I marked the chart below to show the bearish divergence that seems to be developing. Further, I marked (black rectangle) where I believe the last push is likely to take the market as the bearish divergence occurs and creates a sell signal. It is only an area to pay attention to and is not necessarily a forecast as I have said time and again, that one should not invest based what they believe is likely to happen. It is just something to keep an eye on.
Notice MACD at 24.33 at the 1292 high. Today it sits at around 14. Maybe we won't make a higher high. Maybe we will blast off to much higher highs and much higher MACD levels. But just in case we make a higher high and MACD is still below 24.33 it will be nice to be prepared.
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p17514767334&a=243753337&r=1152&cmd=print
Monday, November 14, 2011
Friday, November 11, 2011
11-11-11
Ok, so I did a stupid thing. Something I said I wouldn't do again. I took 44% off yesterday at the close and remained only 56% long. Dumb, especially in light of my ranting about making a slightly higher high. Do as I say, not as I do would be appropriate. Ok, now that I got that out of my system, let me make this one observation. In May 2008, after a 2 month rally from a lower low (just as we are in the middle of) the market made a bearish divergence as the last push up marked the top. From a time frame perspective, that would take us into early December but let's put that aside for now. The recent two sell offs have provided investors the opportunity to put that scenario on the table as MACD has been damaged enough so, that if the market was to chop to a slightly higher high (say, 1305ish 78.6% Fib level) it would still be lower than when the market last touched 1292. If daily MACD then crossed back over (negative) that will be the bearish divergence that an investors looking to get short would be dreaming of as it would match up with the scenario in May 2008 when the market topped. The two charts are below. Take a close look at MACD on both to better understand the point I am trying to make.
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p83737992130&a=243753337&r=2839&cmd=print
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&st=2008-03-03&en=2008-06-02&id=p57933942160&a=248174651&r=2522&cmd=print
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=3&dy=0&id=p83737992130&a=243753337&r=2839&cmd=print
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&st=2008-03-03&en=2008-06-02&id=p57933942160&a=248174651&r=2522&cmd=print
Wednesday, November 9, 2011
11-9-2011
So, all the bears are back out again calling for a top. Let's all take a step back and take this for what it is. Italy's bond yields are blowing out but they have been doing that for a week. We've all been talking about it. It is not like that is new news. One has to understand that the market has moved basically in one direction for the last month and corrections are normal. If one is also to look at March 08- May 08, as I continue to reference, there were several sharpish corrections but they were followed by higher highs. The final high in March formed a bearish divergence on MACD. The market made a higher high but MACD made a lower high. This is one of two set up that would be worth watching for. If the market is not to make a higher high then one should at least look for RSI to make a higher high as the market makes a lower high. That would be quite bearish as the market would be more overbought on RSI but price does not confirm. Lastly, when the market touches or breaks through the Bollinger Band for the first time, it will often correct to the middle of the Bollinger Band and then retest the top of it again. At 1292, we touched it. The market has since corrected toward the middle. A push back toward the top would be normal and a better signal if confirmed by a divergence when retesting. None of the above has happened yet, so I would keep a cool head here and take this for what it is....A CORRECTION.
One last note, the DJIA is also below and the 50 day ema and 200 day ema are both in the area of the 50% retrace. For SPX that level is 1222. That is where I will consider getting longer. All three in the same area makes for a powerful support level.
2008 as a reference
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&st=2008-03-03&en=2008-06-02&id=p57933942160&a=248174651&r=6447&cmd=print
Today (ignore all the lines and just focus not he the market pattern, oscillators and Bollinger Band)
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=8&dy=0&id=p98792950605&a=243753337&r=1710&cmd=print
DJIA
http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=0&mn=11&dy=0&id=p79409412437&a=241463348&r=8637&cmd=print
One last note, the DJIA is also below and the 50 day ema and 200 day ema are both in the area of the 50% retrace. For SPX that level is 1222. That is where I will consider getting longer. All three in the same area makes for a powerful support level.
2008 as a reference
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&st=2008-03-03&en=2008-06-02&id=p57933942160&a=248174651&r=6447&cmd=print
Today (ignore all the lines and just focus not he the market pattern, oscillators and Bollinger Band)
http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=8&dy=0&id=p98792950605&a=243753337&r=1710&cmd=print
DJIA
http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=0&mn=11&dy=0&id=p79409412437&a=241463348&r=8637&cmd=print
Monday, November 7, 2011
11-7-2011 (Pivot Points can matter too)
Thought this might be of interest. I would never buy or sell based on Pivot Points but it can make a signal much more powerful as an added tool. Just as 1074 was near the 1080 and 1090 weekly Pivots (Standard and Fib), the chart below shows how right at the upward sloping neckline, the Standard and Fib Pivot Points, intersected making for a more powerful short signal when the market jumped on the Greek bailout news. Just wanted to share some addition support and resistance levels that can at times make for a more robust signal and give an investor more confidence in building a strong position.
11-7-2011
Playbook:
The DJIA seems to be the better guide thus far. It is finding support and resistance at the 50 day ema and 200 day ema while also coinciding with Fib levels. The chart below shows how terrific this index has been for technicians. MFI recently traded above 80 which is not an everyday event for this index. With that said, MFI getting overbought is often a prelude to another push back toward those overbought levels (from an index price standpoint) but with MFI being less overbought. Sometimes the market will actually make a higher high and sometimes it will just get close. The chart below shows what might be an interesting scenario. Around Thanksgiving, the upward sloping neckline crosses what is perceived to be an important area of resistance (red horizontal line). 12347 also happens to be the 78.6% Fib retrace level. If in fact the market does test that area, whether it be late Nov. or early Dec. while MFI is still lower than the recent overbought level, it will make for a possible top. Also, keep an eye on MACD which if lower at that that point in time will be added confirmation. Of course, a lot can happen between now and then and I will never invest based on a forecast that has yet to be confirmed. It is just something to keep and eye on. That is why the blog is called, Trust but Verify. Trust the charts but verify with indicators. One needs both in order to be a successful technical investor.
Sunday, November 6, 2011
11-6-2011
Please let me know if you would like me to continue posting. I had stopped posting as I was unaware of how many page views there have been. I had assumed that if there was interest in my point of view on the markets that a follower might join the thread and enjoy some conversation. That has not been the case. My hope is that any of you that are interested might post some comments and charts of your own as I have been a beneficiary of others observations. For example, the FXE chart and the charts of FTSE, DAX and CAC were posted by someone else on another blog. I went to StockCharts and created my own and, WOW, it gave me more confidence to short the market heavily at the 1285 close. All of my charts are at the bottom of this post.
Let me share one quick point about how I use technicals. I do not use EW and I do not make it overly complicated. I think too many investors use too many tools and as a result there will always be one that says to go long and one that says go short. Then, whatever the investors point of view is, they can justify doing either. That leads to investment mistakes I prefer to stay away from.
So, I use MFI, RSI, MACD, Bollinger Bands, Fib Fans, Fib Levels and Chart Formations as compliments to each other. They either mostly agree or disagree and by sticking to them I can never justify a personal preference. Rather those oscillators and tools direct my decisions.
So, where I would like to pick up is with a quick recap of how I have observed these markets from the 1370 top. I have a huge believer that meaningful market tops and bottoms are made when on a WEEKLY chart, RSI, MFI and/or MACD make a bullish or bearish divergence. Since the 667 low, there have only been TWO WEEKLY bearish divergences. 1219 last summer and 1370 this April/May. That makes for a pretty powerful track record since the only two large sell offs since the market bottom came last summer and this summer. Now, once that happens, a buy signal would ideally occur if on a WEEKLY basis RSI, MFI and/or MACD form a bullish divergence. The problem is that bottoms can often occur much more quickly and violently than market tops which often take time to form. With that said, it is best to keep an eye on Daily divergences to make sure one doesn't miss a big market bottom. In the case of 1074, you not only had 2 weekly pivot points (standard and Fib) at 1080 and 1090, but the bottom of the WEEKLY Bollinger Band was at 1071. RSI and MFI made a WEEKLY divergence while RSI, MFI and MACD ALL made daily bullish divergences. That is one powerful buy signal and it was the reason I went 125% long at the bottom. I couldn't understand the calls for much lower lows or for the 1050 area so many were pointing to, but owe well, that's what makes a market.
Where are we now? Well, this is the hardest and easiest part of the cycle to work with. It is the easiest because one should already be long the market since the 1074 lows so if the market reverses lower, you should already be way ahead of the game. It is the most difficult because the only sell indicators one is likely to receive is a daily bearish divergence if the market can make a slightly higher high. It would be most powerful if it happens near the neckline as drawn on the charts below. And lastly, if it happens near 1305 (the last of the FIB levels), near a meaningful bollinger band mark and with the market being overbought then I will be willing to exit the market and possibly even go short. That is what I will be looking for.
In the meantime, the charts below are the ones I look at on a daily basis to make my investment decisions. I hope you find them helpful.
The SPX chart looks like there is A LOT going on but it is not as much as one might think. the DJIA chart, which is the first chart is actually the best to look at for technical purposes. It has been a technicians dream and I am starting to believe that is the better chart and index to reference.
Let me share one quick point about how I use technicals. I do not use EW and I do not make it overly complicated. I think too many investors use too many tools and as a result there will always be one that says to go long and one that says go short. Then, whatever the investors point of view is, they can justify doing either. That leads to investment mistakes I prefer to stay away from.
So, I use MFI, RSI, MACD, Bollinger Bands, Fib Fans, Fib Levels and Chart Formations as compliments to each other. They either mostly agree or disagree and by sticking to them I can never justify a personal preference. Rather those oscillators and tools direct my decisions.
So, where I would like to pick up is with a quick recap of how I have observed these markets from the 1370 top. I have a huge believer that meaningful market tops and bottoms are made when on a WEEKLY chart, RSI, MFI and/or MACD make a bullish or bearish divergence. Since the 667 low, there have only been TWO WEEKLY bearish divergences. 1219 last summer and 1370 this April/May. That makes for a pretty powerful track record since the only two large sell offs since the market bottom came last summer and this summer. Now, once that happens, a buy signal would ideally occur if on a WEEKLY basis RSI, MFI and/or MACD form a bullish divergence. The problem is that bottoms can often occur much more quickly and violently than market tops which often take time to form. With that said, it is best to keep an eye on Daily divergences to make sure one doesn't miss a big market bottom. In the case of 1074, you not only had 2 weekly pivot points (standard and Fib) at 1080 and 1090, but the bottom of the WEEKLY Bollinger Band was at 1071. RSI and MFI made a WEEKLY divergence while RSI, MFI and MACD ALL made daily bullish divergences. That is one powerful buy signal and it was the reason I went 125% long at the bottom. I couldn't understand the calls for much lower lows or for the 1050 area so many were pointing to, but owe well, that's what makes a market.
Where are we now? Well, this is the hardest and easiest part of the cycle to work with. It is the easiest because one should already be long the market since the 1074 lows so if the market reverses lower, you should already be way ahead of the game. It is the most difficult because the only sell indicators one is likely to receive is a daily bearish divergence if the market can make a slightly higher high. It would be most powerful if it happens near the neckline as drawn on the charts below. And lastly, if it happens near 1305 (the last of the FIB levels), near a meaningful bollinger band mark and with the market being overbought then I will be willing to exit the market and possibly even go short. That is what I will be looking for.
In the meantime, the charts below are the ones I look at on a daily basis to make my investment decisions. I hope you find them helpful.
The SPX chart looks like there is A LOT going on but it is not as much as one might think. the DJIA chart, which is the first chart is actually the best to look at for technical purposes. It has been a technicians dream and I am starting to believe that is the better chart and index to reference.
DJIA
SPX Weekly
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&yr=1&mn=0&dy=0&id=p57827954915&a=237866927&r=6652&cmd=print
SPX Monthly
SPX DAILY (ZOOMED in for my benefit)
Russell 2000
EURO
http://stockcharts.com/h-sc/ui?s=FXE&p=D&yr=1&mn=9&dy=0&id=p01809840892&a=247460028&r=5379&cmd=print
FTSE
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