Thursday, January 31, 2008

NYSE McClellan Oscillator

This indicator has shaped up nicely. The Summation Index (dotted at bottom) has formed a nice consolidation pattern just below the zero line. This will continue to move higher and is an intermediate term buy signal.

McClellan Oscillator and Components 1/31/08

SPX Weekly Geometry

It's pretty, what else can I say?
S&P 500 Weekly to 1/31/2008

Tuesday, January 29, 2008

Shaping up

After bouncing off the panic lows last week, the markets paused to refresh and contemplate the coming FED announcement on Wednesday. The general consensus is that the FED will cut rates again, by 1/2 point. If they only cut by a 1/4 point or don't cut rates at all it will spook the markets, so keep an eye out for that. Congress, is wrapping up the loose ends on the election year bribe, I can't wait...

The McClellan Oscillator is at +150 which is in the short term overbought area and we could expect a pullback sometime in the next 2-4 days. I've marked on the chart the next relevant cycle CIT (change in trend) points.

I checked the CIT dates for the two dots marked on the chart, the first one is Monday Feb 4 and the second one is Wednesday Feb 13. If the first one is a high then the MCO suggests a pullback from there, or the market and MCO could peak this Wednesday or Thursday and turn down into a low Monday or Tuesday of next week. The lower set of indicators have finally started to turn but I still think the general trend is sideways for at least the next 13 trading days. After that, it will all depend on how the market behaves on the sure to come retests of the recent lows. From here, it looks like US equity markets are forming a major bottom.

S&P 500 Daily - Click to enlarge

Saturday, January 26, 2008

Kneecapped by Helicopter Ben

In spite of the fact that a number of sentiment indicators suggest capitulation by the players, I do not believe last week was a major bottom for the US stock markets. A considerable amount of technical damage has been done. Price momentum, as measured by both the daily and weekly MACD's, is extreamly negative and indicates to me that the current rally will fail. The question to be asked is what happens next? Assuming we get a sucessfull retest, which I consider likely, will the market blast off to new highs? I don't think so.

S&P 500 and Dow Jones Industrials - Daily
Something is seriously wrong in Peoria, and LA and New York City and... Did the Fed panic and lower interest rates because of the sharp decline in the stock market? Are both political parties falling all over themselves to provide a stimulus because they want to stave off what appears to be only a mild recession. No, something else is happening, something that no one wants to talk about, there is a big crack in the financial system. It is not just the banking system which is having problems, but the bond insurers which are on the hook for more than they have in assets, in essence they are going bankrupt. So, when the Fed stepped in with it's magnum 3/4 point rate cut, it was in an attempt to increase liquidity by increasing loan profitability for the banks (Loan Rate-Borrow Rate = Profit ;-). If I was a bank, I wouldn't be in such a hurry to lend money to a bond insurance company, what's in it for me besides a chunk of risk I can't quantify?

No, the Fed wasn't worried about the stock market. One has to assume that Bernanke knows what he is doing, or at least that he knows what he needs to change (fix). So, I'm assumming that the shit has hit the fan, no one at the Fed is exactly panicing, but that they are taking whatever measures they feel are needed to try and fix the problem. "Whatever measures" means whatever they think will work, regardless of the short term consequences such as inflation. There's is a very good chance that the Fed will lower rates another notch at the meeting next week.

S&P 500 Index Weekly
A short term bottom only.

I personally do not think these rate reductions will immediately be inflationary. Inflation occurs when the demand for goods outstrips the supply and demand at the present is moderate to declining. Where I do think that the rate reductions will have an effect is in the US stock market. Lowering the base rate in effect makes stocks appear undervalued relative to fixed income investments.

So, the markets should rally. Oops, this conflicts with my opening paragraph where I suggested that a bottom is not in place yet. I do think the indexes will retest last weeks lows and do it fairly quickly. At that point I would expect a very sharp rally which should hit major resistance at the 1350-1360 level on the S&P 500 (12750 DJIA). This is the neckline of the double top I marked on the chart. It prices can move up through this level, the downside projections will be invalidated. This would be the outcome for reading the current market behaviour as bullish. In my opinion I don't think this will occur and that the markets will back and fill, with a negative bias, until more is know about the current financial problems in the banking and insurance sectors.

Nasdaq Comp and Russell 2000 - Daily

Finally, it looks like the small caps may benefit from the rate reductions, the Russell 2000 is now leading the charge, either to the trough or to the slaughter.

Wednesday, January 23, 2008

SPX Intraday Cycles

This is a 65 minute chart of the SP500 Cash Index with some short term trading cycles. The colored vertical bars represent the Change In Trend point which may be a high, a low or nothing.

Right side - current data

Left side - starts in March 2007

Click for larger version

As the wheel turns.

It looks like the markets put in the left side of a bottoming pattern today. While there are a number of positive divergences in many indicators, the MACD on the major indexes indicate more time will be spent forming a bottom. The chart is the McClellan Oscillator, so far so good.

Click to enlarge.

For entertainment purposes only.

Tuesday, January 22, 2008

Post Toasties

So far this blog is in the testing stage and for entertainment purposes only.


For the DJIA daily, today was the:
109 TD Cycle CIT - from the Mar-14-07 and the Aug-16-07 spike lows
13 TD nominal trading cycle CIT which could produce the left side of a 13 TD bottoming pattern.
It appears that these two cycles were stronger than the intraday ones I posted in my previous chart, MS market made a dope out of me, sigh.

The MCO is at –140 + 3.34 and reasonably oversold enough for a bounce. The +3.34 change indicates the possibilities of a large move in the next couple of trading days, I expect this to be a move up.

The 10% Index, component of the MCO was –429. I view this as positive, since it has stayed above the –500 level.

The MCO, 10% Index and SUM index all have rising bottom patterns across the Mar, Aug and Jan lows. This is bullishly diverging from the price action which made lower lows today.

The New Highs – New Lows spiked again to –867 but is still above the August 07 reading, again this is a positive divergence so far.

The TRIN is more or less inconclusive but the 5 day average is at 1.79, oversold.

The 12-26-9 MACD on the INDU sucks (a technical term)but it is so oversold that a good sized bounce could be expected. Because of the negative momentum, it will take some time to turn the market, a "V" bottom reversal is not in the cards.

On the 65 minute INDU chart, all indicators are oversold and ready to turn higher. I expect a rally to start the bottoming process.

The VIX is indicating fear.

Plus the other bullish percent indexes are extreamly oversold.

A number of stocks are now resisting further declines, or at least they are fairly quickly recovering the losses after a spike. This type of behavior is what keeps the A-D measurements like the MCO and 10% Index, as well as the High-Lows Index from going to new lows.

After looking at over 1000 charts on the weekend I can only conclude that the market was split into two sections. A good number of stocks have been in declining trends for about a year and most have declined well over 35% from their previous highs. This qualifies as a bear market for these stocks.

The other half of the market, primarily the larger caps, energy, basic materials and gold stocks continued to rally throughout 2007 and peaked in the third and fourth quarter. In effect, the SP500, INDU, COMPX, NDX etc masked the declines in the other issues. With the negative credit news, this group of Index stocks declined more rapidly into the January low.

There is a considerable amount of fear among the participants, this leads me to believe they will favor large caps, energy and gold stocks initially. The best bargains are in the other issues but they may take some time going sideways.

Wednesday, January 16, 2008

The first call

I guess we should just start at the bottom and work our way up.

It seemed like a good idea at the time but Friday is a lousy day to turn a sour market. Both cycle points failed to turn the market higher. In my view it is somewhat negative that prices are declining here without the market internals becoming very oversold.