Stock Market Analysis 11-16-12

Stock Market Update 11-16-12

This brief video covers RSI, MACD, ADX indicators and what to expect over the near term.

Bond Market Update - TLT ETF

Bond Market/TLT ETF Update  11-14-12

Monitoring for a tradable topping pattern and technical set-up.  Likely at least a little more upside in store.

New Downtrend Signal in Daily ADX Indicator

Stock Market Analysis 11-13-12

Check the video out for a brief update on stocks.

Stock Market Video Update

Stock Market Update 11-10-12

Check out this video update for short to intermediate term technical and sentiment analysis on the stock market.

Short-Term Oversold, But No Divergence

Click on Chart to Enlarge

The hourly chart of SPY is oversold and the MACD making a bullish cross as I type this.  The daily chart shows prices have been touching the lower bollinger band for a few days indicating that prices are stretched to the downside.  However, there is no bullish divergence on the MACD even at the 30 min time frame, which calls into question whether this move down is bottoming for a major rebound attempt.

The chart above is the VIX/VXV which is shorter term volatility divided by longer term volatility.  In general the shorter term (VIX) should be lower creating a VIX/VXV ratio that is less than 1.0 (indicated by the green line).  However, there are times when the VIX gets higher than VXV.  That usually indicates a point of intermediate term panic in the market and leads to a rebound pretty soon.  The market is out of balance under that condition.

Currently the ratio is not quite at 1.0 yet.  I have been watching this indicator to help pinpoint an upcoming rally attempt.  Of note is that the ratio is higher than it was at the June 2012 low which did not even reach 1.0. 

If it does move above the 1.0 level, I would expect a tradable bottom to occur soon after.  There is no guarantee that it will reach that level before a major rally attempt, and with prices oversold on the daily time frame, I think this is a time to protect open short positions by tightening stops or exiting on appropriate technical signals.

Stock Market in Potentially Explosive Position

 Click on Chart to Enlarge

See the chart for notes.  The Dow (and other indexes) is in a potentially explosive downside position.  Using a "stop" order to short on a break below last week's low may be the best strategy in this case.  A stop would be placed above the highs of the rebound off of last week's low.

Of note, but not shown here, there has been a dearth of "smart money" buying occurring over the last week or two compared to the buying that occurred at the June low.  So with the market at obvious trendline/chart pattern support, the smart money is not buying aggressively.  This is suggestive to me that a downside continuation will occur, and probably sooner rather than later.  The next obvious chart support is the June low if a sharp breakdown does occur.

Click on Chart to Enlarge

If the SPY is at a new corrective low by Tuesday afternoon, that keeps the shorter-term price logic clearly down.  So again, entering short (if triggered by Tuesday) on a stop below last week's lows would be my preferred strategy.

The hourly MACD crossed into a sell Friday afternoon.  Since the Sept high, these signals have been good indications of renewed selling and have not developed divergence prior to price move to new lows.  That is typical behavior of a trending type move.  So again, a quick move to new lows would be further indication of a predominant downward price psychology.

While the markets may seem oversold, it is important to consider multiple time frames.  While the daily time frame reading are nearing typical oversold readings, intermediate sentiment readings are not yet at a point that screams of an imminent rebound.  And weekly, monthly, and quarterly indicators all are overbought and turning down.  The weekly stochastics and MACD indicators are not oversold at this point. In fact the weekly MACD has just crosssed down after a bearish divergence, which is typical indication of a larger degree trend change and impending sizable move.  So understand that there is plenty of room to the downside here for prices.

Probable Further Rally

Click on Chart to Enlarge

As discussed in recent posts, the markets were short-term oversold and looking ready for a rebound.  It looks like that has started today.  Based on the recent "waves" up and down I have projected a topping zone for this rally onto the chart with a red box.

I believe this rally is likely to be larger than the green line projected up from the recent low.

We can see that the MACD is just under the zero line and rising.  So it still has several days before a typical overbought signal could occur on this indicator.  I think it will probably be late next week before a possible great short opportunity presents itself.

Seasonally, the first week of November has a bullish bias historically so that may be a tailwind here into the election time frame.

Based on the continuing pattern here, I think that the final upward move since the June 2012 low may be occurring now.  The downward price moves since the Sept high have not been dramatic enough to suggest the psychology has turned clearly bearish yet.

But after this rally, based on my interpretation of the pattern, I think both a shorter and longer term pattern could be complete, which would imply a huge downside reaction coming.  Maybe the markets will sell off in response to the election results??  Certainly the time frame would match in my opinion.

In any case, from a trading standpoint, my suggestion is to look to be a seller as this short-term rally matures.  Watch the hourly charts, and hopefully the MACD develops a classic divergence to tip off a nice short entry.  If considering the long side, the recent action has clearly been a series of lower lows on the hourly chart.  So I think it wise to wait for a rally then a pullback to a higher low, followed by a technical "buy" signal if considering the long side.