Tuesday, January 28, 2014 Zeb’s Vue

General Information and Analysis

6:42 "I'm late I'm late I'm late, for a very important date"

US

Comment for 1/28/2014	Measure	Indicator	Ranking
Weekly RSI	WeeklyRSI	57.0	Neutral
Long Term MVA (200 day MVA)	200 MVA	5.35%	Neutral
5 Day Slope of 55 day MVA	Slope55MA	0.24%	Neutral/DT
Intermediate Trend (Using ADX)	ADX(14)	18.59	Bearish
Short Term Trend (Daily RSI 3)	RSI(3)	4.97	Oversold
Relative Volatility ATR vs. 1Stdev	ATR(90)	0.97%	Watch Out
VIX - MACD 10/30 (slope down)	MACD	0.750	Bearish

 

Comment:

The market on the short term is bearish.    The 200 Day MVA is still a "BUY", but the intermediate signals are either neutral or bearish.  Yesterday I said: "Very short term, RSI(3) is showing Overbought, and in a bull market, this would indicate that today and maybe (stress maybe) tomorrow would be a reaction against last Fridays blood bath.  " The market was down but the range  was much less.  The volume was high suggesting buying had come into the market, but the bears were still in control.

On Friday I said "Human Behavior, however, suggests that when almost everyone expects the market to go up, it goes down.  Then everyone catches the cold, and starts liquidating.  That liquidation is just what the commercials are looking for, as they will invest on "revert to the mean" in an upward bull market. "

For now, short term traders should be positioned for bearish market with S&P 500 looking for 1770 as support.  1770 has provided resistance in the past, and support in the past.  Around this point the market will indicate if it will bounce (and possibly chop) or it will take this out giving a clear signal the bear is in control into the intermediate term. 

 

The 200 day MVA and the shorter moving averages are bullish.

The table above is a rating for intermediate and long term trend in the S&P500.  I used the S&P 500 as the indicator for the USA stock market.  For day traders: You may find it useful to trade in the direction of the trend.  However, looking at any daily chart over lots of years, the trading direction for the day is pretty random.

Yesterday 1-27-04			Day Before Yesterday
High	1792.00		High	1828.00
Low	1767.00		Low	1780.00
Close	1775.75		Close	1782.00
R2	1803.25		R2	1844.75
R1	1789.50		R1	1813.50
Pivot	1778.25		Pivot	1796.75
S1	1764.50		S1	1765.50
S2	1753.25		S2	1748.75

Zeb's VUE:

The is a never ending supply of conflicting analysis of stocks, currencies, bonds and every asset class it seems. 

What we are going to see going forward (I think) is the prophets of doom saying this is it - the mother of all drops is coming in the US stockmarket.  We are going to see the Perma-Bulls saying the market is going to the moon, and buy while it is cheap.  We might even hear from someone more conservative -- We have not a clue where it is going.

 

The facts we have: 1. Emerging markets are stuggling.  2. Price is down in January 2014.  3.  More hysterical language is happening on the blogs.

That is it. 

When the broad market (for example S&P 500) is in an uptrend with few adjustments (like 2013), people want to capitalize.  Of course, many retail traders are scared off by the conflicting news.  During this time, there are a handfull of good tools that will allow the people who overcome fear to outperform the market. 

THE ODDS OF WINNING ARE GREATLY INCREASED IN A BULL MARKET BY LOOKING FOR STOCKAS THAT ARE STRONGER THAN THE MARKET.  In other words if investors focused on finding big gainers when the trend is up, they would likely be very satisfied with the results (Assuming they have a trading plan - and most retail traders do not develop a trading plan.)

 

Stock picking in a down market is much more difficult.  There are the contrarians who will be looking to buy "value".  There are the "bulls" who will look to buy on some meaningless number (like a Fibonacci retracement at .618).  I do not mean any disrespect for Fibonacci traders.  Like all things they work for some - not for most.  There are numbers that drive the behavior of traders world-wide such as a 50% retracement. 

In much of investing, behavior seems more to center around over optimism and over pessimism.  This can be measured via advancing stocks in an index, and probably the most notable is the Bullish Percent Indicator developed by Abe Cohen in the '50s.  While Point and Figure Charting is not in vogue, Bullish Percent Indicator uses P&F.  There is very little ambiguity in P&F, and that makes the BPI a straightforward indicator.  You can read about this indicator at http://stockcharts.com/school/doku.php?st=bullish+percent+indicator&id=chart_school:technical_indicators:bullish_percent_inde 

These charts would indicate that the market is in a bull trend, but is forming a bear.  What we do not observe yet, is BPI (in either index forming) a pattern where BPI is below 30% and a column of Os are underway.  The Bear is only in alert status at the moment.  That is not a sell signal, but rather an indication the market is weak, and day-traders should be willing to go short on weakness Intra-day. At this time, a intermediate term trader should be very careful taking long positions, and resist "shorting" the market.  In general, then, Bulls should look for a column of "Xs" that exceeds the prior column of Xs at this level.  Looking at the S&P 500 chart, the Xs and Os are in a congestion mode even with the 4%+ correction in the market in January. 

Would you think that "bulls" would look for a stock that is oversold, and then buy it when BPI turns bullish?  BPI should be used a filter and/or guide to market trend.  Signals actually do not come along that often (as one can note by the "blue trend line" above.  What BPI does is keep the intermediate trend or swing trader on the right side of the market.  Right now is not a good time to buy, but neither is it a good time to panic and sell. 

What do you think?