Engineering the Market

Volume Profile for 9/10/09

2009-09-10T06:19:00.001-07:00

How much technical damage did yesterday's drop do?

2009-08-12T06:05:00.000-07:00

Live Chart
The McClellan Oscillator has crossed the zero line. Looking at the chart, we can see that this usually indicates an intermediate term pullback. Remember, the oscillator bunches up at the top and then makes its move down.

Live Chart
Note that both the 5 and to day moving average for breadth (the A/D line) have continued to drop. Breadth is dropping more quickly than the general market, which means that leadership continues to narrow.

Now take a look at the huge breadth increases that led the moves up on March and July. I seriously underestimated the strength of this rally, and I should have been looking at the strength of the participation in the rally as an early hint.

Live Chart
Note that the McClellan Summation index is just starting to turn down and hasn't crossed its PSAR yet. I'm waiting for this to confirm the intermediate trend down.

Monday Night Chart Dump

2009-08-04T00:09:00.001-07:00

Let's start out tonight with the daily chart. Opinion among Elliotticians is, to say the least, divided, but this really looks like five waves up from the March low to me. Five waves up at this juncture can mean two different things.

It's the A wave of an A-B-C zigzag correction that will pull back soon and then go considerably higher.
It's the C wave of an A-B-C irregular flat, and we will head to new lows or a double bottom.

Note that irregular flats are, well, irregular and don't occur very often. Option 1 is the most likely occurrence, but I give option 2 some weight because the pattern matches up well with a more common flat pattern on the Nasdaq.

Either way, this means that a pullback based on the entire move up since May is in order soon.

Link to live chart

Here's an hourly chart. It shows an expanding triangle. We're getting close to the top trendline.

Link to Live Chart

Sorry about this one -- I'm doing this on a laptop and I was using MS paint to save my screen grabs. Note the major turns that happen when we hit the trendline drawn on the RSI(14) -- I'm not sure that it's valid TA, but it's worked well for the last year.

Link to Live Chart

It's a little early to say how all of this is going to end, but I'm seeing us rising in three-wave patterns. The shape is indicative of a possible ending diagonal. I'm watching the 38.1% Fib of the entire move up at 1013 and a gap from 1001-1005 on the S&P cash that has partially filled. Regardless of what shape it takes, there will be considerable resistance from the major fib at 1013.
Link to Live Chart

Now a few sentiment-oriented charts. Whenever the public gets too bullish, it means that more and more people are fully invested. We're near levels (the red lines) where the market has traditionally turned in the past.

Link to Live Chart

Here's the ratio of a three-month VIX index to the regular one month index. It has telegraphed turns in the past and is now diverging down.

Link to Live Chart

Note that the last few days of up moves were reflected in the Advance-Decline (breadth) line, but the past week or so still shows the divergence.

Link to Live Chart

The 10 day TICK moving average is still diverging down after hitting a very high level.

Link to Live Chart

The McClellan Oscillator tends to bunch up before heading down. The signal is confirmed once it crosses the zero line.

Link to Live Chart

The next chart is the same McClellan Oscillator shown above, only with a 10 day moving average applied to it. I use this because the moving average creates a curve that tends to fit into a range (shown by the horizontal lines.)

Link to Live Chart

This is the percentage of stocks over the 50 day moving average, and it's looking toppy.

Link to Live Chart

The percentage of stocks over the 150 day MA looks similarly high.

Link to Live Chart

One last chart: The McSum. Pointing up (and it is) is bullish. Pointing down is bearish. This is a great chart to confirm an intermediate term trend once it happens. Note that this indicator tends to lag the market.

Link to live chart

OK, so what's next?

2009-07-29T22:16:00.000-07:00

It looks as though 5 waves up are nearly completed. Elliott-wise, there are two major possibilities that I'm seeing. First, this is Wave A of Primary II up. Without getting into a lot of detail, once this last push up is complete, this would mean that we would see a big retracement down that will not create new lows. Typically, this retracement would be 38% to 62% of the entire move up. This would provide an excellent launch point for the Inverse Head and Shoulders and drive us to 1160-1200 or so. A move to that point wouldn't surprise me; I just think it's more likely that we visit 800 first before launching up.

The other Elliott possibility is what's called an irregular (or running) flat. This would mean that the move up is almost complete. If this is the case, we go to new lows or a double bottom. Irregular flats are very rare, but the corresponding pattern on the Nasdaq would be an extended flat, which would be much more common.

I mainly wanted to use this chart to show how close we are to the 38.1% fib of the entire decline, the divergence in volume and how oversold the oscillators are. Also, we're forming what appears to be a broadening top pattern that is getting close to its top trendline. J0sh1ngU has really done an amazing post on this pattern at UI Dezine's blog. Check it out. Here's what Bulkowski's pattern site has to say about broadening tops. It isn't usually the most reliable pattern, but it fits with everything else, and I really think this is what's happening here.

Link to this chart on Stockcharts.com. I'm going to try linking to the actual chart, because these links will be up to date, while the photo above is static.

Link to chart

Now let's look at some internals. I love the McClellan Oscillator. Generally, it telegraphs moves before they occur by bunching up at the top of the chart before confirming the move by crossing the zero line and staying put.

Link to Chart
Here is a link to the McClellan Oscillator with a 10 day EMA, which tends to move between the green and red bands and respect the red bounds more reliably. I like to watch both charts, because the EMA chart doesn't show the bunching that I watch before a turn.

Note that the 10 day advance decline (breadth) moving average has turned down, forming a divergence against the main S&P chart.

Link to Chart

Over 90% of stocks are over their 150 day moving average. This is toppy and has presaged a turn in the past.

Link to Chart
The percentage of stocks over the 50 day MA is very toppy and is starting to diverge.

I saved the most important chart for last. This is the McClellan summation index, and it's the chart that I'm still waiting on to confirm the move. The summation index lags the top, but not by much, and it's a very reliable indicator. I don't want to read too much into divergences here, but note that the oscillator hasn't confirmed the new highs. Once it turns down and crosses the PSAR indicator (shown with a dotted line), I'll be bearish until I'm not.

Link to Chart

Could this be a running triangle?

2009-04-17T17:50:00.000-07:00

Sears Holdings looks like a good short soon

2009-04-04T15:29:00.000-07:00

A quick look at SHLD. Here's the 5 year view. Most Elliotticians feel the the market has gone through 5 waves down and is retracing into primary wave 2 right now (I personally think that the broader markets are in wave 5 right now, and it's retracing into an ending diagonal.) Note that the downward structure is clearly impulsive and that we don't have a 5th wave down yet.

Here's just the Wave 3 portion.

And here is a closeup on what has been a massive short squeeze. This correction looks like a 3-3-5 regular flat to me. Notice that the 5 waves up are almost complete. I've marked the target if wave C = Wave A, which is very common. I will be starting the short there and adding to it if it makes it to the 38% Fib.

Inverse H&S forming on S&P futures 1 minute chart

2009-03-02T06:40:00.000-08:00

Careful if the /ES breaks 724 or so...

Futures as of 3/1/09, 6:30 pm Eastern

2009-03-01T15:32:00.000-08:00

Just thinking that we're about to finish a small impulsive wave down. The trendline is my target for the end of 3 of 5. I'm guessing we see a retracement up to 787 or 807 before the final plunge down to something with a 6-handle.

Possible Wave 4 Barrier Triangle forming

2009-01-29T17:18:00.000-08:00

This pattern still looks like a Wave 4 triangle to me. Looking at the small uptrend we just finished, if we continue to go down and wave c = wave a, it will put us at the November low. If it breaks, it's wave 5. If it bounces, it's a barrier triangle and will have at least one hop left before it breaks down.

Apollo Group - update.

2009-01-23T13:33:00.000-08:00

Here's the short term. Looks like an ending diagonal broke down. I had us in a 5th of C, so this makes sense here. Note the divergence on the MACD.

Update: APOL hit the top channel line today and bounced off. Note that there is still the previous high and the Fib Fan waiting a few points up. I added puts today and will add more if we hit 97.

Apollo - long term short/put play

2009-01-21T04:16:00.001-08:00

(Cross-posted to Slope of Hope)

It's kind of tough -- APOL has shown really good relative strength, and usually, a chart this strong is the last thing you'd want to short. Here's how I'm playing it. This is going to be a long-term holding for me.

If you look at a ten year chart, we're close to hitting the top of a channel, a fib fan line and the previous high. This is YEARS we're talking about here.

Elliott Wave-wise, it looks like we're completing wave 2 up as a flat. If c of 2 matches a of 2, it will bounce off of the top of the channel. Looking just at wave c, if c of c is 1.618 of a of c (sorry if this doesn't make sense), we get a target of 97.18, so there's still some room to go up. I'm scaling in, and I'll buy a big chunk of puts if we get there.

Wave 3 down is typically the biggest move down, and there's a lot of air under this one. It'll take a long time to get there, though.

Barrier Triangle in SPY?

2008-12-16T10:46:00.001-08:00

I'm seeing a fairly large barrier triangle forming in SPY right now, and that last leg could happen today, given how bunched up all of the moving averages are.

Chevron looks like a beautiful short

2008-12-15T16:00:00.001-08:00

Wish I had seen this before the end of the day. We have five waves up of an ascending wedge going into resistance with declining volume. If you take the tails off of the high and low, we're at the 50% Fib.

Ultralong real estate -- possible bottoming

2008-12-07T15:17:00.000-08:00

Ultralong real estate has made a higher low and is probably forming a triangle of some type. A move to 6.25 will probably have one more downturn. Moving down from here probably means a symmetrical pattern, which is usually a continuation.

Ending diagonal theory still alive

2008-12-04T17:12:00.001-08:00

We bounced off of the top of the descending wedge this morning. The 75% line on the trend channel has been pretty strong support lately.

If we break 900, I'm out of my shorts for a few months.

2008-12-03T22:40:00.001-08:00

Here's what I'm looking at now -- a possible descending wedge down. If we break 900 (the neckline of the Inverse Head and Shoulders, I'm going long to 1000 or so. If we hit the bottom channel, I'll go long then.

The Case for 768

2008-12-01T13:54:00.000-08:00

Here's what I'm seeing right now. The trendlines seem to be working, and the fractals identified with the boxes really look alike. If the pattern repeats again, it should take us to one of 2Sweets' retracement levels, 768.

That said, I still closed out half my shorts at 817 today and will close the rest and start to scale in long at 768.

Welcome to Engineering the Market

2008-11-26T15:20:00.000-08:00

Hi everyone-I created this blog as a way to show charts, invite discussion and form a like-minded community to discuss technical analysis and quantitative methods in investing.