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.

Thursday, September 11, 2014

S&P Refuses to Retreat

Equity markets gapped down at the open this morning but once again, a late afternoon push emerged, rallying the SP500 and its ETF proxy SPY to modest gains today.  SPY closed up 0.23 to 200.30, closing just below the 10 day moving average which posted at 200.35.

During the past three days, price has been consistently supported by the 20 day moving average, shown as the blue trend line in the chart.  Support at the 199 level also marks the resistance area at the end of July, prior to the sudden move down to the 190+ level.

I expect SP to move lower tomorrow, trying to break through to new lows for the move.  This is a typical setup that I look for.  We had a move down into Tuesday and over the past two days, prices retraced.  Then, on the third day, we test the lows.  Usually, at the start of a new move, there is little reason to believe that the lows will hold.  This is especially true since we have not taken out the recent highs from four days ago. 

Should buying come in, as it usually has on any dip, I would expect price to seek the 20 day moving average.  A close at 199.65 or better would be a bullish indication.

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On a weekly perspective, should SPY remain below 201.11, it will be the first week in six where SPY declined.  Normal market cycles run from 10 to 15 weeks so one would expect some weakness to show up soon.  The 10-week average for SPY marks at 197.45.  A move down of that magnitude is within the realm of probability.  Overbought/oversold levels tomorrow are 202.70/196.60.

Wednesday, September 10, 2014

SP Signals Top

Stocks rose moderately today after experiencing a sharp sell-off yesterday.  SPY, an ETF proxy of the SP500 ended the day up 0.75 to 200.07.  Normally, I use the three-day test-of-the-high as a sell signal.  Friday's close was 201.11, far above today's close. 

I must admit that nearly every sell signal I've gotten over the past few years has not proven to be correct.  Prior to Federal Reserve money injections and ZIRP (zero interest rate program), these sell signals were "take it to the bank" accurate.  That being said, I was selling call premium and adding SPY put spreads and buying outright puts in both the October and January 2015 series today.

I have confidence in my positioning based on all of my derivative indicators rolling over.  The first one I look at is the standard deviation chart of the SPY price action.

This chart shows a more pronounced downtrend than price might.  While I might have been encouraged to play the SP to go up based on the potential for it to bounce off of the 20 day moving average, I'm reasoning that the standard deviation cycle WILL cycle down to the -2 level, which many consider the oversold level.

Another indicator I watch is the daily change in the 20 day moving average.

The trend here continues on the positive side but for the first time in this recent cycle, the MAD number has broken below the moving average.  This indicates a possible trend reversal.

Further substantiating my reasoning is a chart of the standard deviation of the MAD (moving average deviation).

I view this chart as being negative and not viewing today's bump up as a possible change in trend. 

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This is a long term chart of SPY with Fibonacci retracement lines included.  Some technicians believe that we will have a pullback in the market followed by another surge to higher highs, perhaps as high as 220.  If that happens, these projections will need to be redrawn.  As it stands now, a common 38% retracement of the recent move could bring the SPY down to 165. 

Although the top may not yet be in, I feel that the biggest gains over the coming years will be on the downside so I will continue using up and down trading opportunities to expand my downside position and push it out to the future.

Decent gains on the downside parlayed into upside gains that could come on the last and final major rally of this bull market could put one in a very fine position at the market top to reap millions from the major decline that is sure to follow.

SPX Turning Point

Three day test of the high in the works.  If we don't close above 2007.71 on the SP 500 today, this would be a failed three day test of the high and a major sell signal for me.

Right now, the sell signal is a short term one since it is made based on daily data.  Should the market decline on this signal, I would next be looking for a three week test of the high.  Should that fail, we would be starting a major move down. 

With this in mind, the market may try to stage a rally at the close.  Always have to be wary of the close as major volume enters the market in the final minute or so.

Monday, September 8, 2014

S&P Rangebound

The SPY ETF closed down 0.26% at 200.59 today, spending much of the day drifting lower as news of a potential Scotland breakaway from Great Britain sent a mild concern through the market.  As usual however, prices rebounded into the end of the trading session.  While the chart above is only a five minute chart, it looks as if the last gasp up resulted in a failed 3 period test of the high.  Chances are that some downward movement will continue in the days ahead.
 
Reviewing the daily close chart, it appears that price is being constrained by the upper band.  We might even repeat the previous sideway action that occurred during June and July, the last time price was testing the upper band.
 
My momentum indicator above shows the rapid decline of volatility over the past few days after rocketing to high levels.  You can see how low volatility got during the last sideways move.  We aren't even close to that yet.
 
My best guess is that price will continue to drift sideways for another five days until it meets the 20-day moving average.  At that point, I would expect another surge higher.

Sunday, September 7, 2014

Bears Can't Catch a Break

After falling sharply on Thursday, the S&P 500 did what it always seems to do, reverse back up and attack the highs.  For the week US equity indices advanced only slightly, 0.01 - 0.02 percent but the chart shows two days with lower lows for the day.  Might a downtrend be starting?

Notice the indicator at the bottom of the chart, a Stochastics measurement.  It is beginning to go down, generally a precursor to lower price movement.  Other indicators I observe are similarly reversing to the downside communicating that the upside momentum is waning.

Yet virtually every selloff of magnitude is immediately met with continual buying, driving prices to new highs.

It doesn't matter what the news has been, no news is powerful enough to slow the institutional money driving the market.  There are many possible reasons for this.  A key underlying factor is virtually free money that can be put in the market for seemingly, a guaranteed return.  Central Banks, such as the Federal Reserve Bank have reportedly purchased some $29 trillion of equities. 

Corporations themselves have been taking advantage of cheap money by offering debt to the public and using the cash received to buy back their shares, reducing the number of shares outstanding and thus boosting the earnings per share regardless of whether the company has actually improved or not.  Less shares outstanding means more earnings per share.  Period. 

Computers are also programmed to be working their magic.  The best and brightest engineers are now working for high frequency trading companies now instead of finding cures for cancer or designing rockets to reach Mars.  Big money on Wall Street is pulling in some of the country's best resources.

One has to believe though that eventually the market will go down.  I expect this decline to occur now.  All the indicators are softening and it's hard to think that the market can go higher when statistical information shows such weakening. 

BUT, what would cause institutions to sell?  They are programmed NOT TO SELL.  Wall Street's sell side has been virtually put out of business.  As a result, volume is dreadfully light with only surges of activating happening at the open and during the last minute or two of New York trading.

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Some Elliott Wave technicians I have been following had been projecting a high on the SPX at 2011 to 2019.  Last week's news that Europe will now begin printing money, even as the US winds down it's money printing program, has led them to believe that the market still has a way to go on the upside before finally experiencing a correction.  Some even contend that the rally can continue on for at least another year, without end.  I suspect that it is possible as indicators show that the market should be selling off, but it doesn't.

Saturday, August 30, 2014

Late Surge Pushes Markets to New Highs


Markets staged a late recovery Friday in light, pre-holiday volume to push SPY to a new high, beating the high of three days ago.  It appears that the market will make another leg higher, perhaps as high as 204-205.

Daily Size, a primary momentum indicator, also continues to expand with no signs of letting up. 


As long as my Size indicator continues to rise, one must stick with the trend.  When Size reverses, we will sell call premium above the market.

It's also possible that a topping formation, such as a failure of a test of the high, will present itself.  That would be an encouraging sell signal.  It would only mark a short term sell though as we would look for a rebound in price, in a new attempt to challenge the highs within a month.  Should a test occur and fail, At that point, we would enter into a short position in the S&P E-mini contract, expecting a sizable move down.  Until then, indicators show that there is still upside momentum that may take at least another week to resolve.

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For the week, Small Cap Growth (IWO) was the best performer, followed by Long Term Bonds (TLT) at 1.5%.  Brazil (EWZ) shot 6.5% higher.  The Brazilian Real currency (BZF) also showed strong gains,  gaining 1.7% on the week. 

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While I have started buying put spreads on SPY, and they are not faring so well at this point, my junior gold stock Allied Nevada Gold Corp (ANV) gained $0.41 to 3.82 this week, more than offsetting slippage in my put positions.

I'm wondering if hot money could be moving into the Junior Gold sector in anticipation of geopolitical turmoil.  So far, no news has been able to put a dent into the stock market but that could be because there do not appear to be ANY sellers.  There appears to be a widespread belief that should the stock market fall, the Federal Reserve will prop it up.  It's no secret that Central Banks have continued to print more money and buy stocks.  I suppose if I had a money making machine and was buying stocks, I would print more money and buy stocks on any dip. 

This could be extremely risky however as there is a general belief that if the assets held by the Federal Reserve were marked to market, it would be deemed insolvent!  One could only imagine if the Fed was buying huge amounts of securities and the market fell dramatically.  Well, I suppose that as long as we don't really know the truth, it probably doesn't matter.

But you know, the risks are pretty high.  The charade can't continue forever. 

LATE NOTE:  CENTRAL BANKS ARE BUYING SP FUTURES WITH INCENTIVES:
http://www.zerohedge.com/news/2014-08-30/its-settled-central-banks-trade-sp500-futures


Friday, August 29, 2014

Three Day Test of High TODAY!!!

A potential short-term market top.  Should the SPY fail to set a higher high from the close two days ago, then that would be a short term sell signal for me.

Wednesday, August 27, 2014

SP Momentum Explodes

The statistical numbers have started to catch up with the SPY stock price movement.  While price has been drifting higher, my momentum indicator has taken off to new highs.

The rule states that as long as this indicator is rising, one must stick with the trend.  Once this indicator turns, my plan will be to sell calls/call spreads above the 200 level.


Saturday, August 23, 2014

Stock Rally Continues

Equity markets paid little attention to the Central Banker's pow wow in Jackson Hole this week and pushed ahead higher all week, with a slight decline showing up at week's end.  The mid-cap growth sector led the way with a 2.1% increase.  The Dow Industrials, as measured by DIA, also rose 2.1% while SPY, an ETF proxy for the SP500 rose 1.8%.  Taiwan (EWT) rose the most in my ETF universe, rising 2.4% to increase it's year's advance to more than 13% thus far.  Thailand (THD) still tops my list for the year, having risen 20% thus far.

Viewing the price action on SPY on the weekly chart, we can see that it totally blew through resistance and appears positioned to power higher.  One would normally expect some sort of test of the resistance level before continuing higher.  I estimate that 197 would be the support level.

A weekly close at 197 though would raise a red flag on my momentum indicator.  And that is the question that I have about the current market is that despite the rapid advance to the highs, my momentum indicators both on the daily and weekly levels are not powering forward. 

This daily chart might express this best.  One can see that the 20 day moving average has flat-lined here and as volatility diminishes, I would expect SPY to trade within the 200 to 190 range for some time. 



 
Daily momentum continues to advance, albeit rather slightly, and is close to the last volatility spike that occurred in early June.  The last volatility reversal resulted in the lengthly drifting period that lasted until the recent sell off three weeks ago.
 
SIGNALS I WILL BE WATCHING FOR
 
1.  Reversal in volatility.  Should the market begin to drift, I will be selling call credit spreads above the market.
 
2.  Three-day-test-of-the-high.  Often works as a good sell signal on any time frame:  hourly, daily, weekly, monthly.   This test should occur on Tuesday. 
 
Elliott Wave bloggers I have been reading are looking for some kind of short term selloff, that they will label wave 4.  With the short term momentum still rising though, we could just as easily see a resumption of the up move on Monday as traders try to push the SP index above 2000 and the Dow Jones Industrials to record high.
 
If nothing else, the trading week should be entertaining and exciting.
 
Don't forget the many downside triggers that the market has not reacted to.  Ukraine, ISIS, Ferguson MO, Ebola, Janet Yellen, world de-dollarization, etc.  If you are still in a bull mode, it doesn't hurt to buy a little put insurance just to be safe.  For those of us who have been around long enough, we could quickly see a sudden move from the top of the Bollinger Band at 200 (SPY) back down to 190, just like that.