BullBear Trading: Stock and Financial Market Technical Analysis

Excerpts from Fibtimer's Weekend Report,

 

"Early this week the S&P 500 Index - SPX rose for two straight days looking like it was ready to take off to the upside. But number gains aside, where was the volume? When you have extreme gains but there is not extreme volume to confirm those gains, there is reason to doubt the move.

On Wednesday, the markets again reversed to the downside and by Friday's close had erased every gain for the SPX and managed to close out the week with a loss.

The concern is in the selloffs, especially Friday's. The large percentage loss was this time accompanied by large volume. The markets are moving lower with confirming volume and that is bearish.

The original correction low, reached in early August, remains the low and also the support for this decline. But that low is again headed for a test, possibly next week. The Russell 2000 Small Cap Index RUT, which we use in our Small Cap Timing Strategy, has broken its August lows decisively and this is an ominous sign for the SPX."

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PPO is a comparsion of 2 EMA and offers one of the best buy/sell signal facility, but the choice of the 2 EMA is important.  Otherwise, the signal will be to slow and only cause us to get into a position too late.

The following chart shows SPY with different PPO settings.  It is noted that if you use the standard parameters (12,26,9), your signal is too slow and practically useless in the fast market that we witness.  The better fit will require the shorter EMA to be as low as 4. The Daily PPO will require 2 days in a row for a signal and is not very good when some of the moves lasted only 3 days or less.  For this reason, we needed to go to a 60 minutes PPO Signal.  The following chart shows 60 minutes SPY with different PPO settings, which can issue a Signal in 3 to 4 hours:

Excerpts from Barron's, courtesy of Mr. Hardings:

 

"Barron’s has an interesting interview with Steve and his director of research Doug Ramsey, in this weekend’s issue.

Barron’s: You got defensive at just the right time, in August.

Leuthold: Thanks to a signal from our major trend index. We both believe numbers [charts] are more significant than opinions, including our own.

Ramsey: . . . . If you look at the Dow and S&P 500, the Dow is off 16% from its high, and only 7% year-to-date. The S&P 500 is down 17% from its high and only 10% year-to-date. Those numbers are completely misleading in terms of the scope of the decline. Most developed and emerging-market countries are down 25% to 35%. . . . the U.S. markets are giving a falsely optimistic view and are belying how serious this decline has been.

Leuthold: . . . . Our intrinsic-value work, which consists of all different kinds of relationships to earnings, book value, cash flows and so on, is now somewhat positive. If we get to between 950 and 980 on the S&P 500, about 30% down from the April 29 peak, that would historically be a good time to start buying stocks, even if the major trend index remained negative.

Barron’s: Do you feel comfortable investing in the bond market?

Ramsey: No. Bonds are an accident waiting to happen. But we have grown tired of hanging around the intersection watching for the accident. In a bubble, there is always that final frenetic phase that I’d like to think is mostly completed. This bear market has unfinished business on the downside, and if the S&P is to get down to three-figure territory, which we think is likely, I don’t know what the potential low yield on bonds would be. The best thing to do is to avoid bonds, rather than try to actively short them at this point.

Barron’s: Why has the U.S. stock market not reflected the viciousness of this global correction?

Ramsey: The U.S. is a relatively defensive market. Safe havens are the last to fall, and we are starting to see some of that. . . . .

Barron’s: So we could be seeing an upside reversal soon?

Ramsey: There could be a fourth-quarter bottom.

Barrons: What are some of the positives for the market?

Ramsey: The key positive on which I focus is housing. . . . There was clear overbuilding [in the housing bubble], but each month that goes by we are rectifying that. We are closing the gap by about 50,000 houses a month [by building fewer houses]. Now the question remains: What was the ultimate scale of the overbuilding? What’s the shadow inventory? I don’t know. . . . The cure to an overbuilt housing market is the same as for any busted asset class, and that is time. But I don’t think the housing market is going to go any lower.

 

Yesterday, U.S. bonds seemed to answer my question of whether they were ready to break free from their safe haven attraction in a market decline, as they did in late 2008.

In spite of their extremely overbought spiked-up condition, after only four down days they were back to the upside yesterday as the stock market plunged.”

 

Mr. Hardings is consider closing his 20% position on TBF.  That is probably at a wrong time as the market is into a crash mode and TLT wil price at a relative high. So even Mr. Hardings do not have the nerve to sit on sizable lose despite of his foresight.

 

VictorVest was in cash thinking about going long for the past three days and has a switch of heart yesterday:

 

"Portfolios: As much as we are hoping for an explosive rally, we will go short tomorrow with some of our money if the market continues to move sharply lower."

 

When will VictorVest stop hurting people with its 5 day flip-flop?  

Late to the game?  May be the down move is just begining and or just begin to accelerate. A choice of vehicle would be the stronger one that had held out better.  DOG, Inverse of XLK or XLY if you can locate them.  The weak ones are already out of the gate and the DOG is to follow soon. DOG just break out to the upside today.

I am using SPY PPO with (24,104,36) histogram for a buy/short cover signal.  As soon as I observed 2 strong up ticks or 3 up ticks on the histogram,  I will make a post.

 

VIX:$VIX histrogram is griding lower slowly.  The fact that it is not moving to the low side faster seem to be indicate the down side has more room to go.  VIX:$VIX spike up occasionally in the past 2 days but we are not near a top.  This cause me to be  slightly confused but it also seemed to indicate the down side has more room to go.

Sy Hardings closed his 20% TBF position yesterday at a lost of 12.5%.  He currently  has 60% position shorting the market.
I have multiplied the PPO paraemter x 12 and applied it to the 5 min Chart.  Noted that 11:00 - 12:00 am is flat.  12:00 to 1:00 pm is up.  Price itself is at yesterday's resistence.  If it does not turn back in the next 2 hours, a cover/buy signal will be generated.
The PPO histogram on the 5 minutes chart seemed to be moving slightly faster than the 60 minutes histogram.  On the basis of 60 minutes PPO (24, 104, 36), QID and VXX seemed to have issue a rather weak Cover/Buy Signal; not close on DOG;  RWM and PSQ are essentially flat, which means another 2 hours is needed before a signal can be issued if the market resume moving up at this point.

Excerpts from Fibtimer Editor's Blog:

 

"October 4, 2011

Both the S&P 500 Index (SPX) and its tracking ETF the S&P Deposit Receipts (NYSE: SPY) have broken below a key support level.

The SPY plunged to 109.93, breaking its August 8 correction closing low of 112.26.

The close also puts the SPY some 19.4% below its April 29 closing rally high of 136.43. This is only a fraction from bear market territory which most see as a 20% loss.

The break of support was especially ominous after the SPY spent two months trying to put in a bottom and failing.

There is support at 106.70 which is the 127.2% retracement level. If this fails the next support is at 102.15 the 161.8% retracement support level.

The last support is critical support and it also is at the prior July 2, 2010 correction closing lows of 102.20.

A failure here would result in substantial additional losses."

It will be another hours before the PPO Histograms will be issuing a signal.  Given the sharp short covering at end, it may be safe to assume the (short term) bottom is in and the PPO Histogram Signal will happen.

vvxx:$vix starts to climb. Short term direction switches to up.  With the market broken important resistance levels, it may be best to sit out this up move and reenter short position when the up move exhausted.  On the other hand, with VictorVest's BuySell Ratio reaches a low of .04, the up move can be explosive and quick.

 

It is noted that the histogram is rather flat and indecisive.  One would like to see a strong move one way or the other to set up for a move in the opposite direction.

The Case of Missing Bottom

It is noted in the prior short term bottoms, the VXX:$VIX has moved to a ratio of 1.1 or less showing the market believe less volitility is possible in the future.  This time around, VXX:$VIX not only did not bottom.  It did not even make a serious dip. I am puzzled over this for the past day and can only concluded  that the current up move is so artificial and show an act of desperation to pop up the Market.  Usually THEY will act only after some weakness of the down move has already occurred and certainly not this time around. We will see how many times they will be able to stop the decline at the point that they must do so.  

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