Wednesday, March 31, 2010

Nature by Numbers

A beautiful exploration of mathematics, geometry, and nature by Cristóbal Vila.

Thursday, March 25, 2010

YIKES !!!!!!!!!!!!!!!!!!!

30 Year US TREASURY BOND

Happy Anniversary.

People love--or hate--anniversaries. Wedding anniversaries, graduations, birthdays and the dates of loved ones lost. The Stock Market takes notice of anniversary dates as well--sometimes languishing until a 'special' date has arrived or sometimes rallying into an anniversary or often 'collapsing' into a date. Several dates over time seem to have been 'strange attractors' for the markets.
  • October 10-11: 1966, 1990, 2002 &2007
  • July 16: 1950, 1990 & 2007
  • Jan 11: 1973, 2010
  • Dec. 2-4: 1968, 1987
The dates above were major turning points in the S&P 500 over the last 60 years. Many more turns came within 1-2 trading days either side of the dates mentioned above..
On Wednesday March 24th the S&P 500 quietly celebrated the 10th anniversary of the Dot-Comm Bubble top. On March 24th 2000 the S&P peaked at 1552.87. The bottom of the Dot-Com bear was @ 768.63 on October 10, 2002. The markets rallied until July 16,2007 when it made a high of 1555.90 and then struggled higher to its all time high @ 1576.09 on...October 11 2007.
.....Just saying.........

Here is a very interesting chart:
This is the Chicago Put-Call Equity chart from early 2007 until Thursday's close. Note how the 200 day exponential average 'pivots' at the major turns of the S&P 500. Also note that the current 200 day ema. is within decimals of the previous low on July 16th 2007. (approx. 0.626)

Once again...just saying.........

click chart for a larger image
The next chart is of the S&P 500 since December 2009. There are several things to take note of:
  • The candlestick chart is generating bearish signals--especially with today's 'shooting star' reversal.
  • The RSI (14 day) is showing divergence from the market. The RSI made a high reading at the March 17th Energy date while the market itself made a recent high today--before reversal in the last 40 minutes of trading.
  • MACD is turning down from relatively elevated readings. This combined with the RSI and other momentum indicators suggest the the market is running out of fuel.
As stated previously, the exponential moving averages provide excellent guidelines in determining the trend of the market--including short (21) , medium (55) and long term (200) trends. These averages become even more significant if the are coincident with other price levels such as a Fibonacci harmonic, previous support level or recent low trade and previous resistance level. The 1146-1153 area is one such confluence of significance.

Jitters in the Bond Market

On March 24th Bloomberg reported that Treasuries, the euro, stocks and commodities slid as a downgrade of Portugal’s debt and weaker- than-forecast demand in a U.S. bond auction added to concern governments will struggle to fund swelling deficits. Chatter like this is nothing new on Wall Street since the markets have had a plethora of issues to create a wall of worry for the equity markets to climb. The chart below shows the yields on the 10 Year Treasuries.
It will be interesting to see the reaction of markets if rates begin to rise further, but, more importantly, what Wall Street's reaction will be if and when the monetary base begins to shrink in America.

Click chart for larger image.

Wednesday, March 24, 2010

Calm Before the Storm?

The volatility indexes have been in the doldrums over the last several months, trading below 20 for most of 2010. As the April Energy Dates (see left side of this page) approach traders should monitor both volatility indexes for clues about the sustainability of the current market advance. A break above the exponential moving averages--especially the 200 day ema--will forewarn traders of an impeding decline.
click chart for larger view

Low volatility values and excessive call purchases versus put purchases are often a harbinger of a market reversal.

The short term S&P 500 (cash) is continuing to rally, albeit with waning momentum and diverging RSI values. The last mini-pivot at 1152.88 (low of March 22nd) and the Jan 19th high of 1150.45 should provide short term support on any 'corrective' decline. However, a violation of this 'band of support' and a subsequent break of the 21 day exp. mvg. ave. would signal the onset of a deeper decline--especially if accompanied with surging VIX values.

click mouse on chart for larger image

Tuesday, March 23, 2010

Exuberance + Waning Momentum = Caution

The chart below indicates the Equity CALL-PUT 10 and 50 day ratios calculated by the ISE The most recent levels indicate that the 10 day moving average of call buyers are twice the purchases of Puts. Although this level has been seen several times in the last few months it is indicative of slightly over exuberant bullish sentiment.
The term chart below shows the SPX and the 10 day moving average of the ISE EQUITY PUT-CALL RATIO. (note the inversion as compared to the CBOE ratio). Once again market sentiment as determined by options trading is at elevated levels--suggesting an over commitment by speculators to the bullish camp.
Both the above indicators are not to be viewed as pinpoint market timing tools but merely an indication of the general sentiment amongst speculators. With that being said, when option sentiment is at these levels it is historically a indication that caution should be used when considering the short term upside potential of market prices. (i.e. risk-reward sucks)



Another indication that the market is getting ahead of itself in terms of valuation is the ratio adjusted McClellan Oscillator (using Nasdaq A-D Data). In recent days the number of new highs being made on the NASDAQ has diminished appreciably, suggesting underlying weakness and waning momentum in the incredible rally from both, March of 2009, and from the short term low of February 5th 2010. As with the option data: This activity warrants caution if one is long the markets.

Monday, March 22, 2010

An Interview with Bob Prechter.

Robert Prechter, President of the Elliott Wave International interview on CNBC March 19, 2010.






Sunday, March 21, 2010

DOW THEORY GO TIME???????

Dow Theory fans will have been rejoicing this weekend based upon the action in the Dow Averages over the last week. Last week I mentioned that although the Transports had rallied to a new high, the Industrials were lagging behind and that they would need to confirm the new high in the Transports 'sooner than later'. That was accomplished last week with the Industrials exceeding both the interday high of 10767.15 made on January 14th and the closing high of 10725.42 of January 19th. On March 19th the DJIA made a interday high of 10869.54 and a closing high of 10779.16 the day before March 18th.
Another significant level was also surpassed lately: The Transports traded through the 61.8 percent retracement of the 2007-2009 bear market after successfully testing the 50 percent level--which at the time was coincident with the 200 day exponential moving average.(highlighted yellow circles) This can be construed as being bullish although the market has entered into definite over-bought territory. They say that the market climbs a wall of worry in the early stages of a bull run. There is no shortage of anxiety out there--ranging from The Fed, Greece et al, housing crisis, health care reform, the ostensible pending socialist doom being spread by the Obama administration etc etc etc......
How this all plays out over the next few weeks will be interesting to say the least as the market trades in a time harmonic zone in an slightly over bought technical environment.

right click graph for larger view in a new tab


Moving averages are a fascinating method of determining 'waves' in market moves. This is not to say that all market moves follow orthodox 'Elliot Waves' but I have found that the interaction between the 21 and 55 day exponential moving averages provide a clue as to the structure of an advance or decline. When the 21 day ema crosses the 55 day ema it is highly suggestive that the move just completed can be viewed as 'a wave' or component in an overall structure of an advance or decline. When the 21 and 55 re-crosses the corrected wave of the structure can be assumed to be complete.
The chart below indicates that 4 waves have been co,complete since the market bottom on March, 09 2009. I have highlighted the 21-55 crosses in yellow. Using this methodology we can assume that the market is currently in its 5th wave since the March 2009 low. This hypothesis is complemented by the behavior of the parallel trading channel. As can be seen below, the upward thrusts are contained in the upper half of the channel (red) while corrections dip below the center line (blue) but find support at the bottom parallel channel (green). The moving averages also support this since the 200 ema provides both resistance and support with regard to the major trend, while the 55 day ema provides both support and resistance for the intermediate trend. The 21 day ema indicates support and resistance on a short term basis.
The Dow is currently at the blue center channel but trading above all three emas. Until the 21 day is violated to the downside the short term trend remains up. The intermediate trend should remain intact until the 55 day ema is violated on the downside. The 200 day ema should contain the major uptrend if the Bull is going to stay in control.
The exponential moving average levels are as follows.
  • 21 day: 10544.43
  • 55 day: 10415.34
  • 200 day: 9934.39

right click graph for larger view in a new tab


Doing this blog would not be entertaining unless I could prognosticate about the future of the market:
As I mentioned last week the 1153-1155 area on the SPX would be a natural point for price resistance especially considering that the March 17th "Energy Date" was coming into play. The SPX traded above the 1153 harmonic on Tuesday March 16th, trading as high as 1160.28. On Wednesday, MARCH 17th the SPX traded as high as 1169.84 before stalling and closing the week at 1159.90. It is interesting that the high for the SPX was made on the 17th. This becomes even more intriguing when you consider the nasty candlestick pattern of the last three trading days of the week--especially when it is accompanied by a tentative bearish engulfing line on Friday's Transport daily.

Where does the market go from here?
It is relatively obvious that the markets have entered an over bought stage from a technical perspective. RSI, Stochastics and a series of other indicators are at levels that suggest that risk of a downturn is becoming elevated. Once again the moving averages should act as a guideline as to what the market's intentions are.
But, considering that the 1153-1155 area has been taken out--albeit only by a small amount--we can make a case for higher levels based on the next higher set of price harmonics. This is not to say that the market is definitely going to reach these levels--but if any credence is given to fibonacci price harmonics the levels that follow must be taken into consideration.
Using the moving average cross-over method a case can be made that the SPX is in a 5th wave. Again, I don't necessarily subscribe to the orthodox Elliott patterns but nonetheless a case can be made for a 5th wave in the structure of the market since March 9 2009.
I have labeled the structure as follows.
  • Wave one: XA 666.79-956.23
  • Wave two: AB 956.23-869.32
  • Wave three: BC 869.32- 1150.45
  • Wave four: CD 1150.45- 1044.50
  • Wave five: DE 1044.50- ????
If 1222 is used as "E" then there are a series of interesting price harmonics in place.
  • XA = .971 BC (near equal)
  • DE : .613 of XA and .631 of BC (near .618)
  • CD: .377 of BC (near .382)
  • DE: 1.67 of CD (near 1.618)
Based on this structure a case can be made to expect resistance in the 1218-1225 level of the SPX. This is just below the 1228 level which represents a 61.8 percent retracement of the 2007-2009 Bear.

When would this be expected to happen? Time harmonics indicate the next significant Energy Date to be April 3rd-5th. If the market is in the1220 area in this time frame, market activity should be closely scrutinized for a possible change of trend. Caveat: The market must successfully break above the March 17th (Energy Date) high of 1169.84 first!!!!!

Monitor the moving averages and candlestick patterns for clues.

right click graph for larger view in a new tab


Note: Energy Dates will be posted on the top left of the page over the next few days.

Sunday, March 14, 2010

Equity Market Update

The March 2nd update stated that March 17th could be a significant time period for the equity markets. This update will discuss the behavior of the major indexes as we approach this time frame.

Dow Theory concerns: As the chart below indicates, the Transports have made a new recovery high while the Industrials have lagged behind--unable to break through the previous high of 10767.15 on January 14th of this year. In order to validate the DJT high it is essential that the 'Industrials' follow suit sooner than later. If the Industrials fail to surpass the January high and trades below the 21 day exponential moving average--currently at 10437-- investors will have a reason for concern.

right click chart for larger view in new window.

Price Harmonics & the SP 500

The chart below shows that as we enter the March 17th time frame, the market is at a potential 'harmonic balance' point.
  • An extension of1.618 times the initial rally (XA) equals 1154.39
  • If the rally from the February 5th low is viewed as an A-B-C formation it can be seen that XA = BC @ 1153.94
  • Friday's close of the S&P 500 was 1153.41
  • If a circle is drawn using AX as the radius, the current level is coincident with the arc. This is a natural resistance point. A significant violation of this arc to the upside would suggest continued strength in the market.
  • The 5 day TRIN reached levels often seen at significant tops on Wednesday and Thursday.
  • Equity Put-Call rations are mixed. Equity Option averages are indicating more optimism than the index options. 10 and 50 day moving averages for the put call ratios are as follows: INDEX: 1.41 & 1.26 EQUITY: .55 & .624
Trader's Narrative has an excellent synopsis of the weekly sentiment indicators. As well as providing insight into the mood of the street, Trader's Narrative provides a comprehensive summary of many technical indicators and approaches to trading. I highly recommend that you visit this blog.

right click chart for larger view in separate window


As of Friday's close there is no concrete indication of an exit for long positions--or entry for shorts. This potential harmonic cluster merely suggests the possibility of an area for an important peak in prices. The 21 day exponential moving average should supply support--currently @ 1121.87. A close below that would suggest that further weakness is likely. The best strategy for traders at this juncture is to look for a 3-day reversal patterns and/or a reversal or bearish candlestick formation. This is an important week for the markets. The next significant 'energy' date is April 3-5th.

Stay Tuned.

Saturday, March 13, 2010

U.S. Dollar Index

The charts below show that the USD Index has reached levels that could offer resistance ot any further rally.

Chart One
The rally that commenced in late November 2009 has traced out an A-B-C pattern that has reached harmonic levels in two ways.
  • An extension of a factor of 1.618 applied to the initial rally (XA) suggests that there will be resistance at 81.06. As can be seen, the market traded slightly above that level in February but has since lost momentum and has stalled just below the 81.00 level.
  • If we look at the relationship between wave A (XA) and wave C (BC) we see that BC = XA at 80.82--once again in the vicinity of the current trading range.
  • The trend line extending from XB is currently near 79.50 which is slightly below the Friday's close of 79.81. This is an important trendline and if it were to be violated lower prices could be anticipated.
  • Momentum indicators have waned since mid-February suggesting underlying weakness in the market.

The longer term chart below shows yet another PHI relationship. The time of the rally from March 2008 to March of 2009 is equal to the time from the March 2009 top to the current time frame--which could represent a market pivot point. It is also worth noting that the rally from the November 2009 low has encountered resistance just above the 38.2 percent retracement of the 2009 trading range. The parallel trendline originating from the December 2008 low at 77.69 is creating resistance near the harmonic levels where the USD Index has recently lingered. The market activity in the current price and time coordinates warrants close scrutiny since the dollar could possibly commence a decline which in turn may cause other markets--bonds and stocks--to react--possibly violently.


Wednesday, March 10, 2010

The Invisible Hand at work

The inherit function of the capitalist paradigm--to find balance (harmony)--is being validated during the recovery from the 'money lender' driven panic investors endured last year. Expectations of "The West" have become more prudential--albeit somewhat vigorously for many individuals--while our Asian counterparts are becoming increasingly perturbed with regard to wages and, both, working and social conditions. As the video indicates, the consequences of the One Child policy initiated by the Chinese are coming home to roost.
The nascent generation of Chinese are no longer prepared to work for low wages and austere working conditions. This 'generational turning' is used to getting what it wants--not impeded by competitive siblings. In the West on the other hand the new generation will be forced to lower expectations since much of their wealth has been effectively confiscated by the Wall Street bail out and ancillary stimulus package.
One generation--one from the East--one from the West--being compelled by free market forces that manifested as result of each society's diametric ethos. This is the inherit economic convergence mechanism that makes capitalism so enduring.
One is to wonder what our politicians and corporate 'mercantilists' will do to inhibit and/or corrupt the natural corrective mechanism of the free market.
The invisible 'hand' works in wondrous ways.
As for as public sector participation, I would be an enthusiastic proponent of an reinvigorated space program on the following conditions
  • The program would have no explicit mission or ultimate goal--although the implicit objective would become self-evident.
  • When each successive spacecraft is ready for its 'mission', the cargo bays would be filled with the current legislative body at the time then launched with great public enthusiasm and revelry.
  • With regard to how and when the mission would return to earth, I suggest that that decision be left in the hands of the passengers. Based on their record it is doubtful whether they would be able to come to a consensus on the matter.
Yes indeed, the invisible hand works in wondrous ways.

NOTE: The latest Forbes list of the world's richest people also attests to the shift of wealth.

Thursday, March 4, 2010

NASDAQ Composite

Yesterday the potential harmonics of the S&P and Russell 2000 Indexes were shown. Below are two charts of the NASDAQ Composite.
  • The first chart shows the bear market that began Oct. 31, 2007 and terminated on March 09, 2009--a period of 495 days. 61.8 pct. of 495 is 306. 306 days from the March 09, 2009 low is Jan 08 2010. The NASDAQ reached the highest point since March 2009 on Jan 11, 2010.
  • A 61.8 pct retracement of the bear market range (2861.51-1265.62) is @ 2251.88
  • If the initial thrust off the March 09 low is extended by 1.618: (1879.92-1265.62)*1.618 = 2259.56
  • Note how the initial lows of March and July 2008 were in the vicinity of the above noted 61.8 pct. retracement level
  • Note that the high of the recent A-B-C structure detailed in the chart below is 2251.68
click chart to enlarge

The chart below is a much shorter time frame.
  • The rally culminating from the Feb 5th low has a harmonic cluster in the area of the recent trading range. If the pattern is notated as an A-B-C structure, there is the distinct possibility that the 2292-2293 area could offer resistance.
  • If the rally continues further resistance could be expected near the 2350 area (BC would equal XA)--or--slightly higher than the high established on January 11th @ 2326.28
  • Note the double spinning tops candlestick formation in the last 2 trading days. This suggests that the market is possibly stalling at this level and could turn lower.
  • The behavior of the NASDAQ at the 21 and 55 day exponential moving averages will be important to monitor for clues of renewed market strength or further--and possibly troublesome deterioration in the market.

click chart to enlarge

Wednesday, March 3, 2010

Saint Patrick and U.S. Equity Markets

Saint Paddy may have a surprise in store for the markets.

S&P 500

The chart below shows the S&P 500 since 2007. The following dates and levels are of significance:
High: Oct 11 2007 @ 1576.09
Low: March 09 2009 @ 672.88
Highest level since March low: January 19, 2010 @ 1150.45 ( 52.8 percent retracement)
Retracement Levels
886.04 0.236
1017.91 0.382
1124.49 0.500
1231.06 0.618
1382.80 0.786
1576.09 1.000

The decline (2007-2009) took 515 days.
515 * .618 = 318 days.
318 days from the March 09 2009 low occurred on January 21 2010.
The high for the S&P since the March 09 low was reached on January 19th 2010--a near perfect time harmonic.
Here is the interesting part--which will invite debate since the method used is controversial.
The chart below is a logarithmic chart. If the PHI divisions of .382, .50 and .618 are applied to the log chart the .618 retracement is very close to the January 19th high.
An argument can be made that the rally has satisfied both time and price retracement harmonics. A further argument can be made for the S&P to peak at or near March 17th since this would represent a .618 harmonic from the July 16th 2007 high @ 1555.90 which was slightly below the October high of 1576.09. This time from concurs with the high in the Russell 2000 (see below)
click chart to enlarge



Russell 2000 Small Cap Index

The chart below is of the Russell 2000 Small Cap Index.
The pivot dates are slightly different for RUT.
High: July 13, 2007 @ 856.48
Low: March 09, 2009 @ 342.59
Highest Level since March 09 low: March 02 2010 @ 650.26
Retracement Levels are:
463.87 0.236
538.90 0.382
599.54 0.500
660.17 0.618
746.51 0.786
856.48 1.000

The 2007-2009 decline took 605 days.
605 * .618 = 374 days
374 Days from the March 090 2009 low occurs on March 17, 2010.

While it can be argued that the S&P was fulfilled its time and price harmonics, it is possible that Russell 2000 has a little more fuel to burn off before harmonic balance points are attained.
If the Russell 2000 is at or near 660.17 near March 17th it would be prudent to look for signs of a reversal--especially if this is coincident with similar signs in the other markets.

click chart to enlarge

Monday, March 1, 2010

YouTube - Canada vs USA - Mens Olympic Gold Hockey Game 2010 - Game Winning Goal (Raw Video)

YouTube - Canada vs USA - Mens Olympic Gold Hockey Game 2010 - Game Winning Goal (Raw Video)

US Dollar Update

The U.S. Dollar Index has traced out an interesting harmonic pattern since the late November early December 2009 low which suggests that caution may be warranted. Click for Dec 09 update on the US Dollar.
  • The recent high is a 1.618 extension of the initial thrust from the low that peaked at approximately 78.50 in the third week of December.
  • The rally has been contained within a parallel trend channel--spending the majority of the time in the upper 1/2 of that channel which currently is coincident with the important 21 day exponential moving average.
  • The current 55 and 200 day exponential moving averages are near the level of the December peak and coincident with the lower band of the rising trend channel.
  • There is also a time harmonic where 'X' (low to low) equals 'Y' (low to recent high)
  • Conventional technical indicators are suggesting that momentum is waning: RSI is not confirming recent advance in the USD and the MACD is turning down while the 'MACD Signal' has crossed into negative readings.
  • The Commitment of Traders Report (02-23-2010) indicates that larger traders and small traders are net long the USD while commercials are net short the USD.





(1) Large Traders (2) Small Traders (3) Commercial


Total OI
Long Short Long Short Long Short

USD
Index
Contracts: 60,454
43,461
4,985
5,751
2,567
7,718
49,378
Change:
-769
-1,953
-2,934
51
341
1,079
1,771
% Open Interest:

71.9
8.2
9.5
4.2
12.8
81.7
Analysis: There were no significant shifts in the open interest (OI) in the reporting period. The large spec traders are now a 8.7 to 1 long in this market, increasing their net long by covering shorts. Small traders are a modest out of balance long but are not big players in this market.
click chart to open in new window

A break below the center channel and 21 ema would be a sign of weakness in the USD, while a break of the 200 day ema and lower channel and Nov-Dec peak would be an outright bearish indicator. If you are long the USD it is a time for caution.