Well, before anyone else asks me what I am smoking or drinking, I have just opened my first beer of the evening and when it is gone, I am going to bed. Well, maybe I will have two, but it is past my bedtime.
Anyway, very interesting to study the set-up to Oct 27th and the current market trend. There are some strong similarities, but a few key differences. I have questioned whether to lay out my methodology in detail for everyone or not, but I personally don't think it will matter as there is a degree of finesse involved and most people probably won't care anyway, so here goes.
I have been studying the relationship between three indicators. The TIKI, the TICK and the PREM. I have mentioned this before. It does appear that there is a correlation between extreme readings on all three of them and a market short term top or bottom. The extremes appear to change depending upon the market conditions. Naturally the PREM levels will change as future contracts drop from current month and a new month becomes the current month.
Anyway, Oct 1997 shapes up like this, roughly. This is using the OEX and the numbers are best guesses as the charts I was using were gridline.
10-8 473 OEX and then it trailed lower.
10-16 465 OEX.
10-20 445
10-22 466-67
10-23 450 to 460 in the morning of 10-24
10-24 start down from 460 and straight down to
10-28 410
This took three weeks to set up and be executed.
Current chart.
5-21 545
5-26 525
5-27 520
5-29 535
6-4 520 at this point the patterns diverge and current chart goes back higher.
6-10 545 sell off to 539 at the close.
On 10-20 there was a premium spike positive. TICK was nothing special, TIKI was +30. At this point several hours of messy indications took place, much like yesterday. Then a new high of 467 on 10-22 and another TIKI reading of +30. This was early in the day. On 10-23 the drop was accompanied by a TICK of -1200 and a very negative PREM. This was a bounce into the 460 level which had a high PREM and a TICK of +800. No TIKI indication. 10-24 down to 450, recover to 455 and two -28 TIKI readings. TICK went from +500 to -500. On 10-2 PREM was as negative as I have ever seen it and it went to as positive as I have ever seen it in about 30 minutes. This was accompanied by only a 3 point bounce. TICK was -1000 to -250. During the downtrend that followed the TIKI was -28 several times and the downtrend stalled each but would not reverse. PREM was swinging but nothing overly positive or negative. TICK was negative the entire ride. Buy signal came at 3 pm on the 27th and the OEX dropped another 10 points from that point and then ran to 450 in one and a half days. PREM was -12 (fair value estimate of +5.50), TICK -1800, TIKI -30. Lowest the OEX got was about 408 with the buy signal coming at the 420 level.
Current situation is like so. 5-21, hit 545, TICK +400, TIKI +24 and PREM +5.50. On the 5-26 level of 525, the TICK was -1300, TIKI was -26 and PREM -3.50. The OEX dropped another 5 points on the 27th. However, on 5-29 we were at 535 and TICK was +900, TIKI +26 and PREM +6.00. On 6-4 the OEX hit 520 and in the 3 pm hour of 6-3 the TICK was -1200, TIKI was -28 and PREM was -4.00. On 6-10, today, we hit 545 and I was expecting a sell signal. Never came. About one hour later, we stood at 539 and the TICK was -1200, PREM was -3.something and the TIKI hit a -28.
What does all of this mean? Shit, I don't know. Draw your own conclusions. But it appears to be a viable system that needs a fair amount of finesses and fine tuning for entry points, but I believe the system says we will be down out of the box early and then will rebound strongly. I stand by my earlier comments and we shall see what happens. It is possible that if this is the big sell-off everyone expects, that the numbers above will not be extreme enough to stop it. We may need to see the TICK approach -1800 or better to really get extreme and the PREM to be a lot more extreme than today.
I believe however, that we are set up for another OCT type mini-crash. I think it will come, but against my better judgement (market breadth, earnings warning season, A/D lines, etc, etc.), I believe it won't be real soon. I would think actually it might be in three to four weeks. The rounded top mentioned here by another poster does take time to develop and could go on for several more months actually.
So there you have it. The reason for my earlier post and the reason I said my indicators said this market is a buy right now. The possibility does exist to challenge new highs shortly. Would not bet my life on it, but it certainly seems feasible based on my early studies of these three indicators.
Good Luck.
-Scott
|
