$$ VIX Break Out

The VIX has broken above its 89-day moving average with conviction.  The last time it did so was late April.

$$ T Theory VO for Week of 11/29 - 12/3

Last week's Volume Oscillator for reference

11/22 = -27
11/23 = -68
11/24 = -27
11/26 = -39

This week's VO

11/29 = -37
11/30 = -54
12/1 =  1
12/2 =  38
12/3 =  49

This post will be updated nightly throughout the week, so check back periodically for new information or you can subscribe to this post and receive updates by e-mail.

$$ 75-Day Cycle

During the uptrend that started in March 2009, we have seen a selling climax every 75 trading days as defined by the T Theory Volume Oscillator.  Each of the dates listed below is the end of the selling climax.  In each case, the climax took several trading days to complete.  In all but one case, the final low came several days after the selling climax:

March 2, 2009

TTVO = -168

Climax length: 3 trading days

Loss during climax on closing basis:  65 S&P points

Final low: 4 trading days after climax

June 17, 2009 (75 days later)

TTVO = -126

Climax length: 3 trading days

Loss: 35 points

Final low: 14 trading days after climax

October 2, 2009 (75 days later)

TTVO = -156

Climax length:  4 trading days

Loss:  37 points

Final low:  October 2, 2009

January 22, 2010 (76 days later)

TTVO = -131

Climax length: 3 trading days

Loss:  60 points

Final low:  10 trading days after climax

May 7, 2010 (73 days later)

TTVO = -284

Climax length:  4 trading days

Loss: 90 points

Final low: 12 trading days later

August 24, 2010 (75 trading days later)

TTVO = -95

Climax length: 4 trading days

Loss: 45 points

Final low: 3 trading days later

If this cycle were to continue, the selling climax would commence on December 6 and end on December 9, 2010 (75 days after August 24).  The final low would not occur until the week of December 13 or December 20.

As a reminder, the January Barometer (see Stock Traders Almanac) says that there is a 91.5% chance we finish 2010 either flat (+/- 5%) or down compared to 2009, which closed at 1115.10.  This is because January 2010 closed well below 1115.10.  So, any yearly close under 1170.85 (1115.1 x 1.05) will satisfy the January Barometer.  

Should we get a selling climax the week of December 6 with a final low within 2 weeks after the climax, the January Barometer should easily be satisfied.

A Note about Dollar Signs

Maybe you have wondered why all of my blog posts have $$ in the title.  It's simple really.  

I have set up Twitter to broadcast any blog post I make.  In addition, I have created a StockTwits.com account.  StockTwits combs Twitter and pulls each Tweet that contains "$$" or "$(Stock Symbol)" in the Tweet.  It's a great site to see what people are tweeting about the financial markets.

So by including $$ in the title of my blog post, I know that my post will go out to the StockTwits.com audience in addition to my followers on Twitter.

$$ Funny Business at the Bell on Black Friday

Take a look at the spikes in price and volume of SPXU (triple inverse S&P ETF) and VXX (volatility ETF) during the last 5 minutes of trading on Friday after Thanksgiving when no one was looking:

Somebody waited until the last minute to place a sizable bet on lower prices resulting in higher volatility.  This bet apparently could not wait until Monday morning.  Which implies that the bettor thinks something will happen over the weekend which would make these securities more expensive to acquire come the Monday open.

Pretty brazen given the recent FBI crackdown on insider trading. 

$$ Volume Oscillator Study

The T Theory Volume Oscillator has now spent 19 of the last 26 trading days in the red.  Going back, the last time the VO spent so much time in negative territory during a topping pattern was May-July 2007. 

In 2007, the pattern included a holiday week (July 4th) towards the end.  After the holiday week was over, the S&P made it's high five trading days later.  Then it drifted sideways for four days before correcting 120 points over an 11 day stretch.

Should something a similar occur here (high on December 3, sideways the first part of the week of December 6, then a steep correction), it would fit with the story the Money Flow Ts are telling.

$$ Crash Warning

HSKAX is a market neutral quant hedge fund from JP Morgan.  It's one of the few such funds that the public can track, and therefore it serves to represent an entire industry.  Since JP Morgan is part of the Federal Reserve complex, it's not a bad representative.

The market neutral quant funds are at the top of the liquidity food chain.  With their high frequency trading model, they more they trade, the more money they make.  When HSKAX starts to lose money, it's a sign that liquidity is drying from the market.  The less the market neutral quants are supplying the volume, the more the volume is supplied by the position players. 

That's a dangerous situation for investors.  It can lead to huge bid-ask spreads, failed trades, flash crashes, etc.  

ZeroHedge has written several articles about price declines in HSKAX being predictive of market corrections or crashes. I learned about HSKAX from ZeroHedge, and studied the patterns.  Here's what I found:

 

When HSKAX first breaks to a fresh 2+ month low in price, the market has a good probability of a  correction or a crash starting within the next 0 to 5 days.   

This signal has worked 6 times since January 2006 (August 2010 not shown).  It has given three false positives (December 2006, August 2009, September 2010).  No signal was given on  two 7+% down moves (May 2006, May 2008).  The signal was late on a down move once (February 2009).

Here are the charts.  HSKAX is in black.  The S&P is in red.  When the blue horizontal 2+ month support line is violated, a blue vertical line marks the date.  Focus on what the the red S&P line does after the blue horizontal line.

July 2007

October 2007

September 2008

October 2009

April 2010

All of which brings me to today's action in HSKAX, where we broke to fresh 34 month lows!

Consider yourself warned.

$$ T Theory VO for Week of Nov 22-26

Last week's Volume Oscillator for reference

11/15 = -41
11/16 = -98
11/17 = -84
11/18 = -29
11/19 = -18

This week's VO

11/22 = -27
11/23 = -68
11/24 = -27
11/26 = -39

This post will be updated nightly throughout the week, so check back periodically for new information or you can subscribe to this post and receive updates by e-mail.

$$ More Money Flow T Evidence of a December 6-8 Turn Date

Last time, we looked at the S&P chart which showed the Money Flow T ending on December 8.  Here's the current Gold Money Flow T ending on December 7:

And the inverted Treasury Money Flow T showing a bottom on December 6:

Normally, stocks and treasuries are supposed to trade inversely.  They are on the opposite ends of the risk appetite curve.  Over the long run, gold and stocks generally have an inverse correlation as well, although they can trade together from time to time based on the Dollar.  Clearly, both gold and stocks have benefited from (the rumor  at least of) Money Printing 2.  

It's very interesting that you have three markets with historical relationships all pointing to a turn the same week.  Putting two and two together, if we get a turn in these three markets at the same time during the week of December 6, it will probably be Dollar related.  Perhaps a crisis in the Europe (e.g. Ireland) that sparks a decline in the Euro.  The Euro is 58% of the Dollar index.  

Recall that on April 27, 2010, the day after S&P made its Spring high, Standard & Poor's downgraded Greek's debt to junk status amidst fears of default by the Greek government.  Afterwords, the dollar rallied for six weeks, treasuries rallied for four months, and stocks declined for two months.  Gold actually did OK in May and June as a safe haven play.

$$ Current Money Flow T

I show a cycle top in the S&P the week of December 6 based on the early July low as a starting point (blue lines).  My guess is that the December cycle top will not exceed the November 5 price peak, but I could be wrong.  

If we halve the time from the November 5 peak to the projected peak the week of December 6 (red lines), I get a projected cycle low on or about Monday, November 22.

Accordingly, I will be looking to close out my short position starting this Friday, November 19 if we reach one of the price support levels I have identified below.  

$$ Price Support Zones

This morning we have dipped into the 1180s on the S&P and it's time to start looking at potential price support zones for this first leg down:

1.  50-day moving average = 1165

2.  38.2% Fib retrace from late August low to November high = 1155

3.  90% Gann turn from November high = 1146

     38.2% Fib retrace from early July low to November high = 1144

4.  50% Fib retrace from late August low to November high = 1133

     Old tops become bottoms = 1130

The deeper the support zone, the less likely we hit it before we bounce. 

$$ T Theory VO for Week of Nov 15-19

Last week's Volume Oscillator for reference

11/8 =    51

11/9 =    6

11/10 =  23

11/11 =  4

11/12 = -41

This week's VO

11/15 = -41
11/16 = -98
11/17 = -84
11/18 = -29
11/19 = -18

 
This post will be updated nightly throughout the week, so check back periodically for new information or you can subscribe to this post and receive updates by e-mail.

$$ Downtrend Intact

Today, we rose up and tested but could not break the down sloping resistance line connecting the tops on November 9, 10 and 11.  We also tested but could not break through the 61.8% retracement level (1207.31 S&P cash) from high on November 11 to the low on November 12.  Subsequently, we took out the 61.8% retracement level (1199.18) from the low on November 12 to the high of today.  

All of this is consistent with normal price movement in a downtrend, the diagnosis of which stays intact.

If you were not already short, you had a nice opportunity to get short mid-day today with a pretty tight stop at trend line and Fibonacci resistance. 

$$ Money Flow T Rules: Where to Start the T

$$ Money Flow T Rules: Where to Place the Center Post

$$ Alert: Channel Support Broken on November 12 Target End Date for T13

Today is November 12, the end of T13 according to my calculations, and we finally got an 30-minute candle that closed below 6-week channel support.  We've had several candle "tails" that dipped below the channel, but no candles that closed below the channel.

I took a short position this morning when we broke horizontal support at S&P 1204.3 cash with a stop at the 3-day (Fib 233 period) moving average on the 5-minute chart (then 1213, now 1211).

I was looking to see whether channel support would hold or break before deciding whether to dump the position before the weekend.  Now that channel support has broken, I've moved my stop to break even and continue to monitor. 

$$ AAII Bullish Sentiment Makes a New 45-Month High at 57.6%

Highest AAII bullish sentiment since January 2007. 

The 51.2% bullish reading on October 28 was the previous 2010 high.

By historical comparison, the end of T12 saw a similar bullish reading of 54.6% on October 11, 2007 (the day that marked the top).

Anyone else find it "ironic" that while the AAII bullish sentiment is making a 45-month high, ZeroHedge reported today that Insiders sold an all-time record amount of shares last week?

Hmmmmmmm.

$$ QE2 Starts Tomorrow

The Fed has released the POMO schedule for the next month.  It looks like the old POMO schedules, except on steroids.  

Under the old "sustain the balance sheet" treasury purchase plan which we saw from mid-August through early November, there were usually two POMOs per week for a total of $7B per week. The new POMO schedule combines the "sustain the balance sheet" purchases with the "increase the balance sheet" purchases. 

Now, we are due to get a POMO almost every trading day at an average of $25B per week.  Starting tomorrow.

It will be interesting to watch the comparative performance of stocks vs. commodities over the coming weeks.   Rising oil prices, for example, increase production costs while hurting the economically depressed consumer, squeezing corporate profits from both ends.

$$ Projecting the Next Rising Bottoms Pattern

Terry Laundry had a very interesting update today.  Here's the audio, and here's the chart.  Terry has noticed a time symmetry in the rising bottom "lows" of the Volume Oscillator.  

Rising bottoms is usually another term for bullish divergence.  The oscillator makes a spike low, then makes a higher low as price makes a lower low compared to its price on the day of the oscillator spike low.

I went back and put pen to paper.  Here's the information on the oscillator spike lows that began rising bottoms patterns in 2010:

Jan 22 =  -131

May 7 = -284 (73 trading days after Jan 22)

Aug 24 = -95 (75 trading days after May 7)

Projecting 74 trading days from August 24 produces an oscillator spike low target of December 8, after which the VO should make a rising bottoms pattern over the next week or two while price continues to fall.  This correlates nicely with the December nulled echo low concept we've discussed before.

If this forecast is accurate, how does this square with the end of T13 on or about November 12?  I'm sure Terry has his own ideas.  Here's a potential explanation that occurs to me:  

We get an "ABC" style move where A corrects off the ~1229 S&P Fibonacci level down to perhaps to the mid-channel at ~1155, then B retraces perhaps 61.8% of A back to say ~1200, then C takes the nose dive into the VO spike low on or about December 8, resulting in price perhaps at the lower envelope at ~1085.

$$ T Theory VO for Week of Nov. 8-12

Last week's Volume Oscillator for reference

11/1 = -21

11/2 = -1

11/3 =  10

11/4 =  61

11/5 =  69

This week's VO
11/8 =    51

11/9 =    6

11/10 =  23

11/11 =  4

11/12 = -41

This post will be updated nightly throughout the week, so check back periodically for new information or you can subscribe to this post and receive updates by e-mail.