I think NAZ looks lousy, which I've been thinking generally, but especially since TLC pointed out the descending trianglishness of it all and we had that big discussion last weekend. Friday was the third close below that 2nd double top around 3500 at the right of the chart, as well as below the projected trendline from last year. This second double top targets 2500. If it weren't for this market being generally unpredictable and defying logic, I'd say we're definitely going there, but there's always the possibility of some kind of freak short covering rally or something. My odds are on the downside though.
I tend to agree, however... There may be a ray of hope, because...
1. There is an "overlaying" factor of the election charade that it is clouding, confusing and even hiding the true intent of the market as far as direction is concerned. As you yourself said above, the last days after the election defies logic -- I agree.
2. I want to test one of the indicators (+DMI/-DMI, and the ADX) and my interpretation of the same. I admit NOT to be an expert, and I guess this is a good time to test both, the indicator itself, and my interpretation of it. --please feel free to criticize my interpretation as in the end, this entire exercise may prove a god point: My T/A interpretation needs sharpening -g-
So... here it goes.
But first a short explanation of how I interpret markets:
1. While I use T/A [a.k.a. Voodoo], I am not a "purist” we don not live in a vacuum. I consider that outside events can overrule the T/A credo.
2. Hence I combine T/A with the psychological effect that events can have on markets... how do I quantify it? I can't, I simply look at sentiment and look at charts, and start "testing” if the water is not too cold, then I jump. Perhaps this is one of the reasons that for me, the use of options has worked well.
Bottom line? If it makes money, I poke at it harder, if it does not... then I run like hell, (at least that is my theory), which at times, I fail to follow my own logic. That should scare anyone enough into NOT follow any of what I say.
So with that... I venture into the eerie world of [how I see] the future. -g-
I will use the same chart that Poet showed us a few posts before, except that I have added Wilder's DMI/ADX indicator and overlaid the Bollinger bands on the main chart.
stockcharts.com[L,A]DACLYYMY[PB50!B200!D20,2][VC60][IUB14!LA12,26,9!LL14]
Then my observations are as follow:
1. ADX line is approaching 40 in its scale (37 currently), at which point if it turns downward, it would represent a "change of direction". (Presently we are on a downward trend --duh!). The higher the ADX line is (particularly past said level of 40), the stronger the "change of direction" signal becomes. Note that as it has near that level, a flattening of the line is forming. Not quite a down turn yet. On the other hand, nothing prevents it to climb higher, which would mean a further strengthening of the current trend --down. Particularly when you see that the -DMI line is way above the +DMI confirming such down trend. A cross over of these DMI lines would then also indicate a change to the positive. Preferably being confirmed by the ADX change of direction as indicated above.
In order to see how strong this indicator can be, look at the price levels around Sept 1, and then see what happened to the DMI lines... they crossed over, this time, -DMI over +DMI. A few days later (around Sept 11), the ADX turned UP confirming the earlier cross over of the DMI of Sept 1. Once this took place look at the price action down down down... until about OCT 17 in which there was a downturn of the ADX (but no confirm by the DMI's cross over), hence the change (to up trend), met resistance and failed. Down we follow. Yes, a mere reaction on a downward trek.
Obviously, under current scenario there is nothing that tells us the trend should change. Down we continue.
2. MACD oversold, and can continue so.
3. Moving averages, way below 50 and 200 day. They could also continue down.
4. Bollinger bands: oversold, we are now riding the lower band.
Here I would say that a short-term rally would be possible simply to return to the "averages", particularly that of the bollinger bands.
So although all what I have indicated shows clearly we are continuing on the way down, with only the slight chance of a "reaction" movement to the averages, why am I considering a possible change of direction?
A= Because I can not find a strong enough reason to see the "logic" behind a continued downward trend from a more fundamental perspective. NOT the technical side.
i.e. Other than the extreme valuation of some companies, nothing has changed: (and consider that such extreme valuations are no longer).
1. I continue to believe that the wiring of the Internet infrastructure, not only in the USA but worldwide continues "on schedule". True that the .bomb now gone mania created a level that as we have seen it was not sustainable. In part, this is were the unraveling began.
2. In spite of the spike of oil prices, it is very possible that there will be a glut of oil in the coming years. Why ? Because although I have been surprised at how well the OPEC circus has been able to behave itself, I doubt that when demand for oil slacks a bit, (and I believe it will), the oil ministers and sheiks will not react accordingly, particularly when their treasuries will need the $$$$. Even then, it appears that inflation seems under controlled.
I believe that the spiral in oil prices was the result of manipulation by these ministers and sheiks given that they have curtailed production. Not exactly a free market is it ? --Open the Alaskan north slope for production and watch what happens to the carefully crafted (read manipulated) current oil price.
3. The US deficit continues to be paid down... this could only mean lower interest rates. This in spite of the current STUPID bickering to see who fills the seat of Head Clown.
Which brings this soapbox drama to its punch line and conclusion... the only thing that it is keeping the current market environment of such indecisiveness is the election Charade...
Remove that and all of what I said about T/A in regard to the mentioned indicators could reverse, indeed in a rather abrupt way, simply because a relief rally would be of such magnitude, that it would then put in place the necessary changes in said indicators, to interrupt, and possibly negate, the current down hill trip.
Particularly the cross over of the DMI lines and confirmation of the change in trend by the downturn of the ADX line.
I admit to be using a little "coaching" with the help of a crystal ball that I bought at the "whishfull thinking" cash and carry store, but I never claimed to be a purist when it comes to T/A black magic.
As indicated, using options is attractive under this scenario. I believe that seeking a position that would mature over a month to three months seems more attractive than that of a day trading strategy, given the wild jumps without true direction that we are experiencing.
Now, I get off my soap box. |
