Value of Perfect Information

One indicator I look at intra-day to day trade is TRIN! Like stealing candy from a baby! .. especially with TRIN taking a nose dive with market rising .. a sure tell of the market rise to continue for a few minutes and up to ten minutes..

Yesterday’s session ended on a positive note with an uncomplicated correlation in between the TICK and the SPY’s intra-day movements. Click Here for Part I

But what about those more complex moves like the red circled area below which we did not discuss? (See the chart #1 below).

Note that in this case, the TICK’s red and yellow trend lines briefly went positive (above the horizontal lines), and then went back down again.  (Also, at that time, the green trend line was still in a down trend, but one that was moving sideways.)  In the bottom portion of the chart, you can see that the SPY paused in consolidation and then continued lower.

Think about it, if the market did not go up when the red and yellow lines were moving above the horizontal line, then there must have been some kind of conflict going on.   The Question is … What was the conflict and how could you see it in conjunction with what was going on with the TICK?

For the answer, see the second chart …

When the market is in session, the larger investment firms often hedge their positions and use put and call options to do so.   Sometimes, investors do various call/put spreads to generate income.

Options activity is reflected back into the VIX (Volatility Index).  As you may know, the VIX is calculated in real time as a weighted blend of option price ranges on the S&P 500.  As such, many use it as a guide to as to the expected movement for the S&P 500 index over the next 30 days.   Since the VIX shows dynamic movement,the future expectations can change quickly relative to the change in options activity.

Enough explanation about that, suffice it to say that the VIX has a very valuable correlation between the $TICK and the SPY’s movements as we shall see …

Below is a merged chart of the TICK and the VIX on a 1 minute basis.  See the red circle on the TICK chart where there was confusion, and then look down to the VIX portion of the chart to see that it showed what the true bias was.   Note that we used the same Smoothed Moving Average settings on both.

So, when you observe the VIX,  you can see that it was clearly trending up until just before 12:45 AM. (See the second red circle at the bottom of the chart.)

And since the VIX moves in the opposite direction of the stock market, it meant that the S&P had negative pressure coming in to push it down lower.   Let’s see the third chart to see how that played out …

In this third chart, we simply merged the VIX and SPY charts together.

If you look at all three charts we discussed (the TICK, the VIX, and the SPY), you will see how they all correlated together with all of them finally signaling that the SPY would once again start moving UP just before 12:45 AM.

P.S. If you aren’t already one of our paid StockTiming.com subscribers, please think about giving it some consideration … thank you.

Marty Chenard

In this post of May 20, I used Market Time Premium‘s proprietary weekly Momentum Cycle, OEW aggregate trend, and Market Alignment Index indicators to sum up the state of S&P in 4 words

“Structurally positive, but weak!”

In that same post, I said:

“It’s not a disastrous situation. All three indicators are still above zero denoting a positive tilt to aggregate trend (as measured by OEW) and aggregate structure (as measured by MAI). The weekly momentum cycle we just saw is also above zero (dropping but above zero). So the situation is not terribly negative, but it reeks of internal weakness, like a patient with a serious yet curable disease. The cure of the market’s disease at this time is money deployed on the bid side.”

It seems like our proprietary indicators were correct spotting structural weakness 2 weeks ago

Let’s look their current status

Weekly momentum cycle (red graph) is still pointing down

Notice that the price low of March has so far not fetched a momentum low. Price has now dipped to an important area of support (1295-1305). A break of this area may accelerate selling and make the March low susceptible to a retest or even a break.

This is a daily chart with OEW aggregate trend, and Market Alignment Index (MAI) indicators

If you compare the current status of chart above with its status of the post of May 20 you will notice that the indicators have deteriorated rather significantly.

These indicators measure aggregate trend and aggregate price structure of all constituents of the index. Deteriorating structure cannot hold price and that’s what we warned then and that’s what we see now.

The only somewhat positive is that, while mid-term OEW and daily MAI have dipped below their respective March lows, price itself is still above its March low. This is price positively diverging from structure at this point. Will that lead to a bottom good enough soon for at least a tradeable?

All I can say is what I said back in the post of May 20:

Market structure reeks of internal weakness, like a patient with a serious yet curable disease. The cure of the market’s disease at this time is money deployed on the bid side — We need buyers.

For me to take bulls seriously, they should take a very small first step and get a swing low. They should then take a very small next step and get a short-term uptrend. After that, we’ll see how good they are maintaining a short-term uptrend and squeezing the shorts.

posted by piazzi

http://www.markettimepremium.com/

One of the caveats of being an intra-day scalper is that opportunity will be lacking without heightened levels of Volume & Volatility.  While Volume and Volatility is a fundamental criteria for many trading systems, the intra-day scalper is especially reliant on these conditions. 

This being the case, how does an intra-day trader find clues that are often symptomatic of low opportunity?  The quickest and least intensive method I’ve found in gauging the markets’ appetite for risk or risk aversion is $TICK and $ADD.   Indeed, these indicators have been discussed at length (especially for ES and SPY traders) but there continues to be a lot of misunderstanding as to how these tools can provide benefit for the intra-day scalper. 

The most important take away when reviewing the below image is to notice how truncated both $ADD (very tight range) and $TICK (No readings in excess of +/-800) are.  Additionally, NYSE down volume out swamped up volume by a healthy amount (see image) even though NYSE advancers were beating decliners.   Its been my experience that when these conditions (or “cross currents”) are present, the market will demonstrate lower amounts of enthusiasm and thus become more problematic to trade.

This is not to say one cannot make money (you can) but to do so, requires additional discretion.

I have great success and not so great success calling tops. I was able to call a top @1100 til we hit 1050. Then was able to call 1112. But in process I jump started to fast in the 1080 area and in the area north of 1112. Well I am calling Friday top with confirmation of top with gap down which I expect.

Different ratio charts show the top was Friday. The market is experiencing rotation out of leading sector and out of risk. This is seen from various ratio charts that I look at and have or or so close away from hitting their inflection points. The only thing that shows Friday was not top was transports but nothing is 100% correct at tops or bottoms. Financials in my opinion have topped and I think the upside is limited there. I will likely buy more puts in GS and in financials. The Aussie which I view important to topping process has made a double top from its top on Wednesday and is still below its trend line. The agriculture sector was bullish on Friday however a lot of the stocks in the sector posted bearish candles/are up against resistance. GS and IYR both posted dojis. DJI indicated potential top on Friday so I shorted intraday on open. I dont think they will give bears another shot.

One thing I liked about Friday was the deteriorating internals and selling that I saw. In my opinion this leads to a big down move come Monday. It is important to remember that this likely will not be a typical top due to untypical bottom conditions as a result it makes it that much harder to catch the move. In addition if you see Nasdaq the internals were way worse in the afternoon of Friday even though it made a higher high. Traditional TA no longer will work.
A gap down in my opinion seals the deal for Friday being top. If that is case I will look to buy puts most likely in BIDU, GS, and financials and will raise cash probably by covering some ES.

With the appearance of buyers leaving the market and the market being repeatedly tested I think it will be clear soon that buying the dip wont work. I think that time is next time there is any dip in the market.

ES levels i view important are 1132.25, 1133.25, 1140.5, 1142, 1146, 1147.5, 1148.75. In my eyes, I wont be covering. I think we hit top. I dont want to do this covering and reshorting. I want to do hold and enjoy. I can do that covering stuff lower

GS gap above trendline, but it posted a doji. I think ultimately it gaps down. Banks and investment banks are bearish in my opinion and hopefully the below analysis convinces you. I get a bottom late March or early April.

Different correlations to market show that this move is to recorrect lower and we are in timeframe of being close to top. I don’t show them because that is my own stuff, but they clearly in my eyes show top. Exact same picture that 1112 ES portrayed. Similarly internals also portray this.

That last 30 minute bull candle was to get you to exit from your shorts. They don’t want people holding short going into the weekend. How many weekends have been gap up Monday. 19 of last 23 or something like that. Let me tell you something. You want to see a gap down? See this weekend open. Pattern to me is bearish and I think it will gap down. Market will leave some holding a basket long and in trouble. That trouble is not my trouble after I have experienced so much trouble.

Are you on this bus?

The Evening Star is a Reversal Candle Pattern.
This dotted yellow line and blue candle is what the next trading day should look like.

Ending Diagonal SPX

The Market set up very nice for a reversal Monday with a terminating signal at the end of the C wave and the top of wave 2 with a potential of very nasty and long downward wave 3 to begin.

We could see a bit of an overthrow at the open to touch the top of the Rising Bear Wedge ….stops should be placed above the resistance zone ….if it gets above there this is not an ABC Retracement but a possible resumption of the larger up trend.

http://neboxian.blogspot.com/2008/08/triangle-reversal-pattern-part-3-of-3.html

Here is a Video I made on reversal triangles the Technical term for them is Ending Diagonal but I try to use more generic terms …What is Important is to get an understanding of the basic concept.
http://neboxian.blogspot.com/2009/07/markit-tao-thurs-7-23-09.html
Here is an example of an ending diagonal Failure….. that’s why I encourage stops…..if ED’s fail they are very explosive… and if ED’S work they are as equally successful…..

follow me on twitter     http://twitter.com/Neboxian

Today we have really interesting data releases at 8.30 am, the (un)employment series: what if to a choppy night will follow a morning earthquake? Unemployment is again under Fed’s lenses, because it’s one reason for reteirated pledge of slow recovery, threath to growth and keeping low interest rates. It seems job’s losses should be slowing, so i think that a disappointing releases could push markets to the ground.

Be careful in trading when will Change in Nonfarm payrolls is released: today they are expected at -175k against a previous -263k. Similarly, consensus on Change in Manufacturing payrolls sees a better release at -42k against -51k.

Then, take a look at Unemployment Rate: analyst’s estimates say 9.9%, but what market reaction will be, if the psicological 10% level will be taken? Or they already discount a bad surprise?

The Labor Department will release even Average Hourly Earnings (exp. +0.1 monthly basis) and Average Weekly Hours (from 33 to 33.1), but i think the eyes will be only for datas i mentioned before.

Just to close the week, at 10am Wholesale inventories: expctations say -1% from -1.3%. But i should be honest: i think that inventories can be read in every way the reader wants (hey, less inventories: they are selling, so this is bullish! Or: hey, less inventories: they are not making orders, so this is bearish! And viceversa).

Have a nice trading day!
mdm

At 2.15 pm Fomc will release his rate decision and statement. Consensus doesn’t expect any change in Fed funds rate, but even no change in rate outlook (market discounts rate hikes during 2010, with an increase of 1% by the end of next year). BennieB. should inform us that their liquidity injection is reviving growth without requiring rates hikes and without raising inflation expectations.

So, be aware that any unexpected news or change in statement formula “economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period” could significantly move markets. Same way, financial stocks may be influenced by any change in policy or intervention through “emergency” funds like TALF.

Another interesting data today is ADP employment change, at 8.15 am, expected at -198k versus a prior -254k. This should be a nice appetizer for next days’ employment data.

I give no significance to ISM Non Manufacturing, scheduled at 10 am.

have a nice trading day

mdm