DEADShort term sentimentsDEAD

vin · Posted: Thu Jul 06, 2006 8:35 pm Post subject: DEADShort term sentimentsDEAD

New here – mostly swing trading. I’ve been searching for a serious site and believe I have found it here. Mr. To’s commentaries are excellent. Let’s cut to it - I for one am spooked short term (1-3 weeks). Here are my reasons:
First, the current rally just doesn’t seem to have teeth. The move up on June 29 seemed exaggerated. It was just a big ‘Hurrah, the Fed did what we expected.’ Many read a future pause into Bernanke’s statement but who knows? It’s almost as if the market ‘willed’ a rally.
Second, after this delayed follow through day the major indexes responded with a pullback on increased volume (modest in percentage loss).
Third, two days prior (June 27th) all three indices had what I call a ‘heave day.’ They climbed over the previous day’s high only to close lower than the previous day’s low – all on increased volume.
Fourth, there was no doubt some end of the quarter window dressing and short covering.
What has happened since? Some call it consolidation; I call it distribution and selling into bounces. The accumulation volume has been anemic. Although the holiday week clouds things the leading events remain.
Lastly, the most important thing is the gut. Something makes me feel very uneasy (see below). Maybe it was the synthesis of what I mentioned above; maybe I am worried about locking in gains on this recent move up. Nevertheless, I liquidated everything except LEN as I don’t think homebuilders can get beat up much more (gee, wonder where I got that idea?).
North Korea lobbing missiles into the sea doesn’t help. I think there will be one more shakeout before we test old highs again. I don’t know if we’ll sink to (or below) the mid-June lows, but it could be painful. Predictions are pretty much worthless until events transpire. I’m only building an arguable case. The market doesn’t care or need reasons to steamroll every naysayer out there. Let the tape decide.

Side note: I was reading my Bible before the market opened and came across these verses:

“With her enticing speech she caused him to yield, with her flattering lips she seduced him. Immediately he went after her, as an ox goes to the slaughter, or as a fool to the correction of the stocks…” Proverbs 7:21-22

I don’t claim to have divine intervention on my side, and starting my day with this verse might have been what spooked me. Take it for what it’s worth, but the wording in this verse is uncanny in its application to bulls running up a blind (r)alley. The Bible remains the best book on investing ever written (not to mention the invaluable spiritual content). If you don’t have one, get one.

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 473

Here's a chart of the Hindenburg Omen. For me it just doesn't provide a valuable signal:

http://bigpicture.typepad.com/comments/2006/04/hindenburg_omen.html

diesel · Posted: Thu Jun 14, 2007 3:44 am Post subject:

The last time we had a confirmed hindenburg omen was last year before the March to August rout in the stock market.

For the record dash I arent expecting the big top in the USA stock market just yet. All i'm looking for is a correction to clear out some of the leverage etc which is necessary for a healthy bull market IMO. For the record I think we are a few years out from the big top yet.

I will be more than willing to eat my humble pie in a few months if your stock investments beat out my risk free rate of return of 5%.

Cheerio.

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 473

HenryTo · Posted: Wed Jun 13, 2007 10:39 pm Post subject:

No one has a good explanation for us but I think breadth data - especially when looking at daily data - is looking less reliable as an overbought/oversold indicator.

One reason may be because of the small and mid cap bull market we have seen over the last few years. Coupled with a huge cyclical boom where nearly all stocks have gone up, I am not surprised that the correlation of individual stocks to the major indices have gone up in recent years.

diesel · Posted: Wed Jun 13, 2007 10:26 pm Post subject:

Here you go straight from Wikipedia.

rffrydr · Posted: Wed Jun 13, 2007 10:18 pm Post subject:

"Hindenberg Omen," I like the sound of that. What is it???
_________________
Today is the Tomorrow you worried about Yesterday!

diesel · Posted: Wed Jun 13, 2007 10:01 pm Post subject:

Of interest as well is that a Hindenburg omen was generated on Wednesday. These technical indications are usually seen at significant tops.

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 473

Thanks diesel for the analysis. The market does seem to be putting in a number of quite extreme readings recently. I've been focussing more on beadth (TRIN in March, and A/D these last 10 trading days), so it's interesting to hear how the recent rise in interest rates could affect things.

I suspect we haven't properly retested the recent low yet, and whether we bounce or break down further is still the key event I'm going to be taking my cue from.

Here's another unusual breadth factoid from sentimentrader:

diesel · Posted: Wed Jun 13, 2007 2:08 pm Post subject:

OK, but then lets looks at things from a yield perspective.

Since 1984, there have been three times the yield on the 10 year has exceeded the 100 month average closing price. The first time was Oct 94 when the S&P was at 472. It fell to 444 within days.

The second time was December 99, the S&P was at 1470 and hit 1366 within 30 days.

The third time was April 06 when the S&P was at 1310 and hit 1220 within 30 days.

We have now started our fourth attempt. The S&P was at 1531 on May 31. Using the average decline, we should be looking for a print at 1430 in the near future.

One last observation. This is the first time the 10 year has closed above the 100 month average yield without yields already being more than 2 standard deviations, 5 month over 20 month. We are less than .2 SD's.

Also, this is the first time the S&P has closed more than 3 SD's 5/20 month and the 10 year yield been above the 100 month average price.

There has not been a time where the 10 closed above its 100 month average where the S&P did not get back to the 10 month average price, which is at 1411 as of 5/31.

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 473

Impressive bounce today. Probably too soon to say this was a successful retest of the low, but the odds must have increased of it being so.

Breadth heavily skewed in favour of advancing issues, with another >1000 day today. Historically, clusters of extreme breadth readings have been following by higher prices.

rffrydr · Posted: Wed Jun 13, 2007 1:26 pm Post subject:

Looks like we've got something for everyone. It must be options expiration week.

Swap spreads matching 2003 bear market highs...without the corresponding volitility.
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lion hunter · Senior Poster Joined: 27 Mar 2006 Posts: 108

Increasing new lows is not a positive imo.
Im always on the lookout for divergences.
Im short until proven otherwise.

HenryTo · Posted: Tue Jun 12, 2007 5:33 pm Post subject:

Yes, the intraday reversal today was probably key.

rffrydr · Posted: Tue Jun 12, 2007 4:51 pm Post subject:

129 after rally to unchanged.....I think we're on our way. Diesel???
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Today is the Tomorrow you worried about Yesterday!

dash · Veteran Poster Joined: 12 Apr 2005 Posts: 473

New Highs - New Lows below 20 again today. Breadth has been consistently negative recently. An interesting stat from sentimentrader: this is the first time since July 2006 that for 5 out of the last 6 days breadth has been higher (ie more negative) than -1000 on the SPX.

Seems to me like we're going to retest Thursday's low and that we're also at a key juncture: if all is well, we should put in an intermediate-term bottom around these levels. A failure to bounce would signal trouble IMO.