Market Timing

Fari Hamzei

First chart is our Timer Chart for SP-500 Cash Index (SPX). Notice that McClellan Osc for NYSE closed today at-211 level. This is a short-term extremely oversold signal. Given that Nov Options X is next week and we often see a counter-trend move during options expiry, odds are that we should go up a bit here into next week, make a bunch of put options go worthless (the Options MMakers have to pay rent too come Dec 1st !!), and then cascade DOWN. What is very clear now (since my last post here on Friday October 19th) is that Cumulative ADVANCE/DECLINE Line (yellow line graph) peaked this year in early June and with next two all-time highs in SPX, the Cum AD Line has setup a Bearish Divergence. In addition, we closed below its 200-day Mov. Avg.(white line graph), for the first time since Sept 10th.

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Same analysis goes for the next chart: the NASDAQ-100 Cash Index (NDX) -- except that one has to be reminded that the CUM AD Line for NAZZ peaked in FEBRUARY of this year. This does not bode well for the LONGs' argument.

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Next Chart is our Wyckoff chart and what I want to bring to your attention is the fact that while DJIA & SPX each made a three-weeks lows yesterday (channel breakdown pattern), DJ Trans put in a multi-month low and closed near its 2007 Open. This is, again, an ominous sign for our equity markets as a whole as the rate of economic expansion slows down.

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Next chart shows Russell 2000 (RUT). Here we go again, another six weeks low (since August 16th when Uncle Ben sent some of our SPX trading brethrens into the next world prematurely in order to save Citigroup from imploding). Risk tolerance is now at a new premium not seen recently. Bids to the market should evaporate. Stay defensive.

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Volatility is increasing in both NYSE and NASDAQ markets but as next two Sigma Channels charts show you, they are NOT at exhustion levels YET.

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Most probably, this is where I think we will go to on this first leg down: 1422 on SPX. which corresponds to -2 sigma at this time. There is an outside chance, we may get down to -3 sigma (1383). Notice this is the Weekly Chart. So it will take time to get there. My guess is that this will be in the next 3 to 4 weeks or so. If 1383 does not hold,... well, we shall get to that on my next post.




Bottom Line: For Intermediate-Term Timing, STAY SHORT.

Market Timing

Fari Hamzei

I wrote a piece for FOX biz channel around 830 am PDT this morning, about my reasons why DOW should close about -350 to -500 today. Robert Gray, formerly of Bloomberg TV, quoted us near the close.

As a service to our loyal readers, here are my bullet points (part of these points were posted in our SuperPlatinum Virtual Trading Room in real time). Tomorrow in our Saturday Class we will explore these crucial issues in more detail.

1) expiration week is a counter trend -- we have been climbing a wall of worry since Aug 16th -- SPX hit massive resistance at MR1 Level (Monthly Resistance Level One) five times between October 8th and 15th and failed. We've had divergences between SPX and NDX at new highs with their respective cum advance decline lines -- see our Timer chart below.
2) Crude Oil is at ~85 to 90 USD per barrel.
3) Benazir Bhutto returning to Pakistan -- I wrote about this in early Aug on our Blog -- they have 40 confirmed nukes -- AQ is HQ'd there.
4) comrade Paulson putting his foot in his mouth on SIVs.
5) dollar trashing by Uncle Ben via pre-mature easing.
6) DJ Trans telegraphing massive slow down of the US Economy. See our Wyckoff Chart below.
7) 20th anniversary of Black Monday falling on October Expiration Day.

Have a great weekend......

FOMC and The Morning After

From our Virtual Trading Room Transcript
May 10, 2007
about 0549 PDT

Jason_Roney> With expiration next week, the monthly patterns suggest further upside by next friday's open. In fact the SP500 is just 1% from the March 2000 all time high close (1527 in the cash). Given the solid uptrend, there's reason to think we'll hit that level sometime next week. But in the short term, the next few days would seem to offer the bear's best chance for downside. As I'll note in the afternoon discussion, there is often a counter-trend move towards the end of the week prior to expiration week. As well, the market tends to struggle with any follow-through on the day after an FOMC meeting. But a look at the daily patterns suggest an even greater probability of short-term pause.

Jason_Roney> Here's some observations: (1) the SP Futures have 7 consecutive closes above the open price. there have been just 10 occurrences over the last 10 years (in 2007, April 23 and Feb 23 were next day - both closed down) and 7 of those closed below the open; (2) the NDX finished higher for the first 6 days of the calendar month. looking back to 1995, this happened just 3 times before and each time the index finished lower; and finally, (3) the Treasury Bond closed below the prior day's low while the SPX finished above the prior day's high. this happened at the March Meeting and resulted in a flat next day's trade with close below the open.

Jason_Roney> The bottom line is that Thursday's action has a higher probability of finishing below the day's open. The overall trend remains solidly higher into expiration but the next 1-2 days offer more downside than upside risk.


Click here to read the complete transcript of Jason's chat.

Click here to read the Trading the SP Gaps by Jason Roney.

Equity Index Update

Brad Sullivan

The index markets held serve after an attempt to push the indices lower failed to pick up steam at short term support levels. A late morning, lunchtime push higher allowed the market to probe, but never get above the unchanged level in all but the NQ futures. Volume was moderate ahead of both the CSCO earnings report and today’s FOMC statement.

As for CSCO, the stock was not able to match “whisper” expectations in its report and during the subsequent conference call. The issue is called to open about -1.45 at 26.90. This has put moderate pressure on the futures with the NQ contract trading lower by -5.00 at 1900.50. The SPM is trading lower as well, at 1510, down -2.25 on the session.

While we may have some moderate trading around the CSCO news in the first 45 minutes today, the odds play seems to be one of hands-in-pocket until the 1:15cst FOMC release. Attempting to handicap this release is generally futile as one verb added or subtracted can mean a few billion in market cap changes hands in the SP over the ensuing minutes. In other words…keep it close to the vest post announcement. Expectation wise, the markets are continuing to expect similar wording from the FOMC as it has received in the recent past. A change in this wording will move the markets…but to what extent?
From a trading perspective, the question we have to ask ourselves is pretty simple…is it time to fade this move and put a counter trade to work? So far, only the DJIA (as I showed yesterday) is extended from its 200 day MA. All things being equal, this represents a good time to get flat (if long the DJIA) or look to premium sell/outright sell the index. HOWEVER, the warning trade in this environment is that we are at the cusp of a major mega-cap upside explosion. If this scenario occurs, the extension readings could move sharply, possibly towards the +15% zone. Accordingly, proper use of stops and such are needed when fading a beast.

The other night I pulled down a book from the coming of age master J.D. Salinger and turned to a page that had a Taoist tale. Without rehashing the whole section, I will include this portion which is the tale end of a conversation between a Duke and his horse breeder that is about to retire. The breeder has sent the Duke to another breeder…a few months later the new breeder sent the Duke a horse that was supposed to be a dun-colored mare, but, turned out to be a coal-black stallion. When given this news the old breeder was amazed at how advanced his friend had become in choosing horses.

“In making sure of the essential, he forgets the homely details; he looks at things he ought to look at, and neglects those that need not be looked at.”

A traders mantra if I have ever read one…accordingly I have enclosed 4 charts for viewing today. One is the NDX extension readings for the 200 and 20 day MA’s. So far, the readings are elevated but not overbought.

Also included is an analog chart showing the performance of the Euro/Yen and SPX over the past year. The linkage is simply amazing. The third chart is showing the cumulative SPX breadth for the top 100 issues only. This continues to show the mega-cap extension as the upside ride continues. Finally, the last chart shows the 2007 performance for both the NDX and SPX top 100 from the OPEN print, in terms of net breadth for that session. You will see that yesterday showed a divergence in the NDX/SPX performance…it can possibly be explained by buying into the CSCO number. However, that seems a bit simplistic and it could be that mega-tech will continue to move higher.

Nasdaq-100 Cash (NDX)

Tim Ord

Today the Nasdaq 100 (NDX) rallied strongly into our targeted area near 1810 range. We have been targeted the 1810 for the last couple of weeks in that a significant high volume gap form their on 2/27. Most large high volume gaps are tested. High volume Gaps are also like magnets, drawing the market towards them. Once the market gets to the gap the gap turns into resistance. Today’s test is just a bit short getting into the gap level but tomorrow most likely the gap will be tested. If the gap at the 1810 range is tested on 10% or greater lighter volume, and then close below the gap level, a sell signal will be triggered. We have an intermediate term sell signal in force now and the gap test will be a shorter term sell signals.

On chart is of the Nasdaq 100 in the Ord-Volume format. The Ord-Volume format takes the average daily volume in each leg and display that result on the graph with a line chart. The average daily volume in a leg measures the energy that leg has. By comparing the up leg and down leg energy you can see which way the market is pushing. Referring to the Ord-Volume chart, a big expansion of energy came in on the February decline which increased 26% from the previous up leg and shows the trend has turned from up to down. The current rally leg has 21% less energy then the previous down leg and shows the down leg is still dominant and in force. The gap is being tested so far on 30% less volume and implies the gap will hold as resistance. If volume does not pick up to 318m shares tomorrow a sell signal will be triggered.


Today’s is Spring Equinox and can mark significant turns in the market. We are expecting the market to be down most of this year. We have an intermediate term downside target to the 1400 on the NDX which is a 22% decline from current levels.