Today’s analysis is simple and involves two exponential moving averages, the 13 and 23 day lines on the daily chart.  The signal we’re looking for are crossovers of the 13 day average either up through the 23 (bullish) or down through it (bearish).   The chart shows the wonderful signals this indicator has produced.

We sit on the cusp of a bearish cross right now.  What will your next move be?  The odds say go to a safe haven vehicle like cash or bonds for now to preserve your capital.

Good luck!

After a huge pullback late spring and through most of the summer, the S&P 500 staged an incredible rally in the month of October.

Then, the past couple of weeks has brought an increase in volatility as more bad news emerged out of Europe, specifically Greece and Italy.  The DOW lost 400 points earlier this week. Bears were salivating…

However, Government shakeups happened in those two countries and Italy has accepted an austerity package.

Notice below how this is shaking out on the chart.

The October rally represents the dominant trend.  The recent volatility has formed a symmetrical triangle consolidation pattern.  Although symmetrical triangles can break in either direction, they are usually continuation patterns of the dominant trend.  The dominant trend is up.  Also notice we’re currently above the 50 and 200 day moving averages, and also the 13 day EMA. These are all very bullish signals.

I look for run to S&P 1370 by year’s end unless something horrible happens in Europe between now and then.

Also, remember there are lots and lots of fund managers that have bonus money riding on end of the year rallies.

On Friday’s session the SPY (S&P 500 SPDR) closed in the top quartile of its daily trading range on the third consecutive session (to be exact: on Wednesday, November 2, it missed the top quartile only by a fraction, but not affecting respective probabilities and odds). Historically a close in the top quartile of the daily trading range three days in a row right at the start of a month (either the first three sessions of a month or the second to fourth session) provided a remarkable downside edge over the course of the then following four sessions.

Table I below shows all historical occurrences, the SPY’s performance over the course of the then following 1, 2 and 4 sessions and the number of sessions until the SPY managed at least one higher | lower close (if any) in the event the SPY closed in the top quartile of the daily trading range three days in a row right at the start of a month (either on the first three sessions of a month or on the second to fourth session).

It is remarkable to note that whenever that setup had been triggered in the past, the SPY posted a least one lower close over the course of the then following four sessions (in this event until Thursday, November 10) on 29 out of 30 occurrences (thereof the last 21) or 96.67% of the time (while it never managed at least one higher close on 9 occurrences), a significantly downside edge over the 68.40% random chance for at least one lower close during a four sessions time frame. In addition, the SPY never posted a 1.0%+ gain the next day on any of those 30 occurrences, and even two and four sessions later 1.0%+ moves on the downside outnumbered 1.0% moves on the upside by a wide margin (6 : 1 and 7 : 2 respectively).

Whenever buyers drove prices higher back to the top of their daily trading range on (at least) three consecutive sessions right at the start of a month in the past, buying power had been regularly exhausted at least over the short-term.

With respect to the then following session (in this event on Monday, November 7), the setup shows a t-score vs. chance of -3.42 and a t-score vs. market of -3.66 (significantly above the critical +/- 1.645 level), indicating that there is a very low probability that the downside edge occurred by pure chance only.

Successful trading,

Frank

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Disclosure: No position in the securities mentioned in this post at time of writing.

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Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

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Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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A second setup triggered on the close of October 31, 2011, caught my eye today.

The S&P 500 closed out the month of October with an impressive 10.77% gain, but was still down -0.35% year-to-date due to a weak final session of October. The table below shows all historical occurrences and the S&P 500′s performance over the course of the then following 1 to 5 sessions (equals business days 1 to 5 in November) in the event the S&P 500 closed out the month of October with a gain (anything better than zero), but was still down year-to-date on that final session of October in the past.

The same (see SPX Down on 1st Session in NOV) bullish picture again. Since 1930, the S&P 500 closed at a higher level 3 and 5 sessions later (in this event on Thursday, November 3 and Monday, Novemer 7) on all 10 out of 10 occurrences, at the same time up 1.0%+ five sessions later on 7 out of those 10 occurrences. Although 10 occurrences only is again nothing to read anything statistically significant into it, the repeatedly positive weighting is quite impressive again, further supporting the bullish case over the course of the next couple of sessions …

Successful trading,

Frank

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Disclosure: No position in the securities mentioned in this post at time of writing.

________________________________

Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

________________________________

Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

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Sorry for the posting hiatus during the last couple of month. More to come (but it may take some time to get into a – hopefully – daily routine again, please stay tuned …)

With the S&P 500 up 10.77% for the month of October and probably (at least at time of writing) down on the first session of November, probabilities and odds are tilt in favor of higher prices over the next couple of sessions.

The table below shows all historical occurrences and the S&P 500′s performance over the course of the then following 1 to 5 sessions (equals business days 2 to 6 in November) in the event the S&P 500 closed out the month of October with a better than +5.0% gain, but posted a lower close on the first session of November.

Since 1930, the S&P 500 was trading at a higher level 2 to 5 sessions later (business day 3 to 6 in November) – but not necessarily on the 2nd session of November – on 6 out of 6 occurrences, at the same time always up 1.0%+ five sessions later. Although six occurrences only is nothing to read anything statistically significant into it, the positive weighting is quite impressive, and there seems to be a good chance that the index will resume its recent uptrend after having taken a short break during the current turn-of-the-month … (at least any negative intraday follow through on Wednesday’s session might provide a favorable buying opportunity).

Successful trading,

Frank

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Disclosure: No position in the securities mentioned in this post at time of writing.

________________________________

Remarks: Due to their conceptual scope – and if not explicitly stated otherwise – , all models/setups/strategies do not account for slippage, fees and transaction costs, do not account for return on cash and/or interest on margin, do not use position sizing (e.g. Kelly, optimal f) – they’re always ‘all in‘ – , do not use leverage (e.g. leveraged ETFs), do not utilize any kind of abnormal market filter (e.g. during market phases with extremely elevated volatility), do not use intraday buy/sell stops (end-of-day prices only), and models/setups/strategies are not ‘adaptive‘ (do not adjust to the ongoing changes in market conditions like bull and bear markets).

________________________________

Disclaimer

The information on this site is provided for statistical and informational purposes only. Nothing herein should be interpreted or regarded as personalized investment advice or to state or imply that past results are an indication of future performance. The author of this website is not a licensed financial advisor and will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on the content of this website(s). Under no circumstances does this information represent an advice or recommendation to buy, sell or hold any security.

I may or may not hold positions for myself, my family and/or clients in the securities mentioned here. Actions may have been taken before or after information is presented, and any opinions expressed in this site are subject to change without notice.

(Data courtesy of MetaStock , and for data import, testing, surveys and statistics I use MATLAB from MathWorks)

________________________________

All the major indices are now in Bear market territory.

But stocks don’t go straight down right?  Absolutely, some of the best rallies occur during bear markets. But with extreme fear and volatility being every day occurences over the past few weeks, when is a good time to dip your toe in the water and buy.

Major Chart Patterns Repeat

To answer the above questions, we need to look back at late 2007, early 2008 at a very similar time in terms of how the charts look.  In early 2008 (see chart) the 200 day moving average (blue line) crossed below the 200 day moving average (red line).  Also (and very key), the 200 day moving average changed from an upsloping line, to a flat line.  This is EXACTLY the pattern we have in the SPY right now.

13 DAY EMA METHOD

The trading method involves the 13 day EMA.  You can buy stocks for a position trade (several days to several weeks in duration) when the 13 day EMA (green line) changes from a downward slant to an upward slant, AND the stock is trading above it.

In the chart shown, obviously we were in a vicious bear market and most money was made on the short side.  However, if you would have bought stocks using the 13 day EMA method, you would have made money each time.

That’s because having a government on the verge of being unable to pay its bills is, for the U.S., simply a matter of choice. Trillion dollar deficits, trillion dollar debt, and trillion dollar budgets are simply just not being backed by the appropriate trillions of dollars in revenues that potentially exist. The wealthiest Americans at this very moment own a higher percentage of accumulative world capital than any other segment of society that has ever strutted across the stage of human history. The reason we don’t see this money in the economy is because the rich are insistent on hoarding their capital in storage facilities.

Meanwhile, the organization in charge of preserving the system in which all of this wealth is based on is on the brink of going broke.

It’s all very dramatic, but it’s just for show. At the end of the day, the United States still dominates global markets through the fiery force that is our private wealth.

These private individuals are not excited about being the only pocket of the public who can preserve the system through their taxes. They’re fighting it tooth and nail. But since their wealth is ultimately tied to the machine that prints the dollar, they’ll have to get their act together. The money will be found because it exists. What we’re seeing right now is just a battle over the specifics.

To us the talk of billions and trillions is utterly astounding. To the top tier that oversees these sums everyday, it’s just paperwork.

Part 1

Part 2

Part 3

There are significant signals in the current market that a crash
or meltdown scenario could unfold sometime in the next 1-2 weeks.
Crashes are rare events and nearly impossible to predict, but many
elements that could combine to produce a financial market calamity
appear to be present at this time.

This video
reviews the current technical condition of the major world stock
markets. In it I examine each index in terms of the relationship
between price and the uptrends from March 2009 and
August/September 2010, the April 2010 top and March 2011 low, the
20, 50 and 200 Exponential Moving Averages and areas of
significant horizontal support/resistance.

Here’s a direct link to the video: http://www.youtube.com/watch?v=OGVv2ODBQ-E

Every major stock market in the world is either hovering just
above or directly upon or has already broken a critical area of
technical support. Ordinarily this might represent a major buying
opportunity. But the current market setup may be anything but
ordinary.  In fact it may be quite extraordinary.

By moving dramatically ahead of the markets and leading price
lower, the market’s underlying technicals tend to indicate that a
sharp break to the downside is imminent. Many indicators have led
the market lower and now price will likely play catch up to the
underlying technical condition of the market. Here is just one of
many examples:

In spite of a very modest 7.5% decline over 6 weeks of trading
(1.25% per week), Percent of Stocks Above the 20, 50 and 200 EMA
have declined to precipitous lows usually associated with huge
selloffs. This is a prime example of the technicals leading the
market lower.

Here’s a closer view of NYSE Percent of Stocks Above the 200 EMA:

Only 55% of NYSE stocks are trading above their 200 EMA after a
minor 7.5% correction. Even though market price has yet to take
out the March low, the indicator has plummeted below its March low
and is not far from its August 2010 low. It’s moving averages have
crossed into bear market mode. So on a long term basis nearly half
of the stocks traded on the NYSE are trapped under long term
resistance in a market that is showing historically weak buying
pressure and significant and rising selling pressure.

Many analysts are calling this a signal of an oversold market. I
think they are wrong. An oversold condition requires some
capitulation selling and some fear and we have not seen that.
Remember, crashes and capitulations generally come from oversold
conditions. An oversold condition is also only a buy signal under
bull market conditions and there are many reasons to believe that
we are no longer in a bull phase.

There is very little fear in this market. VIX has barely budged:

Near market bottoms when fear is strong, traders switch to the
use of ETFs instead of individual equities in order to insure that
there will be adequate liquidity to exit the market in a hurry if
things should turn ugly. This is represented in the SPY Liquidity
Premium indicator:

In spite of everything we have discussed above, where is this
indicator in relationship to its March low or April 2010 low? Not
even close to showing the fear usually associated with a bottom.

This technical evidence tells me that the selling HAS NOT EVEN
STARTED YET. And it is likely to get started soon. There is MUCH
more technical evidence that supports what I am saying here which
has been published in a full report for BullBear Traders members.

When you have a situation where price needs to play catch up to
the underlying technicals and market participants are not fearful
and are still buying the dip, you have the recipe for a selling
panic of some kind.

Today’s weak bounce is probably just another selling opportunity.
Early action in Asia, US futures and the Dollar suggest that the
correction may be over already:

This is wave C as I see it at this time. 2 of C was a large abc
flat and (ii) of 3 of C may have been a smaller version with c
falling short of a, making it a bearish running flat.

Volume on today’s rally was POOR.

Volume was lower than the 50 MA of volume and lower than any of
the down days in the month of June.

Summation Index actually FELL today:

McClellan Oscillator gave a negative reading (though higher than
the prior day) and the 50 EMA did not budge at all:

Breadth Thrust Indicator FELL today, a particularly ominous sign,
since if this were a real bottom of any kind there would be a
breadth thrust signal of some kind:

Many other indicators, such as Bullish Percent Index, did not
even register a blip. From what I can see the technical quality of
today’s rally was very poor.

Also, Dollar rallied into the close and Euro and Aussie gave up
almost all their gains. This has continued in the Asian session
and Dollar is once again near 75.00. Looks like iii of C down may
have begun in Euro. I am short more EuroDollar.

To read the full BullBear Market Report, please join us at BullBear Traders room at TheBullBear.com.

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Traders room at TheBullBear.com. You’ll
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Market

In the introduction to this report, I detailed many of the non-technical elements that should have happened and could have happened and almost happened–but that ultimately failed to happen–leading to a non-confirmation of an ongoing bull market.  Let’s reiterate: I gave the bull the benefit of the doubt and argued its cause to the extent that it gave a cause to argue.  But when reality departs from argument I will have to go with reality.  Let’s look at some technical factors which failed to confirm an ongoing bull market and give substantial cause to anticipate a renewed bearish environment.

First let’s examine a long term chart of SPX:

Since the August/September 2010 bottom, we have been operating under the thesis that SPX was probably in a bullish Wave 3 advance.  If this is the case, there are some technical characteristics which should be present and some which should not be present.  Separately, the persistently declining volume over the course of entire run and the successive RSI divergences are not necessarily troublesome, but together they add up to a technical non-confirmation and make the move much more likely to be a C wave.  If the 50 MA of volume starts to turn up and volume levels persist above the 50 MA during an ongoing decline, that will probably be a long term bear signal.  If RSI declines below 30 and breaks its March 2009 low, that would also be another confirmation of a bearish shift.

The 50 EMA of Advances-Declines is testing its key support zone from which intermediate term rallies have been initiated many times since March 2009:

Of course, it’s possible that it may rally sharply off this support zone again and the market may reverse.  But there are some signs that that is not what is going to happen this time.  First, note that the indicator has made lower highs as the market made higher highs–a bearish divergence.  Second, note that the indicator recently bounced off of support but failed to attain a new high before heading back down again.  Also note that the indicator is now nearly at its support level after a minor sell off in the market.  This means that if the market breaks support this week the indicator is likely to also break through support and head back down to its May or July 2010 lows or below.  This would likely represent a bearish range shift for this indicator and the markets.

Percent of Stocks Above 200 EMA has broken down badly:

This is just one example of the many indicators that are leading the markets lower.  The indicator has declined to readings well below the March and November lows while market price has not yet even taken out the March lows.  Generally when technicals lead a market lower it is a good signal that market price will follow soon.

While the situation described thusfar could certainly reverse and propel markets higher, the important point to be grasped here is that on every count there have been significant attempts to move in a direction that would be bullish for stocks and general asset prices that have FAILED badly and REVERSED strongly in the opposite direction.  What makes this even more inauspicious is the total failure of the trading and investing community to come to recognize and come to terms with the situation.  Trapped in attachment to to established views they may be forced to reckon with reality all of a sudden, producing a steep, sudden decline in prices as everyone heads for the exit at the same time.

In the short term a minor rally is possible as there may be a bit of short term selling exhaustion and a bit too much bearishness creeping in to the markets.  if there is a rally, the next minor high should be a good shorting opportunity for the next wave down, which will likely be the strongest move down seen yet this year.

To read the full BullBear Market Report, please join us at BullBear Traders room at TheBullBear.com.

Need some help staying on the right side of the markets?  Join the BullBear Traders room at TheBullBear.com.  You’ll get this kind of timely, incisive, unbiased stock and financial market trading, timing, forecasting and investment technical analysis and commentary daily.  It’s free to join, no credit card is required and if you like my work you just make a donation at the end of each month.

Keeping You on the Right Side of the Markets