OCT 14 INDEX UPDATE
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Short-term technical readings:
DOW - lower midrange still near oversold
SPX - borderline midrange
OEX - borderline midrange
NAZ - midrange
NDX - midrange
VIX - 30.82, upper midrange(inverse to market)
PUT:CALL RATIO - .76
On WED I got CLASS 1 BUY signal across the board for a THUR BUY-IN. On THUR morning the NAZ/NDX were up around 60-70 points which was the first hint that they were reacting timely to the CLASS 1 BUY signals, but then the MID-EAST NEWS came out and the market sold off strongly. On FRIDAY the market ran up strongly, so it appears that the mid-east news delay the response to the CLASS 1 BUY signals a day.
With Fridays strong performance, the minimum requirements of the CLASS 1 BUY signals have already been fulfilled. Also my short-term technicals are already basicly near/at the midrange. If the NDX/NDX continues straight up, I would already get CLASS 1 SELL signals in 2-3 days, so although there is still potential upside, it may not be as much as some may expect.
The SPX/OEX/NAZ/NDX all had BULLISH ENGULFING PATTERNS, and engulfing patterns have moderate to good reliability. However, prior to the bullish engulfing patterns on the SPX/OEX, they got the "IDENTICAL 3 BLACK CROWs", and the 3 crow patterns have very strong reliability. Dont forget that the NAZ/NDX had the 3 BLACK CROWs at the beginning of OCT, and the NAZ/NDX sold off hard from there. I have been following the "3 BLACK CROWs" formation on the major indices and frankly I cant remember that last time that formation failed over the last 2-3 years. It may have, but I cant remember - regardless from my experience it is probably the most reliable candlestic pattern. I also want to highlight that they were not just "3 BLACK CROWs" but were "IDENTICAL 3 BLACK CROWs" which intensifies the negativity/enhances the reliability.
So the question is will the "IDENTICAL 3 BLACK CROWS over-ride the BULLISH ENGULGING patterns. Eventually yes. The 3 crow patterns is a continuation pattern and its effect can last several weeks which makes it one of the strongest negative candlestic patterns. It doesnt mean that the SPX/OEX just sells off immediately, but it does firmly imply that this rally in the SPX/OEX should be limited and that the next leg down should produce LOWER LOWs, if not, at least a retest of the last weeks lows in the SPX/OEX.
The next question is if the SPX/OEX sells off how will it effect the DOW and the NAZ. If the 2 crows was in the DOW only, I would say that there would be a possibility of SECTOR ROTATION where money would be flowing out of the DOW into the NAZ. However the SPX is made up of about 70% NYSE market cap and 30% NAZ market cap, so if the 3 crows on the SPX/OEX does work that should have negative effects on both the DOW and NAZ, but maybe less on the NAZ than the DOW.
To see if the 3 crows will work I will be closely watching the market internals for clues. Althought the ADVANCE/DECLINE did improve on FRIDAY, the NEW HIGHS/LOWs were still poor as listed below:
NYSE - new highs=169, new lows=21
NAZ - new highs=323, new lows=21
I fully realise that the NEW HIGHs/LOWs take some time to catch up, but if we do not start to see PROGRESSIVE improvements then that would be a CLUE that the 3-crows are at work.
The conventional thought is that a good rally should be broadbased/good market internals. As of FRIDAY, the poor NEW HIGHs/LOWs implies that it was not broadbased. Again, I know it takes time for it to improve, so the NEW HIGHS/LOWS should be watched carefully over the next few days.
As for my own mutual fund account, I had previously indicated that I would close the previous day UOPIX(long-NDX) position. Without knowing about the 3 crows at the time I actually closed more of my long positions in light of such a strong rally in the NDX/NAZ. Subjectively, near the close on FRIDAY, as I was getting ready to runout to my SEAFOOD BUFFET, I was getting a gut feeling of a bear/reflex rally - something like a rubber-band being pulled too far forcing a snap-back, or eating too much at a seafood buffet and nature takes over. gggggggggg (sorry, I just had to let a little of my disgusting side to show). So I was previously about 67% cash, and now I am back to 85% cash, and my bias to the long side has been reduced to about 2:1 from 3:1. If Monday is up I will close another UOPIX(long-NDX) position, since I want to, at least, achieve an even hedge or change my bias to the short side towards the middle/end of next week. The UOPIX moved 18% on FRIDAY, so my last 2 UOPIX(long-NDX) trades netted 18% and 11% in 1 and 2 days(respectively).
If I start getting alot of negative hints from the market next week, I may increase my downside bias to as much as 50% of my total portfolio. That doesnt mean that Im so sure that NEW LOWs will be set, just that I may just become confident that the market is heading back down, regardless if NEW LOWs are set. I just want to be in the right side when the market reverses in either direction, and then I go day-by-day looking for clues. I try to limit my pre-conceptions as to how much the market will move in a specific direction, since that can fog-up my objectivity and lead to emotional trading. I often leave significant amounts on the table, but for me that is quite OK, since I also know that it keeps MY GREED in check. I am an EXTREMELY FIRM believer that it is more important to keep the EMOTION of GREED in check, even if it means leaving some or even alot on the table. I realise many will critize me on getting out too early, since I often hear: "you could have doubled or whatever amount if you stayed in". Thats OK, I like sleeping great at night. I only have to worry about over-eating at buffets.ggggg
Here are the various RESISTANCE LINEs for the NDX:
1) 3200-3235 - horizontal resistance
2) 3340-3360 - horizontal resistance
3) 3440-3500 - horizontal resistance
4) 3435 - 38% FIBONACCI level
5) 3574 - 50% FIBONACCI level
6) 3600 - horizontal resistance
7) 3710 - 62% FIBONACCI level
I was unable to get the charsts to work for our DIVERGENCE INDICATOR, so will update such once the charts are up and if there is anything important to report. |
