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Chart Medley

Chart Medley

by The MoleApril 27, 2011

As we are creeping above SPX 1350 it’s yet again time to sink our teeth into some of my infamous low-carb-high-protein chart medley:

Let’s start short term. As we painted new highs today tomorrow’s net-lines sell level will advance to 1327.25. As long as we hover above that the longs should be okay. If we drop below that mark then we may see some follow through – which would be that little retail schmucks shake out I have been proposing.

Again, I have adopted the net-lines concept from Chris Carolan – friend of the blog and one of my favorite financial analysts.

Since some folks asked me about Mr. VIX – so I thought I should clarify whether or not we in fact painted an equities sell signal the other day. And the answer is (drum rolls…) – no, there was not. Yes, we did get our spike outside the 2.0 BB (actually we got two) – followed by a close inside – followed by oooops a close lower. Sorry folks – we needed a close above the first inside close to get a bonafide VIX sell signal. So the longs yet again cleverly avoided one of my favorite reversal signals.

However, all is not well in Equities Paradise – medium term I am seeing conflicting signals, which make me very nervous. Long term the writing pretty much is on the wall.
[amprotect=nonmember] Charts and commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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Easy chart – we are plotting the number of stocks trading above their 200-day MA against the SPX. As you can see we are now flat lining in the 90% range, which is typical ahead of a meaningful reversal. My best guess on past history would be that this reversal would transpire early to mid summer.

Here I’m being a bit more creative by plotting a ratio between all stocks above their 50-day MA against all above their 200-day MA. Again, I’m seeing a divergence here – the drop means the former is not keeping up with the latter (which as shown in the previous chart is in the 90 percentile). Whichever way you want to interpret this – there appears to be a distinct diagonal resistance line and we are hitting it right now. Does that mean we are reversing tomorrow? No – of course not – but I would not want to be unduly exposed to the long side here.

Now we are looking at a ratio of all NYSE stocks above their 50-day MA against down volume. In the past few months we have been in a nice downward slopping channel. And yes – we are now getting close to the upper boundary. Which does not guarantee a reversal, mind you, but leaves ‘the door open’.

This is basically the ratio between Fidelity’s income fund (i.e. junk) vs. Vanguard’s long term treasury fund. As you can see we are now painting a solid divergence – and that is also not good medium term. I have seen these divergences persist for a while in the past but we are getting to the point where I would expect some kind of reaction in equities.

Finally – a simple chart for a change! RSI_EMA running against the spoos. And although we are painting that delicious inverted H&S there is a distinct divergence – again! Now, can this H&S resolve despite this? Of course it can – but once/if we get a big blast higher and if we see this divergence hold it may present a nice opportunity to go short. I say ‘may’ because we always need to assess all evidence when that time comes.

Of course we all know what has fueled this relentless melt up in equities – and it’s the concerted destruction of the U.S. Dollar by our friends at 33 Liberty. I’m plotting the inverse of the UUP (i.e. Dollar bull ETF – yes, I could have used the regular UDN) as a left chart against the SPX. And as long as this continues any reversals will be shallow and tightly controlled.

Nevertheless I am seeing a bit of a widening in the SPX:VIX to SPX ratio – which means that market makers are pricing in a bit more risk here. May change after Banana Ben’s big speech today but worth keeping in mind.

Bottom Line:

A pretty mixed picture as you can see. Hence – I don’t want to be long here but I also don’t want to be short. My preferred setup would be a nice shake out of long chasing retail traders after which there would be a nice setup to get positioned for a final push higher.

Let’s not force it and wait for the tape to come to us. It’s always prudent to keep your powder dry for those extra juicy setups – those are worth waiting for. In the interim we can still have fun with selected symbols, in FX, a few commodity plays, etc.




About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at the usual social media waterholes.
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