all know that that would signal still lower prices to come.

I can get a better idea of what the future could bring by looking at the short term weekly charts.  Keep in mind though that there are still two days left before the actual weekly number gets posted.  It's just to give me some early perspective on where we are on a short term weekly view.


This chart appears much more bearish than the 20 week view.  We can see that price has moved decidedly through the 10 week average after finding resistance at the four week average.  The four week average should be crossing the 10 week in another week so we would normally expect price to rally to test that junction.  If it failed to rally above the junction, a serious sell signal would be in play.


Further supporting this bear scenario is a Size chart showing both the 4 week Size and the 10 week Size.  Both are rising so with my rule in play, on the short term weekly outlook, you would expect further downside.

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Still two more days to go with an ECB announcement tomorrow.  Who knows, the bulls could wind up carrying the week.  Anything could happen and that's why we love doing this.  Despite the best of ideas, in the end, it's all a crap shoot.  But we do our best to try to solve the puzzle.

Monday, September 29, 2014

Stocks Tread Water . . .

As expected, despite a quite volatile day, set off by political turmoil in Hong Kong, S&P gapped down on the open but managed to move back up, closing down just 0.36 on SPY, finishing at 197.54.


I mentioned yesterday that I expected the market to possibly rise today in a set-up for tomorrow's three-day test of the low. 

The price target is 196.34.  Should SPY test this level and hold, then we can expect a bounce.  Not quite certain though that it will hold the low.


Size (volatility measurement) continues to rise, supporting my expectation that the move down will continue.

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Jumping ahead, a long term view of SPY:

Should SPY break below 194, I expect it to drop to the last low, around 190 and bounce back up before heading on down to the bottom of this long-term channel, at 170.

Notice early in the chart, when price broke below the trend line, it rallied back up to try to break above that trend line.  When it failed, it sold off quickly and dramatically.

This downtrend has yet to be confirmed and tomorrow's test is very important.  In addition to it being a three-day test of the low, the 196 level is also the value of the 20 week moving average, discussed and illustrated in yesterday's weekend report.  The 20-week moving average has been a key support level for more than 2 years now so breaking through will be a significant accomplishment for the bears. 

Sunday, September 28, 2014

SPY Weekend Update 09-28-14

SPY, the ETF proxy for the Standard and Poor's 500 Index, fell 1.40% this week to 197.90.  



Price levels twice moved to steep oversold conditions this week, dropping to a -2.5 standard deviation level on Tuesday, with price dropping 1.14 to 198.01.  Prices rebounded on Wednesday, as would be expected for a severe oversold level but failed to achieve the 20 day moving average.  Prices then dropped even harder on Thursday, falling 3.22 to 196.34.  This brought the standard deviation level to a minus 2.96! 


Here is the long-running standard deviation chart for the 20 day moving average.  It certainly does appear to be marking a cycle low but the zig-zag pattern is one that had not appeared before on the chart.  Normally, this type of a formation is an extension, indicating lower prices and future oversold conditions.  The price chart shows the 20 day average rolling over and a lower channel line coming in at the 194 level.


Standard deviation Size, on the 20 day data, is increasing and is close to hitting a falling average line.  This increasing Size suggests that the down trend will continue.  The very low level of Size (or volatility) shows why SPY has easily moved to overbought and oversold levels in recent days.  It's nice to see this indicator increasing as low volatility markets offer little opportunity for profits other than selling option premium.


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The weekly chart looks quite different. 


The trend is your friend is the dominant thought when looking at the weekly chart.  Despite seemingly dramatic moves on the daily data, the weekly chart looks rather ho-hum, with prices drifting to the trend line with the potential to once again bounce to higher levels.


Weekly Size confirms this prognosis.  Generally, declining Size dictates selling premium at the extremes since visually, you would see the narrowing of the Bollinger Bands and a tendency for price to drift to the mean.


This chart illustrates the weekly change in the 20 week moving average.  While this indicator has fallen below its moving average, the trend remains positive, moving up on average of 0.59 each week from its current 196.14 level. 

Usually, I like to buy at or below a rising trendline because, in my mind, you have low risk.  Even if you are wrong and price moves against you, almost always, prices regress to the mean and that means you will have an opportunity to exit, if the trend begins rolling over, at prices pretty close to your entry point.  I use this process especially for long term investments using the 40 month moving average.  I consider this average a good assessment of fair value. 

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Where might we go from here?  It appears that downside will be supported by the channel line on the daily chart at around the 194 level and the 20 week moving average will be around 196.60 next week.  I generally look for three day tests of highs and lows so my best guess is that SPY will remain flat to higher on Monday, possibly reaching as high as 199.76, the 20 day moving average.  A failure to take out that resistance level may see prices move dramatically down to the 194 level.  Even a move down to that level though would not be enough to reverse the decline in Weekly Size.  If price can't take out that support line, I'll be taking Bull positions in SPY for the long term, playing the rising trend line.

On the weekly data, SPY will have to fall to 188 or lower to see momentum picking up on the downside.  Should that happen, I would be standing firm with my current positions which consist of in-the-money, October, November and January SPY puts and out-of -the-money SPY October calls with about a 75% put to 25% call ratio.

 

Thursday, September 25, 2014

Are You Still Bearish?

Stocks slid hard today with the Standard and Poors 500 index falling 32.31 points to 1965.99.  SPY, the ETF proxy fell to 196.34.  The market gapped down at the open and never recovered.

It should be obvious to all that the markets are oversold.  Today's daily standard deviation reading on a 20 day average view came in at -2.96, deeper than the -2.50 we set two days ago.  Consider however that volatility levels dropped significantly over the past three weeks so it doesn't take much to get oversold or overbought.

I was curious what the numbers would look like on the 4 week scale.  What I discovered might interest you.


On the 4 week scale, we are at a -1.38 standard deviation, almost the level where the last four spikes in 4 week standard deviation hit.  At 195, we would be at -1.43.

So seeing this, of course I was curious to see what happened with price after each of these spikes down.

The lows in both the standard deviation chart and the price chart are circled.

Here is the analysis:
 



Maybe it will be different this time?  Wouldn't hurt to add a few calls . . . just in case.

Tuesday, September 23, 2014

Bears Win!!!

After a hard fought victory in New York Monday night, the Chicago Bears defeated the Wall Street High Fliers (also known as the Jets) on a premier Monday Night Football showdown, 27-19.  The Stock Market Bears continued with the beat-down on Tuesday morning, taking equity markets down sharply for the fourth straight negative day for the S&P.  SPY, the ETF proxy for the S&P 500, closed down 1.14 to 198.01

The continued move down caused price to move to an oversold -2.50 level on the standard deviation scale. 

The standard deviation had previously been oversold on August 1, just 38 days ago, at -3.30. when the market last pushed towards lows.  SPY closed at 192.50 that day, bounced and then retested the low four days later, when standard deviation was down just -2.23.  While price touched lower at 192.07, the divergence from price,  with a higher low on the standard deviation, resulted in a buy signal and the market then surged on to new highs.

While it appears that we have had extreme volatility, based on the standard deviation, with price shooting up to +2.28 just a few days ago to the now -2.5 level, volatility has been extremely low and is just now starting to reverse and move up.

Volatility reversed on September 3, when SPY was at 200.5.  Volatility kept going down for 15 trading days to now, price drifted showing how my rule of selling premium when Size (volatility) reverses, works, especially if you sell slightly above the market.


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On the weekly view, I am still contemplating the possibility of a three-week test of the high this Friday.  The high mark that SPY needs to surpass on Friday is 201.11.  If it fails to exceed that level, that would be a strong sell signal.  As we can see though, weekly price has had a very difficult time penetrating the 20 week moving average.  This week, it comes in around 196.



The weekly chart shows how much success price has had trying to break through the 20-week average. 

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A tough call.  Stocks are now oversold and are likely to rebound.  Can SPY gather enough steam to get back up to the 201 level or beyond?  If it does make new highs, then you have to continue with the up trend.  If it drops and holds the 196 level, the uptrend continues. 

If price rallies and fails to exceed 201.11 on Friday, then that would be a strong sell signal.

If we keep going down, then go with it.

For the record, I am net short with a 25% of my position in "out of the money" calls and 75% "in the money" puts.




  

Sunday, September 21, 2014

SP Hits New Highs But . . .

Yes, yes.  Major Markets surged to new highs this week before backing off on Friday.  SPY, the ETF proxy for the S&P 500 closed up to 200.70, still holding below its weekly closing high of 201.11, set two weeks ago.

As mentioned last week, I was anticipating a top to play out this coming Friday.  The concept I propose is nothing new if you look at closing prices and don't get caught up in all of the noise that happens throughout the day and week.  If you look at weekly close prices over the past two years, you can see a number of these "tests of the highs" play out prior to nearly all of the declines we experienced. 

The last three week test of the high, that occurred starting with July 3rd's closing price of 198.20 and completing on July 25 failing with a Friday close of 197.72.  What followed was the last decent down move we've experienced in a while.  Usually, the moves are much more obvious such as the first three tops circled in the chart above.  Last time, the scenario was much as it is now.  The market topped, then dropped down but regained most of its loss during the subsequent week.  The third week bounced a little but was otherwise a very boring week.  Yet it was SIGNIFICANT!

The same could be happening now as all of the market fireworks exploded last week with Scotland's vote for independence, Alibaba's IPO and so forth.  Those of us who lived this past week know it was quite volatile with a lot of emotion for both Bulls and Bears.  But if you only have the above chart to look at, who could guess how explosive the week was?

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Yes, I was excited as well but when I look at my daily and weekly statistical data, I have such a hard time buying into the Bull scenario.  This chart illustrates SIZE.  It is the statistical 20 day standard deviation of the price data.  Most people observe it as the width of the Bollinger Bands.  This chart shows the size of 1 unit of standard deviation.  My rule is that when Size is going up, you go with the trend.  When Size reverses, usually one of two things will happen.  Either the price will then drift to the trend line and at that point, explode again in the primary direction.  OR, price could go express from one extreme, such as the top band of the Bollinger band, to the other extreme.

So with Size declining, price should either drift to the moving average, currently at 195.64 or go to oversold levels.

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With this Size value declining on nearly every time frame I track, I can't take a bullish stance at this moment and believe that a bear stance is a better option.  This is only based on my projection of the potential three week test of the high.  I believe that from a time standpoint, the market should experience a cycle low at the end of October.

Out of respect to the powerful underlying currents that continually prop up the market, I did add some October calls to balance out my bear positions for October and January.  There have been a number of times when I saw this three week test of the high coming and price exploded through to make still more new highs.  While this could happen, decline Size measures tell me that the power just isn't there.

Thursday, September 18, 2014

Bulls Push S&P, DOW to New Highs

The Dow Jones Industrial and S&P 500 averages pushed ahead once again to new, all-time highs on light volume.

Today's move follows yesterdays surge higher on Fed Chairwoman Janet Yellen's testimony which basically confirmed that nothing has changed, but someday, it will.

In other news, the IMF expressed concern that the market and related derivatives are funded with borrowed money and fear another 2008 scenario, with nothing but debt backing up assets.

This is the problem that many have with the market move.  Central Banks, world-wide continue to add liquidity to their economies.  Somehow, much of this new liquidity is finding a home in US markets.  This is clearly evident by reviewing a chart of UUP, an ETF proxy for the US Dollar.

Such strength in the dollar has not been seen in ages.  Dollar strength results in corresponding weakness in commodities such as oil and precious metals. 

So for now, it appears like "party on."  The Bulls are rejoicing.  And while it appears to be prudent to add some calls to take advantage of what appears to be the start of a new wave up, I'm not so willing to give up the put positions I hold going out through October and January. 

Perhaps the continual Central Bank liquidity will not end and even if it does, interest rates will remain at extremely low levels, resulting in never ending up markets.  But in the end, we know that this market has been created through corporate financial engineering (issuing debt to raise cash to buy back shares, propping up stock prices) and cheap credit.  Someday it will end and rising interest rates will not result in pretty outcomes.

More analysis over the weekend.  Unless we get a big selloff at the end of the day tomorrow, it appears my three-week test of the high scenario is no longer in play.

Tuesday, September 16, 2014

S&P Rally Ignites Bulls

 
The S&P 500 rallied sharply today after failing to make a new low this morning.  SPX rallied 14.85 points to close just below the 2000 milestone mark, at 1998.98.

I suspected that the market could rally when reviewing volatility levels last night.  It appeared that the index could fall only about another 5 points to reach a statistical -2 level, the lower Bollinger band mark. 

Sure enough, after opening lower, so briefly, the market surged without much of any bottom-testing.

The hourly chart shows the rapid rise from the bottom of the channel to the potential channel top.  Prices (this is the SPY chart) retreated at the end. 

While there is much enthusiasm that this could be the resumption of the previous uptrend, I ran a Fibonacci retracement line for this recent down move.  Although the up move was powerful, it still met resistance at a Fibonacci line.  Also looks as if it reached the top of a channel. 

What else is important is that price did not exceed last week's high and prices also moved lower than last week's low.  So it could be just normal weekly volatility.

In all fairness to the bulls, the underlying market momentum over the long term continues to be strong.  This momentum could take a long time to slow down.  It can be done either by a huge move down, as happened a few times in recent years, or by a gradual, normal topping process and then some waves down.

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MY ENVISIONED TOP
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This chart is a weekly close chart of SPY.  For me, when we come off of a high (or low), I begin looking for a testing formation, usually occurring in three periods.

The chart displays the most recent weekly close high, occurring on September 5, at 201.11.  Last Friday, the market moved down to 199.13.  Even though we have rallied up to 200.48 today, I expect that this may have been the weekly high, that we will again move lower, perhaps making a new weekly low, and then coming back up at week's end to close more or less unchanged on the week.  Don't know if this is what will happen, but it is how I watch for my special set-ups that I like to trade. 

Then, I expect the market to rally into Friday, Sep 26 and attempt to close above the 201.11 high.  Most of the time, as of late, we've had some pretty huge moves in this week to not only reach the previous high but to even exceed it.  It's often a great day trade for the Friday expiration, especially since this market has continued to be on fire. 

But if we fail to make a new high, that constitutes my intermediate-term sell.  The moves based on weekly work often are large moves. 

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One thing for sure, with Fed announcement day tomorrow, we can expect plenty of volatility.  Of course, if the market takes out the highs, continuing with a rally, it's back to the drawing board for me.  Until this scenario fails (with a high above 201.11 on Friday), it's my master game plan.

Sunday, September 14, 2014

Stock Market Slips

 

SPY, an ETF proxy for the Standard and Poors 500 index, fell 1.17 pts on Friday, closing down for the first time in six weeks to 199.13.

As mentioned in Thursday's report, had SPY closed at 199.32, Tuesday's closing price, a short-term bottom might have been formed and prices could have been expected to rebound.  That did not happen.  While prices did rebound, they never quite made it even close to that level.


I expect prices to continue lower, at least for this next week.  Should that occur, I would expect a rally in the week after as the market could strive to make a three-week test of the high.

But as we view the Standard Deviation chart, it appears that it is falling at a good rate.  Derivative measurements of this decline show that STD should continue to fall even further.

  
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Viewing a broader picture of Standard Deviation, we might see how the market cycles time out. 

Cycles occur roughly every 13 weeks, give or take.  The next cycle low is expected to occur on October 31.