Monday, July 13, 2009

Quick Look at SPY - Over Bought Below 20 Day MA

Click on Chart to Enlarge

Here is a quick view of SPY after today's close. Overlaid on the chart are bollinger bands/20 day MA in blue and the 200 day MA in red. SPY bounced off the 200 day MA last week. I don't really care about that MA, but lots of people watch it, so I put it there to help illustrate the tug of war in this area. Price is stuck between the 20 day and 200 day MAs.

For the blog I mainly use the 20 day MA to help gauge the "safest" direction to trade. You can see on the chart that it is pointed down now. It is the dotted line in the middle of the bollinger bands. I have put some vertial light blue lines on the chart as well showing times when the 3 period RSI was oversold with the 20 day MA pointed up, and also the most recent line today shows the RSI(3) overbought with the 20 day MA pointed down. I didn't highlight those set-ups where the average was basically flat. You can see how quickly the market has tended to resume the direction of the 20 day trend once it gets short-term overbought or oversold.

It is very common for a breakdown out of a head and shoulders top to come back up to the neckline to "back-test" the breakdown price. That is what I view today as. Price did close above the neckline, which is not necessarily ideal from a charting standpoint, but as long as price quickly falters from these levels, I don't view it as a good reason to dismiss the H&S pattern and price targets for general guidance.

On a side note, I am going to use 57.85 as the blog entry price for SDS which is the average of the limit order and the signal entry posts from today. Also SDS spent the most time between 57.75 and 57.85 for the first hour or two after I posted the entry. So basically, going from the posts, you almost could not have got in even as high as 58.00, so I bumped the entry price down a few cents.



  1. hi pete,

    any thoughts on the meaning behind what appears to be declining volume? or this the typical decline in volume for summer?

    thanks. -b

  2. Volume in general is not my area of expertise as far as history goes, but I can rehearse what I have gleaned from reliable sources.

    From my understanding there is not enough of a "seasonal" drop off in volume in the summer historically to attribute it to that alone.

    From studies I have seen, waning volume in a rally tends to lead to weakness, but we are not necessarily in a rally now.

    From comparisons to prior new bull markets, the current continued tapering off in volume does not seem to "fit" for a first leg up in a bull market. The market doesn't necessarily have to explode off the lows in huge volume, but in past bulls it has been able to sustain or pick up steam several months into a rally.

    There may be some more fundamental reasons for the decline. I saw a story that proprietary firm codes and secure info was hacked/stolen from Goldman Sachs a week or so ago, and from what I gather, their volume dropped off substantially in recent days. They are the largest volume trading firm on the NYSE. So when the bulk of volume is program trading from these big firms, a drop off for some off the wall reason like that might make more than a blip.

    I don't know how much to read into volume right now, but it seems pretty clear from both a pattern and a sentiment perspective that we are not that close to any intermediate term low yet.