Updated SPY chart, notice that the down trend line has been decisively broken, which could explain the strong rally. Also institutions are probably putting money to work in the new quarter.
I thought I would post a few charts and talk about the indicators that I use to predict market trend changes. I don't use any of these indicators in a vacuum, I look for specific divergences, price patterns, and use price action as confirmations. I ignore the news during these turning points as the news is always the worst at bottoms.
Reading about China's inflation, Greece's debt problems, or record home price declines in the United States is interesting, but I have not yet figured out how to make money from that type of information, as always I am always more interested in the reaction to the news than the news itself. I also try to ignore talk about window dressing, the end of QE2, short covering rallies etc., while making my decision and letting the market internals do the talking.
No group of indicators is perfect but by looking at these indicators and statistics I can put the odds in my favor which is about all any trader can hope to accomplish.
McClellan Oscillator - I look for buy divergences to form. 4/18/11 and 6/16/11 are two examples. 4/18/11 was a 4.48% rally, the 6/16/11 is 4.08 as of this writing. A buy divergence in this Oscillator from 11/30/10 resulted in a 13.76% rally.
Other breadth indicators that I use extensively are from both the NYSE and the NASD:
Advances-Declines 5, 10, 30 day sma which is an over bought/oversold oscillator.
New Lows
Three measures of Up Volume/Total Volume
Cumulative Tick
Advancing Issues
Based upon my notes of 6/17/11, these were all signaling either oversold conditions, or buy divergences.
Internally, the statistics were diverging, (improving) as the market tested it's lows.
June 15 S&P 500 1265.42
Declining issues 2598
New Lows NYSE 79
Advancing Volume 81322
June 24 S&P 500 1268.45
Declining Issues 1941
New Lows NYSE 38
Advancing Volume 344510
I will then start looking at individual stocks and "herds" as Rock calls them for stocks or sectors that are showing relative strength. I sort and scroll through several hundred stock and ETF charts, indicator charts and my excel spreadsheets to see evidence of confirmation.
At the same time I look to see if the VIX, TRIN, or TICK is confirming the divergences that have formed.
I keep excel spreadsheets that I update daily to record the internals from the WSJ. I use Worden's Telechart 2007 to perform scans on the market and indicators.
Combining all of these indicators, statistics and oscillators is essential to seeing inside the market and making the correct call and acting upon it, using stops, of course. No system is perfect but I have found this system to work very well at trend changes.
Since I have to ship a ferrari, and since we can comment anything we want, here's an Eisenhower era Ferrari story appropriate for at least me....
ReplyDeleteA hip young man goes out and buys the best car on the market, a brand new one. It is also one of the most expensive cars in the world, and it
costs him $500,000. He takes it out for a spin and stops at a red light.
An old man on a moped, looking about 100 years old, pulls up next to him. The old man looks over at the sleek, shiny car and asks, "What kind of car ya' got there sonny?"
The young man replies, "A Ferrari GTO. It cost half a million dollars!"
"That's a lot of money," says the old man. "Why does it cost so much?"
"Because this car can do up to 320 miles an hour!" states the young dude proudly.
The moped driver asks, "Mind if I take a look inside?"
"No problem," replies the owner.
So the old man pokes his head in the window and looks around. Then, sitting back on his moped, the old man says, "That's a pretty nice car,
all right, but I'll stick with my >moped!"
Just then the light changes, so the guy decides to show the old man just what his car can do. He floors it, and within 30 seconds, the
speedometer reads 160 mph.
Suddenly, he notices a dot in his rear view mirror. It seems to be getting closer! He slows down to see what it could be, and suddenly,
WHHHOOOOOOSSSSSHHH! Something whips by him, going much faster!
"What on earth could be going faster than my Ferrari?" the young man asks himself. He floors the accelerator and takes the Ferrari up to 250
mph. Then, up ahead of him, he sees that it's the old man on the moped! Amazed that a moped could pass his Ferrari, he gives it more gas and
passes the moped at 275 mph. WHOOOOOOOSHHHHH !
He's feeling pretty good until he looks in his mirror and sees the old man gaining on him AGAIN! Astounded by the speed of this old guy, he floors the gas pedal and takes the Ferrari all the way up to 320 mph.
Not ten seconds later, he sees the moped bearing down on him again! The Ferrari is flat out, and there's nothing he can do.
Suddenly, the moped plows into the back of his Ferrari, demolishing the rear end.
The young man stops and jumps out, and unbelievably, the old man is still alive.
He runs up to the mangled old man and says, "Oh My gosh! Is there anything I can do for you?"
The old man whispers with a feeble breath, "Unhook.........my........suspenders
..from...............your................side-view mirror.........................."
Rally On!
Hey, Dss
ReplyDeleteWhat a great piece of work! Thanks eversomuch for this post!
Trend changes are my weakest point, which is why I get out daily and only trade the opportunities of the moment. Doing that keeps me green, but not nearly as green as when we are trending.
Looking at the SPY, we have been in a downtrend, but the percentage of the pullback has been quite small, making trading the trend very difficult, for me, at least.
I know I said that when the stochastics on the daily and weekly chart are at the bottom, it's an investor's market and time to go long, but it's so hard to know when to make that jump.
I will study your post this weekend, and will try it in the ensuing days. I think we're going to close up this week.
If this is the turnaround we're all looking for, there's still time for us to get in long. The weekly Stochs have just turned up. Daily's on a high, so depending on the strength of the stock, some could trend down.
Looking at the number of stocks trading above the 50 day MA, we are at 280.
"that it looks like up to me".
Rock,
ReplyDeleteI do not use stochastics in my decision making, but I do use them sometimes to enter the trade. Mostly I use trendline breaks our break outs to enter these trades and I use a wide stop as I am playing for a pretty big target.
These setups only happen a few times a year but tend to have big profits. The key is to staying in to collect them!
Rock,
ReplyDeleteI do not use stochastics in my decision making, but I do use them sometimes to enter the trade. .Mostly I use trendline breaks or break outs to enter these trades and I use a wide stop as I am playing for a pretty big target.
These setups only happen a few times a year but tend to have big profits. The key is to staying in to collect them!
Morning all! Gov't shutdown in MN is officially upon us. Good times. I actually think there may be a silver lining to this, as people in this state wake up and realize just how much they value some of these services when they're no longer available. But, hey, we can never, EVER raise taxes on the most fortunate among us for ANY reason.
ReplyDeletehttp://www.startribune.com/politics/statelocal/124824189.html
Of the rich, for the rich, and by the rich. The GOP no longer even bothers hiding who their main constituents are. Time for the slumbering Sheeple to wake the fuck up. Excuse my french. LOL. From the article:
ReplyDeleteThe governor said his last offer would have raised income taxes only on those earning more than $1 million a year -- an estimated 7,700 Minnesotans, or 0.3 percent of all taxpayers, according to the Revenue Department.
Republicans rejected the proposal, Dayton said, because they "prefer to protect the richest handful of Minnesotans at the expense of everyone else."
Republican leaders made their own statement, saying Dayton's proposal for dealing with the projected $5 billion deficit would cause irreparable harm to the state's economy for generations.
"We will not saddle our children and grandchildren with mounds of debts, with promises for funding levels that will not be there in the future," said House Speaker Kurt Zellers, R-Maple Grove. "This is debt that they can't afford. It's debt that we can't afford right now."
Whow knew that milquetoast Mark Dayton, of all people (who basically did nothing as a Senator), had may more stones that Obama and most everyone else in Congress? Go Mark!
ReplyDeleteDayton struck a combative stance, saying the July 4th holiday "reminds us that there are causes and principles worth struggling for" and worth "suffering temporary hardship to achieve."
ReplyDeleteQuite an amazing rally this week. I wonder if we'll breach the prior OBL top. Wouldn't surprise me now.
ReplyDeleteTook the nice ride up this morning. Locked in nearly 4% gain in 30 minutes. My haircut from the other day is gone.
ReplyDeleteTime to start the holiday.
So I wonder who the mysterious attacked female will strike next?
ReplyDeleteAnybody notice how Assange dropped off the radar? Now that we got rid of Strauss-Kahn, you suppose he drops off the radar too?
Can you spell L-A-W-S-U-I-T?
Sadly, I got caught today by the merger of FTO and Holly.
ReplyDeleteI have been long FTO awhile, as it climbed northward. I don't know the damage yet.
Sigh.
@Rock
ReplyDeleteFrance is gonna rub that one into us for a while.
Right now for me it's the macro. Staying in the SPY through options.
ReplyDeleteThe volatility market wide makes it a safer bet.
Well, we have roughly 10 days before any economic new starts to come out. Nice time for a rally to continue. Maybe some selling next week???
Todd - Nice to hear you are making a little money.
ReplyDeleteCongrats
Mutt
Thx Mutt
ReplyDeleteBetter than 2 years ago. I'm just glad the workload at work lightened up enough to actually have time to do some trades, and it happened to coincide with higher volatility.
End of July the projects all kick back in and it will back into the Salt Mines.
DSK is free on his personal recog.
ReplyDeleteoohh.
I can see a security market where the RAF set up cameras to record their every move.
Let's see who can arrest and sue someone else who will countersue.
Maybe the graduate attorneys that can't find jobs will be fully employed!
He still might become the Prez for France.
ReplyDeleteMorning all! Heading home to SF in a few hours. They'll actually have nicer weather than us for a change, our summer is here and it's hot - 100 with high humidity over the holiday!
ReplyDeleteDenise this is excellent!! So nice to see how you made that call! So much to learn.
How much further about 1340 does the S&P need to go before you say the forming head and shoulders has been broken?
ReplyDelete@Todd:
ReplyDeleteMan, you're good. I see a pattern I've seen before, but I can't relate it to a H&S.
When I look at the daily chart, it looks to me like a cup portion of a cup and handle may be forming.
When I look at the weekly chart, I'm stunned at how fast the retracement has taken place.
The last time we saw this sharp a retracement was Sept 1 2010. After that, we were launched to 1330 in february 2011.
I'm going back in my dim, weak memory, but I can't remember what launched us. QE2 was announced in November, but I cannot for the life of me remember the Aug/E Sept/B environment.
I guess that's why we used to generate weekly reports. They probably did have a function.
Re DSK Case,
ReplyDeleteHe's still accused of rape. Only the maid's credibility is in question,"because prosecutors found issues with the accused's asylum application, possible links to criminal activities and drug dealings.." - Ap/yahoo.
I know lot of people from Sri Lanka and other third world countries came to Canada and declared refugees status. A ship full of Shri lankans came only a few months ago. Some of them are probably just economic refugees, some may have criminal past. Does that mean a woman can't press rape charges just because she lied to stay in the country?
That was my fear - the defense will go after her there. Lot of people are not genuine refugees - LOT! Yet the govt. let them in through the back door.
Ican
Another trend day up, this one much more powerful than the one I put up as a chart the other day.
ReplyDeleteIt has not pulled back to the 20 ema on the 5 minute chart all day long. Very strong rally.
Internal statistics are also very strong today. Breadth, and tick.
ReplyDeleteStronger that I thought it would be. Thought it would be the quick bump up and then trend sideways the rest of the day. It's why I sold out after 30 minutes.
ReplyDeletePeople should have headed for the doors at lunch time.
@ICan:
ReplyDeleteWe say a leopard can't change its spots.
There is some truth there.
I'm out now. I still can't trade or get out of my FTO long, and have absolutely no idea whassup there.
But I'm tired. I have to pack and start to make arrangements for Taiwan. Going to bed now.
I have a very pleasant memory of last years' 4th, on the Esplanade, and cheesesteaks at Sonny's diner by MIT. I hope all your 4ths are great memories for your future.
@Rock,
ReplyDeleteBest of luck to you, and a happy home coming.
Happy Independence day to all who call U.S.of A their home.
ICan
MarketWatch
ReplyDeleteRanks of investors underwater relative to their October 2007 levels are dwindling, reports Mark Hulbert.
Let's see if the Boomers are smart enough to move their money out of equities now that they've mostly recovered their losses.
This rally looks very powerful - up 156?????
ReplyDeleteI just updated the SPY chart to show the trendline break to the upside, with confirming internals statistics.
ReplyDeleteThe big question is are we going to test the old highs? Everyone was worried about the end of QE2, Europe, China, but obviously, the market doesn't care.
Also, we easily surpassed the 61.8% fib retracement level.
ReplyDeleteRock - Best of luck to you as you make your move.
ReplyDeleteMangy Mutt
Just wanting to wish everyone a safe and sane 4th of July.
ReplyDeleteExcept Thor - You just have a safe one, no need for you trying to be sane also :p
Mutt
Rock,
ReplyDeleteHappy packing and have a safe trip home.
Happy 4th, everyone. Sure did go out with a bang to end the week.
Happy Canada day to me and Greg!
ReplyDeleteICan
ICan - Maybe we can make the July 3rd Hug A Canadian Day fo you and Dan.
ReplyDeleteMangy Mutt
Hey all! Wolfstreet live from a ipad2 at the Supermärkte. Lol
ReplyDeleteCatch you this afternoon. Really sry for the Dead silence As of Late. Real Life vertont in the Way sometimes :d
ReplyDeleteAh. Almost forgot: NOW i can say Watch your back Apple.nörglig much to See with this iPad im afraid ;D
ReplyDelete++
wolfstreet - I was starting to wonder about you, a day or two absents from anyone can go un-noticed, but it has been a couple weeks since your last post.
ReplyDeleteI am glad you are back and hope that everything is going well for you.
Mangy Mutt
@Dss
ReplyDeleteRE: McClellan Oscillator
http://stockcharts.com/freecharts/McSumNYSE.html
From:
http://en.wikipedia.org/wiki/McClellan_Oscillator
"The simplified formula for determining the Oscillator is:
"Oscillator = (19 day EMA of Advances minus Declines) − (39 day EMA of Advances minus Declines)
"The McClellan Summation Index (MSI) is calculated by adding each day's McClellan Oscillator to the previous day's Summation Index.
"By using the Summation Index of the Mcclellan Oscillator, you can judge the markets overall bullishness or bearishness.
"MSI properties
"* above zero it is considered to be bullish (positive growth)
"* below zero it is considered to be bearish (negative growth)
"The Summation Index is oversold at -1000 to -1250 or overbought at 1000 to 1250.
"The number of stocks in a stock market determine the dynamic range of the MSI. For the NZSX (one of the smallest exchanges in the English speaking world) the MSI would probably range between (-50 ... +50), the 19 and 39 constants (used for the US exchanges) would have to be revised. For the NZSX a MSI moving average mechanism might be needed to smooth out the perturbations of such a small number of traded stocks."
I enjoy seeing the math behind the tools that I use because it helps me understand the thought process behind the tool and therefor it's application is more easily assimilated. For me.
I agree with the McClellan oscillator just now. I too am full of Bull.
@Mutt,11:55AM: Thks mate for the kind words. Not "back" yet, I'm afraid. Won't be able to get back to blogging, nor trading, before 3/4 weeks.
ReplyDeleteBut things slowly "falling into place", so to speak. So all in all, no worries:D.
@QOTD: cool Capone quote. indeed, a system within a system. Maybe all human organizations just boil down to this, eventually.
ReplyDeleteAh while I think about it, trading/eco related: GO Greece ! ;)
K. Gotta go. I don't share thoughts about this otherwise good looking technical post by Denise. That wouldn't be useful, since I've not checked "my charts" since some weeks.
ReplyDeleteAnyway, trade safe all, and keep on with the good work. See you later.
Greetings from The City By The Bay, otherwise known as home.
ReplyDeleteBeautiful weather this weekend too!
Back Tuesday night
Wolfie,
ReplyDeleteGlad to hear from you. We'll be here when your schedule allows you time to comment again. Plus summer is a slow time on blogs for the most part. But the market action is heating up!
Rock,
ReplyDeleteThe McClellan Oscillator is simply another way of measuring internal statistics and I use it to confirm what I am already seeing from my raw statistics.
I also use the McClellan Summation Index in the extreme long term timing of trends.
In my mind, these simple internals supersede everything else and are clues that SOME ONE IS BUYING, I don't care who or why but these are signs I do not ignore. Which is another reason I ignore the media at this time because the bad news seems to become overblown at these turning points.
This is another reason why I seldom trade individual stocks anymore and use ES futures. Only need to be right on one item, as many stocks do not move exactly with the market.
Just thought I might mention to have a look at Cobra's
ReplyDeletehttp://cobrasmarketview.blogspot.com/
I think what he's saying reinforces what Dss said above.
He said I could stay long over the weekend, but I didn't. I didn't because opportunities are plentiful, and losses can be difficult to recover.
@Thor:
ReplyDeleteSometimes I have trouble cutting and pasting in the "Post a Comment" window. When that happens, I simply clear the Post a Comment window, then press the Post Comment button. It gives me the error message that comments must not be blank, and after that I can cut and paste from the clipboard just fine.
I wonder why that is....
Rock - It sounds like you have a cut, copy and Paste issue, these are things we normally learn to do well in kindergarten.
ReplyDeleteBut what do I know, I took kindergarten twice.
Really Really.
Mutt