Heikin- Ashi Candles – what are they saying about the market?

Heikin- Ashi Candles (H-A Candles) smooth out the rough edges and indicate if the patterns are continuing or they are just about to transition.

They are like regular candles but use averages. Something akin to the functioning of moving averages. I feel they are simple and effective. Why?

Let’s look at closing price on a H-A candle. It is average of high, low, open, close of the current time period. Isn’t that awesome! Why? because no matter what people say what they think, what the TV pundits think and say. No matter what – ALL INFORMATION IS IN THE PRICE. More so in the current world we live in – every information moves at speeds that was too much to even imagine for say Jesse Livermore – often quoted as the greatest speculator of all time.

Look what he says on page 11 of his own book under a pseudonym??

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So let’s smooth all all fluctuations and say what is the average closing price for today. How is it doing with respect with last few days.

let’s look at S&P 500 Stocks Above 50-Day Average ($S5FI). From 90 % of S&P 500 stocks above their 50 days moving averages it has fallen down to 60%. Basically the stocks are losing steam and falling off. This is invaluable information. Why? the best biggest companies are not being supported by biggest institutional monies and hedge funds and Pension funds like The California Public Employees’ Retirement System (CalPERS) which has 300 plus billions in assets. Individual traders and speculators like you and me cannot match their dollars. We do not move the markets. We just follow the price.

As Jesse said – the tape does not concern itself with why and wherefore!

So last 3 weeks the stocks composing S&P 500 are falling off. So we do not enter into newer positions and take our profits. That is what i did in TQQQ and NQ yesterday. I closed all my positions and am sitting in cash now.

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Now let us look at TQQQ – the triple NASDAQ 100. It went up 94.6 % since the start of the rally low on December 26th 2018 till close of the market price of Thursday March 21st. it gave up 14 % last two days. So we exited to preserve our profits. (all regular candle prices not smoothened H-A candle)

Now why is this last two days different from say March 7th and 8th 2019  when they were similar declines?Screen Shot 2019-03-26 at 12.04.21 PM

March 7th and 8th – the price decline was 5.3 % or 2.77 dollars. on 6th the volume is well below the 50 days SMA of the volume and on 7th the decline in price was accompanied with just about average volume. IBD still had market in confirmed uptrend.

From 8th to 21st of march the market was going up BUT S&P 500 Stocks Above 50-Day Average ($S5FI) BARELY BUDGED it held at 71 %!! TQQQ went up by 20 % but the best stocks did not move up!

On 21st March at the climatic top the volume was just above average in TQQQ – around 19 million. the 50 days Average volume was 17.8 million.

the 7.1 % decline in the last 2 days. were in volume of 33 and 26 millions! which is to say 83% more volume than average on Friday 22nd March 2019 and then 30 % more yesterday. IBD changed its market outlook on Friday to market under pressure.

Number 1 : price in the only true north star

Number 2 : Preserve your capital at all costs

Number 3 : Preserve your profits.

Market climbs the wall of worry going up in an escalator or slowing trudging up. It falls down like a rock or a free fall elevator.

lets look at the 5 min intraday chart.

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7600 price seems to be a support. lets just wait and see.

Finally lets look at 5 days 60 Min H-A Candle chart of TQQQ.

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look at the bottom pane the big green volume candle bar and the values for that particular hour. Volume was 300 % more from 2-3 pm the day of Wednesday March 20th 2019 price change was 56 to 59.66 – 6.5 % But then look at all the high volume red candles  that followed the price decline.

So i am staying out of the market for now. Right from 3/22 and 3/25 10:00 am high volume price declines. So i get out of the way.

Happy patience and staying put for now!

 

Hello Readers from shanghai!

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I would like to thank Helga Sweeney and Alex for their observations on “pesky charts”

what about supply and demand for NASDAQ? or for that matter DOW and S&P ?

Before i answer that – lets look at some basic fundamental traits in the charts for 2017 and till now 2018

what did the pundits say – This is a valid dictum – Do opposite what the pundits say and you will be alright !!

look at what IBD said  “Since 1963, the S&P 500 delivered 19 years in which it rallied more than 15%. But each year following those big gains averaged a more modest 7.5% advance.”  and “investment strategists and fund managers expect more modest stock price gains in 2018.”

I respect IBD a lot; In fact the big picture column is fantastic and is a daily read for me to gauge the “Big Money flow”- which is nothing but this : How is the price performing wrt the volume on a daily basis. How are leading stocks like YY, AMZN  and others performing? For we know that with first signs of big selling the leading stocks lose first and then the volume increases to overall stock market as it falls.

NASDAQ’s number of distributions days (high volume selling) is just 1 in the last 30 days and It is up 7.3 % till Jan 22nd 2018! we haven’t even finished one month yet!

The S&P 500’s 2017 return was more than double the big-cap bogey’s 8.50% average annual gain over the past 10 years. The Nasdaq composite index shot up 29.64% and the DOW jones gained 25.08%!

Only once in the lasts 25 YEARS the S&P is up more than 6 % in Jan (1997 – 6.7%). the S&P just hit 6.00 % just yesterday !!

the delta market sentiment indicator is approaching 74% (74 % of around 2500 stocks are above they mid term moving average)

the leading economic indicators (LEI) is healthily positive last one year

the stock market is healthy and going strong with no head winds at all

 

 

A view to a kill!

COMP SHOT JULY 24TH 2017

what’s more at the top? More of the top.

Last week all the indices hit all time high.  How far is far enough?

when P/E is constant, then the risk premium is constant.

P/E has been hovering for S&P Index around 20.5 for the last and half year (DEC 2015 to June 2017) .   earning increased from 100 dollars to 116 dollars around 16%

So mostly the gain in S&P came from the gain in real earnings of the companies!

So assuming just the earning to grow by 10% (very reasonable..just the growth %) and P/E = 20.5 as constant

then S&P would be (116+10% of 116)  * 20.5= 2615 – a gain of 144 points from today.

the leading economic indicators – % change has been positive for the last 10 months!

around 65 % of stock market is about its 75 days moving average.

Now value of companies according to the theory is based on discounted value of the cash flow. because of low interest rates companies can borrow much with little interest paid. Hence expansion, hence earnings growth!

Happy trading!

“The market can stay irrational longer than you can stay solvent.” –  John Maynard Keynes

 

 

Entered into new position this morning

Good Morning.

As i said in last post, market is in correction. I have entered into 1 new position – ultra short of QQQ.

The ticker is QID. It is not a short position, but long (bought) position.

It is double the reverse of nasdaq.

Reason for entering : It just crossed above the 75 day SMA, and market is in correction

Does valuation matter for our style of trading?

Good Morning

this morning i read this in yahoo finance (note the 20/20 vision looking at the past) – “To those poor souls Trennert suggests backing up and remembering that valuation always matters. Corrections lead to selling that takes down blue chips as well as garbage names.”

I am not a poor soul, I did not get into the market. Because the market is still in correction (How long or how short time will tell).

Let me again empathize the fundamental difference. I trade based on one and only one thing – Price.

I have one and only one signal – 75 day Simple Moving Average.

DMSI, and IBD big picture help me a lot in confirming my signal.

So valuation based on opinions don’t matter in my style of trading.

Happy trading.