Tuesday, February 17, 2009

Indicator Update for February 17th

Last week's indicator review concluded, "In sum, this is a Missouri market: I need to see the market bulls "show me" their hand by following strength with further strength." The market did not show strength, as the recent sector update noted, and we fell back to the bottom of the multi-week trading range.

As an aside, let me emphasize that everything I've been writing lately regarding identifying and trading markets that are in ranges, as well as identifying and trading breakout moves, applies to swing time frames as well as intraday ones. This is why my morning Twitter posts at the start of the trading week emphasize weekly as well as daily price targets for the S&P 500 Index. What looks like a trending move on the day time frame may be a swing within a multi-week range. Knowing what is happening at the time frame just above the one you're trading is key to framing and executing trade ideas.

Because we're at the bottom of a multi-week range, we need to see if the market will once more hold its lows, which would target a move back to the intermediate-term pivot in the mid-830s in the S&P futures or whether we sustain a breakout move to the downside to test the November bear market lows.

Despite the sector weakness mentioned above, stocks are not in an oversold position in the Cumulative Demand/Supply Index (top chart) and continue to make successive peaks in Cumulative Demand/Supply at lower price highs. This is what we'd expect in bear market mode, as noted last week. New 20-day lows have once again begun to outnumber 20-day highs (middle chart); we need to see that continue to sustain a bear leg down.

The Cumulative NYSE TICK (bottom chart) has been toppy, but remains well above its November lows; that is noteworthy. On a break of the recent support and any test of November lows, it's quite possible we'll see a divergence in the Cumulative TICK, given recent strength. A close look at the advance-decline lines specific to various market sectors (Decision Point is a good source for these data) also suggests the possibility of divergences on further market weakness. For instance, the advance-decline line specific to Dow Industrial stocks is already near bear lows, but the line for NASDAQ 100 stocks is well off those lows and near multi-week highs. The line for Financial shares is near its bear low, but the line for Health Care and Energy stocks is well off those lows and also near multi-week highs.

For now, we're in a wide trading range with choppy, volatile trading and playing that range has been the winning strategy. I will be updating indicators daily via Twitter (free subscription via RSS), along with intraday market observations, to track strength and weakness at short- and intermediate-term horizons.

Below are relative volume numbers for this coming week to tell us if participation of large traders in the ES contract is significant on market moves:

8:30 - 224,335 (57,912)
9:00 - 191,149 (46,133)
9:30 - 151,742 (50,625)
10:00 - 134,700 (68,832)
10:30 - 104,551 (62,872)
11:00 - 101,011 (42,410)
11:30 - 88,368 (32,974)
12 N - 108,429 (36,033)
12:30 - 118,164 (49,088)
1:00 - 125,444 (53,390)
1:30 - 134,227 (56,771)
2:00 - 173,159 (52,533)
2:30 - 228,664 (82,710)
3:00 (15 min period) - 93,531 (25,377)


OV said...

what is your explanation of the low TRIN today? At least compared to last Fri.
Given the selling I was expecting TRIN to climb above 1 and not stay at 0.5...

Many thanks/ O.

NashvilleCat said...

Hello Dr Brett,

Just a quick word of Thanks here. I am new to your site and have found it to be really helpful.I am just a small guy trading ES mini's trying to get consistently profitable.. and of course I need all the help I can get. Your thoughts and comments are really furthering my thinking and trading already.. so Thanks Much !

abel said...

This post on twitter, http://twitter.com/steenbab?page=3, from this weekend, which lead to this twitter link, http://www.ritholtz.com/blog/2009/02/sp500-q4-earnings-collapse/, has given me reason to believe the market may be embarking on another downleg that begins to 'price-in' the possibility of lower earnings to come.

If the data in the chart is accurate, and indeed the earnings are 'adjusting downward' to the extent(s) reflected in the chart, upon review of the last two instances the S&P traded at the earnings figures they currently reflect, approximately, takes us to prices in a)2001-2002 prices, about where the market is trading now, or b) approxiamtely 1995 (prior instance), S&P approx 550-650.

The earnings targets reflected, (the 15.00 projection, in dashed lines on chart), if it were to reflect a measure of accuracy, again the prior 2 instances the SP earnings were at similar levels were in about 1990, and 1986. The S&P, in those two instances, respectively, traded at 305-370, and 240-290.

Seems like plenty more room to the downside still exists.

Chart link. http://finance.yahoo.com/echarts?s=%5EGSPC#chart1:symbol=^gspc;range=my;indicator=volume;charttype=line;crosshair=on;ohlcvalues=0;logscale=on;source=undefined

Brett Steenbarger, Ph.D. said...

Hi OV,

I don't routinely follow TRIN and don't use it in my intraday decision making at all. Low TRIN on a weak day suggests that buying volume is concentrated in a few active issues, perhaps due to takeover news, earnings, etc.--


Brett Steenbarger, Ph.D. said...

Thanks for the interest, Nashville Cat; I'll be trying to post more material relevant to decision making in markets--


Brett Steenbarger, Ph.D. said...

Great points, Abel. On a purely fundamental basis of valuation, I agree that we could go significantly lower before we see an end to the secular bear that started in 2000.