Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : DAYTRADING Fundamentals -- Ignore unavailable to you. Want to Upgrade?

To: Teresa Lo who wrote (2337)	8/4/1999 6:15:00 PM
From: Teresa Lo	Read Replies (1) \| Respond to of 18137

There was a good example of a failed signal today on the S&P and some good bear flags. Chart and audio commentary have been uploaded to intelligentspeculator.com

To: Teresa Lo who wrote (2337)	8/6/1999 4:19:00 AM
From: Teresa Lo	Read Replies (2) \| Respond to of 18137

Was That It? Morning Market SnapShot for Friday, August 06, 1999 “Selling must be done when the market looks its best, right after a big reversal day when others are still confident. This takes experience and skill. Long-term investors tend to rely on signals such as the break of an important low or support level to sell, but so does everybody else. Selling when things look bad is instinctive to humans. It takes no skill or experience. It is a gut reaction to puke at the low when the market looks its worst. And if everybody sells on the break and there is no follow through, the market makes the bottom right there. This phenomenon is why so many investors, who wish to time the market on a “long-term” basis, find themselves selling at the panic low and then the market miraculously recovers and they find themselves out of a position.” These were the words we left with our readers before the market opened yesterday and just like clockwork, all the anxiety over the Internet stocks exploded as if on command and manifested itself in a high volume blowout in the first hour of trading. The financial media heralded today's market action as a reversal day, a day of capitulation. They seemed in awe of the market's power to reverse on a dime. Hopes were running high as those who were having panic attacks the morning forgot all about it and ended up the day regretting not climbing aboard for the bounce. This is the transformation of fear into greed and it's no different than at the top, when greed turns into fear. The question that we ask now is this: “Was That It?” When the Internet stocks, as represented by the CBOE Internet Index (INX), made a break from the all-time high in April and found a low on April 20, they bounced up and came back to test that low in late May. On May 26 there was a reversal day very similar to that of yesterday, on a Japanese candlestick named “piercing line”, which is a bullish reversal. However, that low did not to hold and now the INX is in a similar formation on the test of the June 15 low. What we must now see on the daily chart is confirmation that some sort of low has been put in. The first step is making an “up” day where the trading range of the entire day makes a higher high and higher low than yesterday's trading range, preferably with a close higher than yesterday's close. We turn our attention to more pressing matters. The S&P is now very close to the May low. In yesterday's action, not only did the S&P make a reversal day on price, but the CBOE Market Volatility Index (VIX) also made a reversal. This is very interesting. We observe that today was a 20-day low on the S&P 500 Index but the price was able to reverse and close above the close of the day before, at the same time forming a Japanese candlestick named “hammer”, which is a bullish reversal. The VIX hit a 15-day high and reversed to close under where it opened, forming a Japanese candlestick named “shooting star”, which is a reversal at the top. Since VIX is a contrary indicator, this means the higher the reading, the more likely the market is reaching a short-term bottom. The 5-day RSI of the closing value of VIX actually made a down tick from above 70, indicating that the market may have seen the high in the VIX for now. These signals all add up to the Connors VIX Reversal I and II techniques, featured in his book Connors on Advanced Trading Strategies. When a buy signal is set up with the Connors VIX Reversal, generally it's good for a bounce for five to eight days. As an observer, this “bottom” seemed to be too easy, too painless, with the exception of the Internet stocks. As we mentioned yesterday, the intermarket chart is worrisome in that the US Dollar is putting upward pressure on interest rates along with rising commodity prices, which appear to be breaking to the upside after a long trading range. This has not changed. The CBOE put/call ratio and the absolute value of the VIX are relatively low for any kind of panic day. Today, it was as if investors who didn't get aboard the rally chose to buy options hand over fist in anticipation of a big recovery. This is odd indeed when compared to past panics. New 52-week NYSE low list is still expanding and is now exceeding new highs by a margin of 5 to 1. This shows that the internals of the market as a whole is still very weak and no divergence to the bullish side has shown up. The final observation is that the September S&P futures came within 1.5 points of breaking the June low of 1290.50. It is rare that a test of a significant low such as this does not break it, if only to take out all the stops. This leads one to ask, “Was that it or are we waiting for the other shoe drop shortly? The employment numbers are due out this morning and will be a catalyst for whatever comes next. Have a great weekend. Mr. Connors' book is available at amazon.com He can be found at tradehard.com Charts specific to these comments have been posted to intelligentspeculator.com