I published a mid-day post on this indicator along with my feelings about the quality of the data and the increase of noise.  It might be worth the read if you didn't already read it.

It is interesting how it issued a good one day buy signal and now it is back to red.  Both the 2k and the SP500 are close to issuing a buy.  Tomorrow I am expecting a weaker open based on the trend setup in the NYSE ticks today.  In order to push this indicator up into the buy zone, assuming a weaker open, the day will have to build up strength.

If we do get any morning strength I will be anxious for the mid-day running of this indicator.

Watch my tweets or better yet join me in the trading room for live update. http://ttthedge.com

 

We are just chopping along in here as this index is just crossing back and forth above and below the trigger moving averages.  We are waiting for a trend to setup like on a lot of the other breadth indicators.

The NYSE 52 week new highs hurdled their goal of 192 today to maintain yesterday's buy signal.  Tomorrow's hurdle is a lesser 92.  I am expecting a weaker open tomorrow as the NYSE ticks are in a downtrend that should continue under they dip below their overbought area. 

92 is not a forgone conclusion depending on tomorrow's weakness.  We will watch the futures and see if China and Japan can continue their rallies and push the Euro zone along too.

 

For the last 10 days we have just been drifting around here in the neutral zone on the Zweig, unable to sell off and unable to rally.

We have put two days of improving Zweig values together.  We have not been able to make the 3 in a row for the past 10 days.  So we are scheduled to go down, an upward day would break the pattern and convince us that some of the other breadth indicators that have 'drifted' into the buy zone are legitimate.

We talked in the chat room today about how difficult it is to "see" this market.  This chart shows in a picture  what I mean.

Reading charts, at least for an engineer, is attempting to extract some-type of signal from noise. You can see easily on the SP500010DayH-L chart pane (the bottom pane) how from Oct 15th until the 27th the bars made a fairly consistent lower-low pattern and then reversed that pattern going up to a high around the 9th of November.  That is an easy signal to extract.  If you bought when the moving average turned up you earned a good return.

Now look at how the bars have set up since the 16th, they are all over the place.. ie.. there is not much of a signal.   So we need to be very skeptical about any information we derive from a chart like this.

I often speak in terms of driving when talking to others about the trading the stock market and to my engineering friends about why it is very difficult (impossible?) to design a mechanical trading system that works in all conditions.

Some days we are on that open road and the car is in overdrive and all we have to do is keep it on the road straight.  Most days however we are on a winding curvy road not sure what is around the corner and we can only trade what is right in front of us.

Since I am unable to see 3 days ahead because of the noise in the breadth data (fog) I am forced to scalp and trade the short-term indicators like the ticks in order to make my living.

So I am sitting in cash ducking in and out of the markets avoiding all the other drivers that are lost in the fog too.

Driving a car is a very complex task and it takes lots of years to internalize all the information that is coming at  you.  The weather, the road surface, the surrounding drivers, the time of day, the type of car you are driving... and that is why there are no computers driving cars yet.  The markets are a great parallel and that is why it is very difficult (impossible?) to get a computer to mechanically trade for you. To be a successful trader you need to recognize the slow down signs ahead.

Don't forget to dim your high beams and turn on your fog lights.

See you in the markets (hopefully)

- RLT

It all began in 1593 when a Dutch importer Conrad Guestner carried back from Constantinople the first tulip bulb from what is now present day Turkey. The exotic flowers became an instant hit and within a few years has established themselves as a status symbol amongst the Dutch elite.   The desire and need to have tulip bulbs eventually spread to neighboring Germany as well. 

Cross pollination and genetic manipulation amongst the growing number of Dutch tulip bulb farmers began creating rare strains that became competitive prizes, much like fine wines are today.   At one point a harmless virus attacked the tulip bulbs and created new and even more pleasing mutations.  These "fiery"  mutated tulips were harder to grow and posses making them the absolute "must have" variants for the exclusive crowd.

Eventually the desire for tulip bulbs work its way into the middle class and now a true high volume commodity market for tulip bulbs existed but the supply was still under pacing the demand and prices were still soaring.  Speculators joined in and began a futures market much like today modern futures market allowing buyer and seller to secure bulbs at future dates.  This speculation increased the pricing still further more as people began selling their land in order to take advantage of price escalation in the forming tulip bubble.

In a single month in the midst of the bubble the price of bulbs grew 2000%.  That was a return that no a lot of people could resist.  At its height some bulbs were worth more than a house.  Most of the bulbs being traded now were never going to be planted but simply represented a potential worth.

Like all bubbles the tulip bubble burst and many were left desolate with just a bag full of tulips.  The lessons from the tulip bubble are repeated over and over again in financial markets.  The study of the tulipmania should be required for all consumers so that they can learn to relate and recognize the many bubbles they see during their lifetime.  Whether they be small bubbles like the Tickle Me Elmo Christmas bubble or the great housing bubble of 2000.  They always end badly.

Charles Mackay wrote a complete account of the tulip bulb bubble "Tulipmania - Desciption of the Tulip Bulb Bubble". Although written in the mid 1800's it is a great read today.  Read, digest and learn the psychology around bubbles.

 

If we can hold this morning's gap, we should since there is no econ news before 10am this morning,  the 52 week new highs indicator should spike right at the open.  All those stocks that are close will be pushed up into new yearly territory.  Today's hurdle bars, the bar being replaced in the moving average, are all quite high today for each index. The NYSE moving average moved yesterday from 109 to 110.  That is a small improvement, but any improvement is a potential buy signal.  The 10 Day High - Low on the SPx also issued a buy signal at the close yesterday.

Based on the indicators closings I took a small SPY position just to honor the indicators.  It was not big enough to totally hedge my TZA position I was also holding to honor the RUT indicator which is still on the sell side.

Today's gap will most likely consolidate all the indicators into the buy zone. It is hard to believe that we are going to get a thrust up form here but that looks like what might be setting up. The 52 week new highs will be a good tell today.

The NYSE's hurdle bar today is 192.  We must close today with more than 192 NYSE issues making new 52 week highs in order to strengthen and confirm the NYSE buy signal.  Statistically that means we need to be between 100 and 120 by 10am this morning.  Watch in the room or follow my data tweets http://twitter.com/redsdata for a 30 minute update on the new highs today.

Or better yet, join us live in our trading room at http://ttthedge.com

- RLT