Is China a bellwether: How important are bearish signals of this country for the markets?My trading system is telling me that the long term trend is bullish (weekly one) but we have some short term bearish signs (daily ones). The couple USD/CAD confirms that as well as the industrial metals trend. However, China is one of the few indices of my system which shows a long term bearish signal. FXP, the inverse ETF of FXI, draws a perfect bullish MACD divergence and the Shanga
Fibonacci sequence is a mystery to some, a curse to others, and a Godsend to a few. To me it’s a marvel, as is the clarity of a bee’s honey comb (natural Fib sequence). To embrace it, or to grasp the Golden Ratio, is to embrace the notion that the market has more symmetry than most are willing to admit. However, since I have centuries of French Catholicism locked up in my genes, it’s easy to believe that sin and redemption, Good and Bad, are balanced, or symmetrical in human existence. Therefore, I expect to see repetitive patterns in human behavior as mirrored in our charts. After all we are measuring and exploiting greed vs. fear, as they constantly repeat, aren’t we?I regularly look for Fib retracement levels on the weekly SPY chart just as I look for OB/OS readings on the 5-week RSI and bullish/bearish divergences on the weekly MACD-H. These are my little friends, my play pals, the tools that for good or bad, profit or loss, I hang my hat on week after week. Last Friday, April 16, SPY traded right into the 85-87 range, which was the .786 Fib retracement from the Oct. high of 159 to the Jan 65 low. It also corresponded with RSI hitting OB, and MACD up there too. The little pals were tugging at my arm, whispering that the bear mojo was starting to stir. Weekly price was at a Fib resistance, 5-week RSI was OB and the rally was 6 weeks old, about right for some time symmetry.The daily chart was just as vivid. Friday’s price action was classic churning, lots of Sturm und Drang but in the end a Little Worm or false breakout. The daily momemtum boys–RSI, MACD and FI–pointed, respectively, to short-term overbought on the RSI, declining on the MACD, and a wimpy lack of juice on the FI. To make it more interesting, Friday was the intersection of some long-term trendlines. All my little pals, the ones I grasp when I shut my eyes and dive with Alice down the rabbit hole, said the same thing, buy the 2X inverse ETFs at the close. Along the way down, the hooka smoking catepillar flashed a smile and mouthed, “while your at it grab some of that 3x FAZ.”Now, of course, with the SPX down 37 points at Monday’s close cash is the position of choice, the Mad Queen is strutting across the chessboard, the Greatfull Dead are on their way to Terrapin Station, and the little friends are skipping back to that magical place whence they came. We are left trying to figure out how far down is down for this retracement. For that I have no answer, but eventually, we’ll get to OS and it will be time to rustle the leaves, play the flute, and invite the little friends to saddle up their hobby horses and go fat rabbit hunting again. But for now, I don’t plan to buy the dips, but look for chances to sell the rips.
I wanted to post the BRCD chart since I think something interesting is going on…We have enjoyed an incredible rally for the last 5 weeks- among a long list of others. The question is – is this going to continue or will we see a major pull-back…Looking at the hard right edge it looks like another jumping on point, but I may be the greater fool…I post the weekly and daily chart below. Once it fills a gap at $5 it can go to $6.50 without much resistance…who knows before this bear market bounce is over it may just go to $8 where it either tests a gap in the daily chart or fills it…
WEEKLY CHART- pulling back this week- does the trend have further to go or is it topping out? Price targets at 5 to 6.5…
DAILY CHART… Sorry for the large and busy chart- but this is what I got used to looking at…Overbought and pulling back…Oscillators are resetting but the big question is the trend?Disclaimer: I am long BRCD…
Rodryk writes: I highly recommend looking at an article titled “The Aftermath of Financial Crises”.http://www.economics.harvard.edu/files/faculty/51_Aftermath.pdfOn p.5 there is a graph showing peak-to-trough equity price declines and years duration of downturn.Interestingly, the average peak-to-trough equity price decline in historic bear markets after severe financial crises was -55.9%, with the average downturn phase of the cycle lasting 3.4 years. Considering the S&P high of 1576.09 in Oct 2007 and the low of 666.79 in Mar 2009 we already have seen a -57.7% decline in just 17 months or 1.4 years, thus an duration significantly below average.Regards,Rodryk
I’ve written about the 1,2,3 Bottom trade, one of my favorite reversal patterns. Now, I thought I would show a 1,2,3 Top trade. Now that the market has had a rally, I’m starting to see a few of these appear. In the case of T–my last week’s Spike trade–things stalled out around 27. The Hi #1 happened in late March, note how high the 13-day FI spiked. At that point, we sold off, retracing to 25 (#2) , which undercut at least 4 closes.Then, like an old one-eyed war horse, T gathered itself for one more run for glory. However, 27 (#3) was the wall again, and T formed the Narrow-Range 4 bar. This is the small inside bar to the right of the long-range stab to 27. It is the narrowest bar of 4 days and indicates a collapse of volatility, which should lead to another long-range bar. In this case, it lead to two declining medium bars. Note the divergence in 13-day FI on the second stab to 27. From there it was easy, sell short at the low of the Narrow-Range bar, take profits at the rising 20 DEMA (red line); treat yourself to a nice bottle of cabernet.
At the beginning of each quarter we allocate to each Spiker $1,000, which has to be traded according to several rules:
- You must bet the entire account on that one trade per week.
- You may trade only US stocks or sector ETF’s representing a basket of US stocks.
- The stocks must have above 100,000 average daily volume.
- You must open and close the trade within one week. You must do it each and every week, missing no more than four weeks per quarter.
- If you end up at the bottom of the group at end of quarter you may be asked to sit the next quarter on the warming bench and may be asked to leave the group.
Trading is difficult enough, but each Spiker must abide by these rules, making their task even harder. They aim not only beat the market but outperform their peers in a friendly competition.When you trade, you probably bet a portion of your account and carry multiple trades in order to reduce risk. You can change your mind and make your pick in the middle of the week.Would you bet an entire account on one trade within a one-week window? I sure hope not. We ask Spikers to step up to the plate each and every week and make one bet that will work or not within a fixed time-frame. They cannot change their pick or the direction of the trade after submitting their pick by Sunday afternoon. They may only change their entry, stop, and target levels. They have an option to scratch the trade and wait to make their next pick until the following week.We are sometimes asked about Spiker performance. One must look beyond simple percentage gains, as Spikers perform under constraints and rules listed above.Spikers get only shot per week, and they perform amazingly well. Anyone can get a single lucky strike, but what about Spikers who perform week after week, and after 52 weeks deliver performance that outshines the SP500 and almost all mutual funds.Look at these Spikers who delivered such performance over the past 52 weeks – during the most difficult trading environment of a lifetime:Henry A 104.78%Dave F 52.48%Jeff P 46.35%Pat L 37.46%Grant C 35.80%Ross P 31.69%These six Spikers have demonstrated a phenomenal level of performance in this environment, under these difficult rules.16 out of the current 18 Spikers outperformed the SP-500 over the past 52 weeks. 10 of them had positive results.Meanwhile, at the top level, our top 6 Spikers have outperformed almost everyone in the financial industry, including the Oracle of Omaha himself , Mr. Warren Buffett.Thanks!Kerry
I would like to post this question. There are two images attached.I’m using the Triple Screen with the MACD 9 12 26 and the force index 13 periods. These indicators are going up on a weekly chart and don’t show any divergence or weakness. On a daily chart, however, these same indicators are drawing a shape common to most of the indexes and stocks I follow. See attached XFN as an example, the ETF of the Canadian financial sector.I wonder how to analyze the chart in order to look for a trade. I also wonder when the divergence will be over in this example.Thank you very much for your input.Didier
Trading is about price movements, but really we’re measuring human behavior ruled by gut-wrenching fear and elated greed. The VIX, which is a ratio of puts and calls, measures emotional volitality–it moves up, sometimes violently when fear riens and price declines. When the VIX declines, price is stabilizing and usually rallies; the SPX price bars narrow and everywhere it is happytime. The VIX is an easy way to measure the emotional extremes if you use it properly. I say easy, but most traders think of it like the RSI with absolute highs and lows. Not so, the VIX is a relative measurement and needs to be compared against a 10-day MA to give accurate signals–all of which is for a future discussion.But today, I want to point out a truly remarkable development on the VIX’s weekly chart–something that foretells a major move. After the spike to 90 in October 2008 punctuated the market’s big move down to SPX sub-800 (the VIX moves opposite the SPX–VIX up, SPX down, and vice versa), the VIX corrected, finally settling in a range about 50% of the move. We’ve been bouncing steadily between 35-55 week after week for about four months. While it may not seem like it, the VIX has steadily lost volatility indicating that neither fear nor greed is at extremes. Now, we are entering a rare squeeze on the weekly chart, which portends a major and probably violent move in one direction or the other. Though the indicators seem to be on the lowish side, these sideways moves often create unreliable RSI and MACD readings. So, we need to wait a week or so to fit this piece of the puzzle into place, but past experience says that come what may, either greed or fear will soon cause our little world to tremble and shake.
Please find attached Pivot and Fibonacci levels for the S&P500. For those who believe that the market will go down, the areas between 764-769pts and around 750pts might serve as major support levels, as there is a confluence of levels many trader watch out for.Regards from Dusseldorf,Rodryk
I discovered the obvious last week – short-term support and resistance can be very useful in setting stops and entries. I also received a sharp, actually fatal, reminder that one must not forget tactical considerations while establishing or adjusting a trade, expecially in the heat of battle while the market is open. I chose a protective stop that was at a short-term support level, but I just didn’t think, and I placed it at a very vulnerable round number. Price dropped and touched my stop, didn’t go below it, then immediately took off to the upside. Two days later in my own account I used another short-term support level for a stop but placed it below the round number. Price dropped, touched the round support level price, didn’t go below it, and took off, and my position was safe.
By way of background, I picked AVY as my Spike pick last week (March 23). AVY was a strong performer relative to the S&P500 the previous week. On the weekly, the trend was still down, but AVY had closed up the past two weeks and was near the lower envelope. MACD-H showed a bullish divergence back to the November low, having ticked up the previous two weeks; Lines were essentially flat since November, but the fast line was rising, the slow line shallowing. Force Index was generally following price. Price had not yet moved up past the November low and retested it.
On the daily, things did not appear as good over the short term. Trends of price and MACD Lines were up, but MACD-H had just ticked down from its highest level since mid-December. Force Index had dropped sharply the previous two days.On Monday March 23 the market opened higher and kept going, and my limit order wasn’t filled. On Tuesday March 24 price moved sideways and down. On Wednesday March 25 I placed another buy limit order and got left behind again as price streaked up from the open. At this point I was feeling kind of helpless, and that I had to figure out a way to jump onto the powerful moves reasonably safely. I decided to try OCO bracket orders: buy limit and buy stop, each with its own protective stop.In the course of trying to figure out how to enter these choppy conditions late Wednesday morning, I was surprised in my inexperience to find a couple of solid support and resistance lines on a 25-min chart that had developed over the period since the Monday open. These were located at 22.20, 22.50, and 23.00.
Based on these support/resistance levels, and because I had not proven to be very effective in guessing the market’s next direction, I placed OCO orders (buy limit/buy stop) in my own account for AVY, as noted on the above chart. After dropping to within a nickel of the limit entry price (22.60, just above 22.50 support), price rapidly increased to a point half way to the buy stop entry price (23.00) and dropped again until the order was filled at 22.60. Eight minutes later price dropped to my nice round stop at 22.10 support, touched 22.10 exactly, and took off again. It was a bonehead rookie mistake. I used an even, vulnerable stop (22.10) and got picked off. I noticed shortly after that that 22.10 happened to be the mid-day (intraday) low on Monday March 23.On Thursday March 26 I entered aother OCO order. This time the buy stop (23.00) was hit and the order filled at 23.28, granted with 28 ticks slippage. But I was in! AVY closed this day near 24. Before the open on Friday March 27 I raised my stop from 22.43 (a little below the 22.50 line) to 22.96 (just below the 23.00 line).On Friday March 27 AVY moved sideways-to-down all day. Price drifted downward to the 23.00 support level, touched it exactly, and drifted back upward. My stop at 22.96, just a few ticks below the 23.00 resistance/support line, saved me, just like in the textbooks!I must admit that I was surprised at how faithfully the price movements “honored” these rather arbitrary horizontal lines. Last week’s experience told me that it is essential that I look further into short-term support and resistance, and I will continue to attempt to use the concept in making short-term decisions in these unpredicable markets.