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

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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

 

 

 

Where is the stock market now

The delta market sentiment indicator is at 19.6 currently.

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the percentage of S&P 500 stocks that closed below their own resepctive 50 days SMA has fallen to an extreme of 15 % (out of say 100 stocks, only 15 stocks are above their own 50 Days Simple Moving Average (SMA))

According to Delta newsletter – “Since January, 2009 through today, we have only had eight instances when the MSI declined below 20%.  Shown below is a chart of the MSI since January 2, 2009.  Buying the market when the MSI dropped below 20 previously during this bull cycle has benefitted patient investors willing to incur heightened market volatility”

When the Delta MSI drops below 10%, Delta’s MSI based strategies may buy stocks.  During the current bull cycle beginning in 2009, this has happened only twice.  Over the past 27 years, it has happened five times.  These times were:

  • August 1990
  • September 1998
  • July 2002
  • October – December 2008
  • August 2011

The chart below shows the price change in the S&P 500 from the closing monthly price when the MSI went below 10% to twelve months and three years later.  The chart does not include the additional benefit of dividends during the holding periods.

Be prepared to enter soon into the market

 

Best quarter in 5 YEARS!!

CNBC has this “For the quarter, the S&P 500 rose 7.2 percent, its best quarterly gain since the fourth of quarter 2013.”

The article further adds this “The Nasdaq Composite also notched a 7.1 percent quarterly gain, its best since first quarter 2017. ”

DMSI – delta market sentiment indicator is 56.0

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s&p 500 stocks above their 50 day SMA stabilized after it declined entire last week.

my decision – continue to stay in QLD and long on NQ

what’s going on in the market

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Friday Sept 28th around 10:00 am IST 00:30 am just past midnight New York time

today would be the last trading day of the month and also the last trading day off the quarter

Yesterday prices faded as the day ended. In the above chart $S5FI – The percentage of stocks in S&P 500 that are above their 50 days SMA…they have fallen the entire week!

18 points fall from August 29th from 73 to 55.

last time from June 12th to June 28th s&p 500 fell 83 points and $S5FI fell 21 points .

So that is a red flag

but the A/D line for NYSE actually went up

So i am little confused. Why did the market fade away so badly yesterday ? What are stocks falling below their 50 day SMA?

Now price is the true north star so

my decision  : I will continue to be long on QLD and I am also long on NQ

 

big red flag exiting NQ

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Tuesday Sept 25th 2018 around 10:30 am – 12:30 a IST, which is past midnight Tuesday 01:00 am – 3:00 am Tuesday New York Time

I have exited NQ with around 60 points gain. Looking at the above chart. biggest red candle in the number of S&P 500 stocks that fell below their 50 days SMA . Its a 10 point drop ! S&P 500 dropped little more than 10 points. Very great anomaly. for a 0.3 % drop in S&P 500 the number of S&P 500 MEMBERS that dropped below their 50 DAY SMA fell by 15%.

NYSE advanced declined line – 1918 stocks down on 2.3 billion volume. Only 896 stocks up on 992 million volume

one positive sign : NDX opened at 7477 with 45 points gap down from previous day close.

now that was the lowest too! It swung up 71 points to close around 17 point more than previous day’s close!

my decision : i have already exited NQ, I am continuying to hold on to QLD