TBP: Ready for some action?
by, 06-19-2011 at 11:12 AM (1274 Views)
It was a frustrating week for those invested in stocks. We had high days, we had low days, we even had those boring do-nothing days. It was a little bit of everything throughout the week, with a final outcome of next to nothing. Still, there was good news among the despondent feelings we had for these markets, the Transports finished the week in the green as did the large caps and mid caps. As a whole, all the indexes finished flat, and after six weeks of solid declines, I'll take a flat week and call it a small victory.
Below: For the big picture, my analysis tells me we are 75-100% through this bottom, and my expectations are we've already hit the bottom from 13-16 May. I base this assumption on the range of prices over the last two years and my interpretation of overbought/oversold conditions. Nothing is 100% accurate, but it's accurate enough for me to keep my money in the markets. As always, we should have our mental stops put in place and be ready to accept a change in market behavior.
Above: The Transports have maintained price over the 2009 March trendline, just above the red 200SMA. Reality leads me to believe we'll get another test of these two lines, but that's nothing to worry about. As time progresses we could see a test while at the same time not break below the previous swing low, so a test of these support levels does not have to mean doom & gloom.
Below: Another stat I like to measure is the percentile deviation between simple moving averages. If you look at the 5 indexes you can see I'm tracking the 4/20, 20/50, & 50/200 SMAs. I use this study as a way to measure the prices, so I have an historical reference with which to compare the present with the past. The Yellow squares show us where the negative 4/20 deviation peaked, that's a good clue the bottom may be in.
Below: You may recall I named this pullback a correction, even though we haven't had a 10% draw-down yet. I made this assertion not on price alone, but based on the duration of price decline. Thus far, the pullback remains light & long with a -9.39% pullback covering 30 days. You have to go back to the 2008 bear market to find any pullbacks 30 days or longer.
Below: I realize some folks have their eye on the NASDAQ 100 due to its 3rd close below the 200SMA and a new 6-month low. There have been times where the NASDAQ 100 has led the major indexes both up & down, enough times for me to do a study on it. That study was a few years ago so I don't have the hard numbers. Nevertheless, the overall results of this study led me to believe this index wasn't right enough times to give us a statistical edge, so I don't give it the extra weight I do the Transportation Index. That's not to say it can't be right, i just don't think it's right enough times over the long haul.
Below: For myself, the S-Fund position is down -1.79% from a 679.21 entry. The minimum target is a 50% bounce off the last 1-16 June wave at 689.95 for roughly a 1% profit. If things go south I'm prepared to go down to 643.16 for a -5.31% loss.
FYI: Going into the 4th week of June, statistically post options expiration week tends to be down, it's been down 7 of the last 9 times.
Take care & trade safe...Jason