tim_ord's blog

Yesterday’s rally jumped above the previous highs of last Friday and Monday (near 90 range) with a Sign of Strength and that condition implies that the 90 range should act as support on any pull back. Today’s rally came on much reduced volume and  tested the high of 10/22 and is a short term negative and implies SPY could pull back to support near the 90 range. RSI has made a positive divergence between the 10/10 low and Monday’s low and is a bullish development for the intermediate term.   Today’s Advance/Decline line was good and most likely has turned up the

Over the last couple of weeks, it looks as though the SPY have been forming a “Triangle Pattern”. A “Triangle Pattern” is where boundary line form and converge around a trading range that meat out into an apex.  As the market works out into an apex the volume gradually decreases and this pattern appears to be forming on the SPY now. Triangle patterns normally break in the direction prior to when the Triangle pattern formed and in this case the direction was down. This pattern enforces the idea that at least the “Selling Climax Low” of 10/10 will be tested and could be broken. Also notice that over the last four days that volume decreased as the market worked higher and showed the market was becoming weaker as it rallied.

On-Balance Volume (OBV) Indicator Set: The Climactic Volume Indicator (CVI) measures extreme OBV movement within the context of a short-term OBV envelope for each stock in the index. The Short-Term Volume Oscillator (STVO) is a 5-day moving average of the CVI. The Volume Trend Oscillator (VTO) summarizes rising and falling OBV trends. These charts tell us if the index is overbought or oversold based upon volume in three different time frames. We used the S&P 100 (OEX) instead of SPX because the OEX chart went further back in time, going back to 1989. What VTO points out on OEX is that reading <-75 have lead to major lows in the OEX.

The Bullish Percentage Index (BPI) shows the percentage of point & figure chart buy signals for all the stocks in the NYSE. This chart tells us if the index is medium-term overbought or oversold based upon price. Over the last couple of day BPI reached a 12 year low of 8.80. Previous intermediate term low formed when BPI reached the 20 range. According to this chart the downside on SPX should be limited.

On Last Thursday’s report we said, “The intermediate term picture is turning bullish. September 18 produced a “Selling Climax Day” and stopped the downtrend. Most but not all “Selling Climax Days” are tested at some point and if tested on lighter volume would create a bullish signal. The big gap up on 9/19 tested the previous high of 9/8 on higher volume.

Above is the SPX with it’s McClellan Summation index. The SPX showed a positive Advance/Decline line even though the SPX was down five points. Today’s Advance/Decline line came in at plus 353 and keeps the Summation index heading higher. When the Summation index is heading higher it implies the SPX also should head higher and a bullish short term condition for the market.  We are not wildly bullish here and for the matter we are not wildly bearish. We are looking for and edge and at the moment we don’t see one that would lead to a high probability trade.   We are staying flat for now.  We sold our SPX position on 8/7 close at 1266.07 for a 1/2% gain and are now flat.

The Rydex Cash flow Ratio Measures the flow of cash into and out of the bullish and bearish Rydex funds.   Over the last 12 months, short term highs have formed in the SPX when the Rydex Cash Flow ratio reached near .90 or lower. Yesterday’s close came in at .90 and this reading is a short term bearish sign. This week is one of the most light volume weeks of the year and the volume in the market right now doesn’t have enough energy to push it up or down. We are staying neutral for now. We sold our SPX position on 8/7 close at 1266.07 for a 1/2% gain and are now flat.

The SPY has built a trading range for two weeks and implies when the break out comes a nice run in the market should materialize. Today rally was decent but volume is less then the previous high recorded on 7/30 and shows that today’s rally was not as strong as the 7/30 rally and a short term negative on the market. Also the closing tick on the NYSE came in at +897. Closing tick readings exceeding +900 can turn the market down in a day or so. The last time the tick closing where this high came on 7/30 with a closing tick reading of +1065 and that tick closing turned the market down for three days.   We are bullish here but there could be some more backing and filling before the market jumps the 129 area.   If short term the SPY does jump the 129 range with big volume and wide price spread then the condition would give an upside target to 134 range on SPY which equates to 1340 on the SPX.  We are long the SPX at 1260.32.

Above is a price comparison chart of the nine main sectors in the market along with the S&P 500 dating back to early May. The sectors that hold up the best (decline the least) in a market decline will usually outperform on the next rally phase.   The sectors that held up the best going into the mid July low were Gold & Silver (XAU), Biotechs (IBB) and Oil Services (OSX). The sectors that got hit the hardest on the last decline where Brokers (XBD) and Banking (RKH). We all ready own issues in the Gold and Silver index and will keep these issues. For short term there could be a minor consolidation. We checked the ISEE put call ratio index before the close and this ratio stood at 1.52.   The 1.52 ratio shows to much call buying for short ter

Above is the 9 month (40 week) Cycle dating back to 1996. This recurring cycle is next due for a bottom in the market on 9/22/08 which is a about two months from now. We are not suggesting the market is going down for another two month, however, this bottom cycle on 9/22 could mean that the market could produce the second bottom of a double bottom (similar to the bottoms that where produced in 2003). We thing the first bottom in the NYSE may show up in the next week or so (Bullish Trigger will be when NYSE McClellan Summation index turns up). Market may rally off first low for several weeks then when 9 month cycle (9/22/08) approaches the second bottom may form where the market pulls back into the that timeframe.   Therefore next couple of months could both from an uptrend and another downtrend. Staying flat for now.