The three-day TRIN average is flashing a major overbought condition for the first time since the big crash began in late September (click chart to enlarge):
The bottom panel of the chart is the S&P 500. The blue line in the top panel is the three-day average of the TRIN. The red line is where the TRIN is very overbought. The green line is where it is oversold.
In a normal market, this indicator flashes good buy signals at the green line. However, in this historic bear market, prices plunge even while deeply oversold, so I have not been relying upon the TRIN for buy signals lately.
Notice that the current reading of 0.71 (in blue at the right) is the most overbought condition we have seen since September 18th, which was not exactly a great time to be getting all giddy about the market.
I have used this indicator to print money here and here, for example. I put on some short positions this afternoon, and am looking to add more into any further strength.
Also, notice that the three-day candlestick pattern from September 17, 18, and 19 (blue arrows) is exactly the same as the pattern of the last three trading days.
Matt!
I think for once you and I are on the same page. Very Yummy let’s see this market sell off finally when GDP comes.
Matt,
Do you ever hedge your short positions?
If you can’t attend to the markets for a day or two, do you stay in the markets using stops?
Thanks,
JJ
Very interesting analysis, Matt — how will this interact with the end-of-month effect? Could we go into even further overbought territory for a perfect setup on Friday?
JJ,
I trade full time, so I don’t have to worry about being away, and I rarely hedge. I’m usually just betting on which way I think the market will go.
Matt
Kailash,
That’s what I was hoping for this week, but the market is overbought now, so I had to go short. If you look back at the charts, you will see that the big funds aren’t always successful keeping the balls in the air at month-end. They did exceptionally well in October, but took a beating on September 29th for example.
Matt
K,
The housing data was ignored today, but that always happens during a short squeeze. Tomorrow’s data should have a bigger impact if it is worse than expected.
Matt
Matt,
The housing data didn’t matter much to me.
But GDP and consumer confidence tomorrow better have an impact…
i was looking at the headlines today on cnbc and they were all so happy. then it hit me something is up. looked up upcoming economic reports and quickly last 15 minutes of the day took out 75% of my UYG and went short.
Things to consider:
-Friday Op-Ex, expected run-up
-today run-up expected from oversold, and on rel. lower vol.
-no topping candle on VIX
-market very overbought
-TRINdicator confirms market overbought
-EWT wave count may be wrong. What if we are on wave 1 of 5 down? Recent action in the 5-3-5-3 wave format would fit this, as would the fact that today violated the “rule” that 4 cannot encroach on 1 (but it can in a diagonal)
-per Prechter, page 39, the leading diagonal can occur in the wave 5 position, and can be 5-3-5-3-5 wherein 4 overlaps 1. This seems to fit. Watch to see if there is a “slowing of price change in the fifth subwave relative to the third.”
-no “rescues” have worked this year; why would Citi be any different? And there are many more problems to come.
-housing still a mess with no end in sight
-commercial real estate picture getting worse
I went short today, and will look to get more short this week should the opportunity present itself.
Thoughts from anyone on the board?
http://stockcharts.com/h-sc/ui?s=$SPX&p=60&yr=0&mn=2&dy=0&id=p46212124272&a=155553412&listNum=3
(I tried to give more info on the chart, but it got deleted 4 times, and I got sick of typing it over and over… hopefully general points can be observed)
After wave 5 completes, we are due for that intermediate rally.
Happy Biffday to Miiiii.
big 2 and small 0.
I will try to not check the market at all today (almost 12 here) will enjoy my day hopefully 100% rain oh well. i wanted snow!
Matt: …and I rarely hedge.
My style too. Hedging is for wimps.
Rally in Asia is already fizzling. Futures are reddish. Looks like you are printing money again, Matt.
@K: Congratulations!!!
Happy Birthday K!!
Thanks Dressguard.
maybe many of you read it but WOW
http://www.bloomberg.com/apps/news?pid=20601109&sid=an3k2rZMNgDw&refer=home
hey Dressguard Dubai need schoolboy’s? or should I move back to Europe?
good call Matt.
There is no recession here but maybe signs of it. When the Atlantis hotel last weekend opened with a big celebration including that mammoth fireworks it was partly criticised in the media. People were saying it was a waste of money esp. now that we are going into a tough times You never heard something like that before. Some building projects are on hold even the prestigious ones. This also never happened before.
I prefer Europe to Dubai. (Maybe not now because it’s very cold in Europe while we are having nice weather in Dubai.)