On the 15 minute chart this is how the battle was fought:
We shall watch overnight as China open’s and Japan continues to react to its “Change you can believe in” to see if the 1020 supports overnight.
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On a weekly basis now we will be updating these indices to use as a milestone to track the market progress in addition to our other indicators.
All the numbers are self explanatory except perhaps the “EFF” column. The EFF is the weekly efficiency number, how large was the final gain versus how far it traveled. For example: If the week opens on the low and closes on the high the efficiency would be 100%. This tells us the market most likely trended the week.
Our efficiency numbers for this week are quite low and percentage gains are small with the Russell 2000 showing a small loss on the week. We continue to consolidate from the August OPEX thrust and we should break out here either to the upside or downside in the next week or after Labor day. The general rule on the breakout favors the Bulls as they have had all the strength lately if you haven’t noticed.
There was much talk this week about Doug Kass and his call for the market top. Mr. Kass’s evidence for the market top is the fact that he called it when he called the bottom on March 9th. Since March 9th was correct his 1050 must be correct to.. right? Mr. Kass also reinforces his views based on economic fundamentals which if I understand his view he is basically telling us that our new economic balloon has be inflated with government stimulus helium and when that ends it will all leak out and hence we get a double dipper with the second re-inflation a more capitalistic/market driven helium.
Doug does not seem to have any particular reason why we realize this at 1050. Maybe his thinking is that when all the analyst come back from the beaches they will realize that they are holding junk and will sell-off. Not sure. Mr. Kass I am told is a really smart guy, and I do know that he is smarter than me, but I do want to send up a warning that the sky is most likely not falling. (Doug is not saying this.. he is calling the high of the year). A call for the top is not a call to short. Sharp and sudden pullbacks from explosive bull markets like the one we are in the midst of do not happen. A slow down of the upward drive and re-alignment of underling indicators seems to be the norm for these type of markets in the past.
There is usually plenty of underlying sentiment change to trigger ample warning for a pull out. If you do get caught in a larger pullback, it will most likely be bought like the 6% pull back in August and the high retested as either a continuation or a failure. Failure from those highs, or new tested highs with underlying market weakness are big red flags, we see none of those in our indicators now. This is a long winded way of saying long term I remain bullish and despite Doug’s call that the market has topped I see no evidence in the price action that would make me want to short this market hard. If you have fear just step aside but shorting is like playing chicken with a steam roller.
How our indicators ended up:
NYSE 52 week New Highs:
We still see underneath weakening in the new highs with out price action follow through. Friday’s gap opening was enough to give us a green close on the new highs but not enough to change our 5 day momentum. It will take a new high close greater than 126 on Monday to reverse the momentum indicator, which most likely will not happen, and a close below 116 will increase the downward momentum. Any new index highs here without a New High count of 126 is seriously called for questioning.
Zweig Breadth:
Our ZB indicator was doing a great job correcting on Thursday and Friday before the bulls decided to have a little fun. Now we sit mid-stream neutral.
Price Action:
I have posted the TF futures (which are the Russell 2000 eminis) to show this weeks price action since they closed down for the week as an outside index.
Summary:
I see the bull catching its breath for next week, ready to run when the markets come back to full strength after labor day. We have lots and lots of economic news this week and maybe like Doug Kass says we will start to notice that most of the green shoots have been started with miracle grow and the formula is about to run out. This week watch both the news and how the market reacts to the news. Up markets on bad news, tell you something about the sentiment of the players. Down markets on good news, the market is telling you it wants to correct.
Happy Trading
RLT
Two days below the cyan line is an even stronger sell signal. Weakness is creeping in and the ability of the bulls to continue to save the market is taking its toll here.
To keep updated on all our indicators and what we are trading real-time follow me on twitter at http://twitter.com/redliontrader, or my partner Tom at http://twitter.com/tomandprisha.
Good morning – August 28th.
This morning’s price action review:
The TF futures (Russell 2000) emins is the chart I am showing here. I have switched to the futures for tracking indicies because so much of the technical work now is down after hours. Our highs and lows and corrections now occur in the middle of the night sometimes. A recent high on the TF was set at 10pm. For review the red,white and blue lines are 1%, 2% and 3% pullback areas from a recent high. You can see that after last Friday’s thrust and Monday and Tuesday’s follow through which set the most recent high, we pullbacked Tuesday and just hung around the 1% line. Thursday opening we had an “amateur” sell off and classic bear trap only to close on the highs of the day. Currently (around 7:30am EST) the TF futures are pointing higher with a good chance of pushing through to new highs.
News:
This morning at 8:30am Core PCE Price Index, personal spending and income, at 9:55 Michigan will let us know the sentiment of the consumer. This past week has been all about finding the consumer with serious talk about how this economy continues its recovery with a much damaged consumer and missing consumer. This morning numbers should feed directly into the weeks spin and hence have a potential effect on this mornings price action.
Our Sentiment Charts:
Our Zweig for this market is in neutral territory, pointing south so really not telling us much. The Zweig likes to chop so an up day into overbought is certainly not out of the question.
The NYSE new highs does give us something to watch today.
With yesterday’s close of 70 new highs, the secondary peak of new highs has officially lost momentum pushing our 5 day momentum indicator down from 97 to 96. Just slightly down. Today’s day-5 or bar-5 number is 95 so we would like to see 100 new highs in order to regain positive momentum or under 90 to continue that downward line. Notice during the last peak we also had one of these “kinks” only to be followed by a strong day and then resumption of weakness. Will this repeat? I will attempt to tweet during the day NYSE updates and let you now what the final prediction will be. At 30 minutes we have a pretty good range and at 60 minutes our strike zone is even narrower.. So again we are looking for less then 90 showing continued market weakness here at the top and greater than 100 to show bulls regaining their footing for a possible run up.
10 Day Hi-Lo (Russell 3000):
The 10 day High-Low continues to weaken. For the first time since we have created this indicator we had intraday values that were negative. Our price action continues to be sideways with underneath weakening that could simply be marking consolidation after last weeks thrust.
Percentage of NYSE stocks above their 40 day moving average:
Yesterday I sent out an intraday version of this chart. The orange line represents the number of NYSE stocks above their 40 day moving average. We are currently at 86.77% which is historically high. A drop below the 20 day moving average.. I have 19 days here.. has historically been a good short entry in to the market. Intraday yesterday we crossed below but the late morning save and rally forced the symbols back above their 40 day average. We will add this to our watch list of potential weakness.
Happy Trading:
Marlin aka: Redliontrader
About Me:
I have been trading for a living for over 7 years now, learning through doing and listening and researching. Like most traders I have developed my own personal style and favorite indicators. If you want to trade with me and my partner Tom come visit us at http://ttthedge.com.
If you have a pal-talk account come by for a visit. It is a premium room but we leave it open for visitors and friends. We are there everyday trading the markets, sharing data and calling trades. It is a room full of active professional and full-time traders. Using paltalk express you can get to the room using this URL:
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You can follow me on twitter as Redliontrader where I will update charts and data throughout the trading day.
There were no sellers to see back into the rally. So between the sellers that panicked at the drop and eventually bought back in, and the bears who started shorting like crazy and covering back like crazy this market had no where to go but up. Hopefully there is not a fresh batch of bears that sold the close today, or were caught at the bottom. A gap up tomorrow with a panicked short covering could propel us to a new height. Hopefully the weakness we see in the new highs and our 10 day hi-low difference (+243 today) which is also down 4 days in a row is real and will manifest itself with a real correction.
The number of stocks above their 40 day moving average is above 85% which is way into overbought territory. Historically a move of this indicator below its 21 day moving average has generated a successful sell signal. Today we are closing in on the signal.. Stay tuned..
Tom asks me if I see any weakness and I confess I can only see strength here in both the 52 week new high and 10 day Hi-lo indicators. The Zwieg shows a thrust as strong as the previous thrusts that seem to impart a momentum that is hard to stop. The price action over they last two days though is very worrisome. Strength in the morning followed by selling and those spinning top candles that are being left behind do not look so good. Meanwhile the 52 week New High is gaining momentum. Yesterday, Russell’s 52 Week New High (52WNH) was very strong, and the intraday curve of the NYSE New High indicator showed no indication of weakness.
This morning in the shower I had an obvious revelation, in order for the market to get to new highs it must add the previous new highs (repeaters) to a new collection (newbies). Correct? If the sentiment is that we are going higher the parade of New High symbols should get larger and larger. What are the charts showing us?
(You can always click on these charts to get the full resolution image)
I drew this chart three different times in an attempt to get across my thinking. There are three areas marked on the chart. Each area is a new index high after a pullback. In the last two cases each breakout to a new high was paired to a 52 Week New High indicator that was also making new highs. Our current breakout was made on a lower value of the 52WNH indicator. We should be above 140 but we are only around 100. Where are the missing 40 or so daily 52WNHs?
How is it that the index is making new highs but our parade of symbols is smaller? This indicator is too new to me and I do not have that much data to decide the significance of this divergence. I am looking for weakness beyond the price action and this is what I have found. Yesterday’s 52WNH was lower on the NYSE which happens even while gaining momentum. Two days in a row of a 52WNH would be very suspect on this leg. Today’s Magic Number to turn the indicator down is 43. If we do less the market is seriously damaged. A lower high on the momentum line (Yellow) on the 52WNH indicator is a sign of a correction.
All that being said, the momentum (in my opinion) is still in the Bulls corner and an higher indices are still possible. Watch the resistance values that Tom puts out in http://pv.ttthedge.com and see how we can track above yesterday’s 52 week new highs with our hourly postings in the traders room.
happy trading
-RLT
Our new 52 week highs changed momentum a couple of days ago, and Friday’s strong thrust and a weak preceding 5 days make it highly probable that we will continue to rise higher on the 5day momentum indicator for the new highs. Today I share the Russell new highs
The force of Friday’s gap open can be seen on the New High. The middle indicator( blue, green, yellow) is the 5day moving average laid on top of our Magic Numbers which for today are –2 and 8. I doubt we will get –2 new highs today so our 5day is assured of rising higher and the chances of hitting above 8 are pretty assured also, so today the 5day will increase its value.
Our ten-day new hi-lo uses the entire stock list of the Russell 3000, so it includes large caps as well as the Russell 2000 small caps. This indicator shows how powerful that thrust out of this little bear trap was. Taking the Hi-Lo diff (the green line) back up to near the highs of the last bull leg. These thrusts have in the past lead to higher highs in the next few days. The pattern is to get a thrust like this and then decay momentum, but still making higher highs along the way. Both indicators are telling us that we will be making a new high this week unless a news trumping story arrives. I would say what we are learning from our indicators is Thrust- buy-buy-buy, as we decay to the 0 line on the new 10 day – hi-lo diff we should start to offload.
We will watch this week to see if we get this same thrust decay pattern follow through.
Zweig Panel
Our Zweig panel again shows the power of the thrust. This thrust was more powerful than the one that started the July-August rally. This indicator also has the habit of going overbought, staying and decaying and while prices make new highs along the way. We can at least see when the momentum is leaving the market and place appropriate hedges or money management.
Happy trading for the week..
-RLT
I will start off showing the Zweig panel for the markets as they exist since the close yesterday:
They are dangerously in neural territory hitting against the decaying trend line drawn in the first two charts, showing either a burst to resume the bull run or a continual decline. Moving to the new highs:
These are the NYSE, Nasdaq Market and Russell respectively. We are still showing a averaged decline which is slowing. On the Rut and NYSE we have now put in 3 days of greater new highs which can indicate a trend change. A better trend change indicator however is a new 5 day high which is basically what the magic number is so for today we would like to see a NYSE new high number at close to be greater than 78.
One of my concerns about the NH indicator is that the number are all so small, a single new high has a huge effect on the values. I have been doing some research on my StockFinder which is great for creating new indices on broad-based stocks lists. The following indicator takes the universe of stocks contained in the Russell 3000. So it includes the small caps as well as the large caps.
There are 3 indicators here which look for the number of stocks on the Russell 3000 that have made a new 10 day high vs. a new 10 day low and the bottom pane is the difference. The idea was based around Dave Fulkerson’s suggestion to look at the NYSE difference. This indicator shows that we have been four days now making more ten day lows and highs and the drift is in continuing weakness waiting for an upward thrust to change the momentum. Something new for us to watch and compare.
happy trading
-RLT
Our new high indicators are now at their lowest levels in 25 trading days. We are looking for signs now of a resumption of a bull leg up. I have noted today on the NH chart the 3 leg pullback that occurred around the middle of June. I am not an Elliot Wave guy so my A,B,C annotation are my own for reference between the Zweig Breadth and the New Highs.
Here is our current Zweig panel with the A,B and C legs indicated. Note that already the Zweig Breadth indicator has pulled back to the “A” level so a snap back from even here could easily occur.
Today looks to gap up on the open. This is what we did on the 2nd red bar of the “A” leg on June 16 which ended up closing considerably lower. We need to watch today’s gap for closing and a test of the lows today to establish our position in the current pullback.
Today’s NH’s magic numbers to turn momentum are 52 and 62 respectively. We should be able to judge this gap based on early New High numbers today, say around 10 am this morning. If we hit 20 new highs in the first 30 minutes it could signal a turning.
happy trading
-rlt
Wow. I played hooky yesterday for a family birthday party. I thought I would be alright and that the day would be uneventful. The morning of FOMC are almost always flat and the post announcement has activity, but what were they going to say that they did not already say? For the nimble it was a great trading day.
Our NYSE NH indicator did set a two day high, but for the activity and price action it is disconcerting how low it still is. The Russell was a leader yesterday but it too only set a two day high.
Today with the large gap opening that is developing the day should be a follow through day and perhaps a stair step higher NH. Our target number (Magic number) to turn that 5day upward is around 120.
Our opening 30 minute prediction model broke down big time yesterday. We only had 11 new highs at the open showing great weakness. According to our 40-60% rule our final close on NHs with only 11 opening new high would have been between 18 and 27. We closed over 2x that.
You can see from the intraday momentum indicator at the bottom of this picture that momentum increased throughout the day. That top indicator that turns from green to red to green is the %above/below the 3 day average we are tracking. The color of the indicator turns green if we are sloping up (gaining momentum) or red if we are sloping down.
The curve profile in the past have a very parabolic shape, over the last two days the shape of the NH curve has taken on an “S” shape profile with strong morning and closes and weak afternoons. Something to note.
We will look today at breaking 5 days straight of lower 30 minute opening NHs. We have experienced a turn from the top so now we are charting what a re-direction in momentum looks like.
Wow. I played hookey yesterday for a family birthday party. I thought I would be alright and that the day would be uneventful. The morning of FOMC are almost always flat and the post announcement has activity, but what were they going to say that they did not already say? For the nimble it was a great trading day.
Our NYSE NH indicator did set a two day high, but for the activity and price action it is disconcerting how low it still is. The Russell was a leader yesterday but it too only set a two day high.
Today with the large gap opening that is developing the day should be a follow through day and perhaps a stair step higher NH. Our targer number (Magic number) to turn that 5day upward is around 120.
Our opening 30 minute prediction model broke down big time yesterday. We only had 11 new highs at the open showing great weakness. According to our 40-60% rule our final close on NHs with only 11 opening new high would have been between 18 and 27. We closed over 2x that.
You can see from the intraday momentum indicator at the bottom of this picture that momentum increased throughout the day. That top indicator that turns from green to red to green is the %above/below the 3 day average we are tracking. The color of the indicator turns green if we are sloping up (gaining momentum) or red if we are sloping down.
The curve profile in the past have a very parabolic shape, over the last two days the shape of the NH curve has taken on an “S” shape profile with strong morning and closes and weak afternoons. Something to note.
We will look today at breaking 5 days straight of lower 30 minute opening NHs. We have experienced a turn from the top so now we are charting what a re-direction in momentum looks like.
My NYSE new highs indicator continues to show weakening in the markets with some downward momentum. I have annotated today’s picture to show you what I am looking at. Starting on July 9th you can see how the NHs stair stepped upward making 4 days of higher highs skipping a day and then making 3 more days of higher NHs and finally topping out on August 3rd. On August 7th we issued a paper trading buy signal to go short (we used TZA long), we now need to figure out how to get out of the trade and are looking for momentum up change in the NHs. Our August 7th short was based on the SPX making a new high, but the NYSE NHs not making a new high, a divergence between index action and underlying broadmarket action.
Our magic numbers for today sit at 145 and under keeps downward momentum in place, 155 and higher will switch the 5day to a positive slope. A value in between will put the indicator in neutral. I will not be in the traders room today so for those wanting to keep track intraday, someone might post the NYSE NHs. Remember you HAVE to use the TradeStation NHs values ($W52WHN). That first 30 minutes will give you a hint of which direction we will head today. To break the 145 number the opening 30 minutes NYSE NHs should be 58 and above. Anything under that and the odds are seriously in doubt.
We are looking for a change in today’s sentiment that will drive the markets to a new price high. An increase in the number of stocks making new highs and follow through on the next day lets us know that buyers are willing to buy stocks that are at their 52 week highs and push them higher. New highs beget new highs and build up momentum. Look at that July 9th build up!
The question I am working out now is can we “front run” the indicator. Can we sense in the middle of the day sentiment change and take advantage of it? Here is my 30 minute chart of NYSE NHs:
Let me explain the chart. The bars are the NHs symbol $52WHN from TradeStation. The light blue and yellow curves above the bars are the 5day and 3day profiles, that is the values of the same bars from the last 3 days averaged and the last 5 days averaged. The indicator on the bottom of the page is the percentage above and below the 3 and 5 day profiles. Clear?
Look at August 7th. That was unemployment Friday where we had that great opening. Our first 30 minute bar was strong, but not as strong as the preceding 3 and 5 day averages but strength did build and after the first two hours we were tracking above the 3/5 profile but then slowly drifted away. On the bottom indicator you can see the momentum swing from positive to negative.
On Monday the 10th we had morning positive momentum and then lost ground again in the afternoon. Yesterday we saw a change in the momentum. We opened weak and then gained in the afternoon. Should this have been our cover signal? The great thing about paper trading is you get to experiment. We will let today run and see how it goes. I wanted to let you see what I am looking at. The goal is to figure out the best timing for this indicator and I am sure we will have a lot of starts and stops.
Zweig today.
Here is the Zweig Panel. The last few days have worked the Zweig away from its overbought condition down into neutral. Everyone is waiting for a new bull leg and a run up from the 50 level is possible like the May 13th run visible on the charts. Maybe one or two days of weakness?
Today I want to look at and track our New High charts slightly differently. We are using a simple moving average to be our momentum indicator which means each new day we loose the bar from 6 days ago (Call it Bar-5) from the average [imagine a zero base counting system where today is bar-0]. In order to keep the average at the same 5 day moving average value we must reach the same value at the today’s close as Bar-5’s close. In this case for the NYSE 52 Week New Highs our Bar-5 was 129, we must meet 129 to keep the average at its current 143. If we exceed Bar-5 at close the average will be higher (Bullish) or if we are lower the average will be lower (Bearish). Pretty simple. I like to work the averages like integers so my magic numbers calculate the closing requirements to make a whole integer change. On the chart below a close today of New Highs above 134 will tick the average to 144 or greater, a close below 124 will tick the average down to 142 or lower. You can see Bar-5 sandwiched in between these lines.
Looking at Bar-5’s intraday 30 minute chart looks like this:
That opening 30 minutes is a huge chunk of the New High value. I haven’t run real stats yet but opening 30 minute new high bars run close to 50% of the days total on most days. On the 30th the new highs after 30 minutes were 58 and the total for the day ended at 129, the opening 30 minutes was 45% of the days total. That relationship seems to hold across most of the days.
Since we know we have to replace this bar in our moving average for today I will track today’s 30 minute chart against this Bar-5 chart. We will either be ahead or behind as we progress through the day. At 10:00 am I might post NHs: 56 -2 (0) which should be read that at 10am we are two new highs behind our Bar-5. At 10:30 am I might post NHs: NHs: 66 –4 (-2) indicating that we are tracking 4 NHs behind and momentum is gaining in the negative direction. Of course in this market most likely will be in the positive side of momentum if we are tracking above the Bar-5’s new highs.
Why are we doing this? We are looking for divergence, where pricing is running to new highs but the new highs are tracking below the average. This should be bearish and indicate that a market turn might be ahead. Yesterday we had the opposite, we had price weakness during the day but the NH indicator kept chugging along tracking ahead of its bar-5 pace car indicating that price should return and it did. We are also looking for confirmation that we are on the right side of the trade.
It is very simple, but somehow in explaining becomes more complicated that it sounds. If you need me to clarify or you have any questions you can email me: redliontrader@gmail.com or IM me during the day with your questions.
The Russell new highs
I have added the Russell 2000 new highs to my screens. I wrote some about this yesterday. It is interesting to note that unlike the NYSE, the R2K is showing some momentum weakening.
The R2K NHs Bar-5 (how is that for code) is pretty tall and requires that the R2K NHs close greater than 106 today to maintain bullish momentum, or below 96 to turn that 5 day moving average downward. I will track that but not post about it unless I see some real weakness or strength.
Zweig.. what can you say.. oversold.
This is our Daily NYSE new highs as reported by TradeStation. I added the MagicNumber indicator to the chart. The numbers to the right represent the needed value of closing-new-highs to tick the moving average up one value or down one value. For today our moving average rounds to 129 (Yellow line). In order to tick the moving average up to 130 we would have to close with 86 (Dark Blue) or over new highs (this would be bullish), to tick the indicator down and show a loss of upward momentum we would have to close below 76 (Red Line) new highs (bearish).
Yesterday morning I decided to look at the other New High’s data. I have All US stocks, NYSE, Dow, S&P, NDX, N100 as well as the Russell 2000 available to me. The problem with the smaller indices is that there just isn’t enough stocks listed to gain any useful data. The R2000 however does have 2000ish stocks and unlike the NYSE does not have all those preferred and bonds and weird non traded items that need to be filtered out.
Looking at the R2K we can see we peaked New Highs on 7/28 and lost a little momentum Yesterday was a big day for the Russell and the momentum loss was curbed. Today for the R2K it will be interesting to see if the New High indicator can tick up one..(it needs to break 52 in order to do that) indicating returning momentum to the small caps.
New highs are an interesting sentiment indicator as new highs are either yesterdays (or a few days ago’s) new highs re-hitting new highs (repeaters we’ll call them) or new symbols joining the pack of leaders (noobies we will call them). There may be some information to gain from separating the noobies from the repeaters but that will have to be another study.
Our Zweig continues to sit in overbought area. Come on Bulls, give the poor indicator a break here, let it come down so I can join the stampede! That 64.21 value is high, but it has been higher on a few occasions so there is still some bull room.
