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Wednesday, February 2, 2011

Wednesday, After the Close!!!

Yields look to be breaking out of the consolidation phase they have been in for the last few weeks!!!
A ten year chart of the Summation Index is showing that this rally from the '09 lows is acting the same as the last major rally, diverging hard and making lower highs each time, except, this time the Summation Index is also making LOWER lows, this is one of the reasons I have been longer-term bearish on the markets.
One of the biggest movers today, just happens to be on this chart I have been posting over the last couple of weeks, the DOW Transports got beat hard today, down a whooping 1.94%, and now very close to breaking below the previous low. Also, the DOW did make another new high today, this divergence continues yet one more day.
The Daily chart of the SPX, over-layed with the Bollinger bands, clearly shows how yesterday's move breached the upper band, if recent history repeats itself, there should be a reversal to the downside very soon. The Red arrows show all the different places that the SPX breached the bands in the last 20 months, notice how the majority of the time, the SPX reversed back with-in the bands, testing the 20 day MA, which if broke, would move to the far side of the bands. In this instance, first level of support will be the 20 day MA at 1286.10, and the next is the lower Bollinger band, down at 1264.79, (currently). Again, the divergence remains on the RSI. Also of note, notice where the MACD currently is at, right on a long-term trendline of support, IF the SPX sells off and tests the 20 day MA, this trendline will most definitely get broke to the downside. On the shorter-term Bollinger band chart, the SPX breached the lower band then reversed and recaptured it, right before the close, This looks most like a head-fake, a quick move to the downside, breach the bands, recapture them, then the real move begins. This fits in with a 4th wave squiggle, with the real break-out being the 5th wave up.
Most of the major markets were relatively quiet today, the main exception was the Dow Transports. The SPX traded in a tight 4 point range for the entire day, working on the 4th wave squiggle, you can see the shorter-term chart below. The RSI is continuing to diverge, not making a higher high, even as the SPX does.
The market internals support this as a 4th wave with Breadth closing at only 1.13:1, decliners, on a wimpy 934M shares being traded on the NYSE.
The Trend Finder II has been updated, and there are same major changes, but I would be careful because the new signals are weaker then usual and the major indexes have been whip-sawing for the last few days, we need a break-out to gain some signal strength.


  1. New Post at a Peak under the hood - Does anyone give a ship?

    Entertaining read on the Baltic index as of late

  2. With respect to the Bollinger Band on the SPX I have found that in of itself it does not provide a 'significant' advantage especially when developing and using a system for mutual fund/IRA accounts with trade restrictions. I have been working on the following system to 'reduce risk' in mutual fund/IRA type accounts. The large number of whipsaws using the SPX only is reduced but not eliminated:

    CASH Signal Conditions:
    1. At least 2 of 3 indices (S&P600, S&P400, and S&P500) closes above the upper Bollinger Band (20,) limit. I am toying with only requiring only 1 of 3 indices closing above the upper limit after other conditions are met (more on this below).
    2. The 5-day RSI on 2 of 3 indices close above 75.
    3. At least 2 of 3 indices subsequently close below their previous 5-day low.

    BUY re-entry signal:
    1. At least 2 of 3 indices close above their previous 5-day high.

    Now here comes the fun part. I have noticed that if the above conditions exist, that is, there was a CASH signal and then a BUY re-entry signal then a subsequent close above the upper Bollinger band limit on at least 1 index indicates a fairly high potential for a big correction in the market. This is where we are at right now. I got a CASH signal at the end of day on 1/20 and a BUY Re-Entry at the end of day on 1/27. Now the SPX has closed above the upper Bollinger band on 2/1 as you indicate.