So awoke from a much needed sleep after LONG week at work and felt like doing some charting. This post will be a bit long as I explain my TA and MOSTLY bearish outlook for the markets ahead. Obviously I am (per my 6% rule) nearly maxxed out in short positions so I am putting my $$ where my mouth is. For those that want to see what I look at when I swing trade here is a detailed explaination of many of the things I look at. Some are explained in books on TA and others I just figured out myself so there are some things that are just from experience. Comments are welcome and encouraged. Here is a pic of the SPY. We will take each indicator starting top to bottom. Stoch: (Momentum oscillator). Clearly pointing down with no bullish divergence. Also notice the blue line showing recent uptrend and how the RED CIRCLE shows momentum uptrendline was just broken. On the Stoch and MACD charts I draw these trendlines to help give a bit of an early signal or confirmation of what may be happening. Think of the Stoch and ESPECIALLY the MACD like a NEEDLE and the trendline line the edge of a BALOON. When the indicator (needle) points DIRECTLY at the trendline (Baloon) there is little chance of not popping the baloon. But when the indicator needle bends and curls as it approaches the trendline baloon there is much less chance of popping the baloon as the needle bounces off. This can give a GREAT early warning indicator of things to come (in my opinion). MACD: (Trend indicator). Clearly pointing down and has a MACD cross sell signal (bearish). However, the MACD is above the 0 line which is a bullish signal. Again the indicator NEEDLE is about to POP the trendline baloon (bearish). Notice the blue dotted line on the MACD chart showing the downtrend from 8-11 to 10-11. This was broken on 10-7-11 by the MACD line even though the downtrend line on the price chart had NOT yet been broken to the upside. 10-7-11 is designated by the green arrows on the MACD and Price charts. MACD Histogram (Momentum Oscillator). Use with Stochastic (they should coincide) but best when combined with MACD. This tells the STRENGTH of the MACD signal. The higher the bar the more strength. Obviously, it is strengthening and showing an accelerating of the MACD Needle as it tries to pop the baloon. Price. Purple thick line is the UPTREND support from the 3-09 low that was broken in 8-11. As many know, usually there is a retest of broken support.....notice that 1290 recent high finally tested that line....and appears to be failing. Blue dotted line show a megaphone (broadening formation). This is NOT always reliable but when it is visible I use extreme caution when going long. This shows there is extreme volatility and suggests a VERY BEARISH outcome. I have also noticed that MOST megaphones I have seen obey a 5 wave count before breaking down. ( I know I hate Elliot Wave theory too but it applies here in my experience). This one seems to be obeying a 4 wave count though...if it comes to be true. This megaphone would suggest a downside of 1040 on the S&P. Finally, the rising trendline showing the recent uptrend from 10-11 is STILL intact. This is why many are still saying "uptrend is intact" and remain bullish. I think this "uptrend" is a massive BEAR FLAG and is doomed to breakdown very soon. I think the MACD signal described above shows this is about to happen a well. If this is a bear flag the "pole" of the flag ALSO suggests a downside target of 1040... My plan: UNLESS there is a massive rally in the next few trading days I will be selling and possibly add to short positions on any rallies....The only thing that looks bullish is a falling wedge formtion on the Euro chart and a MACD Histogram divergence on the 60 min chart of S&P. This is likely going to set up a smaller bear flag if the market goes higher. However, today may have completed that bear flag as well. We will see next few trading days. If anyone finds this of value please comment. Thanks. N54_Fan
Thank you, and interesting analysis. I don't use the indicators anymore, but I used to, and from my experience, the Stochastic that pivots down from the 50 line has less momentum than the pivot from much higher above. Unless, of course we're clearly in a down trend, then pivot from 50 line is a good continuation sign. Also, the MACD, like you've already noted is still above zero line. So, there's still some bullish sentiment left, even though the histogram is negative. So, the two indiactors are not unanimously bearish, but somewhat bearish. I'd be bearish, but cautiously bearish. Have a nice weekend, and good luck next week. Schaefer
N54: Thanks for that. You mentioned you place the most weight on the weekly chart along with the 60 min chart. Do you perform the same type of analysis on the weekly as you did here on the daily and does that carry more weight, as you mentioned? Also, do you use stockcharts.com for your screening, etc.
Yes and Yes. I just posted daily chart because it is easiest to see the overall picture there as it has elements of weekly and 60 min chart all in one. Schaefer....you made mention that i acknowledged the MACD is above the 0 line on daily. I agree that while on some level the MACD being above 0 line is DEFINITELY a bullish thing, it is MUCH LESS bullish when it is pointing down at the 0 line so I put less weight on that. Also realize that a quick and dirty way of determining a trend is to simply look at the position of MACD and its direction in relation to the 0 line. They could be the following set of rules....which I happen to abide by: 1) when MACD is above 0 the market is either in an up trend or consolidatiing 2) when MACD is below 0 the market is either in a down trend or consolidating 3) when the MACD is hovering around the 0 line (I use 1-2 box above and 1 or 2 box below as a cutoff) the market is consolidating and possibly begining new trend. 4) If the MACD is above 0 and rising more likely a new uptrend even if hovering around the 0 line 5) If the MACD is below 0 and falling more likely a new down trend even if hovering around the 0 line. So,...what this means is that if MACD is above the 1 or 2 box cutoff then we are in an uptrend....if below the 1 or 2 box cutoff down trend. If within the 1 or 2 box above/below then likely consolidation until it breaks that 1-2 box threshold. Simple....can see this on any chart in 10 seconds or less. This method also frequently coiincides with the ADX signals for those that may be familiar with that method. As for a weekly chart well here it is. Notice a few things again top to bottom Stoch: Downtrend still intact in weekly Stoch!! A stoch sell signal cross will occur this week unless there is a significant rally. MACD: BELOW the 0 line and THIS WEEK'S MACD is lower than last weeks. It looks a little flat but if we get a drop below last weeks low in the S&P for more than just a few hours this MACD signal line will definitely point down and satisfy all the criteria I outlined for a downtrend above. Notice alos that the downtrend is STILL intact on the weekly MACD. MACD Histo: This one is for all the Alexander Elder fans out there (of which I am one). Look at the pink lines connecting the multi week MACD histograms for the last 3 years. This MULTI WEEK HISTOGRAM DIVERGENCE is according to Dr. Elder the strongest signal in trading. Notice how each peak of the histograms get smaller and smaller with each positive histogram and get larger and larger with each negative histogram. This is saying that momentum is building more and more to the down side. Price: STILL has not broken the red downtrend line from 7-11 high. So there you have it....Weekly now coiincides with daily and 60 min chart.....and infact the 15 min chart and 5 min chart MACD's are also below the 0 line. Still want to be BULLISH here? NOT ME!! Like I said earlier I see very few indications of a bullish move. Any bull rally will likely be sold and probably sold hard and fast after sucking in a few bullish people. I will be a seller to max out my positions until proven otherwise.
2 more weekly charts of the trades I took this week and why SHORT CMCSA and SHORT SLV (through a 2x Inverse ETF = ZSL) SHOULD,....I repeat SHOULD end up being the perfect shorts. Look at the MACD lines....BOTH are below 0 line and curled down this week (red circle). Also notice a lower low compared to the prior weeks low was made. This usually triggers a curl of the MACD line down and why I took these trades.
POP!..........the balloon is deflating (see prior posts and charts) I realize these are Futures and there are 5 hrs to market open but today will not be pretty if you ask me.
Excellent day so far. Just checked the market for first time. UP OVER 5% so far today assuming we close around here. I think we are going significantly lower from here. My Balloon analogy worked perfectly and anyone following can see that the S&P POPPED the balloon (broke the trend line). This should be considered very bearish. Hopefully I have made some believers out of the doubters out there that TA does work and that it can be used for trend following swing trading,...despite my lack of performance in 10-2011.
I have decided that I will not be keeping this Journal online anymore as it is too much work to keep it up in real time with my full time career/job. I do enjoy discussing trading and that was actually the main thrust of this journal. However, it seems few people on this forum engage in the type of trading that I do and are not interested in discussing. In short, I feel like this journal is not benefiting me in anyway despite showing a positive return and clearly being on the right side of the market swing since late 10/2011. Thanks to those that did bother to discuss trading here.