Click to enlarge.
Wednesday, December 14, 2011
A Pause to Refresh
The Summation Index bounced off its 13 day moving average and turned back down. It looks like the market will take a breather here while it digests the news from Europe. All the indicators are pointing towards the correction continuing for a while longer.
The $SPX, MCO and Summation Index
Click to enlarge.
Click to enlarge.
Wednesday, November 30, 2011
SUM Index
Some observations on the Summation Index.
I've added 300 day 2&3 stdev Bollinger Bands. The long period helps to smooth out the neutral zone (currently around +2000 instead of 0) Also, the changeover from fractional trading to decimal trading (2001) has altered the volatility and extremes because the AD line just registers Up, Down or Unchanged and there are fewer indecisive days. This shows up on the chart that goes back to 1950. Generally when the SUM Index tags the Bollinger Bands it's good to start looking for a reversal.
The DJIA and the NYSE Summation Index
Click to enlarge
The DJIA and the NYSE Summation Index
950 to the present Log scaled
Click to enlarge
I've added 300 day 2&3 stdev Bollinger Bands. The long period helps to smooth out the neutral zone (currently around +2000 instead of 0) Also, the changeover from fractional trading to decimal trading (2001) has altered the volatility and extremes because the AD line just registers Up, Down or Unchanged and there are fewer indecisive days. This shows up on the chart that goes back to 1950. Generally when the SUM Index tags the Bollinger Bands it's good to start looking for a reversal.
Click to enlarge
950 to the present Log scaled
Click to enlarge
Thursday, November 24, 2011
Thanksgiving Low?
It looks like a bit of panic is creeping into the markets. On the news front, the Grand Congressional Committee on the budget deficit spun around in circles chasing its tale giving us a whiff of what we already knew. So that cat is out of the bag and what's left to worry about is the total collapse of Europe and a worldwide recession. Guess what? I don't think it's going to happen, the governments, bankers and kings will change the rules however they see fit, they will print any amount of new money, in short do whatever is necessary to keep the ship afloat. But, hey what do I know?
The SPX has closed below the lower Bollinger Band which is negative and will require a test of Friday's close within the BB before we can call a reversal in here.
On the plus side the New Lows are nowhere near the readings seen at the last lows which is bullish and an indication that the upcoming reversal will be something more substantial than we have seen in the last few months. Of course this could be nullified by a meltdown here but I think that is unlikely.
The McClellan Oscillator finished the week at -326, this is very oversold but suggests a bit of caution is warranted here. Typically we can expect a bounce from this oversold level but since the SPX closed below the BB, we could expect some sort of zig-zag in the MCO here. The 10% Indicator finished at -500, which is my lower threshold and confirms that we could expect both a bounce and a retest of Friday's low.
The Climatic Volume Indicator has made a triple zig-zag in the -75 zone which usually results in a bounce. The 10 day SMA on the CVI indicates we could see another 2-3 days of weakness which fits into the retest scenario.
Short of a news driven meltdown the markets look like they are forming a tradable low here. Time will tell.
The McClellan Oscillator
Click to enlarge
The Climatic Volume Indicator
Click to enlarge
Nov 30: Some additional observations.
In hindsight. I've mentioned before that "oversold" conditions in the MCO are not all the same. That is, an extreme reading like the MCO at -326 on Nov 23, has to be viewed in context.
On Nov 23, with the MCO at -326, the Summation Index, which is the running total of the daily MCO, was at +1897, well above the zero line.
At the August low the MCO was below -400, with the SUM Index in the -1000 area, well below the zero line. AND, well below +1000 which I think is the median value I use for neutral (instead of zero)
Typically, in normal swings the MCO is "oversold" in the -200 area. The MCO is the difference between the 5% and 10% MAVGs of the Advance-Declines so the location of the 5% and 10% Index give us an idea of the extremes being reached.
For example, In August, the 5% Index was about -522, meaning that over (approx) the last 40 days, there were on average 500 MORE stocks down than up. The 10% Index bottomed at -960, and for the last 20 days there were, on average, 960 MORE stocks down than up.
The Summation Index points out the extreme in negativity because it takes the duration into account. In the recent decline the 5% Index was -173, the 10% Index -499, with the MCO at -326.
While these are all oversold readings, the SUM Index at +1897 was indicating that the correction was occurring in a bullish phase, since it takes a bit of time with a positive MCO to get the SUM Index above +3000 like it was in mid-Nivember. Getting the MCO down into the -300 area with a high SUM Index reading is often caused by news events, which is what we are seeing now.
Finally, with a MCO below +300, and the SUM Index still positive and with the 5% Index at -173 (modestly oversold) it will take several days to get the MCO overbought, but not long to get it positive again which could happen by Friday. This will turn the SUM Index back up. Since it will be turning back up from the +1500 area most stocks will respond positively AND once the SUM gets into the 2000+ range prices tend to accelerate higher.
FWIW, I thought we might see a retest of the low but maybe not. It's possible the Thanksgiving low was a news driven overshoot and that a pullback to 1200 on the SPX would be sufficient. At the moment the SPX is between the 2 and 3 stdev Bollinger Bands on the 60 minute chart, with a lot of room overhead (1300+) on the daily. We'll see...
The SPX has closed below the lower Bollinger Band which is negative and will require a test of Friday's close within the BB before we can call a reversal in here.
On the plus side the New Lows are nowhere near the readings seen at the last lows which is bullish and an indication that the upcoming reversal will be something more substantial than we have seen in the last few months. Of course this could be nullified by a meltdown here but I think that is unlikely.
The McClellan Oscillator finished the week at -326, this is very oversold but suggests a bit of caution is warranted here. Typically we can expect a bounce from this oversold level but since the SPX closed below the BB, we could expect some sort of zig-zag in the MCO here. The 10% Indicator finished at -500, which is my lower threshold and confirms that we could expect both a bounce and a retest of Friday's low.
The Climatic Volume Indicator has made a triple zig-zag in the -75 zone which usually results in a bounce. The 10 day SMA on the CVI indicates we could see another 2-3 days of weakness which fits into the retest scenario.
Short of a news driven meltdown the markets look like they are forming a tradable low here. Time will tell.
Click to enlarge
Click to enlarge
Nov 30: Some additional observations.
In hindsight. I've mentioned before that "oversold" conditions in the MCO are not all the same. That is, an extreme reading like the MCO at -326 on Nov 23, has to be viewed in context.
On Nov 23, with the MCO at -326, the Summation Index, which is the running total of the daily MCO, was at +1897, well above the zero line.
At the August low the MCO was below -400, with the SUM Index in the -1000 area, well below the zero line. AND, well below +1000 which I think is the median value I use for neutral (instead of zero)
Typically, in normal swings the MCO is "oversold" in the -200 area. The MCO is the difference between the 5% and 10% MAVGs of the Advance-Declines so the location of the 5% and 10% Index give us an idea of the extremes being reached.
For example, In August, the 5% Index was about -522, meaning that over (approx) the last 40 days, there were on average 500 MORE stocks down than up. The 10% Index bottomed at -960, and for the last 20 days there were, on average, 960 MORE stocks down than up.
The Summation Index points out the extreme in negativity because it takes the duration into account. In the recent decline the 5% Index was -173, the 10% Index -499, with the MCO at -326.
While these are all oversold readings, the SUM Index at +1897 was indicating that the correction was occurring in a bullish phase, since it takes a bit of time with a positive MCO to get the SUM Index above +3000 like it was in mid-Nivember. Getting the MCO down into the -300 area with a high SUM Index reading is often caused by news events, which is what we are seeing now.
Finally, with a MCO below +300, and the SUM Index still positive and with the 5% Index at -173 (modestly oversold) it will take several days to get the MCO overbought, but not long to get it positive again which could happen by Friday. This will turn the SUM Index back up. Since it will be turning back up from the +1500 area most stocks will respond positively AND once the SUM gets into the 2000+ range prices tend to accelerate higher.
FWIW, I thought we might see a retest of the low but maybe not. It's possible the Thanksgiving low was a news driven overshoot and that a pullback to 1200 on the SPX would be sufficient. At the moment the SPX is between the 2 and 3 stdev Bollinger Bands on the 60 minute chart, with a lot of room overhead (1300+) on the daily. We'll see...
Wednesday, September 28, 2011
Oct
My apologies to anyone following this blog I've been distracted with other events and unable to post regularly.
This should be self evident. Starting with 1990 at the bottom, each band of the chart page is a 5 year graph of the SPX with 200 Day, 2&3 Stdev Bollinger Bands.
Because the Bollinger Bands are essentially moving sideways and because the August low was 3 standard deviations below the 200 day moving average it is NOT POSSIBLE to get a successful price test of the Aug Lows which will also be above the lower 2 Stdev Bollinger Band. So far all the recent reversals have occurred between the lower 2 and 3 Stdev Bollinger Bands. There is NO WAY to construe this as bullish.
This means that the Bollinger Bands are going to expand and the 200 day average will have to decline in order to bring the lower BB down to the level of the August lows.
The most likely way this will occur would be with another 10-25% waterfall decline, followed by a bounce, then another decline to a lower low which STAYS INSIDE the lower BB which will be expanding. See Oct-08 to March-08 for an example.
SPX with 200 Day 2&3 Stdev Bollinger Bands
Lasting reversals to not occur from lows closing below the 2 Stdev Bollinger Band
Spikes below the 200 Day Bollinger Band are short term trading opportunities only.
To form a lasting reversal the retest should be above the 200-2Stdev BB
This is NOT what we are seeing in September 2011 - The reversals are
occurring between the 2 and 3 Stdev Bollinger Bands - This is still Crash territory.
Click to enlarge
Historical weekly charts of the SPX 1929 to the Present
With 5 Year (250 week) 2&3 Stdev Bollinger Bands
Click to Enlarge
The daily SPX chart in 2009 and 2011
With 20 day, 2 and 3 Stdev Bollinger Bands
Also 200 day, 2 and 3 Stdev Bollinger Bands
Click to Enlarge
This should be self evident. Starting with 1990 at the bottom, each band of the chart page is a 5 year graph of the SPX with 200 Day, 2&3 Stdev Bollinger Bands.
Because the Bollinger Bands are essentially moving sideways and because the August low was 3 standard deviations below the 200 day moving average it is NOT POSSIBLE to get a successful price test of the Aug Lows which will also be above the lower 2 Stdev Bollinger Band. So far all the recent reversals have occurred between the lower 2 and 3 Stdev Bollinger Bands. There is NO WAY to construe this as bullish.
This means that the Bollinger Bands are going to expand and the 200 day average will have to decline in order to bring the lower BB down to the level of the August lows.
The most likely way this will occur would be with another 10-25% waterfall decline, followed by a bounce, then another decline to a lower low which STAYS INSIDE the lower BB which will be expanding. See Oct-08 to March-08 for an example.
Lasting reversals to not occur from lows closing below the 2 Stdev Bollinger Band
Spikes below the 200 Day Bollinger Band are short term trading opportunities only.
To form a lasting reversal the retest should be above the 200-2Stdev BB
This is NOT what we are seeing in September 2011 - The reversals are
occurring between the 2 and 3 Stdev Bollinger Bands - This is still Crash territory.
Click to enlarge
With 5 Year (250 week) 2&3 Stdev Bollinger Bands
Click to Enlarge
With 20 day, 2 and 3 Stdev Bollinger Bands
Also 200 day, 2 and 3 Stdev Bollinger Bands
Click to Enlarge
Wednesday, March 16, 2011
MCO Update March 16, 2011
The 9.0 earthquake in Japan has caused the Japanese markets to crash. What we are seeing now is the spillover into the US and world markets as investors become highly risk adverse. Also elevating investor anxiety is the uncertainty over the reactor failures in Japan. The situation is very fluid and not good, so even though the fundamentals of the US markets haven't changed that much, just the fear is enough to prolong the bottoming process.
Click to enlarge
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