Weekend Discussion

From what I’ve read, ThinkAI keeps a database of stock-chart data, and as the day progresses it keeps searching the DB for charts that match-up best with the current day’s. Then it assumes that the rest of the day will look similar. So, it can’t actually predict the future, but only try to catch the puny humans blindly repeating history.

The approach sounds unsophisticated, but when you consider that most stocks are traded by the same group of traders, it might be just the right approach. For example, George is there trading BBT every day using the same methods. He’s a big part of why BBT behaves the way it does. And that is supposedly true for many stocks: each has its own dedicated group of traders.

ThinkAI got the close totally wrong today, but during the day, it made excellent calls and helped me scalp a few bucks out of the chop.

Breadth: Less Horrible

The chart below is NYSE breadth plotted hourly. (That’s advancing stocks minus declining stocks.) So, each black dot is the breadth reading at that hour. The red line is a 6.5 period moving average, which gives a daily average, and the blue line is a weekly average. (Click chart to enlarge):


Notice that, for today’s rally, the black dots barley made it above the zero line (light blue), let alone up to the red upper bound. So, breadth was weak today, which is why the rally went flat in the last couple hours of trading.

The blue weekly average peaked on May 4th, so that is a negative also. But now look at the recent lows formed by the red moving average starting with the big puke on May 13th. The next two lows on the 21st and 28th were much less-bad. The two purple lines connect those points and show that there is an uptrend to the down days.

The market is struggling here, but it is not deteriorating yet. The next down day will tell us a lot since we will be able to see if the market is able to sustain the less-bad uptrend. The rising purple trend lines show that things are coming to a boil.

(Note: the NASDAQ breadth chart is substantially the same.)

Thursday’s Trading – 5/28/09

Could that have been Pequot liquidating Wednesday afternoon? Maybe they were waiting for the market to return to the top of its range before dumping their holdings.

“The funds, with about $2 billion in assets, will return a ‘significant amount’ of cash to investors by June.”

June is only a couple of trading days away. If it was Pequot doing all of the selling, the market could be expected to float back up on Thursday, given a neutral news-flow. So, the bulls have something to pray for.

George Method in TradeStation

This picture shows a TradeStation RadarScreen that is set up for George Method. For any of the symbols in the list, it will generate alerts whenever the MACD crosses zero, when the slow stochastic lines cross, or when the 9ma crosses the 36ma (click to enlarge):


The interval column makes the indicator columns calculate for the 15-minute time frame. After adding the columns, turn on the alerts for the three blue indicator columns, and set the moving averages to 9 and 36.

Friday’s Trading – 5/22/09

If the SPX can hold above the 875-880 area, it may be able to consolidate the rally gains in a rectangle pattern trading between 880-930 for a while.

However, if the market dives through the 875-880 level on heavy volume, then a double-top pattern comes into play. Subtracting the 930 peak from the 880ish neckline, we get 50 points. So, the target would be 880-50=830.

Perhaps the market won’t do anything so drastic the day before a holiday. But don’t forget that the February dive began on the Tuesday after a three-day weekend with a giant gap down on February 17th.

If the market closes weak like it did on February 13th, then a scary gap down becomes a possibility for Tuesday morning.

Monday’s Trading – 5/18/09

Nailing the Top

Here’s Kevin calling the top after the Q’s topped on May 6th. In my reply to him, I though that the SPX would have another stab higher, which it did, but Q’s topped first.

Here’s BobD pointing out the importance of the January 7th gap in the futures as the SPX was topping on May 7th. Following BobD’s lead, here’s me suggesting that the market may have topped on the CME in Chicago, rather than the NYSE in New York.

The moral of the story is that the SPX actually comes in third, as far as importance goes. To forecast tops and bottoms, we should be watching the NDX first, and then the SPX futures. Don’t forget, the rally began when the NDX made a double-bottom back in March.

QQQQ Bear Flag
The QQQQ formed a bear-flag pattern on its daily chart last week with a sharp move down on Tuesday and Wednesday, and then a low-volume retracement on Thursday and Friday. Completion of this pattern could take the Q’s down to 32 soon. You will see similar patterns on many charts.

SPY Gaps

This is the pattern that I mentioned in the comments yesterday. When SPY fell from its February peak, it left behind a large un-filled gap on the 17th. It made three attempts to fill the gap over the next three days, failed, and rolled over (click chart to enlarge):


SPY just repeated the same pattern:


SPY tried to fill Wednesday’s gap three times, failed, and rolled over today. Wednesday’s gap wasn’t as large as the February 17th gap, but SPY has left behind an addition, sizable gap this time. Monday’s gap is un-filled also.

This is very bearish behavior. Don’t forget, it was many weeks before the February 17th gap was filled. Let’s see if history continues to repeat. On the fourth day of the sequence in February, the 20th, the market opened down on another large gap.

Three days of fighting to close a gap, and failing, is very disheartening for the bulls. Without a positive catalyst popping up over the weekend, the bulls likely won’t have much fight in them next week.

Friday’s Trading – 5/15/09

Greed Shoots Bulls
The difference between “green” and “greed” is only one letter, and it looks like the “green shoots” have turned into something deadly to the bulls. Ms. Market will likely be wanting to punish the casino-like action that we’ve seen in the market recently. So, even if the market doesn’t crash again, new highs in the near future to open the gates of the bull trap and release the suffering bulls are probably unlikely.

Keep an eye on the XLF Friday. It made a bullish engulfing candle on Thursday, and may try to lead the market higher. Otherwise, things look rather bearish.

Thursday’s Trading – 5/14/09

For those of you who are new to patterns, take a look at The Chart Addict’s examples. He has good diagrams, and what I especially like is the way he incorporates moving averages into the patterns, such as in his bull-flag diagram.

The Dow
As you know, I am derisive of the Dow since it is a silly price-weighted index from back in the day when traders could only count up to 30 because they had no computers. However, I think the Dow is useful as long as you think of it as a mega-cap sector index rather than “the market.”

When traders are in gambling mode, they go to small caps because they move more. When they are “risk averse” (scared) they prefer the mega-caps, etc. So, at the moment, we might expect DIA to outperform IWM, etc.

Also, TradeStation has some cool customized indicators for the SPX, Dow, R2K, and NDX, and using them, I might be able to get an edge. So, you will hear me talking about DIA, DOG, DXD, DDM, etc. in the future, but the S&P 500 is still “the market”.

Special K
Here’s K making his TZA call. As of Wednesday’s close, TZA was up over 10% from that point.

I have been busy overhauling my day-trading setup, and haven’t had time to study my charts. So, I will defer to The Fly, whose PPT system has no buy ratings on any of the 198 industry sectors. Rather bleak.

The “BS” Pattern

The chart below is an “All US” breadth chart. So, you take all of the advancing stocks on the NYSE, NASDAQ, AMEX, and what have you, add them together, subtract out the declining stocks, and then plot the difference. I show here a 1-minute chart of Monday’s close through Tuesday’s open (click chart to enlarge):


As you can see, a net of about -1,800 stocks were very sad at the close on Monday, then got very happy at the open on Tuesday – until six minutes later when they all got sad again.

There was no big news story at 9:06am that I know of, and you expect me to believe that thousands of stocks just decided to take a synchronized dive for no reason? Do you know what that is? That some BS right there.

Note to newbies: if you went long at the open, congratulations; you are a card-carrying member of the dumb money. There you are getting all bullish after one of the greatest rallies in history. Hang your head in shame!

The pre-market action is thin. Any big bank or hedge fund, such as Goldman Sachs, can push the “buy everything” button to make the market look like it is going to “gap and go” from the open. Then six minutes after all the rubes are sucked in, they start dumping inventory on them.

Marty Chenard’s data at StockTiming.com don’t show that the big funds are in distribution (selling) yet, but Tuesday morning’s open makes me think that it won’t be long. Don’t forget, the big funds know that Marty is watching, and they will sneak in their selling any way they can. By time it shows up in the data, the correction is halfway done.

Maybe on Wednesday they will let the market rally a bit to smooth the ruffled feathers of the rubes so that they can fleece them again on Thursday or Friday. At some point, they will run out of suckers, and the market will just drop and flop from the open.

Tuesday’s Trading – 5/12/09

The selling in SPY on Monday was very light. However, if Friday’s close was the beginning of a bear-flag pattern, such light volume after Monday morning’s drop would be normal for the consolidation phase of the pattern. A 100% extension of a SPY bear flag would take SPY down to about 89.80.

The market limped into the close on Monday, so further weakness on Tuesday morning wouldn’t be a surprise.