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2/6/09
Range bound action continues, much like we saw in Feb.-April and July-Aug. of last year. Those months were periods when the intermediate cycle was trying to advance, and once that 4-6 week advance phase concluded, the breakout to downside became quite precipitous. In a longer term bear market, that's what you would expect, damped upside moves and faster decline periods.
You would also expect some bearish time skew. That means that the cycle peak forms earlier in the cycle's full oscillation, and its trough can tend to form later. In essence, even with the same periodicity as measured cycle low to cycle low, most of the time within the intermediate cycle would tend be spent in decline.
It was particularly notable that after about 8 weeks of flat activity from July through September, the steep decline which followed, lasted for 6 weeks. It was then followed by a one week reprieve, but then had another couple of weeks of sharp decline. In other words, the decline phase of that intermediate cycle lasted almost 9 weeks. That is bearish cycle skew.
I point that out because although we see the intermediate cycle on the NASDAQ attempting to turn up with the short term cycle's advance, we are not getting confirming indications that an intermediate low is truly forming and until then, I want to avoid being early only to find that a bearish cycle skew is still in force.
The NASDAQ is the only index currently above its 30 and 50 day moving averages, the rest are still struggling near the 5 DMA. Market chop still allows us some intra-day plays for a buck or so on the double beta ETF on an almost daily basis, but in terms of catching a big wave up move at this point, there is little supporting indication that the bearish skew has changed.
For the time being, continue to use intra-day charts and the 8/8 crossover strategy for small(but regular) gains. Don't forget to look at different time frames like the 30 and 60 minute charts too.
2/5/09
Short term cycles never quite get the traction they need to drive markets significantly higher while intermediate cycles are in decline. It happened after 1/9 as you can clearly see on our Filtered Dow chart below. Then, its 10 day cycle bottomed and began what should have been a 4-5 day move upward. Due to the declining intermediate trend however, the market's response was anything but bullish. Instead, we had a meager two days of sideways grind that was quickly followed by a hard drop. I point that out because we are already seeing some indications that this short term rally could follow suit.
First of all, the NASDAQ made a strong effort to get above its 30 and 50 day moving averages yesterday, but selling in the second half of trade brought the index right back down below those resistive averages. That's what we call "selling into strength". That's what institutional traders do who want to unload, they wait for higher prices that show signs of stalling, then pull the plug. That kind of action doesn't bode well for a continuation of the upside near term. The Dow could hardly get above its 5 DMA on the day, and fell well below it on the close. That's not bullish either.
So for now, despite an expected short term bounce on the Filtered Dow chart, we are still bearishly biased.
2/4/09
Rising momentum cycles along with bottoming short term cycles, helped lift the Dow 1.8% and the NASDAQ 1.5% on the day, but it all came to a screeching halt right at the "Do Not Cross" warning sign posted next to the Dow's 5 day moving average. For the NASDAQ, the halt came at the 30 DMA. Once again, keep an eye on those critical averages, that's where big money is likely to slam on the breaks, or step hard on the gas and try to break through those barricades.
I posted some longer term charts for the DDM and DXD so you could see the high cyclic consistency of the intra-day 20 (average) period cycle. It has been providing 1 1/2 oscillations per day for most of this year. By using knowing that, it can help you estimate the time of day when an 8/8 crossover is more likely to occur and be valid.
Short term cycles are moving up on the regular charts but we do have momentum cycles that ran nearly full scale yesterday, so expect some moderation in any follow through, especially considering markets ran smack into their resistive averages. That moderation may translate into more chop until we see the daily Filtered Dow chart show that the 10 day cycle has bottomed too. That is still another session away.
2/3/09
I regularly get the question, "If I don't have the time, or want to spend the time trading intra-day, is there anything I can trade during this choppy market?" The answer is certainly. There is always a strategy you can employ that doesn't require a two fisted grip on the wheel and indy like reaction time. And one of the those I like is option spreads.
Basically it works this way: When markets have high volatility but lack a trend, option prices tend to explode and implode on a shorter term basis. That sets up a good opportunity to simultaneously sell an option closer to the "at the money" price for example, and buy a second option slightly further out. In this strategy, you hope both options will lose time value and ultimately expire worthless. You keep the spread's premium difference.
For example, when the intermediate cycle topped out at the beginning January, the first consideration would have been to buy the inverse ETF's, secondly to buy puts on indices, and thirdly, you could have sold what's referred to as a "bear call spread". That's a fancy term for what I described above where you sell one call and buy another when you expect the price of the underlying stock to decline.
At the time the QQQQ was trading around $30-$31. The QAVBF (Feb 32 Call) was selling for $1.15. The QAVBH (Feb 34 Call), was selling for around $.40. The difference of $.75 would be added to your account for each share and represents the maximum potential profit on the spread. Ten contracts sold would add $750 to your account. Your blow-up risk if the market took off to the upside and you were in a coma or struck by lightning, and failed to close the positions, would have been $2 per share - or the difference between the two strike prices times the number of contracts sold ($2000) in this case.
Today, the QAVBF is selling for $.18 and the QAVBH is at $.03. In other words, both are pert near worthless now, and you could wait for them to expire, or buy back the QAVBF so that only your long call remained and you would have made nearly a $60 per contract (minus fees). Anyway, just another fairly simple strategy where you sell stuff that is likely to become worthless, to people you don't know, for a good profit right now. Almost sounds like eBay :)
Short term and momentum cycles are turning up on our regular Forecast charts, but have another session or two for that to occur on the Filtered Dow chart. As those turn up, we are likely to see the Dow try to rally back to its 5 or even 50 day moving average again, but while intermediate cycles have not yet confirmed a bottom, a short term cycle rally is likely to remain damped one more time.
2/2/09
Short term cycles moved into the lower reversal zone Friday, but
according to our Filtered Dow chart, that cycle still has some time remaining in
its 4-5 day decline phase. Combine that with intermediate cycles that are still
declining along with the idea that some of the biggest down moves can develop
just ahead of any intermediate cycle low, and we have the makings for a quick
retest of the 11/20 lows and possibly lower.
Our trading bias remains bearish due to the intermediate decline,
and the fact that indices are also trading below their declining 5 day moving
average. We've been in a fairly narrow trading range since November, and while
some want to believe that is a basing pattern leading to a break out, I wouldn't
buy into it (pun intended) until there is a clear move back above the 30 and 50
day averages on the indices which would follow an intermediate bottom.
That low is generally accompanied by very heavy volume,
"capitulation selling" as it is called, similar to what we saw in November. The
intermediate rise that followed that bottom was quite anemic however, but if we
don't break the November lows, the upcoming intermediate low could be stronger.
That's because a technical double bottom is easily recognized by big money
traders and historically suggests a lower risk buying opportunity. But again,
even that would have show breaks through the 5,30,and 50 DMA's to confirm a
sustainable intermediate advance.
Today, our 15 min. intra-day
cycles suggest some early strength that could develop in the indices, and
momentum cycles that could begin to turn up today as well. Again however,
declining intermediate cycles and short term cycles which have a couple more
weak days remaining, are likely to damp an attempted market rise.
1/30/09
I am always glad to hear about your successful trading days, and
yesterday I got several "thank you's" from users who recently got into the
"swing" of using the intra-day 8/8 crossover technique by playing the short term
downside. Don't be afraid to experiment with different time frames, slight
changes to the averages, or even using a weighted moving average with that
strategy. The key for me is to have multiple windows open on the same screen
with several time frames showing (5,15,60 minutes) so I can see the early part
of the move developing. The longer time frames help stay in a move during minor
dips or stalls.
You'll note how strong yesterday's action was right from the
opening bell. That's why I always remind readers to be careful with long
positions during intermediate decline periods, and especially when short term
cycles are due to top. Big money traders are very skittish at such times, and
even more so these days. When its clear that critical averages on the indices
are not going to hold (the 50,30, and 5 DMA), they'll move quickly to take any
profits they have off the table.
|Yesterday I listed several conditions that would need to occur to
validate an intermediate cycle advance, and one of those was a confirming move
above the 50 DMA on the Dow. That obviously failed, and it is why we keep an eye
on those critical averages. Most people don't know about the power of the 5 DMA,
but the 50 DMA is almost superstitiously followed. Quite frankly, I'm not going
play against mass superstition.
I also mentioned the $VIX. As you know, it measures the implied
volatility in options and indicates when the hedging on the those is getting
more bullish or bearish. A high reading indicates market fear, a low reading
implies exultation. It too is widely watched, but since it does not have absolute thresholds
indicating bull/bear conditions, you can add moving average crossovers to that
as well. I prefer to do so on daily charts as options trade more slowly than
stocks and hence, other market indices. Just remember, the VIX moves INVERSELY
to market direction. When it is falling markets should be rising.
Today, short term cycles are moving down, but providing some
offset should be the momentum cycle that is deep in the lower reversal zone and
could turn up today. We'll expect some chop as a result, and more attempted
basing on the indices in this range bound area we've been in since
November.
1/29/09
As short term cycles complete their 4-5 day advance phase, the
NASDAQ gained enough strength yesterday to push through its 50 and 30 day moving
averages. If the Dow had done the same, it would have been an confirming
indication of what may be an early intermediate bottom. The Dow still remains a
little more than 100 points below those averages but with momentum and short
term cycles entering the upper reversal zone, that move may have to wait.
It is interesting that both intermediate cycles (Dow and NASDAQ)
are beginning to turn up. But is it an early bottom, or one of the hook similar
to what we saw in last Septembers intermediate decline (see Historical charts
9/15/2008 or 8/3/07). In both of those instances, markets rallied from a strong
short term cycle that took the cycle line into the upper reversal zone, but was
short lived. Afterwards, markets resumed their downside for two more
weeks.
The key to recognizing real intermediate lows vs. head fakes, is
by keeping an eye on a few validating factors:
(1) Have both the Dow and NASDAQ exceeded critical resistance
levels?
(2) Is the number of new highs vs. lows dramatically
improving?
(3) Are sentiment numbers (VIX) peaking at higher threshold
numbers?
(4) Is volume growing stronger?
(5) Are momentum retreats quickly met by significant
buying?
Obviously, some of those questions are not answered until AFTER
the intermediate cycle has truly bottomed and begun to rise. But for now, we
have yet to see the Dow confirm a breakout, and while market breadth has
improved somewhat, a dramatic change is not yet seen there either. The H/L ratio
for example closed positive on the NYSE at 28:9, and 12:41 for the NASDAQ, but
following an intermediate bottom, we would want to initially see the number of
news high quickly move above the 100-200 level, and within a week or two later,
above 500+.
We'll look at some of those other factors tomorrow, but for now,
know that short term cycles are getting ready to retreat. A resumption of the
intermediate decline won't be confirmed until we have a break back down below
the indices 5 day moving average. An intermediate rise won't be confirmed until
the Dow (as a first confirmation) breaks above its 50 DMA. So for now, a little
twixt and tween, with my expectation that there is still some intermediate
downside left to resolve.
1/28/09
Markets moved up slightly in yesterday's session, but remain range
bound as divergent short term and intermediate cycles continue to work against
each other. Short term cycle gains however, have not been that bad since their
1/20 lows (regular Forecast charts), with the DDM gaining 5%, and QLD improving
about 9%. Though it's always risky to play a long position when longer
intermediate cycles are in decline, for those fleet of foot, even half those
returns aren't too bad in such a choppy period.
Market breadth number improved a bit on the session, with the
number of stocks trading above their 20 day average improving to 38%, while the
number of new highs vs. new lows narrowed slight to 17:21 on the NYSE and 13:83
on the NASDAQ.
Short term cycles still have a little time left to advance, and
curiously, the intermediate cycle on the Dow is starting to look like it is
either bottoming (which would be early) or just giving us one of those stalling
patterns before resuming its decline into the lower reversal zone.
Either way, markets are still "technically" climbing on the
short term, with both the Dow and NASDAQ now holding above their 5 day moving
average. The NASDAQ however, keeps failing to penetrate the tough upside
resistance of its 50 DMA. There is a lot of technical selling going on there,
but should that line be breached, we could see a fast buying impulse that would
ripple across the board. Keep your eye on that line.
1/27/09
There have been many of you wondering about the seminar/webinar idea we
discussed at the end of the year, and I am happy to say we have finally decided
on a series of 8 LIVE webinars that we will be starting the first week in March.
With the GoToWebinar program we will be using, you will be able to interact and
ask questions via your computer's microphone and/or through text messaging. We
will also be including cycle plotting add-ons for eSignal and TradeStation, and
will follow up with CD's of all the sessions. It will be a great training
experience and with a webinar approach, something that many more of you be able
to attend. I will post a page and a link here today so that all who are
interested can get registered.
Yesterday gave us a little bit of the upside that comes from a
rising short term cycle, but again, like a governor on an engine, the longer
term intermediate decline damped the action and kept the rise throttled back.
That NASDAQ managed to nearly touch its 50 day moving average during the
session, but that's where sellers took over and the index quickly pulled
back.
Market breadth data isn't changing much either. The number of
stocks trading above their 20 day average improved slightly to 33%, but the
number above their 200 DMA remains at 10%. New highs vs. new lows is also fairly
neutral, closing at 16:31 on the NYSE and 9:76 on the NASDAQ. We wouldn't expect
a lot of improvement there until intermediate cycles bottom again in the next
couple of weeks.
In the meantime, we still have a bearish trading bias due to the
declining intermediate trend, but rising short term cycle are offsetting deeper
declines which should continue to provide attempted rises that fail at
resistance. In other words, chop over the next couple of sessions until short
term cycles top out. Remember, in a declining intermediate trend, short term
cycles tend to top out early, forming lower highs on our Forecast charts. When
they do, we'll want to look at the inverse ETF's for profits on the
downside.
1/23/09
We had an inside day of choppy market action on Thursday, wherein
the daily highs and lows on the indices failed to surpass the extremes of
Wednesday's trading. Note too, and importantly so, that indices closed back
below their 5 day moving average yesterday. Add to that an intermediate cycle
that is still in decline, and we are likely to see the short term sideways
stalling action we've had over the past couple of sessions, turn bearish once
more.
It is why I talk about using the momentum cycle advance as and
entry point into short positions during intermediate declines. When the upside
action at these times fails to exceed the 30 or 50 day moving averages, and in
fact hovers near the 5 DMA instead, short term cycles are simply putting in
another lower high at that point from where markets are likely to again retreat.
