Another Bull/Bear Indicator

In my never-ending quest for Market Mastery, I have assembled another indicator. This one is based on the NYSE Up/Down volume ratio. Here's what it looks like:


Click for larger, Browser back.
Here is a handy link: http://www.freestockcharts.com?emailChartID=b5425477-2f4b-448d-a529-7481db3ff95a

Here is another, possibly clearer way to see the same thing:
http://www.freestockcharts.com?emailChartID=a6b0191e-f165-4793-9732-f6280e67c6b6

Tonight's chart shows that Down Volume is higher than Up volume, but closing the gap. This should signal the eventual end of a bear rally... we'll see. Hopefully, with this tool, we'll get better.

And, for no extra charge, here is yet another good one...
This one allows us to the total number of up issues compared to a moving average

Click for larger, Yada Yada.



And... don't forget about the older Bull/Bear index.

Big Breakdown

The $VIX (Fear Indicator) is at about a 6 week high after an abnormal run-up yesterday.

Yesterday's sell volume was at about a 8 week high.

$BANK is at about a 4 week low.

The Wilshire 5000 and the SPY has made lower highs and lows for 2 days.

The SP500 closed below 1000 and the Nasdaq closed below 2000.

All of this happened on relatively good news.

It seems that the big traders (institutions) have simply decided that its time for a pullback: Anxiety about the health of financials and worries the 2009 global stock market rally may have run its course hit U.S. stocks hard on Tuesday and then carried over.

"But the glass is still half empty. Macro data has improved, but we're in a pattern of destocking-restocking, and the outlook for consumer spending is still grim."

Could it be that Cash-For-Clunkers has depleted much of the savings that Americans have amassed? If that is true, then Christmas will not be the retail boon that traders and the economy need.

I am not yet totally convinced that this is the beginning of a Bear rally, but I am remaining open to the possibility. I am actively not re-investing funds made available by profit taking and stop outs at this time.

Just for the purpose of holding a hedge, I may buy one of the 3x short ETF's on a SPY high today.

Situational Awareness

5 minute chart...

Click for larger, browser back.

Just a few candles ago, this was a Trade #1 buy. In fact, it did go up some. Then it pulled back. As I write, I see that it formed an M and pulled all the way back, forming a picture perfect bull trap.

My friend KM was considering buying on the 10 minute up-trend but I was able to talk him out of it. Here's why I did that...


30 minute chart, same stock, same time.

Click for larger, u know the drill.

Notice that the BBands are indicating a HUGE downtrend. Yes, there is recent wonderful strength, yes the trendline has broken (not illustrated here) but its still scary.


Here's the point:
When investing, or even scalping, we must be aware of whats going on in the other charts (and the SPY). A lovely uptrend in the 1 minute chart can prematurely fail because of a downtrend in the 60 minute chart. To say that another way, patterns on the one minute chart are not as powerful as the same pattern on the hourly.

And another way to say it:
If you buy it on the one minute chart, be prepared to sell it on that charts action as well.

This has many implications. The perfect world buy signal would be a signal on the daily, hourly, 30, 15, 5, and 1 minute charts at exactly the same time. I bet it happens, I've never seen it. Oh... and the SPY has to be in synch also. Too much for my little brain to look at all at once!

Here is a theoretical work-around. First, wait for the trade to come to you by observing a reasonable amount of charts. then buy on the one minute chart. After riding that a while, check the next chart up to ensure it is bullish there. Repeat all the way up to the daily and be aware of the weekly.

Now for the sell signal:
Once the opposite of a buy signal is observed on the daily, continuously drill down to faster and faster charts for confirmation.

Who is gonna do this? Not me! Too much work. I will just set a stop under the previous low (adjusting occasionally as needed) and wait for it to trigger.

As always, your comments and questions are welcomed.

short term recovery

Here is a 60' chart of the $tick...



It is pulling up hard.
This could be a good dip to buy a swing trade on!

The dollar

Here is a chart of UUP, the US Dollar ETF.


Don't bother clicking on it, its small.

Notice the volume as Price increases. That's exactly what we want to see in a bullish trend.
Sadly, it explains why our stocks and commodities have been falling, and the poor $TICK indication described in the post below. This might be a place to sock away a few investment dollars... I'll be watching.

OK, this is bad...

In thinking about my previous post (while watching TV), I wondered what secrets the TICK would tell...

Here is a daily/8 month chart of $tick.


Notice that $tick is registering an 8 month low. That's a bad thing for those of us with long positions.

Make that a two week vacation!

I'll be selling my longs and watching for an entry into my favorite shorts next week.

Update

Here is a 10 year, weekly chart of the NASDAQ ETF, the Q's (QQQQ).


Click for larger.... browser back.

As pointed out in this article: stocktiming.com,
we are approaching resistance. Since the Q's are a leading indicator of the broad market, this could have some importance.

I am seeing Price approaching the trend line and Big Red, the 200 MA, so we'll have to trade cautiously. Notice this broad market chart:


Here is the weekly, 2 years, broad market (SPY) chart...

Click for larger.... yada yada.

Since the Q's are in trouble, I took the time to dissect the broad market a bit further than usual...

Downtrend line 1 indicates the power of the exercise. Notice the difficulty that Price had in bouncing off several times (below the 3). Further, notice the strong resistance that line 3 held in the area of the 5. That's some powerful juju! Line #2 is hanging above our heads to become important at some future date.

Uptrend line 4 describes the tops of the uptrend we currently enjoy. Notice that we are quickly approaching it.

Now, with the framework set, here's the bottom line....

Notice the uptrend line #5. It is not parallel to line #4. That's a bad thing because Price hates to be squeezed. We have to expect a breakout, up or down, from the squeeze. It may happen next week, it may come to us four months from now, it is definitely coming.

To my eye, the weekly Price action of the Q's and the SPY, are looking at a pullback_sell pattern.

Bonus points:

Notice the last 4 candles. The first being HUGE, the remainders becoming much more constrained. This indicates a dissipation of momentum. Notice that the same effect occurred on the Q's even more.

The oddball:

The one thing that contradicts all of the above is volume. This week, both the SPY and the Q's enjoyed an increase. It could be an indication of sidelined money entering the market. It could indicate bears waking up but being matched by the bulls. If the second scenario is true, a pullback is more likely.


OK, the real bottom line:
My guess is a struggle next week. The markets are not really convinced that they want to go up. In fact, fundamentals do not predict further increases. Confirmation, the NASDAQ only increased one point last week. We might see some pullback before the lines are broken. If the pull back gets momentum, we could see a test of SPY line 4. Hopefully not any lower.

Have fun but keep a close watch! This is not a good time for a "set it and forget it mentality. If I wasn't watching closely, I'd sell everything, take a week off, and wait for a better market to trade. Hmm... that sounds like fun, my family could use a vacation. Oh well.