I've been posting on other blogs for sometime now and just figured that since I end up having some very nice conversations back and forth with other investors that I might be able to do it in one spot from time to time. That is the reason for this site. It is not intended to take away from anyone else ideas or hard work, rather share my own point of view and to also benefit from other investors' insights.
As many of you might already know, I am a strong supporter of using RSI, MFI, and MACD but in using them together as they seem to be the most reliable and complimentary that I have found. I also like to use Fib Fans for longer term trends, Fib Retrace levels and moving averages as support and resistance, but again, together and as compliments. Sentiment is also a must as most bottoms and tops (short and long term) are made when sentiment is near extreme levels. And lastly, a chart formation (like a Bear Flag) makes for a more powerful signal.
So let's just recap what has currently taken place in the markets. The first link below is a daily chart with a Fib Fan drawn from last years lows (the three white ascending lines). As you can tell the 61.8% level was officially breached in August and has acted as resistance ever since. Also, there are three Fib Retrace Levels drawn. Why? Because I see, too often, investors try and use levels based on two points when the market might in fact surprise us all and find support or resistance given a difference high and low. So, I like to "cluster" my Fib levels and they have worked out terrifically. The 38.2% level (1195-1204) has been resistance several times now but notice how the 1204 level was resistance the first time, but recently 1195 acted as resistance. The cluster worked great and if you were willing to start putting shorts on at the beginning of the cluster you would not have missed out on this most recent sell off.
Moving Averages....If an investor can find an important Fib Level and moving average to meet at a particular point, they probably have a pretty powerful signal. That is what happened recently. It seems that with most bear markets there is a rally and a test of the 50 day. Again, I don't presume to know what works best so I use both the 50 day ema and sma (kind of a MA cluster). We saw the market make a move to the 50 day at 1220 (close to the 1224 Fib level) only to pull back. At 1195 the 50 day was near 1204. Starting to build shorts would have been a prudent move. What sent such a strong signal the day the market reversed at 1195 was that the market closed below the bear flag up trend line. It was a clear indication that the pattern had held.
The second link below is a weekly chart. The most important in identifying when a meaningful top is forming because it is a weekly chart. MACD, MFI and RSI usually make bearish divergences and bullish divergences at meaningful bottoms on a weekly basis. It is nearly always the case at market tops but only mostly the case at market bottoms. Why? Market bottoms sometimes happen very quickly and violently so the weekly chart doesn't have time to adjust. EG. Last year. No bullish divergence on a weekly basis but on a daily basis all three indicators formed bullish divergences at the 1010 low.
So, what now? Well, the weekly and daily pivot points are all sitting in the same area (1087 daily S2 Pivot) and 1080 (Weekly Fib Pivot) and 1090 (Weekly Standard Pivot). If we also include the VIX at around 42 and bullish divergences forming on all three indicators on a daily basis and two of the three on a weekly basis, I think there is an argument to be made for a bottom (short term) to be made in the 1080-1090ish area. The fact that sentiment is so negative and bullish divergences are popping up all over the place, I think those Pivots might end up being a reasonable area to find support.
From there, if 2008 is any indication, watch for a rally to the 50 day (ema and/or sma) to provide a slight pull back and then a move back into the 1220-1260 are (likely 50% Fib retrace if I had to guess). What will be key is, "where is the 200 day SMA"? I happen to think that like May of 2008, the market will slam into the 200 day sma while also being near a major Fib retrace. If resistance holds at the point, there might be a big big shorting opportunity.
All of this is forecasting because it is good to keep an eye on possibilities, but let me be clear: I invest based on the data that is actually available at that moment in time. Not based on what may or may not happen.
To close, I included a chart of early 2008 so you can see the amazing similarity between then and today. Most people are focusing on late 08 when early/mid 08 is the clear chart to keep an eye on.
I look forward to thoughts, comments and insights that I can benefit from and hopefully may other readers that join the conversation over time.
DAILY
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=7&dy=0&id=p32771745761&a=243753337&listNum=1
WEEKLY
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=0&mn=9&dy=0&id=p83217381620&listNum=1&a=237866927
2008
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&st=2007-06-04&en=2008-06-23&id=p88951979887&a=244348898&listNum=1
No comments:
Post a Comment