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« Relentless Market Hits Psychological Round-Number Levels | Main | Worry Over Earnings Going Forward UPDATED »

Monday, April 12, 2010

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Mamma Boom Boom

>One index I watch is the $NYAD, which shows the NYSE advance-decline, and can be looked at in cumulative or moving-avergae mode.<

Tell me, what good is cumulative mode?

DG

I already have a short open position from lower levels (stop has never been hit), but I just got a short signal here, with a stop at SPY 121.67.

Michael

Cumulative mode of the A/D line ( be it on the NYSE, SPX, or NAZ ) is significant because it is able to confirm the strength (or weakness) of the broader market in a fairly pure fashion, with some caveats.

Most technicians will use the cumulative A/D line to highlight divergences between the breadth and the main market indexes to signal important turning points. This is how a "classical" technician approaches the market; someone that uses Dow Theory, etc. Anyone that used the A/D line in this manner was able to successfully avoid turning bearish in late-November/December of last year when most "perma-bear" E-Wave bloggers were calling for crashes and the beginning of P3.

I have noticed that the majority of the E-Wave blogging community does not use this classical technical indicator appropriately, as they usually plot the A/D line (when they use it) as a ratio with volume, thinking that volume is important. For me, placing a lot of significance on volume is a big-time "rookie" mistake. The current market rally is a prime example of this.

Most people also don't understand that a substantial number of issues traded on the NYSE includes preferred stocks, utilities, and closed-end bond funds; all of which are highly sensitive to interest rate fluctuations. Also, there is a "common" and a "composite" NYSE A/D line. Most people don't understand the difference, or how the NYSE A/D line is filled with interest rate sensitive issues and closed-end bond funs, and yet they continue to use this indicator in an incorrect manner. As a result, the A/D line on the SPX can be much more valuable to chart.

As for the TRIN, one also has to be careful how one uses this indicator given that it can be heavily influenced by small priced stocks leading the most active list on the NYSE trading tons of volume, such as the Citibank's of the world.

Note: The 10 DMA of the TRIN moves down during Bull moves (overbought) and up during Bear moves (oversold). Yelnick's article above mistakenly says the opposite.

DG

Can already move the stop to 119.73 SPY, an ~80% reduction in risk.

nspolar

Real time calls and trades:

Last week nspolar said a top around the 14th, multiple times on multiple charts.
Favored day for the top was today, so stated.
Shorted commodities on Friday, at highs, per post.

All predicted in advance.

Primary reason for call was due to a major cycle high on the Shanghai Composite. Posted a chart predicting a B top for Shanghai and DJChina. China goes down hard, commodities go super hard.

This is going to be a major dump, but note that major cycle highs between Shanghai and US indices do not have to be in exact sync. Close maybe but not exact.

Next post at the bottom turn.

Time to rock and roll peeps. No stops on my short.

ns

nspolar

In edit ... my short is leveraged.

ns

?

Yelnick,

I think the NDX (cash) hit 2000.56 yesterday.... Thus it hit the round number...

Mamma Boom Boom

From Traders Narrative: "A market internal measure which has gained a lot of attention recently is the NYSE cumulative advance decline number. Just a few days ago, it managed to reach a new high for the year as well as surpass its 2007 high. So naturally, many are pointing to it as a reason why the market will follow the underlying strength higher.

While this simple explanation may appear logical, it contains a flaw. Take a look at the long term chart of the NYSE cumulative breadth and you’ll see it that there is no discernible relationship between it and the S&P 500 index."

MHD

Just read the Trimtabs report on March 2010 insider activity. They sold 6.9 billion in stock, the highest in 2 years, and bought 830 million. They sure believe in Tony C. new bull market to new highs.
Which one is correct....inquiring minds want to know!!!

Le Chiffre

Hulbert over at Marketwatch was referring to a study about these numbers, which showed that the round-number resistance is quite pronounced in the Dow but not in the Wilshire (not so widely followed). Interesting, wonder which impact that could have to the quality of EW patterns. Maybe it would be a better idea to count your EW in some other index than Dow/SPX? And while I'm at it, which is better - cap-weighted index or price-weighted index?

Michael

"While this simple explanation may appear logical, it contains a flaw. Take a look at the long term chart of the NYSE cumulative breadth and you’ll see it that there is no discernible relationship between it and the S&P 500 index." - Mamma Boom Boom

Have you even compared the NYSE cumulative A/D line with the SPX, or do you just blindly "cut and paste" what others say?

Trader's Narrative claims that there is no discernible relationship between the two?

That's pretty funny.
The charts clearly say otherwise.

DG

"Trader's Narrative claims that there is no discernible relationship between the two?

That's pretty funny.
The charts clearly say otherwise."

Correlation analysis is called for. Otherwise, it's just opinion.

Michael

Darrin,

Perhaps you can spend the next 12 posts "quibbling" with the original poster over the definition of DISCERNIBLE. The last time I checked, the definition was "perceptible, as by the faculty of vision or the intellect."

Anyone with 20/20 vision can see that there is in fact a fairly strong correlation between the NYSE A/D line and the SPX.

If you can't "see" it, perhaps you and Trader's Narrative should get their vision checked.

:)

DG

"Darrin"

I don't recall ever asking or giving you permission to use any other way of addressing me other than "DG".

Where do you get the nerve, punk?

Yelnick, seriously, this is supposed to be an anonymous board, no? I don't need any of the mental defectives here tracking me down because they don't like my market opinions.

yelnick

DG, you have generated a large and loyal following, bashers among them. I would hate for them to scare you off. You seem hard to intimidate in any event.

All, best to refer to comments with the handle (screen name) given.

DG

"You seem hard to intimidate in any event."

You noticed? :)

Thanks for the policy announcement!

vipul garg

"Time to rock and roll peeps. No stops on my short."
nspolar

i like traders rather forecasters who state in advance they have no stops.

DG

"i like traders rather forecasters who state in advance they have no stops."

Everyone has a "hard stop" at zero!

DG

Speaking of "forecasting"

"In his new book, How We Decide, Jonah Lehrer cites a research study done by U.C. Berkeley professor Philip Tetlock. Tetlock questioned 284 people who made their living "commenting or offering advice on political and economic trends," asking them to make predictions about future events. Over the course of the study, Tetlock collected quantitative data on over 82,000 predictions, as well as information from follow-up interviews with the subjects about the thought processes they'd used to come to those predictions.

His findings were surprising. Most of Tetlock's questions about the future events were put in the form of specific, multiple choice questions, with three possible answers. But for all their expertise, the pundits' predictions turned out to be correct less than 33% of the time. Which meant, as Lehrer puts it, that a "dart-throwing chimp" would have had a higher rate of success. Tetlock also found that the least accurate predictions were made by the most famous experts in the group."

http://www.theatlantic.com/culture/archive/2010/04/the-bias-of-veteran-journalists/38426/

Mamma Boom Boom

>Have you even compared the NYSE cumulative A/D line with the SPX, or do you just blindly "cut and paste" what others say?<

Hey Skippy, I asked a question. You decided to bath yourself in hyperbole. It's not my responsibility to determine if your lying. I simply passed on the opinion of another party.

Is that too heavy for you?

yelnick

Michael, you are right about the general rule: below 1, TRIN is bullish. But a look at the chart, which show the 10DMA doing the opposite - dropping below 1 during the big drop in 2008, and rising above 1 during the first part of the Hope Rally, until recently, when it has dropped again. Mole's point is that the divergence is what is interesting, or put differently, when the TRIN 10DMA changes trend. Divergences mark turns.

I will modify the main post to minimize the confusion.

molecool

I encourage everyone to read my post in detail before offering undue skepticism. When I post these things I don't suggest that I have all the answers. However, the one thing I appear to be good at is to see 'patterns' of how investor sentiment flows over the long term. That is all I am offering - mental masturbations as to what I am seeing and how those patterns might fit into the overall landscape. There are several very interesting charts I was able to dig up and they all tell me the same thing - stay the f...ck out of this market as we are in record territory in terms of irrational exuberance. Or in other words - I'm using technical analysis to make the point that technical analysis won't help you trade right now - LOL :-) I know that sounds esoteric - but when has an analyst ever told you to do nothing? Exactly.

Per Yelnick's comment: Yes, the meat of my post is about divergences and how things are completely out of bounds right now. We all know that of course but my attempt in general is to find a way of visualizing investor sentiment. Prechter keeps talking about 'socionomics' but he has completely failed to find accurate measures we all can employ to find turning points and to be properly positioned. So while he's academically correct when describing the recurring traps retail traders face we all know that the market has his lunch money right now. You'd think that thirty years of EWT analysis would prepare you for what has unfolded in the past year (he even wrote a book about it for crying out loud) and it is clear to me now that he was caught with his pants down. Maybe he'll be right in the long term but hey - even a stopped clock is right twice a day.

So, there remains a gaping hole in EWT and it is the concept of time and momentum. Carolan is doing great work on that end but it seems that even he is stumped lately. In any case, I believe that I'm exploring a path that may help bridge that gap. Again, I don't have all the answers and never will - and that's the reason why I'm running a trading blog where people can chime in. Compare that with EWI where most emails to Robert are usually handled by his underlings - the guy won't even address his readers directly.

If nothing else - I have been proving Hochberg wrong for several months now - so either I'm really lucky or something is working ;-)

Michael

"Mole's point is that the divergence is what is interesting, or put differently, when the TRIN 10DMA changes trend. Divergences mark turns. I will modify the main post to minimize the confusion." - Yelnick

Understood.

In any event, today is a prime example of what I mentioned in an earlier post above about being careful when using the TRIN as a predictive tool.

Ambac Financial is the leading volume stock at 710 million shares today.
It trades at $1.75

Citicorp is the second leading volume stock at over 565 million shares.
It trades at $4.62

Throw in Fannie Mae for another 150 million shares at $1.18 and you have three of the most active stocks on the NYSE trading roughly 1.4 billion shares and all trading under $5.00 and dramatically influencing the TRIN.

Michael

"Hey Skippy, I asked a question. You decided to bath yourself in hyperbole. It's not my responsibility to determine if your lying. I simply passed on the opinion of another party." - Mamma Blank Blank

I've noticed that you seem to be quite good at passing along one "cut and paste" post after another... Tell me, what else do you do for a living? Whatever it is, it must not involve doing the simplest of research.


GlennLoserNeely

"I don't need any of the mental defectives here tracking me down because they don't like my market opinions." - DG

Darrin,

You must have a pretty grandiose sense of yourself to actually think that anyone here would waste their time "tracking you down".

That's hilarious, dude.

DG

"You must have a pretty grandiose sense of yourself to actually think that anyone here would waste their time "tracking you down".

That's hilarious, dude.

Posted by: GlennLoserNeely | Tuesday, April 13, 2010 at 01:21 PM"

Again, I don't recall asking your opinion about any of this. In fact, I recall telling you to cease addressing me as anything but DG.

If you don't remember, let me jog your memory. Don't address me as anything but DG. There. That's twice.

A third time becomes necessary, I will track YOU down.

G2

Don't address me as anything but DGX

Today's short was stopped then?

DG

"Today's short was stopped then?"

Yep.

But that wasn't a trade I actually took, even though it was a valid set-up. I'm short from lower levels with a higher stop, but I'm not committing any more capital to the short side until that trade either stops out or becomes profitable. It was just another short signal that seemed worth mentioning since we hit my minimum target of 120.04 SPY, which developed after I'd already gotten short before.

Interestingly, today was the first time the market didn't trigger a long trade on a move up since March 31st. We moved up enough, but too slowly. Now that we've made a new high, the thing I'm watching for is the next short signal.

Wave Rust

Mole,
"You'd think that thirty years of EWT analysis would prepare you for what has unfolded in the past year (he even wrote a book about it for crying out loud) and it is clear to me now that he was caught with his pants down."

Pants on the ground, pants on the ground ,,,,,

"Maybe he'll be right in the long term but hey - even a stopped clock is right twice a day."

Yeah, but he keeps changing the clock, so he isn't even getting the twice a day thing

If nothing else - I have been proving Hochberg wrong for several months now - so either I'm really lucky or something is working ;-)

Maybe your chimp is better trained. :)
_____________________________

nyud and nyad are showing divergences that are somewhat similar to the pattern at the Jan. '10 high.

The worst thing about this up move is the lack of a good correction ,,, name any fibo level ,,, just hasn't happened. Like you, I am becoming all the more bearish the higher this move from March ,,,, as markets always make up for what they haven't done, and they do it in one fell swoop at the speed of light.

We do have one coming here but it won't last long enough or go deep enough to prevent the debacle this fall.

SPX 1330 or 1440 are the two dartboards for me and my chimp.

wave rust

Wave Rust

Yelnick,
do you have any info about the "unnanounced FOMC meeting" last week, from the 400 sites you tour each day?

wave rust

yelnick

Wave, on the "unannounced FOMC" meeting, do you mean the emergency meeting Monday before the FOMC meeting? They did not raise the discount rate, which is what I expected - a raise would have been too fast. Beyond that I have heard nary a peep about a secret FOMC meeting. If there was such a meeting, it probably concerned the Greek situation, where the Fed is apparently joining in some sort of increase of reserves at the IMF.

MHD

Wave Rust.... your "WAVES" won't work when the Feds are the market for the most part. That is why so many Ewavers are confused or completely wrong.

Babak

You can clearly see the disconnect between the cumulative NYSE adv/dec line in this long term chart.

The simple explanation is that NYSE breadth data is simply too polluted by non-operating company securities that trade on the Big Board (these are ETFs, CEFs, municipal bond funds, actual bonds, ADRs, etc.).

It is far more meaningful to look at the NYSE operating company only cumulative advance decline breadth. It is a laborious process to go through and weed out the crap - both Lowry and NDR have these.

Another way is to look at the S&P 500 index cumulative advance decline chart.

yelnick

Babak, thanks for the comment - I checked your site and it looks quite informative. Have you posted on this topic (the crap breadth in the NYSE)?

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