Monday, October 26, 2009

Perspective/Retrospective

(Here's a draft of something I was pulling together on Saturday morning...It never quite jelled. Nevertheless, I'm going to post it as Sleepless left a prescient comment that was as if he had been peering into my computer!)

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My favorite thing to do on Saturday mornings (when I'm not doing a dog transport--and I've today off), is to drink coffee, listen to the technician on Financial Sense OnLine (R.McHugh this week), and nose around a bit.

There's a certain miasma between waking and caffeinating that I find helpful in getting things that have been marinating in my brain to raise their hand and say they are ready to get on a hot grill and sizzle.

To say that I've had a dearth of sizzling of late is an understatement. But I've an efficacious subconscious, and I know that it is working sub radar. It will choose in its own good time and schedule to 'reveal' itself to me. I'm still waiting for a revelation.

MarkM's comment below

Hi L. My model, eh? :)

Just need to watch the internals on any pullback here. Market was WAY overbought on a ST and intermediate term basis so we have the CAPACITY for a nice, big pullback maybe to the 900 level. That gap from last September was finally filled and for a technically driven market that was huge.

Watch what the advance decline line does. Watch the new lows. Etc. Is the pullback orderly or messy? If it gets messy with lots of bad action underneath, then we go to 900ish. If it's orderly, then we can base and pop this into year end and Abby Joseph Cohen gets her day in the sun (1200 on the Spoos).

Watch for basing action around the bottom of the channel. Usual pattern is then a blast above it sending the programs off to the races. That pattern needs to change to have a meaningful decline. Otherwise it's just garden variety profit-taking and re-accumulation for the next leg up. (If little ol' me is seeing this then it's time for the bulls to switch playbooks, perhaps with mid-channel switch or better yet from 5% or so below the channel.That would REALLY cream the shorts.)

Hedgies and program traders have been driving this market and they already have their number for the year so this is a dangerous time.

MarkM

inspired me to pick up my Mamis book...The Nature of Risk. I have about 100 post flags in this book. Naturally, I have some 'special' flags, too, to give a bit of a hierarchy between good and great. And one of the 'great' flags is an indicator that Mamis uses on the New Highs/New Lows. He considers this indicator one of the single best indicators of trouble...in that it signals first with a divergence. And the market, much like my subconscious, will move at its own particular pace to reveal what it has in mind. You, though, need to be mindful of its 'fixin to get ready to...." status.

Here's what Mamis says:

In the preceding chapters, you will have noticed a considerable reliance on the number of new highs or new lows as an example of a useful market-"language" statistic. The reason for this is simple: it works. No other indicator--whether readily available, as this one is every day, or not--has such a consistent success record.


Here is a chart of the New Highs- the New Lows. You are viewing a net difference calculation, and I've chosen to do this for the NYSE.



What is telling in a kick- in-the-stomach sort of way is the velocity and verocity of the March sell off. What is further telling in a rub-your-eyes-this-does-not-make-sense sort of way is that there does not appear to be any weakness in either of those two moving averages.

Here's another chart for the NYSE showing a weekly moving average (10/30/2000 through now) for the Advance- Decline.


Here's the Nasdaq moving averages of the NH-NL against the composite index price.





Conclusion? A Monty Python, "I'm not quite dead yet?"

Waters appear choppy and dangerous, but it is mutual fund year end, no? A push higher? A fall lower? We're as likely as not to see both. We are in the netherworld of "if the market doesn't suit you today, wait for tomorrow" era.

5 comments:

Anonymous said...

I looked at your indicators but don't have them quite the way you do. My indicators are rolling over from very high levels which makes this a time that a serious correction could ensue. SOLIDLY yellow; not yet red. A little bit more off and we'll be in the territory where this market has been reversing back up for the past three months. Let's see if it's different this time.

Let's see where H/L stands in a few. You are correct to focus on it.

MarkM

Glenn_in_MA said...

Leisa, do you still follow Rev Shark over on RM? His afternoon commentary today dovetails nicely with the possible market topping thesis MarkM laid out...of course, some would call this cherry picking data!

Like your recent TA work...and thanks for running with the PerfChart sector analysis theme for a few posts.

Looks like US$ is key here in this program/HF driven market.

Leisa said...

Hey MarkM...I was just doing the H-L indicators, rather than the usual suspects. In fact, I've never crafted that chart, but your comments inspired me to do so.

Hi Glenn: YEs, I do follow RS....he's still one of the best commentators on the market. And you know I think that GAry Kaltbaum is too (and MarkM!)

USD could roll over--market also may have another gasp.

Anonymous said...

Caution folks!
for any technical indicator that includes "low" (like $NYLOW, or $NYHL in Stockcharts), recognize that a ticky mark registers in the Low column based on the most recent 52 weeks. But there's a secret - only when a stock (or whatever you're applying the indicator to) gets below the washout acheived in the March crash will you begin to see it reflected in the indicator, and by then Its Too Late. You will witness EXACTLY what you see taking place: creeping Highs in an upmarket (in a High-Low chart), moving to the zero line if the market stabilizes OR EVEN IF IT CORRECTS SIGNIFICANTLY. Only when it has crashed again will the Lows suddenly register. Yikes

This is NOT mentioned in Pring's book (don't know about Mamis): the accuracy of an indicator that includes LOW is suspect until >52 weeks has expired from a crash (or the corollary: any indicator that includes HIGH is suspect until > 52 weeks has expired from a blow-off top.

Alternatives to LOW? AD line, or if Highs move to the zero line. others?

~ Sleepless

Leisa said...

Sleepless...yes, that would make sense about the post crash regarding the H-L's post crash. It's a terrific observation. See my new post