Friday, July 31, 2009

TRIN and S&P close up more than 1%

As expected, the S&P 500 did close above 983 as was suggested by this study discussed two days ago.

One notable, and odd occurrence today was the behavior of the TRIN vs the S&P. The TRIN closed up more than 1.5% while the S&P manged to close up 1%. In the past decade, we have seen this occur 58 times. In 44 of those cases (76%), the market was trading lower within the next three days.

Thursday, July 30, 2009

Target is close above a 982 today.

I did not get a chance to run any studies last night. Even if i did, i don't think i would have found many based on the close yesterday. HOWEVER, I still have the a close above S&P 982/983 area as a target for today based on this study from two days ago. Futures are currently up quite a bit and i suspect some traders may be inclinded to short any gap up. I would be careful with such shorts and not overstay my welcome as i think we may begin the next leg up today, possibly with a trending day.

Tuesday, July 28, 2009

Higher lows streak

There is not much to go on currently as we appear to be consolidating near the highs. Today we finally made a lower low and lower high on the S&P. If one were to look at the chart only, it may offer a glimmer of hope for shorts as well as bulls hoping for a pull back to relieve overbought conditions. However, it is likely based on the numerous interim term buys on the board that any significant dips (~2%) will be, or rather should be bought. While i am not seeing any notable odds based on today's close, I do see one short term positive based on yesterday's close.

Yesterday marked the 16th time that the S&P painted 11 consecutive higher lows. In all but one case, the S&P was trading higher within 3 days. Given that today was a down day, the odds strongly favor a close above 982.18 on the S&P within the next two days.

This occurrence also has intermediate term implications. Looking 2 and 4 weeks out , similar to the ST odds, the market has closed up in all cases but one, adding to a slew of intermediate term buys that are on the board currently.

TickerDate/TimeClosePctChg N1PctChg N2PctChg N3PctChg N10PctChg N20

The only caveat with the above study, is the time between occurrences. the last time this signal was triggered was in Nov 2004. Thus, there are not many recent occurrences.

We are still rather overbought here and could use a solid down day to relieve those conditions. But based on the recent studies, dips should be bought.

Sunday, July 26, 2009

Persistently strong breadth = BUY ST and IT

I continue to see reasons to expect the market to remain on firm footing looking out over the next 2 to 4 weeks. This time I take a look at breadth.

One Friday, the 10 day moving average of NYSE up vs down volume finished above 5.0 for a 4th consecutive day. This has occurred 8 prior times. While not statistically significant, it is interesting to note that the market was trading higher in every instance within the next 3 days. Additionally, on an intermediate term time frame, in 7 of the 8 prior instances, the market was trading significantly higher 20 trading days later by an average of about 5.7%.
TickerDate/TimeClosePctChg N1PctChg N2PctChg N3PctChg N10PctChg N20
Similarly, the 10 day moving average of NYSE advancers vs decliners closed above 3.0 for the 2nd consecutive day. There were 8 prior times that we have seen this. In 7 out 8 cases, the market was trading significantly higher both 2 and 4 weeks out. The average gain 2 weeks later was about +4.8%, while 4 weeks later, the average gain was about +7.2%.
TickerDate/TimeClosePctChg N1PctChg N2PctChg N3PctChg N10PctChg N20
Though statistically insignificant, it does suggest that any dips may produce buying opportunities.

Friday, July 24, 2009

NASDAQ: Perfect Bullish record looking out 4 weeks basedon RSI signal

Persistently OB RSI is bullish..
When the Nasdaq's RSI(2) has closed above 98 for 7 consecutive days, the Nasdaq has historically always finished higher 4 weeks later. There were 20 prior occurences, all of which closed higher 20 trading days later. In 18 of 20 cases (or 90%) of the time, the Nasdaq was trading higher 10 tradings later. And finally, even for the very short term, the odds are favorable: In 17 of 20 cases the market was trading higher with in the next 3 days.

Nasdaq has closed up for 10 consecutive days. Once more this persistant buying appears to present rather favorable odds for the intermediate term. In 25 of 30 prior instances, the Nasdaq was trading higher 20 days later. Similarly, in 23 of those 30 cases, the market was trading higher 10 days later.

Once more these studies suggest strength begets strength and that we should consider any retrace or dips as buying opportunities.

Thursday, July 23, 2009

DOW: Interim term buy based on RSI(2) and higher highs in overbought conditions

Running similar studies as i did on the Nasdaq, but this time on the DOW, reveals the following.

The DOW is up 8 straight days. The short term is not as bullish as what the nasdaq revealed. For instance from 1965 to to 1995, the dow went on to close higher within 3 days in 16 of 18 occurrences, which ofcourse are excellent odds. But if we focus on recent history, say the last 2 decades, we see that in only 8 out of 13 occurrences did the dow close higher within 3 days. Looking out 10 days, or two weeks, still has favorable odds however. In the last two decades, the dow closed higher 11 out of 13 occurrences.

The RSI is also telling a similar story. When the RSI(2) has closed above 98 for 5 consecutive days on the DOW (as it did yesteray), the DOW has closed up 17 out 22 (or 77%) of the time. 20 days out, or 4 weeks later, the win ratio is still good at 16/22.

These types of data seem to suggest that we should be nibbling long on any short term pull back, rather than...well, think too logically and move to cash? not saying that is bad thing - but based on what this data suggests, there are still some rather favorable trades here on the long side.

Wednesday, July 22, 2009

Nasdaq: Short Term and Intermediate term buy

Last night I pointed out conflicting studies. The Nasdaq 100 closing up 10 consecutive days argued for a close higher in the ST, while the DIA streak as well as BKX divergence with the S&P argued for a lower close on the NYSE and S&P. The markets today followed those expectations, with the S&P and NYSE closing down, while the nasdaq closed up.

With the NASDAQ 100 and the NASDAQ composite having closed up for the 11th consecutive day today, i thought it would be worth to look at historical performances of the composite after such occurrences. There have been 20 p
rior instances where the NASDAQ composite has closed up for 11 consecutive days. As you can see from the table below, in 18 out of the 20 (90%) cases the NASDAQ was trading higher at some point in the next 3 days. Also notable, is that the market was trading higher 18 out 20 (90%) of the time 4 weeks later.
TickerDate/TimeStreakClosePctChg N1PctChg N2PctChg N3PctChg N10PctChg N20

This suggests that any dip over the next few days could result in a buying opportunity.

Tuesday, July 21, 2009

Evening Summary: Very over extended, but anyone's guess.

Market continues to make higher highs despite overbought conditions and various sell signals being triggered over the past few days. It is worth it to keep in mind that when a market is able to make higher highs in overbought, it is usually a bullish indication looking out 2+ weeks.

Some observations this evening (conflicting odds between ST and IT):
  • Not since 1992 have we seen the nasdaq 100 close up for 10 consecutive days. There have only 7 other times when the nasdaq 100 has closed up for 10 consecutive days. While not scientifically significant, it is interesting to note that in 6 out of those 7 cases, the NDX was higher 1 to 3 days, as well as 10 days later.
  • DIA has closed up for 6 consecutive days. In 21 of 25 previous cases, the market was trading lower within 3 days
  • BKX closed down 3% while S&P closed up. In 9 of 10 previous occurrences, market was trading lower within next 3 days.
  • BKX topped 4 days ago and has made 3 lower lows as S&P has been making higher highs. Keep in mind banks led us out of this rally, and if there is a down turn coming, chances are they will probably lead the mkt down again.

Sunday, July 19, 2009

Review Of Recent Triggers

following is just a quick review of recent signals that have been discussed on this blog. While we are seeing quite a few ST sells, we should keep in mind that if the market continues higher despite these signals, it would likely underscore the bullishness here and likely we will see even higher highs in the coming weeks. In fact, as can be seen below, one signal already argues for higher prices in a few weeks. Based on the open signals below, the early part of next week are days of interest.

SignalIndexTrigger DateTargetStatus
NDX 7 Consecutive Up closes + Close above upper BBNDX7/16/2009NDX lower than 1518.87 by 7/21Open
RSI(2) > 98S&P5007/16/2009S&P lower than 940.74 by 7/21Success
RSI(2) > 90 for 2 consecutive daysS&P5007/15/2009S&P lower than 932.68 by 7/20Open
NYSE Lopsided breadth: at least 9:1 A/D + 28:1 U/DS&P5007/15/2009S&P lower than 932.68 by 7/20Open
NYSE Lopsided breadth: at least 9:1 A/D + 28:1 U/DS&P5007/15/2009S&P greater than 932.68 by 7/29Open
RSI(2) > 90S&P5007/14/2009S&P lower than 905.84 by 7/17Failed
VIX down 4 consecutive daysVIX7/14/2009Higher VIX close by 7/17/2009Success

Thursday, July 16, 2009

Evening Summary: RSI(2) sell, Nasdaq100 Streaking...

RSI(2) again...and again...
On July 14th i pointed an RSI(2) sell which argued that the S&P should trade lower within 3 days. That signal is off the board tonight and has failed to produce positive results. This signal used the RSI 90 as a trigger value.
Last night i pointed out once more another RSI(2) sell signal, this time based on consecutive readings above 90. That signal has a 3 day timeframe, so it has until monday to play out. For it to succeed the S&P has to trade below 932.68 tomorrow.

Tonight we have yet another RSI sell, this time using RSI 98 as trigger value. In the past decade, when the RSI(2) has closed above 98, it has generally been a good signal to sell into. Out of 23 occurrences, the market was trading lower 21 times within the next 3 days.

Side Note: I think it is important to keep in mind that in periods of high speculation, Overbought and Oversold conditions can persist for long periods of time. Further more, when the market makes higher highs in overbought, it is usually BULLISH looking further out. Now i would not use a fast reading such as the RSI(2) to guage this type of persistance, but i would use an RSI(5) or higher. Here we are beginning to see the market make higher highs in OB.

Nasdaq 100 Streaks:
The nasdaq 100 closed up for 7 consecutive days while also closing above it's BB(20,2) upper band. Since 1990 there were 18 such occurrences. In 16 cases, the Nasdaq 100 was trading lower within 3 days (or 89% of the time). In fact, in all but one of the case, the Nasdaq 100 closed lower within 2 days. This study implies a likely lower close by monday on the nasdaq.

Evening Summary: Breadth and RSI

More lopsided Breadth...
We ended the day with 9:1 A/D ratio and a whopping 28:1 u/d volume ratio on the NYSE.

This appears to be a slight negative short-term, BUT bullish looking out a 2 to 4 weeks. Only four other times since 1950 have we seen similar readings. While in the short term the market closed lower at some point with in the next three days, in every case the market closed higher 10 days out. Obviously not statistically significant, but given the fact that in every case we were lower within three days and higher by two weeks - it does i think offer a possible trade to consider.

Looking at just occurrences where we have had a 9:1 or greater A/D ratio, we see that again, in the majority of the cases, the market was trading up 2 to 4 weeks later. There were 13 prior instances, and in 11 cases the market was trading higher two weeks later.

RSI(2) again...
Last night an RSI(2) overbought signal was triggered. Obviously, today that signal has been triggered again. Looking back in the past decade for all the times we have had two consecutive RSI(2) sell signals: there were 95 occurrences. In 77 of these cases (or 81%) of the time, the S&P was trading lower 3 days later.

Tuesday, July 14, 2009

Trading Wednesday 7/15: Bias Negative

The BKX sell signal from last night is now off the board since it has been successfully fulfilled. We still have the lopsided breadth sell from last night. You can find that discussion here. In addition, we have the following signals tonight:

RSI(2) sell on the S&P. In the last decade, there were 184 such occurrences. in 138 cases , or 75% of the time, the market was trading lower within 3 days. This is significantly better than the 48% at-any-time odds .

The BKX underperformed the market today. In the past 10 years, when the S&P has finished up, while the BKX has finished down, the S&P is likely to close lower within 3 day 74% of the time.

Finally, the VIX as closed down 4 days in a row. The odds of an the S&P closing up the next 3 day is 74% over the past decade and 79% over the past 2 years

Given these setups, it would seem the best trade tomorrow would be to sell/short into strenght.

S&P Down trending channel update

Below is an updated chart showing the S&P downtrending channel. We continue to work our up to test the upper channel resistance as suggested last week. With futures up significantly this evening as a result of INTC earnings, it is possible that we could test that upper resistance tomorrow. It is also possible that that may mark a top. Notice that the VIX made a new closing low today. Tomorrow if we do pop early, it likely will make a lower daily low and the S&P could hit up against it's upper bands.

Trading Tues 7/14: ST Bias Negative, IT Bias Positive

Breadth was extremely lopsided today. On the NYSE, advancers out numbered decliners by a factor greater than 5 to 1 while up volume exceeded down volume by a factor of more than 10 to 1. Looking back for similar occurrences, we find:

  • In the last decade, there were 19 such occurrences. In 15 cases the market was trading lower within 3 days.
  • However, in the majority of the cases (17 out 19), the market was trading higher 20 trading days later.

We also have a sell triggered today on the BKX based on a system that was influenced by the famed 'Double 7' system. The BKX closed above a 7 day high while still trading under it's 200MA. Historically, if we had shorted every such occurrence, we would have made 133 trades, with 101 producing winners within 3 days (or ~76%).

Ideally, the best setup tomorrow would be to sell/short into early strength. This setup is very probable given that GS is reporting early.
If GS disappoints, then the best strategy would be to wait for a relief bounce to short.

Monday, July 13, 2009

Revisiting reversal candles and S&P downtrend

Last week i pointed the reversal candles on the VIX and S&P500 and presented a case for an S&P500 run towards the upper resistance of the down trend channel formed from the the june highs.

Below is the chart i posted at that time:

Below is the updated chart showing the progress thus far:

Trading Monday 7/13: Bias Positive

Two signals tonight.

1. 20MA has crossed below 50MA on the S&P500. You would think this would be contrued as a negative, and it may - however history has shown that the market has a tendency to close up within 3 days of such 'cross unders'. (70% of the time, compared to 51.74% 'at any time' odds)

2. NDX closed up, while S&P closed down and delta between NDX and S&P is more than 0.70%. The market has a tendency to close up when such divergences occur, which a historical probability of 78% over a 3 day timeframe.

With futures trading significantly lower as i write this, it would seem that a lower open tomorrow may present a short term buying opportunity.

Friday, July 10, 2009

On the sidelines today...

Obviously the two ST buy signals from the 8th were fulfilled yesterday and thus were taken off the board at close yesterday. I did not have time to really do much last night and as a result the only bias coming into this morning were the intermediate term sells discussed last week vs the bullish implications of the VIX reversal candles from 2 days ago. I preferr to act on statistical odds first and charts second, and so for today i remain sidelined.

looking at first hour of trading however, it does appear as though the general theme today is negative with lower lows and once more an absence of institutional hitting power (i.e. low vol and bulk of volume from speculators). Additionally negative is the continued high p/c readings - either hedging of existing longs in anticipation of a continuation of the down trend or an outright bet on the downside.

Wednesday, July 8, 2009

Evening Summary: Short Term buys trigger

As noted last night, there were several short term buys triggered that argued for a higher close today. The end result was a mixed finish, but still an impressive rally off the lows. I noted earlier today that there were likely to be a host of buys that would trigger, but ONLY if we closed much lower. Although some of these signals did not trigger as a result of the late day rally, there were enough to give us a positive bias for the very short term.
  • Short Term RSI based buy argues for a higher close within the next 3 days with a 79% historical odd.
  • Similarly, when the VIX’s RSI(5) has crossed above 75, the S&P has closed higher within 5 days 78% of the time.
  • Kangaroo Tails galore (Potential Reversal candle) - Have a look at the chart below

Intraday Update: Slew of ST buys possible at close.

RSI(2) buy on the S&P 500.

Looking back at the times when the VXO has closed above it's upper BB band - in the past 10 years, there were 90 occurrences, with 67 leading to higher S&P close within the next 5 days (74.44% odds). VXO is trading above it's upper bb today, but no guarantee that this setup will be triggered given that the market is trying to stage a turn around currently.

VIX RSI(5) is trading around 78 currently. In the past decade, on such occurrences, the S&P close higher within 5 days 72% of the time (70/97). In recent years, the performance has been even more impressive. From 2007 to today, this strategy would have resulted in positive returns 87.5% of the time.

Finally, the Equity Put/Call is spiking today. If the Equity Put/Call closes above 1.10, it will trigger yet another high probability play over the next 5 days.

Keep in mind these are very short term plays, as the intermediate term outlook remains down i believe.

Short term buy

Based on rather negative breadth, the odds favor a flat to higher close today.
I think there is an oppotunity to fade any opening strenght, and reverse into a long play later in the day.
Given the last few days and technical damage that have been done however, i would not hold any longs over night at this point.

In the event that we do close lower today, watch VIX - as a short term buy may be triggered on a higher VIX move.

Tuesday, July 7, 2009

Weekly Nasdaq-Nyse Volume Ratio Triggers Intermediate Term Sell

In an earlier post, i discussed the Nasdaq-Nyse ratio and some rather dire market implications looking out 15 to 30 trading days. This post is a follow-up, but with a view of the weekly data.

On 7/2 The Nasdaq-Nyse volume ratio registered it's second consecutive reading above 1.75 on a weekly basis. We have seen this occur only 10 previous times, with the majority leading to lower closes 2 to 5 weeks later. The table below shows the performance of the S&P500 after such occurrences. What is also interesting to note is the bulk of the prior occurrences were during the tech speculative bubble.




Percentage Change

+1 Week

+2 Weeks

+3 Weeks

+4 Weeks

+5 Weeks