The bearish rising wedge broke down late Monday, and tested the former support line early Tuesday before starting a new downtrend channel on Tuesday afternoon:
Unless the tax cut extension bill gets bogged down in the House or we get some OPEX craziness, I don't see this correction getting out of hand or lasting much longer than Monday, December ~20.
In his midweek update today, Terry said he expects any weakness to bottom out around 0 on the T Theory Volume Oscillator. As of December 15, the VO has fallen to 11.
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I have asked Terry to comment on this question, and I will ask ya all the same:
ReplyDeleteThere was a 7 day Arms Warning when the Arms ratio was below 1 (April 1 to April 12).
Recently two Arms Warning occurred back-to-back.
From Nov 29 to Dec 3 was the first warnig, and the second warning from Dec 7 to Dec 13. A single day (Dec 6) separated the two back to back Arms warnings.
Can anyone explain why the 7 day Arms warning back in April produced a very sharp sell-off, and why yesterday's 2 back to back Arms Warnings are going to produce just a mild one or two day sell off?
Achilles
ReplyDeleteThere's a lot of evidence for a major sell off.
ARMS Index historically overbought
Put-Call ratio too bullish
Hindenburg Omen
Bearish Divergences galore
I could be totally wrong about this being a minor sell off unless the tax deal gets bogged down or we see OPEX craziness.
I will note one key difference between today and April. In April, we had a Money Flow T that projected a top on April 23. Today, we have a Money Flow T that projects a top in early February 2011.
Achilles,
ReplyDeleteIf you put a money flow indicator on a daily chart, you will see that prior to the April market dive, money flow had been falling for more than a month. In this case it has been rising for the last month.
joe
Joe,
ReplyDeleteThe problem with the Money Flow indicator, as with most indicators is that it is a LAGGING indicator. The drop in the Money Flow indicator registered after the day of the meltdown. So there was no way to know beforehand by looking at the Money Flow if the drop was going to be mild or severe.
There are only 4 LEADING indicators: CCI, RSI, %R, and Stochastics.
http://stockcharts.com/help/doku.php?id=chart_school:technical_indicators:introduction_to_tech
No, Achilles. The MFI had been falling for more than a month prior to the April dive. Here is a chart:
ReplyDeletehttp://stockcharts.com/h-sc/ui?s=SPY&p=D&yr=0&mn=10&dy=0&id=p50732367922
joe
Parker,
ReplyDeleteThanks for the clarification. It makes a lot of sense.
Joe,
ReplyDeleteThanks! I see you point.
I disagree with December 20th as a date for a bottom. Cyclically the end of the month is where the null echo low should bottom. Still maybe the 20th is the halfway point of a two-legged pullback. Certainly the Presidential cycle's third year could override the cycles but the fact remains cyclically we are looking for a low near December 30th. I have no idea why Terry used Dec 16th for his null echo low and sent my work and his rules for the null echo low but never received a reply. Soo after that he was calling for higher prices and a new T. I think a new T is forming or has formed but I still firmly believe we are susceptible to another low especialyy if we close below 1223.00.
ReplyDeleteWhile ARMS warnings precede selloffs they certainly do not determine the magnitude of said selloffs. ARMS warnings simply tell you that the market is in an overbought state. The depth of any selloff is determined by perceived risk at the time and whether the bulls are stronger than the bears. Additionally I would argue that there is no such thing as a leading indicator. What does that even mena. Since all indicators are predicated on something that has already happened it makes no sense. Any indicator that professes to tell the future fails quite often.
ReplyDeleteJeff
ReplyDeleteThanks for your comments. You could be right.
There are lots of "Phi" dates and Gann turn dates that suggest a late December turn.
I just have a hard time seeing a bunch of volatility at the end of the year unless something goes crazy with OPEX or the tax cut deal.
Parker,
ReplyDeleteI agree with you and that is why I say that although weekly cycles look down into year end there can always be other influences. Right now I think those cycles will prevail and then we will get a very large move up that will pullback in March and then move higher into late May/Early June. From there we will relly struggle into the end of the year.
Is anyone else wondering if the use of technicals and cycles is still relevant on equities in this era where the Fed has unlimited cash? With ever-increasing tsunami's of liquidity coming in, there is no cash build-up or trough that showed up on MFI and other oscillators in days gone by.
ReplyDeleteThe Fed will add another 2 trillion if necessary and delay the day of reckoning indefinitely. It seems they would prefer to take their chances and push on the string and risk whatever nebulous catastrophe this might cause, over pulling the plug now and getting the blame for a depression. It seems that the buy and hold, indexing, snoozing public has been redeemed. The economy is picking up. Companies are doing well. They may never hire again because machines can outwork people. But this won't stop the Fed from trying to bring down unemployment. With rates backing up a bit here, they perhaps now have even more reason to outbid the market for treasuries to bring down rates again.
Forward wrote:
ReplyDelete>>Is anyone else wondering if the use of technicals and cycles is still relevant on equities in this era where the Fed has unlimited cash?<<
Sure... a lot of people think that they game the markets by running people in an out by bending them in this illiquid market.
>>The Fed will add another 2 trillion if necessary and delay the day of reckoning indefinitely.<<
No record in history of any financial bubble being held up indefinitely, and many where the attempted cure was worse than the disease.
Good stuff, Steve.
ReplyDelete