Opposing Forces

Here’s the first chart I’d like to show: The SPY



I’d like to point out that the volume is falling, which my trainer told me that means the price action is not justified. Fewer people are being involved, so there is no commitment on price direction. Additionally, look at the MF (money flow). It’s headed to the lower boundary, meaning money is flowing out of the trade action. Disclaimer: I don’t have the math behind the MF chart. So I’m not completely sure what it is, other than the user’s manual for my StrategyDesk software says that’s what it is.

Now here’s a chart of IWM. As you know, the theory is that IWM leads the way. As you can see on Jul 7, the money flow is out of IWM, which started a fall. The fall was over around July 18, when the money flow was turned around and into IWM. Then on July 22, we again see the money flow start coming out of IWM, and the fall was not over until August 9.



Now shift your observation over to today (the right side of the chart). You see that the money flow is on the bottom, but the price has held up. Interesting. My theory (and I believe Mannwich also) is that the reason we’ve held the price up since around Oct 27 is the new money coming in from Europe (although the preference is the bond market, some spill over into risk is inevitable).

So we have the SPY’s pennant with decreasing volume indicating a break lower. We have IWM with the money flow already at the bottom and Euros heading our way, indicating a move higher. Who’s going to be the winner of these opposing forces?

Let me now look at one of my favorite leading indicators, the 3LB chart of the number of stocks trading above their 50 day MA.



As you can see by looking at July8-Aug8 peiod on this chart, a fall was tracked, and the actual fall started on the July 4 bar. That indicator is before the MoneyFlow was indicating money was coming out of the market. I think we have that again, that around Nov 1, we see the SPXA50 start to fall, and the MF follow around Nov 8.

OK, Rock, what’s your conclusion? I think the fall’s not over yet. I think we’ll see the SPXA50 chart go down to around 150. I think the MF chart will stay below it’s lower line, and money will come out of the market. So I think when we get to the end of the pennant, we’ll break lower.

Here’s one more short-term data point. Mutt’s estimate for a high proved out, but look what happened to the TRIN the last hour. Wow! This is quite bearish, and the aftermarket action confirmed this. I expect a pop down in the morning, making this a Turn-Around-Tuesday.



This is contrary to all my pressure indicators, including Relative Strength. So my regular charts are telling me we’re going higher. Maybe that’s why I haven’t been successful in my setups and trades. So now I will be playing the tape with a lower bias. I’ll take my profits today from the long side, and wait for a setup to the short side and start trying to make money with shorts.