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TF thread (Russell 2000) ... anything goes
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TF thread (Russell 2000) ... anything goes

  #21 (permalink)
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I am guilty of talking about being bearish recently.

But talking is talking. Trading is trading.

I always, ALWAYS try my best to trade what is in front of me. Trade what I see. Yes, I have to trade my convictions to some point. But just because I think the market is ready to just spiral out of control in a huge melt down, it doesn't mean I am short when the market is exploding higher right now. As I've said often in recent posts, there will be plenty of opportunity to get short, but no need to rush in right now until that opportunity presents itself.

There are a million ways to "frame" the market. Maybe you decide if we are in an uptrend based on how many stocks are trading above their 50 day or 100 day MA. Maybe you decide based on how many new 52 week highs are being made vs 52 week lows. Maybe you decide based on an EMA 20. Who knows, it's all subjective and all relative to the way you trade.

One thing to always remember: If all people talk about is how bearish the market is, yet the market is exploding higher, that means the bears are very weak. If the bears are weak, the bulls are strong. You may even see capitulation as the bears go "I can't take it anymore!!!", adding even more fuel to the fire and sending the market even higher.

Of course, usually after capitulation we finally see a trend reversal. It's usually not long after the majority of market participants "can't take it anymore", the max pain event, that the trend will change. That has been my experience at least

So if you are a bear, you might be asking yourself, have we just witnessed capitulation? The best bull month since 1987?

Trade well! Trade what you see!

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  #22 (permalink)
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A look at daily...nothing new really just that the TS is moved up to 722....the 1hr is still green to keep going up, the 15m is in the cloud and as we can all see anyway is chopping around.
>
This is daily
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Small Cap Starting a Consolidative Pause?


Yesterday was clearly not a Spike Top considering that it does not protrude “head and shoulders” over today’s trading as it does over Wednesday’s close.


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It may, however, be the beginning of a consolidative pause, or correction if it goes longer and further than anyone could imagine, with such a possibility making itself most evident in the Russell 2000 that closed down 0.58% on the day. With this small cap index often acting as a leading index, this could be an early sign of equities declining in the days to weeks ahead and this seems particularly possible considering the gap in the Russell 2000’s chart at 736 that may try to close.

Putting aside those early signs of potential consolidation to come, it seems to make sense to explore the alternative possibility broached last night around yesterday’s spike up in the equity indexes and that is the Runaway Day. Should yesterday turn out to be a valid Runaway Day, it will push the equity indexes back toward or above this year’s previous highs while a failed Runaway Day will turn out to be a false signal around such a potential move up.

Unfortunately, it will take another few days at least to make the determination of whether some “nice consolidation” occurs on decent volume – potentially a valid Runaway Day – as opposed to a topping pattern of some sort on less-than volume – a failed Runaway Day – and so it makes sense to wait before making any sort of judgment here.

However, when thinking holistically about this situation that should only be looked at from the simplest perspective, it seems to me that some consolidation may be ahead as the S&P – and the other equity indexes – digests its enormous gains of the last three weeks before it then trends either up or down.

Such a potential pause may make sense too from a fundamental standpoint with there being something reminiscent about yesterday to May 10, 2010 even though the trading was so different leading into both days with the unforgettable Flash Crash preceding the latter. However, the S&P is not exactly a bastion of stability right now either considering the 18% plunge in August followed by a bit of up and down sideways recovery that led to the recent momentary-bear market decline that was then followed by a 10% move up in the last three weeks.

In other words, the S&P may be as vulnerable to volatile swings as it was last spring and summer depending on the data and the events as is the case now to some degree too with the hot and cold months of economic activity.

Also making the two days similar is the fact that the S&P climbed nearly 4% to the respective intraday highs each of those two days with the index trading slightly higher today as was the case for the three days following the May 2010 spike up before sliding 11% lower. Some important differences exist, though, with volume appearing less impressive in May 2010 than yesterday’s volume and a trend that continued for those three days and an immediate move into a topping pattern whereas that is not strongly evident today.

On the whole, though, there’s a bit of a similarity there and so it seems worth keeping in mind around what equities might do next and the precedent provides some reason to think there could be a consolidative pause ahead.

The possibility for consolidation is showing in technical ways too, but before turning in that direction, this possible consolidative pause, or correction depending on how far it might go, seems likely only if the S&P does not close above 1300 in the days to weeks ahead.

Should the S&P close above about 1300 in the near future, it will provide strong reason to think that the buyers are going to continue to overwhelm the sellers as managers make up for lost performance or for whatever reason the buyers will overpower the sellers and to the point that this year’s previous intraday high 1372 will be tested by the end of this year or early next year.

Behind this thinking is the band of resistance between about 1280 and 1300 (not shown) and a band that the S&P is toying with currently. If the band is breached to the upside on a closing basis, it will provide strong support for the idea that the buyers will have succeeded in overwhelming the sellers for at least a short period of time.

So moving back to the case for a consolidative pause, it can be explored only if the S&P fails to take out 1300 on a closing basis.

Reasons to think that will occur include its more bearish-than-ever-looking Rising Wedge with a target range of 1075 to 1116 along with the fact that the S&P is about 9% above its 50 DMA and this may suggest it is about to touch back down to it with most 5-6% strays in recent years resulting in such a reacquainting of sorts. On the other hand, the last time the S&P was so far above was back in May 2009 and so perhaps in an odd way this means a bigger rally is on the way.

Before getting too caught up in that possibility, though, it makes sense to look at the S&P’s Rising Wedge in weekly form.


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Clearly it is severe and strong in the 6-month chart, but it is in the nearly 4-year chart that shows not only the extreme nature of the Rising Wedge but also the fact that this recent spike up appears to be missing the third supportive move down that helped to power the S&P higher in 2009 and in 2010 and this, of course, is the third right shoulder of its possible Inverse Head and Shoulders.

All in all, then, I am more inclined to believe the S&P pulls back from current levels and probably to or below its 50 DMA at about 1186 currently with it seeming as likely that a possible pullback could snap the index even lower if not a lot lower.

If so, small cap will have started that potential consolidative pause and something that will form the potential right shoulder of a bullish Inverse Head and Shoulders pattern that might give the S&P – and the other equity indexes – a real shot of testing this year’s previous highs.

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I don't necessarily agree with everything I post...but like to see all the "angles"

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Short Term Buy Signal Is In
As expected the market bounced rather sharply from its summer time plunge which took the S&P 500 to 4-standard deviations below the 50-day moving average. We had stated in previous missives and blogs that this would most likely be the case and that this would get the bulls all excited that somehow stocks were now the place to be again for the "long term".
We have discussed recently that after 5 down months in a row that a reflexive bounce was extremely likely due to the massively oversold condition that existed in the market. The rally was far stronger than we estimated, not in terms of internal strength, but in terms of magnitude. The market has now cleared to key levels of resistance and now, on a pullback or consolidation that does not lead to a reversal of this rally, allows for an additional increase in exposure to portfolios.
Again, for longer term investors, it is important to understand that this is fairly short term in nature most likely and therefore caution that increases in exposure should be in lower volatility assets such as balanced funds, equity income or defensive stock positions.
We still recommend an overweight in cash and fixed income at the current time due to inherent risks prevalent as the recessionary drag has not been eliminated by any means and the agreement struck in regards to the Greece default and the Eurozone will most likely fall apart long before it gets to the signing table.
Honestly, this urgency by the media and commentators to jump back into equity (risk) investments completely baffles me for several reasons. 1) Stocks, as an asset class, have been the worst performing asset class for the last decade. Yet investors still chase them hoping to garner riches; 2) markets never move in one direction, however, the overall "trend" is much more important than daily variations of price; and 3) while valuations based on a trailing, reported earnings are essential to long term value investing - valuation models are horrible timing devices and you can lose a lot of money before being right.
I bring this up for several reasons but primarily because there has been a litany of articles published during the last week touting everything from the yield curve, earnings yields and forward valuations as a reason to jump back into stocks now. Of course, the problem with all of these is that those measures, in a bear market, can wind up costing investors a LOT of money over time.
In recent missives we have dispelled the myths of the Equity Yield vs. Treasury Yields as an indicator of "value" in the markets. Furthermore, low interest rates and a steep yield curve, when artificially manipulated is yet to be seen as being a reason to pay a premium in terms of multiples for stocks.
Let me be VERY clear. At Streettalk Advisors, we are fundamental value investors. Fundamental value, based on trailing, reported, earnings determines "WHAT" we buy. However, the key to successful long term investing, and particularly when navigating highly volatile secular bear markets as the one we are in now and will continue to be in most likely for another decade, is the knowing the "WHEN" to buy.
Therefore, once we have determined the "WHAT" to buy we must employ a set of tools to not only determine the "WHEN" to buy, but also, the "WHEN" to sell and the "WHEN" to just stay away.
For the sake of simplicity we will focus today only the S&P 500, but this same analysis holds true for any position, asset class or market."
Individual investors do most of the damage to themselves by allowing emotions to override logical investing. There have been many articles written about the rules of investing in the financial markets and the basics of them all center around 5 important concepts:
  • Sell losing positions quickly
  • Let winners continue to win - until they don't any more.
  • Never take on more risk than you can afford to lose.
  • Always protect your capital investment by minimizing losses.
  • Buy low and sell high.
Yet it is exactly these basic rules that investors continue to ignore and violate by buying into ideas like "dollar cost averaging", "buy and hold investing", etc.
There is one major tenant that must always be honored if you are going to survive and prosper in investing over the long term - always protect your principal investment. This does NOT mean you will never lose money when you are investing - you will. If you are not willing to take losses in your portfolio - then you should not be investing to start with. The unwillingness to take losses has led to more money being transferred out of individuals portfolios than at the point of a gun. Losing money is part of the game...limiting how much you lose is what separates winners from losers.
The recent market debacle has NOT given rise to the opportunity to began aggressively investing into the markets. All indications point to weaker markets ahead. Does this mean that the markets will absolutely go lower from here - no. However, the "risk" of loss of investment capital at the current time is outweighed by the potential for return.
We use several different indicators, both long term and short term, to try and better determine the "WHEN" to invest. It doesn't always work. However, here is a little known secret - nothing does. This is also one of the biggest mistakes that individuals make when investing. They buy into one strategy that is working (usually last year's big winners) and then jump from that strategy to the next previously winning strategy when their returns suffer. This is the epitome of what drives investors to "Buy High and Sell Low".
A disciplined investing strategy is one that requires, you guessed it, discipline. That means that sometimes, even when it is not working, you have to stay with it (this is provided it is a sound investment strategy to begin with) as it will perform over the long term.
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Longer Term Sell Signal In Tact
The chart shows one of our signals over the last 5 years. It has worked just as well over the last 5 decades. As you can see it generated a total of 5 signals over 5 years. This obviously is not a "high turnover" or "high maintenance" tool and even a individual who was prone to "invest and forget" could have followed this simple indicator.
By using a simple tool such as this one, the investor would have stayed mostly out of trouble during market turmoil and captured, on average, about 80% of the upside movement in the market with only about 20% of the downside losses. In other words, on a year over year basis he would have never beaten the market on the upside. However, over the last five years he would be significantly ahead of the broader markets.
This model is the very one that prompted us to raise cash and fixed income back in April of this year even as the markets were pushing higher. We were chastised by media personalities for being "bearish" at the time. However, our clients have suffered very little with the market downturn and are now in a position to capture the next advance when it occurs OR avoid the potentially recessionary downdraft that the economic numbers are telling us is coming.
This model tells us that risk is still prevalent in the market and despite the massive October rally it does not alleviate the risk at the current time. However, with our short term "BUY" signal as stated above we, and have, reduced modestly our hoard of cash and fixed income for the time being. This allocation increase is on a very short trigger due to the longer term "SELL" that is currently in place. So while we will increase equity exposure moderately on any correction or consolidation that occurs we will do so cautiously. However, notice that I said modestly and cautiously.
Let me reiterate this point. With the longer term indicator still clearly in "SELL" territory we do not want to disregard that. We saw this same event occur back in 2008 as the market rallied to a short term "BUY" signal in the midst of the longer term "SELL" signal and the resulting effect was disastrous for those who bought in to the media hype.
Here is the important point. When this longer term signal changes, whenever it changes, regardless of how we "feel" or what we "think" about the economy or markets as a whole (those are emotional biases) we will adjust holdings accordingly. This will be the "WHEN" that we BUY the "WHAT" our fundamental values are telling us to.
Investors CAN do better with their portfolios. We remain in a "secular bear market" - the same one which we have been writing about now for more than a decade. Unfortunately, secular bear markets are long lasting, generally 15-18 years, so we have more work ahead of us. The difference for most will be who survives this particular market with capital left to invest at the beginning of the next secular bull market..


Read more: Buy Signal Is In - But Move Slowly

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  #25 (permalink)
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Daily Ichimoku...top of the cloud is at 729.8 which I would not expect to hold anything but (from an Ichimoku perspective alone but, might be a good spot looking at it conventionally), is a level to watch nonetheless. The next level down is the TS ( 722) and would be a good spot for a shot at a long so I'll be watching that area. Actually probably about 10 ticks above that might be the spot. The 1hr broke through the cloud and could do anything at this point....go down or come back up...The 15m is on the downside quite a bit and is likely to come back up in my view.
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Consolidative Correction Ahead?..from peak theories

Maybe today’s decline turns out to be nothing more than a consolidative pause, or even some “nice consolidation” before a bigger move up and something that would prove last Thursday’s spike up to be a classic Runaway Day, but the totality of the charts suggests it could turn out to be a bit more and this may mean a brief correction to consolidate October’s outsized gains.

Starting out with the equity indexes that tend to lead, the Nasdaq Composite and Russell 2000 are showing small and nearly confirmed topping patterns born of the last three that could push the large and bearish Rising Wedges in each index toward fulfillment with those patterns calling for 10-15% declines from last week’s possible peak.


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Today’s candle in the Nasdaq Composite’s chart above is fairly bearish and probably suggests the topping pattern will take this tech heavy index to its target of about 2615 and something that would indicate a bigger decline is on the way and an indication that would probably hold true for the S&P, Dow Industrials and Russell 2000 too.

However, as can be seen above, the Nasdaq Composite is still within the boundary lines of its bearish Rising Wedge and this is true of each of the other equity indexes after today.

Rather than complicating this picture by levels, it is probably simpler to say that if the equity indexes decline tomorrow by almost any degree that is not completely marginal, these bearish Rising Wedges will have kicked into fulfillment across the board.

On the other hand, if the equity indexes hold flat or rise tomorrow, those topping patterns may fail and today could turn out to be just a consolidative pause in the way of a bigger move up.

Such a possibility should not be ruled out in looking at the chart of Dow Industrials below considering that its tiny topping pattern has not confirmed even though its larger and bearish Rising Wedge appears to be doing so with today’s ominous candle supporting this potential drop.


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The chart above also reminds us of an ultimately bullish reason as to why the Dow and the other equity indexes might decline in the days to week ahead beyond the consolidation of gains and that is to put in the right shoulder of potential Inverse Head and Shoulders patterns. The horizontal marking to the right above is probably too symmetrical to the left shoulder with it seeming more likely that the actual shoulder is put in somewhere well inside the sideways range, but even so, such a possibility speaks to a decent decline ahead.

Direction, again, tomorrow is probably the easiest way to make this determination during the day with a move up speaking to the consolidative pause and a move down pointing to some consolidative correction.

In looking at the charts of the various commodities, it seems the latter may be on the way with crude’s charts looking very bearish after today’s sideways trading and this true, too, of copper and the CRB Index Itself.

Crude is discussed in a separate note that calls for a possible 20% drop to $75/barrel even if it follows a possible brief blip up to about $96/barrel, but below is the chart of copper and the red metal seems more likely than not to decline on the combination of today’s bearish candle, its bearish Rising Wedge with a target of $3.00/lb and that Descending Broadening Formation that suggests copper could find $2.75/lb in the weeks ahead.


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Interestingly and not surprising, the overall look of copper above is not so different than the look of the CRB Index with each looking similar to crude and the grains as well.


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Today’s candle is pretty bearish looking and suggests a drop toward 310 and such a potential move would push that bearish Rising Wedge toward fulfillment of its target of 292.

When considering its own Descending Broadening Formation, though, along with the plateau of support between 260 and 280, it seems most likely that the CRB Index may answer its chart’s call for symmetry by dropping down toward that lower range of levels that suggests a 10-15% correction could be ahead for commodities.

Overall, then, there remains a chance that the risk assets may use the last three days of trading as a springboard to move higher and something that would make the last two days more of a consolidative pause, but the equity index and commodity charts seem to suggest a consolidative correction may be ahead.

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Lance Roberts : Fed Trapped By Inflation

There will be NO announcement of QE 3 tomorrow. Why? Because the Fed has trapped itself into a corner. The first two rounds of Quantitative Easing (QE1 and 2) were viable for the Fed as inflation was running at deflationary levels in 2009 and at the bottom of their target range of 1-3% in 2010.

In both instances the implementation of asset purchase programs, which immediately juiced liquidity in the financial markets, had an immediate and pronounced effect on the level of inflation.
Today, with inflation currently approaching 4% on a year-over-year basis the Fed is not only outside its inflation mandate of 1-3% but any further cost pressures on the consumer is going to drive the economy into a recession. As we showed recently in our post on 3rd quarter GDP with food and energy consumer more than 23% of wages and salaries there is very little wiggle room for the average American.

Without access to credit, declining incomes on a year-over-year basis and uncertainty about employment there is tremendous strain on the consumer to make ends meet. The Fed knows this. They also know that without help from somewhere the economy is in trouble. The hope is that they can "talk" the markets along.
Therefore, expect no announcement of QE 3 tomorrow but lots of talk about policy tools, potential for further action and another punt to current Administration. However, there is a bigger problem brewing, and one that has been set aside due to the issues with Greece, the "Super Committee" only has 22 days left to announce the spending reduction plans before the automatic cuts take hold. This won't be good.

Unfortunately for Ben, and the Fed, they are trapped between the need to "do something" to boost the financial markets and support the economy but are constrained by their mandates to keep inflationary pressures under control. There is no help coming from a deeply divided Administration that can find no middle ground to compromise on. Furthermore, the automatic spending cuts are going to sap a portion of the 23% of personal incomes that are made up of government transfers. The consumer is tapped out, the economy is much weaker than the headline numbers suggest and without liquidity assistance from the Fed you can expect the recession to take hold in 2012.
However, we might get surprised by the Fed as they have done it before. The real question is even if they do something will it be enough to offset the damage that has already been done

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1hr chart...pretty obvious we spent the day consolidating/winding up...just have to wait and see.
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From: of two minds

Increasing Volatility: Prelude To a Crash? (November 1, 2011)


The megaphone pattern in the U.S. stock market typically presages a major decline or full-blown crash.

Market observers have long noted that increasing volatility presages market crashes. If you glance at a chart of September-October 1929, just before the crash that started the Great Depression, you will note the same sort of manic swings of euphoria and fear that have characterized the U.S. stock market over the past few months.
Not only are the swings increasing in amplitude, the time between each move up or down is decreasing. Think of a series of wind storms that grow increasingly more violent even as the time between storms diminishes.
In stock charts, this widening of range traces out a megaphone pattern. The S&P 500 (SPX) has traced out a classic megaphone pattern over the past few months:
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Note the eleven wild swings up and down in a mere two months. Does anyone seriously believe this sort of schizophrenia typifies a healthy Bull market?
From a technical point of view, the recent euphoric three-week rally is nothing but a last-gasp attempt to regain the critical 200-day moving average (MA), another classic sign of a market about to roll over big-time.
On the weekly chart, we can clearly see how the timespan between official "fixes" and renewed declines has shrunk from six months from the first "fix" in May 2010 to two days after the last "grand fix." Market participants are losing faith in the Status Quo's ability to effect a coherent, lasting "fix," especially as the rules governing hedges such as CDS are changed at will.
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Last week I reprinted this chart from The Chart Store of the uncanny similarity of the current market to the 1907 crash. Notice the "secondary" crash that occurred right about now in the 1907 chart; history doesn't repeat exactly, and analog charts are not predictions, but it is certainly interesting how recent action has closely matched the 1907 price movements. Were the present to continue following the basic outlines of the older chart, this targets an SPX level around 900.
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In the real long-term, one target for the SPX is around 600. "Impossible," Bullish observers say. Perhaps. But all sorts of "impossible" things seem to have happened in the past four years, and the line between what's "impossible" and possible has blurred.
Technically, a re-test of the March 2009 lows around 666 is certainly possible, despite protestations to the contrary.
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A look at daily today, price is currently just above cloud and TS is as well. The KS is still in the cloud but if the present course continues it will come out on the up side in approximately a week. That's when things should get real interesting.

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On the 1hr the only thing that isn't on the upside is the CS as of this posting...just going by this chart a long could be had at about 732....
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