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.

DJIA 

http://stockcharts.com/h-sc/ui?s=$INDU&p=D&yr=0&mn=8&dy=0&id=p94825989499&a=241463348&r=8567&cmd=print

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

http://stockcharts.com/h-sc/ui?s=$SPX&p=M&yr=1&mn=0&dy=0&id=p12467341497&a=240578399&r=9262&cmd=print

SPX DAILY (ZOOMED in for my benefit)

http://stockcharts.com/h-sc/ui?s=$SPX&p=D&yr=0&mn=8&dy=0&id=p98792950605&a=243753337&r=7681&cmd=print

Russell 2000

http://stockcharts.com/h-sc/ui?s=$RUT&p=D&yr=0&mn=11&dy=0&id=p68697548918&a=241071111&r=9470&cmd=print

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

http://stockcharts.com/h-sc/ui?s=$FTSE&p=D&yr=0&mn=8&dy=0&id=p79675255283&a=247462556&r=2573&cmd=print