If we are to get a correction next week, the first sign will be a 30 minute candle that closes below the blue trend support line (see red arrow).
Of course, not all violations of that trend line will result in correction. And that trend line might hold up all next week.
But the pattern that has been developing since the open on December 7 is a bearish rising wedge. If you see it start to break down, you might want to take profits if long.
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Makes sense. The SPX 1236-ish area is also the mid-point of Friday's intraday trading range, which is considered to be the fair-value area.
ReplyDeleteA 4 day trend line on a 30 min chart is difficult to get excited about....Maybe focusing on the Dow closing above the Nov closing high giving a new DTBS is more signifigant. SPX already above the 61.8 is showing the way higher. Seems more scary to be overly bearish here. We will see
ReplyDeleteParker,
ReplyDeleteI've looked at the MFI T about a million times recently. On stockcharts if you put the MFI behind the spx instead of below, it enlarges a bit. What you have is two peaks, can you split those peaks? If so it comes up with a Dec 15th date.
Jack
ReplyDeleteI'm looking for a correction so I can get long.
There are some dangerous readings right now if you are already long. Very bullish Put-Call ratio heading into OPEX. Very overbought ARMS Index.
The point of this blog entry is to highlight the operative trend line should we get a correction into OPEX next week.
JD
September 21 is the right date for the center post. Sometimes, Money Flow Ts don't work out exactly to the day.
I will add this:
ReplyDeleteIf the Elliott Wave people are right, there's a chance that we are making an important top here. According to their theory:
October 2007 to March 2009 was 5 Waves Down in Large Wave 1.
Since March 2009, we have been in an ABC correction as part of Large Wave 2.
"A" was 5 waves up from March 2009 to April 2010. "B" was 3 Waves down from April 2010 to July 2010
"C" is 5 waves up:
1 = July 1 to August 10
2 = August 10 to September 1
3 = September 1 to November 5
4 = November 5 to November 30
5 = November 30 to present
When "C" finishes (and they expect it to finish at S&P ~1245-50), then we start Large Wave 3 down according to the EW theorists.
This is the only scenario where I see the "nulled echo low" coming to fruition.
I have doubted this run up nearly the whole way. And I am pretty much ready to capitulate. I hate buying at the top, but what is now a top may well be the lowest point in 2011. There's no way to know. There are so many things that are still wrong, and yet the market just ignores them. And there's nothing in the recent market action to suggest that it will stop any time soon.
ReplyDeleteThis guy (http://www.tradingtheodds.com/) does some great data mining that, in the short time I have been following his blog, has been absolutely spot on. Sure, this time could be different, but it's really not likely.
I have had only a short position and a cash position for some time and it has been nightmarishly costly. Buy and hold (long) was absolutely the right approach the last two years. I so wish that I had levered up in March of last year and just ridden the rocket back up.
The double dip is not coming. And even though banks still don't have to tell the truth about the value of the assets they hold on their books, and several smaller European nations are insolvent, and unemployment will be double normal levels for another four or five years, the market relentlessly marches upward. I thinking climbing the wall of worry involves a huge amount of looking the other way and keeping one's fingers crossed. But what other alternative is there? I have braced for Armageddon (and hoped to profit from its arrival), and I've just been proven foolish (and have set back my retirement in the process).
I don't think I will sell my short position this week, but there's a very good chance I will put all my uninvested cash in long, right here at what looks like a top. I did a quick glance at how the S&P behaved after it retraced 61.8% of the decline from March 2000 to October 2002. If I've done my math right, it got there in November 2005, shot up past that level and did not turn down and retest that level until the following July, after which it began to relentlessly march upward again. I really fear that we certainly won't be seeing 1180 or maybe even 1200 or even 1220 again for some time. We will see them again no doubt, but it may be years from now, and I'm not sure it's worth fighting the good fight any more. Better to drink the Kool Aid and get happy like everyone else? Doesn't feel right, but holding a losing short position for so long feels even worse. I fought the Fed and the Fed won.
Wahoo,
ReplyDeleteThanks for having the courage to share your thoughts on this forum.
Wahoo,
ReplyDeleteI suggest that you are correct that the market is so strong you can't assume there will anytime soon be a resumption of the bear market. However, bullish sentiment is so high that I think a short term pullback is due and will present a better buying opportunity. I think a week or two of downside is due.
However, I have to say that almost every bear I know has capitulated and become bullish. When that happens, the downside just might become an avalanche. However, I don't go short until the market turns south. I miss the beginning of the move to try and avoid being short while the market keeps rising against my expectations.
After a decline, I await an upturn to begin, and then I will go long again.
joe
It is amazing to me that Terry Laundry does not discuss money flow T's in his latest update. Last weekend he was enthusiastic. This weekend it doesn't merit a mention.
ReplyDeleteHas anyone tried working with RSI based T's?
I think Parker has indicated that longer term money flow T's have sometimes been a week off or so. I am still hoping for a short term correction to begin this week. Whether it becomes a major correction or not in unknowable to me until the correction is well underway.
I personally think Elliott wave work is excellent to explain what happened in the past but doesn't help much with prognostication. There are way too many alternative counts possible and too many rules and too many exceptions. Look at how Robert Prechter has spent at least a decade dead wrong about gold.
Enough said, no?
joe
I have just listened to the latest update from Terry and I have to say that the latest update is hogwash when it comes to the new T building.
ReplyDeleteHe's constructed a cash build-up line (or accumulation) based on lower highs on the various oscillators. By definition, accumulation occurs when prices are relatively stable or even making lower lows while the various oscillators (which really measures the momentum) make higher lows. The reverse would be the definition for distribution. Now given the pattern we have seen, the lower-highs in the various oscillators coupled with higher-highs in the prices are indicating distribution not accumulation.
If Terry said the nulled echo low was not coming due to POMOs (and he did state that), I could accept it. However, coming up with a new T based on the declining tops of oscillators while prices are rising just does not make sense.
Wahoo, congratulation and thank you for sharing with so much humility. I am sure of one thing here: EACH of us will have learned a lesson since early 2009 but few will be willing to share so openly. In my case my mistake was to become short not when my indicators or charts or intuition told me to, but when others became short. Agree 200% with you that the wisest thing to do would have been to buy and hold during that time but that is something that is always obvious after fact unfortunately. The lesson I learned is multi-fold but I could resume it like this: never try to anticipate and never trade against an existing trend. Period. Had I just applied a simple-stupid system such as short and long MA crossovers I would be very rich...Now I am rich anyway in that sense that I gained a lot of experience during those last 18 months and...I still have a trading account, though somewhat (!)shrinked!!
ReplyDeleteBut it was fascinating to see some well-followed bearish blogs disappearing one after the other. The last thing was that the newsletter I subscribed, from renowned S&C magazine contributor Alan northam, just ceased to exist as well. He was bearish and E-Wavers and guessed he got an account washout or something...
The summarize my experience even further: each time I have been a follower of somebody else in my trading, I lost. (With one exception for trading recommendation of a veteran trader, once). So I decided I will not be a follower anymore- it's too expensive.
Hi Parker, about your point on Elliott Wave I too think we are now on a C of Primary 2 wave. I would like to see it completing indeed around 1245 but that would make a very short (in price and time) C wave compared to the long A from March09 to April10, no? Opinion about similar historical configuration ? Is it frequent?
ReplyDeleteCarl
ReplyDeleteIt would make A = 11 months, B = 2 months and C = 6 months.
I'm really not an EW expert, so I can't tell you if that timing is funky.
Sorry A = 13 months
ReplyDeleteWahoo and Carl,
ReplyDeletethanks for sharing your views. I have also suffered from having biases that were not confirmed by the price action and I letting others influence my thinking. I missed the entire Fall rally because I was waiting for the T-theory disater that Terry was calling for (remember the 80 year depression cycle?). However, I note that my account is still healthy because I am a strict money manager. I set fairly tight stops at a place that would tell me that my bias was wrong, and if they get hit, I'm out. Wahoo, in the spirit of being helpful, I would strongly suggest that you look into a money management system that protects your account. It's bad enough to miss rallies because of a bearish bias (in my case), but it's far far worse to stay short in a bull market hoping for a reversal(in your case). I recommend. Van Tharp's books on position sizing. The best pros swear that money management is the most important aspect of trading. Best of luck to you.
Just took a quick look at TRIN going back more than 40 years.
ReplyDeleteEven though the short term averages (take your pick) are at very low levels based on history, I have found that the market can stay at those levels for weeks at a time, as evidenced in 1968, 1971 and 1975. More recently the numbers have not gotten so extreme or for so long but there are similar stretches that are less extreme but still very low.
Yeah, I waited all Fall for a pull back so I could get long. We just had a shallow pull back and then sharp price rejection from those levels. Sure, I see the overbought measures and various divergences in some of the indicators that I follow, but trends on all time frames are bullish, so we'll see what happens...
ReplyDeleteIt is also interesting that the ten day avergae of equity put-call (currently just above .5) was below .5 for a couple weeks prior to the flash crash during the April run up this year.
ReplyDeleteStill goes to show that the market can stay moving in one direction longer than we think it should.
Parker,
ReplyDeleteThanks for the great info and dialog you provide.
RE: The Elliot Wave count that we will begin a wave 3 down. ( I realize it’s not necessarily your opinion) I don’t buy it. That would suggest a price very, very significantly below the 2009 lows. That’s a huge doom & gloom forecast. Besides that, the ‘ABC’ from 2009 doesn’t “look right”. It’s impulsive wave action and doesn’t have the right proportion for an ‘ABC “
I’m not an expert on EWT but I see the current 5th wave ending any day and not above SP1300.
The ABC that will soon begin will either correct the 5 waves up from July 2010 and terminate at/or above SP1000 or
The action since May 2010 top has all been corrective of the 5 waves up from 2009 lows. That is, the drop from May 2010 to July was an A, the current move is a B and the C will soon begin ending around SP 700. This C leg will also sub divide into an ABC
So, the A leg coming will the give way to a B leg up into the Feb/ March 2011 time frame. The C wave will then begin either ending at 1000 or 700. Depending on how far the coming A down is should give us an indication which level will be the ultimate low.
ps Sorry if this posts twice. New to this.
My favorite bit of wisdom about the market is that the market can remain irrational longer than you can remain solvent.
ReplyDeletejoe
Thanks again to Parker and Terry for making this blog accessible.
ReplyDeleteI feel like it's now a support group for recovering shorts comiserating while licking wounds, renewing vows of discipline, and overcoming shame.
But who can blame us? The market provides an opportunity to change one's standard of living. Many of us on this site are here because we researched and found out what worked in the past. Marty Schwartz is a hero to all who aspire to start from scratch and get rich trading. He credits T Theory for his success. Why wouldn't we break some position-sizing rules when the founder of T theory has been saying for years that this fall would bring about a catastrophic decline and ruined economy unprecedented in modern times. Fortune favors the bold (and sometimes the paranoid).
As the market breaks out into new highs, look at it this way. Yes, its humiliating. The fundamentalists are laughing and feasting on bear losses. The buy-and-hold crowd have been redeemed like the Israelites at the Red Sea. Technical analysts are questioning themselves. But let's try to put this into perspective. Consider losses on short positions as put options that expired worthless but would have protected our living standards in the event of such a crash. The Fed did it too. They chose to protect modern finance for a premium of only $2 trillion. But aren't we all perhaps better off than if Fed had not removed the natural order of the market which may have put the massess into bread lines. If the Fed keeps this up, they might just create enough wealth effect to stoke enough growth to get their money back. Yeah, the game is rigged. But in this case, maybe it's a good thing. There's no shame in being flexible and considering going long at an appropriate time.
Parker,
ReplyDeleteA couple thoughts.
I couldn't go back and look at the previous extreme readings for the TRIN in the SPX in the 1956 time period or the 40's but could in the Dow. The market was largely in a bullish trend and the corrections percentage wise were not that large, and in one of those oversold extremes the market actually went up strongly for two months before a meaningful correction occurred.
Here is a chart I use that supports Terry's comments this morning:
http://stockcharts.com/h-sc/ui?s=$NYSI&p=W&yr=2&mn=5&dy=0&id=p47122059790&a=173308609&listNum=61
It suggests we are near an upturn in the weekly's using the 533 stoc overlay which is an intermediate trend indicator (suggesting an intermediate turn to the upside -- normally these turns occur after corrections of some sort but its gotten down here to oversold while the market still moved up!), and argues that any correction should be brief, confined to this week or early in the following week as you have indicated with the MFI T's.
Also if you google bearish and bullish butterfly patterns, and look at their structure. Find their structure here:
http://www.forextradingplus.com/gartley-patterns.htm
Go to this site to understand the rest of my post.
Bullish butterfly looks like a tilted W pattern with the left side higher than the right side. The current IWM chart looks like a bullish butterfly pattern. Put an X at the top of the left line, and an A at it's bottom. Here is my calculation on the IWM the X point is on 4/26/2010 = 74.66 The A point low = 58.66. That is 16 points from X to A. The B point rebound was 67.27 The C point higher low was 58.80. The structural relationship is that the point A to D leg must be greater than the point X to point A leg. 90% of the time the A to D leg will be 1.272 or 1.618 timer greater (in Points) than the X to A leg.
Solving for a projected D IWM top:
16 points times 1.272 = 20.32 points. We add this 20.32 to leg A low of 58.66 = 78.98 target for IWM peak. The 1.618 target is higher at 84.82.
So you would buy a bullish butterfly at the C point (the higher low of 58.80 ) and short it at the D point (either 78.98 or 84.82). Check it out, seems like a valid structure. First time I've played with these, but it looks right.
Other info on butterfly patterns:
http://www.moneyshow.com/trading/Tips_for_Traders.asp?aid=DAYTRADERS-19518
http://harmonicedge.com/butterfly.html
http://tradinglib.com/trading-strategies/an-introduction-to-trading-gartley-and-butterfly-reversals
http://www.chart.nu/ta_g.htm
Parker and the rest
ReplyDeleteI have indicated here that my proprietary Momentum Change indicators gave a Buy signal at the close, Dec 1, 2010. The following Thursday morning offered a gap open, and I did not enter any trades. I have been looking for a pull back, thinking the the timing indicators would offer an opportunity to get long, but that has not yet happened for me.
Like Parker, I am hoping for a pull back to offer an opportunity to put on a long position. IN the meantime, I will be watching this weeks action for any indicating that a sell signal is developing, and if that happens, I will report it here.
In the meantime, the Buy signal of 12/1 is still in effect.
Best to your trading!
Bill
Wahoo,
ReplyDeleteI hear ya. I tried going short so many times in early to mid 2009 expecting a retest of the lows which never came. It was frustrating and hard to learn, but I had to discipline myself to ride the trend that is occurring while taking smaller positions if the underlying breadth did not agree. I was terrible at riding the trend. Every short-term pullback I would interpret as the beginning of the end because the news and reports were still so lousy. I now strictly follow the 50 and 200 EMA's for telling me the happening trend. I knew this stuff for so long before, but didn't trust it like I should have. I've decided it's just not a good idea to be bullish when below the 200day UNLESS you're above the 50day. Likewise, it's a bad idea to be bearish when above both of those EMA's.
Everyone else, here's a little food for thought, I was comparing one of the China ETF's (FXI - highly traded) and a lot of the large pullbacks have been preceded by an FXI trend reversal. Secondly, the % above 50day MA's on stockcharts.com is showing a negative divergence which says that less stocks are taking part in this latest pop. Thirdly, the CPC 15-day average which I use hit normal extreme lows, not to mention overly bullish sentiment from Investor's Intelligence. I've got a small position on as of the breakout Dec 1, and a little short volatility, but I've already sold half on both of those as of yesterday. I see warning signs and am not willing to commit further until a pullback.