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Parallels

Posted by maineman, Feb 11 2007, 11:46 PM

NYSI, which reflects cumulative breadth, turned down in December. A typical NYSI "sell" signal runs around 12 weeks, give or take a few, during a usual bull market. Early weakness was muted however and the market began to nudge its way higher, ultimately carving out nominal new highs. The fact that the NYSI had not been down "long enough" kept me from getting excited about the bull case, although as price is king, I was willing to give them the benefit of the doubt and was looking to see if they could break out on strength. They did not, and the market finally caved in last week.



Volatility has been so muted for so long that Friday's decline "felt" worse than it actually was, but the question is whether the decline has further to go. From an NYSI time perspective, we are closer to the bottom, but from a price perspective we could see more damage, as the last phase of a negative NYSI phase has a history of being potentially nasty. Take a look at September 2005 and May 2006, for two recent examples.



In many ways the recent action is reminiscent of May 2006, as price kept notching one last little high after an hour and then finally collapsed. Parallels are never exact, and what is different this time is that the recent market has been technically stronger than last May, and could ultimately proove to be more supportive.



So far, anyway, the market remains trapped in a nearly 3-month old trading range, with the EMA 10 > 55, so a decline back to the 55 is still in the cards. A drop below this trading range, with the EMA 10 dropping below the EMA 55 opens the trap door for a 100+ SPX decline back to the rising trendline.



Interestingly the weekly OEX put call ratio sits at 199/100, which is huge. Either "they" have all gotten very smart and holding all the cards, are getting ready for a collosal payday, or a serious cushion is forming under the market. Time will tell. Sentiment, too, remains too muted (in my opinion) for "the big" drop yet.



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Finally, the weekly ROC5 and 21wma remain positive:

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Good luck in all your trades this week. Its not going to be dull.



mm


Bloody Fingers

Posted by maineman, Feb 8 2007, 11:20 PM

After nabbing a few scalp OEX 670 calls at yesterday's lows, I barely got out at this morning's hairy open, with a few black and blue marks. But the selling once again seemed overdone intraday today, with a firm NAZ, muted negative tick, a muted TRIN and steadily improving intraday breadth, so gonzo scalper that I am I dove back in for a nice scalp long into the close. But now what? NYSI continues to creep up and has yet to turn back down:

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The daily indicators look the same, with a tepid, but still positive RSI. So not much is new. The market continues to trade with a hair trigger in a narrow range, with growing anxiety. A setup for a short squeeze or a collapse. I still think we'll resolve to the upside, but I'm not placing any big bets yet.



In the meantime here's a chart that might warm the hearts of the bears: this weekly chart suggests a double top in the ROC5. Not to repeat myself too much, but I prefer to get really short only once these indicators go negative (i.e. ROC5 < 0, price < 21Wma, MACD < 0), not before, but here's the chart as it stands today:

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well, best of luck out there tomorrow....and have a relaxing weekend.



mm


Perception vs. Reality

Posted by maineman, Feb 7 2007, 10:38 PM

Take a look at this chart of the OEX:

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A quick look at this chart and you sense a market that is getting tired. RSI is declining. In fact today's close has RSI looking like a limp noodle. MACD has been falling since October, although MACD HIST has been positive since February began. Volume appears to be weakening. Looking back on this bull run you see over 100 OEX points since last summers lows with nary a break. It is easy to come away with a sense that the run up is over, or very nearly over. Brings up some problems with technical analysis though, doesn't it? Since RSI and MACD started falling over 3 months ago, the OEX has tacked on another 30 or so points. And, the EMA 10 remains firmly above the EMA 55. And that Ultimate oscillator looks pretty strong to me. How about you?



My point is that technical analysis is a fragile beast and can at best give you some "sense" of the market but can rarely give you what you need to trade the markets. Maybe there are some out there who think differently. Okay by me, or "smoke 'em if you got 'em" as we say.



My thoughts on the current situation remain unchanged. There are enough danger signals around to keep me from "loading up" long, and the on going strength keeps me from taking a heroic bear position. I've discussed this before: You can anticipate a bear move ("top picking") and cash in swell, or get stopped out over and over, or you can short a breakdown. Look at last winter/spring. There were just as many "warning" signs that the market was topping out. Trying to pick that top would have squeezed you dry right up to the May collapse. With very deep pockets and a lot of alchohol and tranquilizers you may have hung in there long enough to cash in, but was it worth it? Once the market finally cracked there was still time to get short and earn some safer money. Once the market recovered, (EMA 10 back above the 55) there was clearly plenty of time to profit again on the long side.



So with over 400 new highs on the NYSE, improving breadth, and the 10 > 55 you have to give the bull side the benefit of the doubt. But its a good time to be a nimble trader. Keep an eye on the NYSI, too. It continues to inch its way higher but if this stops inching up and hooks down again any time soon then watch out below.



mm


FWIW

Posted by maineman, Feb 7 2007, 08:48 AM

A FWIW update, just to update what I'm seeing. No need for new charts today, as they look the same "only more so". Breadth has continued to nudge up with prices churning around. The markets are trapped in a narrow 10ish point SPX range and came right down to the razor's edge intraday but recovered during an unusually edgy trading day (as I commented on the board elsewhere during the day). Bids were placed and removed within minutes, sharp sell programs hit the floor and dried up within seconds, futures premiums would expand out of the blue and contract seconds later just as quickly. Hard to say what it all meant, but it felt like an insecure environment and one which cannot last too much longer.



The bottom line is that we are still in a bull market that feels like it just wants to keep plodding along higher, but is still stuck in a "negative NYSI" environment/corrective phase. As such, in spite of being up near all time highs it all "feels" crummy. Prior resolutions to this type of environment have been deeper corrections, allowing the "weight" of the negative NYSI to resolve, or a "higher level" consolidation, allowing a powerful bullish upside resolution. As Yogi used to say,"It ain't over til its over", and we may see that here soon.



My personal strategy continues to be that I'm using my intraday toolbox for scalping, and positioning myself with high/low bids for whichever resolution occurs, on a decisive break above or below the well outlined trading range. This is not a cop out. But a profitable strategy, and one that fits the chop.



Best of luck. Whatever "WWW" is. smile.gif

mm




"Cautiously Optimistic"

Posted by maineman, Feb 5 2007, 08:16 AM

A couple of things to ponder. First, every good trader has a few tools he or she comes to rely on because, for them, they "work". As long as one can "see" what they see and incorporate that along with proper money management into a system, then good for them. That's why two traders can have completely different views on the "the market" and both be making good money at the same time.



Second, by the end of last week there was a "plethora"* of voices on this board talking about an imminent crash or some sort of scary decline. I asked for people to "explain" what they were seeing and got very few answers, so over the weekend I went and looked at every possible standard technical analysis chart and surprisingly only saw fairly bullish looking charts. Rising momentum, RSI, "money flows", oscillators, stochastics, OBV, etc. etc.



As for "my" favorite tool, the summation index, it continues to improve from a recent oversold/negative condition and has "improved" more than it did in September of 2005 (before a subsequent scary decline) and May of 2006 (before a similar subsequent scary decline). So I am left with this dilemma: is the "better than usual" improvement in the NYSI off a low telling me that the little "correction" is over, having ended with new highs, and therefore a "rolling correction" (euphimism for correction-that-didn't-quite correct") or are we still at risk for another downdraft to "finish" the correction?



I don't (sadly) have the answer to that question, so I will continue to play it cautiously, trading back and forth intraday. Sentiment is mixed, AAII showing quite a lack of enthusiasm and some of the other "professional" polls tilted, as they have been, a bit too far to the bullish camp. Weekly OEX Index PCRS still show a hefty ratio, which is supportive of higher prices. Beyond intraday trading here's what I'm looking for. If we run higher, having busted above the recent trading range, without solid confirmation from the NYSI I"ll head back in heavy on the short side, If we break lower and RSI falls below 50 I'll get more short-term aggressively short.



Longer term? Unless we get a big crack here soon, it looks like this "correction" will have turned out to be a shallow event which should fuel more bullishness heading into the spring and summer.



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Have a great week trading.



MM



*Plethora - a word that was destroyed by "El Guapo" in the very funny movie Three Amigos. It was a good word, but no reasonable person can now use it without cracking up....


Buoyant!

Posted by maineman, Feb 1 2007, 10:31 PM

Is it my imagination or is this old age? It seems to me that the weeks are just flying by...another weekend? Wow.



So, around mid day, anyone else notice the surge in DOW Index CALL buying? (I pity the fool).... off we went for another drift higher into the close. Now we have a still positive market (price > EMA 10 >EMA55) and new highs and, as expected, more and more technical divergence on the charts. (no new highs in the RSI, for instance).



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NYSI keeps moving up as breadth firms up. I still have a nagging feeling that there could be a few more negative surprises lurking out there, so I'm not "loaded up" long. Let'skeep an eye on the NYSI RSI. Will it "fail" like it did last May?

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My hats off to those who've been long for the past 20-30 points. My hats off to those who've loaded up short for the possible re-test "swoon". I don't have that kind of stick-to-it conviction, especially with these cross-currents. I'm just going to continue to swing back and forth intraday for now. One last piece of the puzzle... if we CLOSE tomorrow up here, then we'll have a WEEKLY break out of the recent 7-8 trading range, which projects a move up towards 1460 to 1470....



have a great weekend.

mm


Observations after the Funky Fed Day

Posted by maineman, Feb 1 2007, 08:33 AM

First some thoughts about the usual: the market rallied. I've been suggesting a rally was in the cards, albeit in the presence of an as-yet negative NYSI. The groundwork had been set for a possible exuberant move and we got that. By day's end (post fed) the market had rallied smartly, on rapidly improving breadth, high TICK readings and, some skepticism among the traders. Take a close look at the first chart (sorry for the link, running low on free time to make "pretty" annotated charts tonight). You'll see that NYSI continues to inch up, but is bumping up against its SMA 20. It is unclear, based on this chart, if the current "correction" is over. (look at September 2005 and May 2006....)



NYSI CHART



The SPX chart below shows that we are once again back to the upper end of the trading range, with some divergence on the usual indicators. RSI "held" 50 on all recent declines, suggesting that this is/was one of those shallower corrections.



SPX CHART





Take a look a the daily chart (courtesy of Quote.com) and you can see how the MACD has been waffling the past few weeks but did close Positive. IF "THE" buy signal is valid, we've got a long way to run,



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Now take a look at the weekly chart. Just to splash a little rain on any enthusiasm... that weekly MACD continues to look ominous, although the real effect of that baby turning negative may still be a few weeks (perhaps months) away. Better left to a leisurely weekend discussion of the "big picture", but I am still in the camp that a nasty decline is looming, probably later this year.



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Again, FWIW, I am just sharing some items that I look at and see. Enjoy them, use them if you think they are helpful, or ignore them if you don't.



mm




Some Good News, Some Bad News

Posted by maineman, Jan 30 2007, 10:56 PM

NYSI looks as if it wants to turn up. Breadth has been improving. RSI continues to hold above 50. The EMA 10 is > EMA55 and price is above both. "Smart Money" has been buying index calls. So what's not to like? Well, since you asked, I'll tell you. NYSI is negative (even though it "looks" like it wants to turn up) and, as I mentioned a few days back, when the NYSI goes negative it tends to stay negative for a bit longer than it has so far... It's possible that the the initial weakness in the NYSI noted during the first week of November "may have" been negated by year-end "window-dressing" influenced by a solid year in the markets... If that's true (and I have no way of knowing), then NYSI has been negative long enough, and we should be set to rally. But I believe its this uncertainty that others may be feeling, too. Hence the calls for a swoon "first" of 20 SPX points. Bottom line..... the odds keep building for a decent rally. There's just that little uncertainty of whether the "correction" has run its course. How to "play it"? If you are trading for the intermediate term use any FED-related weakness to get long or add to longs (stocks, ETFS, low-ball bids on out of the money calls, etc. Futures may just carry too much leveraged risk for the "little guy" on FED days) after the dust settles. If you miss some, better off than getting caught on the wrong side of a big volatility day. I personally enjoy the thrill and excitement of observing FED day action, but I sure hate getting caught in the vortex. Trade smart tomorrow. Don't step into the ring without a clear-cut plan of attack.

MM



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More Bull

Posted by maineman, Jan 28 2007, 10:12 PM

A few thoughts before the new week. NYSI remains weak. Typical pullbacks in a bull market as determined by weak or "negative" NYSI readings tend to last roughly from 6 to 12 weeks. The current weakness started during the first week of December (although there was a whiff of weakness in the first weak of November, the bulls gave it one last push). So we're 7 -8 weeks into the current "sell signal".



Bull market pullbacks typically drop back near the EMA 55. More severe pullbacks will penetrate the 55 and even more severe ones will cause the EMA 10 to dip below the EMA 55. A bull market here is defined as a market that trades above its SMA 200, with RSI constantly well above 30. On a "typical" pullback the RSI tends to dip only to 50. 40 on bigger pullbacks and 30 on the scary ones. A drop below 30 that is not driven by an unexpected outside news event should make you reevaluate the bull case.



So where are we? At least 2/3 of the way through an NYSI "sell", with the EMA 55 intact and the RSI above 50. Bullish sentiment is slipping appropriately with last week showing a very big drop in Consensus Inc from 57% to 39% bulls with a rise in bears from 27 to 33%. The weekly put call ratio is a supportive 130/100 for the OEX and during Friday's roller coaster there was a surge in OEX calls to 29,000 with only 6000 puts.



In sum? Until NYSI turns back up, traders have to remain nimble, but there are some interesting pieces in place for a possible rally. But don't lose sight of the fact that NYSI IS negative, so the pressure is still down. Keep in mind that after 8 weeks we still haven't tagged that 55 day EMA, and I would not be surprised if we did before the next up turn in NYSI.

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Good luck in all of your trades this week.

mm




Big Reversal

Posted by maineman, Jan 25 2007, 10:28 PM

Last night I asked whether the Negative NYSI still carried any weight... and suggested we'd know soon. Well, sooner than I would have guessed. Frankly, I did not expect such a sudden, devastating reversal so quickly, and the weakness is palpable. All I can add is that as long as the NYSI remains weak, the markets will ultimately be weak. Period.



Today's action however still just keeps us within the long trading range and the long term bull market remains intact. The 55 day EMA for the SPX stands at 1406 and change. The 21 week moving average and the 5 week ROC remain positive, too. The 14 day RSI drifted back to 52. As grim as the action seems, the damage is not that severe. A decline to the 55 day EMA may yet occur. Until cumulative breadth turns around expect continued chop, weakness and volatility. IF (and that's a very big IF) things really break down (i.e. a break of 1406) the 2 year uptrend line sits around 1320, coincidentally right where the 200 day moving average lies.



For now, I'll continue to hold a few shorts, as I always do with a negative NYSI. Sadly, we didn't get any follow through on yesterday's rebound to allow us to add any new shorts.

Anyway,its just a pullback so far. Really, no need to panic, right?



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have a great weekend...mm


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