the behavior of the beast

In the mind, as in life, it is always 20-20 looking back (hindsight is always clearer). In Trading the philosophy of this blog is always 20-20.

the closing price itself is the most significant. Why? yesterday (again 20-20) is a prime example. NASDAQ opened 106 points down – around 1.4 %. went down 124 points compared to the previous day’s close (1.73%) but then closed at 7085 about 12 points higher than it opened. Look at the following 5 min chart. It is range bound and closed at upper part of the range.

screen shot 2019-01-29 at 10.41.26 am

Now look at the chart below. It is S&P 500 Stocks Above 50-Day Average ($S5FI)

screen shot 2019-01-29 at 10.53.59 am

on 1/22/2018 this very reliable portent dropped by more than 11%. that was a good scare. Now on that day (Tuesday, right after MLK holiday) NASDAQ dropped by 136 points (1.9%)

screen shot 2019-01-29 at 11.05.50 am

Now look at the behavior – both days. the charts indicate the behavior. on 1/22 clear down trend and 136 point drop and $S5FI dropped 11 + % points. that is why IBD said on 1/23 day end – “Stock market bulls breathed a sigh of relief Wednesday as Wall Street endured another whipsaw session.”

Yesterday though the drop was significant. the volume was lower compared to 1/25 (Friday). it was a range bound day and closed at upper end of the range. and $S5FI dropped by only 1.6 % points.

and also both yesterday and on 1/22 the volume fell on both NASDAQ and NYSE exchanges.

another good sign for NASDAQ is that the candles are bouncing above their 10 days SMA.

as a side-note : NASDAQ volume is about 2.4 billion and the dollar volume is 120 Billion daily!! Now we let the Big dogs like pension funds, and mutual funds and Quant automatic computerized trading, ETF managers, hedge funds play it out in the day.

We are concerned only with end of the day price and the behavior during the day and psychological important Moving averages like 50 Days and 200 days. Somehow this along with major support and resistances. It gives us great relief and mental rigor when we avoid the fight during the day. 

I am continuing to be in the market. Long QLD.

Happy trading !

 

 

market is still not out of woods

last week, the day after Christmas we have had the best one day show in about 10 years in the market. But it was not convincing, why? because there was so small rise in the number os stocks going above the 50 days SMA in S&P 500. On the big day it went up by 3.39 which is insignificant compared to the drops (look at the big red candle o Dec 4th – one day drop of 23%!!)

Screen Shot 2018-12-29 at 12.49.46 PMScreen Shot 2018-12-29 at 12.53.15 PM

also checking QLD – we see that on the same close at 12/20 the OBV was 56 million and on 12/26 the OBV was 53 million. this is divergence and hence the market is going to go down further.

on the COMP 6630 is the next resistance (weekly low on the week of Feb 5th 2018)

One positive thing is the DMSI – quoting them “The Delta Market Sentiment Indicator (MSI) declined to 7.5% this week.  The range on the Delta MSI is from 0% to 100%.  A 7.5% reading is very low and a sub-10% reading has only occurred during four periods (including this week) in the past 15 years (a longer history is shown this week instead of the usual 12 month review).  Historically, the stock market has shown strong performance over the next twelve months post a sub-10% reading.”

yield curve inverted market crash

i am not a predictor of the market, neither do i have any crystal ball. but the last post accuracy has been immediately proved in the market on Tuesday December 4th 2018. wow, what  fall!

IBD narrates – “At one point in the session, a 2.78% yield on the five-year note dropped under a 2.80% yield on the shorter two-year note. In other words, it made less sense for investors to hold the longer-dated bond for a specific return.”

usually the 10  year is compared with 2 year curve. But this is telling. Market need something to sell.

IBD continues – This was supposed to be a banner week for the Dow Jones industrial average and the broader stock market. President Donald Trump called off his escalation of China tariffs days after Fed Chairman Jerome Powell traded his hawkish talons for a Santa rally cap. But financial markets just aren’t buying the good cheer.

so i will either short or stay out of the market

preserve our capital and profits at all cost! Market is in correction.

then they my be a possibly to play an other day

Great rally so far but OBV not convincing on NASDAQ

according to IBD – “The Nasdaq composite ended with a gain of 1.5%. But the blemish to the gain was that the index met with some selling pressure as it approached the 7500 level. The index’s 200-day moving average currently sits around 7520. The Nasdaq closed in the upper half of Monday’s range, but it ended just below the 50-day moving average.”

The On Balance Volume (OBV) on QLD is not convincing – it is just above the levels on Nov 9th 2018 which is 59.337 Million as opposed to yesterday which was 59.786 million. no divergence (this divergence was exactly seen on Nov 7th 2018 at 62.335 million which was much below at similar QLD price levels on 10/22 when then OBV was 67.719 million)

then the market fell from 7500 Levels on Nov 7th to 6900 levels on Nov 20th – a drop off 600 points because of volume pumping up the price was not intense. OBV would indicate that very clearly.

according to IBD – “The Dow Jones and S&P 500 each added 1.1%, closing bullishly above their 50-day moving averages. Preliminary data showed volume on the NYSE coming in about 10% lower than Friday’s total. Nasdaq turnover was close to Friday’s.”

but for NASDAQ the cortical level of 7500 is not crossed.

Market is in rally but preserve capital and profits

lessons learnt in market crash – Part 3

Hello traveling traders

Good morning from Sunny Hyderabad. Yesterday was festival of light (deepavali) here and lots of fireworks and goodies to eat!

Part 1 and Part 2 can be found here.

today lets look at russell 2000 a bench mark for small caps

Screen Shot 2018-11-08 at 8.39.54 AM

It will not escape your attention that it is going down since 9/04/2018, a month before the actual crash!! and it drops down the 55 day SMA on 9/26 and stays down there and goes down for 10 days before the general market crash!!

wow!

 

Lessons learnt in market crash – Part 2

Hello travel traders

Good morning from Hyderabad India. Nov 6th is a big day for the USA. it is sunny at about 10:00 am here.

Part 1 can be found here

Screen Shot 2018-11-06 at 9.44.21 AM

FFTY is the growth stocks ETF. It is passively managed fund and tracks the IBD 50 – The best growth stocks in the market. the holdings are updated weekly

you see, Growth stocks break down about 2 – 2 1/2 times that of market. as the market is falling they hold up well for 3-4 days and are resilient. But they start collapsing the faster as the bear market sets in. Why? because market drops 4 times faster then it goes up – because markets climb the wall of worry and fall of the cliff.

Look at the bearish engulfing candle stick pattern at the  tops – a solid red candle after a small green one.

Along with $S5FI this is a reliable portent.

For market  bottoms Growth stocks are first to break out after a follow through day.

Follow-through signals are more likely to fail if distribution days occur in the first few days of a new uptrend. This is one key red flag. A distribution day, which points to institutional selling, involves a drop of 0.2% or more in the Nasdaq or the S&P 500 in higher volume.

Generally, a distribution day within a few days of a follow-through leads to a failed rally. The risk drops off sharply after the fifth day.

A second red flag? In the early stages of a new uptrend, strong action among leading stocks is crucial. Top-rated stocks should be breaking out of bases in big volume. This is a clear sign that professional investors are stepping back in to buy stocks.

have a wonderful day and please vote!

 

Lessons learnt in market crash

S&P 500 Stocks DAILY Above 50-Day Average BEFORE FALL

Price is the true north star and her sisters are a few – one particular one is how many stocks in S&P 500 are above their 50 days SMA ($S5FI)

The first big red candle and a drop of 10 percentage points in the number of stocks above their 50 days SMA happened 12 days  before the actual market crash!

Market lost its floor on October 10th and you see in the above chart that the big red candle appeared on 9/24.

Do you see the gradual descent in the above chart! It falls below all the Moving Averages (MA)..the green 10 Days Exponential MA and also the 22 days SMA and 55 days SMA.

It falls below 50 % on 10/04.

there are other signs that go along with this. More in the coming days posts.

now a drop of more than 10 points in $S5FI occurred  in 4 days by 02/01/2018 and NASDAQ dropped to the low 765 points in the next 6 days!

Similarly $S5FI dropped more than 10 points on 02/27/2018 and NASDAQ dropped to the low of 246 point in the next 3 days.

similarly in 4 days by 03/15/2018 it dropped by more than 10 points and then in next 11 days the NASDAQ dropped by 676 points!

and it dropped by more than 10 points in 4 days by 6/19/2018 and in the next few days NASDAQ dropped 362 points

and it falls by more than 10 points on 9/24/2018 and NASDAQ drops 1000 points in the next 18 days!

I am staying in cash