Thursday, June 11, 2009

Arachnid Sell Signal

A few short and sweet charts suggesting it's time for at least a short-term decline and maybe the beginning of the end of the whole enchilada.

The first chart below is the 120 minute SPY chart:


Note 4 peaks and divergences on FBS.

Also note, as my friend Jack pointed out to me after yesterday's blog, spiders are not insects:

"As you can see, the arachnida diverged from the Insecta very early on. Note how Crustacea (they include various familiar animals, such as crabs, lobsters, crayfish, shrimp, krill and barnacles) diverged later from Inserta then did aranchnida."

Nonetheless, let's take a closer look at the 120 minute SPY chart:


A break of the lower trend regression channel line tomorrow will confirm the Sell. That line is currently around 94 basis the SPY.

Finally, a look at from a weekly perspective, just in case:


This chart above is of the weekly SPX and suggests a drop tomorrow below 858.68 will usher in several months of decline.


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12 comments:

ROB G said...

ALLAN,

WHEN I USE THE TRADE TRIANGLES, WHAT IS A GOOD MONEY MANAGEMENT STOP TO USE. IS IT A CERTAIN PERCENTAGE OF THE TRADE?

THANKS
ROB G

Anonymous said...

are you ready for the big drop, Rob G ???

Anonymous said...

Allan, you realize that the close you say that is needed to signal the downturn is almost 100 points away? In other words, its a long shot considering that volatility is nowhere where it used to be. Gonna need some kind of trigger event like a terrorist attack, N Korea launching an attack or perhaps another viral breakout.

Allan said...

I know what I know as well as what I don't know. But I said earlier that I would try to get in well before the confirmation, that means to take every sell signal seriously. This could be the start of that killer wave down, or merely a mild selloff before new highs, or, may not be a selloff at all. I trust my indicators and if this is a false alarm, I'll take the next one with the same amount of conviction. That's how this hand is being played.

Anonymous said...

I see.

Anonymous said...

if the market traced a long 7 day triangle just to make a move to 956, then that's kind of lame. However, at any rate its a valid count. As to my preferred count, we go a slight bit higher...

Anonymous said...

Are you still holding onto TGB?

Anonymous said...

Allan,

Are you still holding AUY?

Thanks,
Lisa

Mike said...

Rob G...

http://www.amazon.com/High-Probability-trading-Marcel-Link/dp/0071381562/ref=sr_1_2/185-5060278-3811046?ie=UTF8&s=books&qid=1244815406&sr=8-2

Chapter 9: Exits and Stops

-Mike

Brett said...

Can you explain how to read the false bar stochastic? Does the presence or absence of the black bar indicate a valid trend? And how is this used in conjunction with the stochastic crossovers?

Anyone that's been paying attention to interest rates, which bottomed around December and have nearly doubled from about 2% on the 10-yr treasuries and recently hit about 4%, should be very afraid.

First, the 10-year rates are closely tied to mortgage rates, which have begun to rise again. Second, rising interest rates provide competition vs. stocks, reducing demand for this riskier investment. Finally, higher rates choke off borrowing and investment by business and reduces profits. Basically, when rates rise rapidly, stocks fall. In this case, stocks will fall much harder than they normally would, because this rise also signals the government's failure ot bail out the economy.

I've been skeptical that even the mighty US government could throw enough resources to turn this financial crises around, but I've withheld judgment until now, not being sure. Rising interest rates are the nail in the coffin for the bailout plan. For a while, the government was able to print money and buy its own debt (the money supply is expanding at 13% right now, which in normal times, would have a huge, positive impact on both near-term growth and cause inflation). For now, inflation remains very low due to a collapsing money multiplier (which means that because a lot of folks are less willing to borrow and lend, cash isn't getting "recycled" through the banks as fast as it normally would to fund various potential purchases and doesn't have its normally rapid impact on growth and inflation).

The cause of the rising interest rates isn't inflation; it is the growing US debt and deficit. The more that the US wants to borrow, the riskier that debt starts to look and the higher the rates climb.

Implication: the government can't buy down mortgage rates again. The government now faces a dilemma: it would like to keep spending and lending to sustain the fragile recovery in real estate. Instead, mortgages are rising with interest rates, and the government can't do any more about it without pushing those rates higher still.

As rates rise, the real cost of purchasing a home will rise. Many who own homes with low mortgages will have to pay much higher monthly payments for the same price elsewhere. Many will choose not to move. Those that do will insist on paying less. Prices are about to begin their next big leg down on homes, caused by rising mortgage rates. With many already under water, banks are going to get hit again with losses, and we restart the whole show we saw last fall as panic ensues.

The difference: the Fed only had one bullet to shoot, and it didn't kill the monster. Interest rates tell everyone the story: no more bullets.

We're still years away from a bottom in housing. We're still years from full recovery in financial markets. Now that the writing is on the wall, the stock market will price that in very soon.

The fundamentals support a huge leg down. Rising interest rates are the catalyst, making it plain to anyone thinking carefully that the government's bailout has already failed, and their hands are now essentially tied to take any further action. We'll be forced to watch the market correct in real estate without government intervention, as well as on stocks and other assets. And stocks, being a lot more liquid, will make that correction much more quickly.

Allan said...

The False Bar is a proprietary indicator that looks to improve on trading signals given by the Stochastic indicator. If the Stochastic indicator is giving an overbought or oversold situation these signals are not valid if the False Bar is present. In Advanced GET, these bars are displayed graphically on the Stochastic study as a bar either above or below the Stochastic lines.

Anonymous said...

"Who are you who are so wise in the ways of science?"

-Sir Bedevere, Monty Python and the Holy Grail.

Wow, check out the big brain on Brett. I couldn't agree more with his analysis. The question is when? I also note that the market is reaching new highs with fewer and fewer leaders, a definite sign of the turn around to come. Now, those leaders are starting to fade. We are so close.

Smiddywesson