Quick Market Check redux

Back on 16 November I’d done a ‘Quick Market Check’ posting. It said ~’time to watch for an upturn’ and get ready to go long. Now it’s time to revisit that and see how things have done. Then make a new “attitude” toward markets. While I really ought to do a full up WSW posting, it’s not going to happen in the next couple of days and I’ve just got this “it has been too long” feeling that won’t let it sit that long. We’ve had options expiration and the inauguration and the “debt jacking” (can’t bring myself to call it a ‘ceiling’ anymore. It isn’t. It’s an ever expanding bubble…)

So this is a quick ‘check of the check’. How did it do? What do things look like now?

What I said then

The “then” will be in block quotes. New commentary in outside plain form. The original article is here:

http://chiefio.wordpress.com/2012/11/16/quick-market-check-2/

About 10 days after that I did the last WSW posting:

http://chiefio.wordpress.com/2012/11/28/wsw-tuesday-27-november-2012/

I may quote some bits of text from it if relevant. If so, they will have WSW: before the block quote. In general, I’d said I’d be doing short time cycle trades rather than long term buy and hold, and that bonds were looking like a bit of a bubble but TIPs had continued to act as a place to hide out.

WSW:

IMHO, Bonds are in a bit of a bubble. Nearly no return, in an asset that is subject to inflation erosion. When this breaks, it can break hard.
[...]
I’ve added TIP, the Treasury Inflation Protected securities ETF, so you can see how it is acting as a safe haven.

The bond chart in the WSW posting looks like TLT (long duration bonds) has had a start of a break, and TIPS have gone flat. Likely time to exit all US bonds (and likely any foreign ones too, but that needs a proper chart of it’s own and a currency compare to say for sure, so ‘check it’ don’t just jump because I made a muse, OK?)

QMC:

Here’s a ‘static capture’ of SPY the S&P 500 baseline ticker v.s. a selection of others:

SPY vs selected markets 16 Nov 2012

SPY vs selected markets 16 Nov 2012

That is from that moment in time. I’ll quote some text here, then put the live chart now below.

First off, note that TLT (long term bonds) and TIP (Treasury Inflation Protected Securities) are both holding up much better than the stock markets, that have largely rolled over. While TLT is down from that June / July peak, at the far right side it has an ‘up tick’ on the election. TIP has just continued on a very shallow rising line, left to right. Like I said, a good place to ‘hide out’…

More interesting are the stock tickers. Generally a peak about Mid-Septemeber, then a rollover and plunge. But even a bear market has reversals. So where are we in the “drop and buck” process and where’s the end? Always hard to say in market drops. But just note that SPY is the 500 biggest stocks in America, so represents most of the market that matters.

RSI is down near 20. A ‘bear market’ typically drops to ‘near 20′, then has a ‘rolling aspect’ between about 20 and near the midline (50) for a while. Sometimes it will ‘surf down’ with each ‘dip’ being a bit lower until it reaches 20. Look back at May for an example of what it looks like as a drop nears an end. Notice that the ‘second dip’ toward twenty where it is just a bit higher, is at the actual reversal point. So RSI now is saying “This sell off is a bit overdone, and nearing a short term reversal”. Add that to the news flow on gladhanding and we likely have a reversal “soon”. It could start today if enough folks get excited (for no good reason) over political posturing.

WHEN such a ‘reversal’ happens, prices ought to return to ‘near’ the SMA stack. That’s about 5% above prices right now. That SMA stack has three lines, so pick the middle one as the ‘target’. Price may fall a bit short, or overshoot, but tends to end a run near the middle. So look at that SMA stack. It’s inverted. Price on the bottom. 24 day next above it. Then the longer cycle time lines. It isn’t a complete reversal just yet, but is substantially guaranteed to end up that way due to the present prices and what leaves and enters the averages in the next week or so. So while the 48 and 72 day lines are ‘weaving’, we’re going to end up in an ‘inverted stack’ soon. An inverted SMA stack is a ‘bear market’ or a ‘correction’. It means to be biased out of the market (and into things like bonds / TIPs) but be willing to trade back in at extreme sell off points. We are near one of those now. As it’s hard to pick the exact bottom day (though I’ve done it a few times, perhaps just luck) a better strategy is typically to use “buy if touched” orders and let the market decide for you; or ‘scale in’ over several days. Then use ‘stop loss’ orders to exit placed once price is near the SMA stack (or ‘scale out’ then and reassess). Or just ‘sit out’ in something like TIPs. But overall, the SMA stack says “bear market bias” and maybe a ‘reversal fast trade’ available.

MACD has ‘red on top’ and is way negative. That’s all ‘bear market be out’. Yet eventually that trend will end. MACD, being a Moving Average Convergence / Divergence is a lagging indicator (but not by too much). So, by definition, it will be saying “Be OUT!!!” at the reversal moment. RSI is saying ‘reversal soon’. You can wait for a MACD ‘crossover’ to blue on top (but that misses the max trade value available) or shift to a faster chart to trade more rapidly. Or just use ‘buy if touched’ and wait for the market to vote. The PSAR indicator places little red dots at the ‘buy’ and ‘sell’ suggested points, so you can use it, too. I usually just shift to ‘faster charts’.
[...]
USO is the dark black line at the bottom. An economic downturn causes oil to drop. Present high production in the USA / Canada has also pushed oil down. That drop has flattened this last month. If the market starts to rebound on ‘happy economy’ news, oil usually rises. This is a ‘watch this space’ so we need to do an oils and related posting…

While I did do a WSW posting, I didn’t do a focus break-out on oils. They have gone up. My bad for being lazy. It is hard to get worked up about “just money” when the political class and UN are busy trying to destroy the global economy and ecology and the USA is going to hell on the express train of Socialism Lite… but that doesn’t make it OK to blow off a duty.

OK, on to the “conclusions”:

For now, still hiding out in currencies and / or TIP are the better strategies, but it looks like an inflection point is ‘soon’ for some trades in equities. IFF the global economy starts to actually grow, industrial commodities like oil and copper will turn, so time to put an eye back on them, too. A ‘fiscal cliff’ deal will likely cause some euphoria driven bump up in them.

All in all, ‘time to start watching more closely’ and likely time to make some more trades to the ‘long side’.

All good predictions. Would have been better for me if I’d actually made trades based on them. Instead, I was preoccupied with holidays and such. (We have 4 or 5 birthdays between Thanksgiving and last week, plus 3 major holidays, plus my daughter finished school, plus… but still, no excuse for being lazy.)

Here’s a live version of the above chart so you can watch it over time, and a 10 day hourly chart:

Live SPY vs other markets

Live SPY vs other markets

So what do I see now?

Not on that chart, but from the charts in the last WSW posting, it looks like REITS and “emerging markets” are in a run higher. Not surprising given that the EU, Bank of Japan, and USA are all in a “bugger the currency” and “regulate to death” mode. So yet more reason to do a full on WSW. For now, look at the charts in the last one for guidance.

The above chart has some interesting bits.

For SPY we have continued “be in” signals. ADX / DMI with “blue on top” and ADX rising over 20 so showing strength build. MACD is also “blue on top” and above zero. The only real worry is that RSI is ‘approaching 80′. That tends to mean “about a month” left to the run. Sometimes more, sometimes less. But about the point where the next ‘kick the can’ on debt hits the curb again.

The ideal ‘buy’ was about the time of the last posting, and a ‘second chance’ at the end of December. Now price is fairly well away from the SMA (Simple Moving Average) stack. Not an attractive entry. More like time to start putting stop loss orders behind positions.

EWZ, Brazil, is still down in the dumper and that nice hot run of the last couple of months has a flattening tail. Sometimes Brazil rolls over first. Not a good sign. TLT, long term bonds, is definitely falling. That “be out of bonds” call in the last postings was a good one. Probably possible to make some money in TBT shorting bonds. But as that is its own instrument, it needs its own chart. GLD Gold has had a ‘bear market rally’ back to its SMA stack from below. Still not an ‘entry’ call for gold. Only if it punches through does that ‘counter trend rally trade’ turn into a new trend trade. Sit out gold while it decides. TIP has broken trend, too. It is no longer a ‘safe haven’ place to hide out. (WIP has held up, but gone flat at the end. Likely mostly just a dollar down artifact making it attractive. Need to compare UDN vs WIP to pick the best one ;-)

EEM Emerging Markets already has RSI at 80 (on a discrete chart at Bigcharts and did not take the big down dip that the USA markets did in Oct / Nov. That, too, argues for a ‘dip’ coming. (that EEM is at 80 so argues; that they didn’t dip argues for US artifacts).

All in all, it looks to me like money is moving into “stable currency” markets, but those are a bit overdone right now for an entry, and out of US funds / bonds. It also looks like more “inflation protective” assets are doing better (land / REITS and perhaps some commodities, though specifics will be driven by economic demands).

A quick look at the currencies chart is startling. Russia XRU on a rocket ride. (Bigcharts is having one of their ‘moments’ with FXM that ought to be the Mexican Peso, but now is claiming to be a Canadian value fund… so that line is a bit bogus at the moment…)

So what to do? Well, it looks like “run from the Dollar” and anyone else who is buggering their currency.

With that, I’m going to make a cup of coffee and spend a bit more time with the prior WSW posting charts. Sorting out what country deserves my money and will treat it well. At the moment, the choices are “not good”, with “Government Evil Bastards” buggering the currency in the traditionally “safe” west and Japan, with Brazil on a “Socialism Redux” tear making it a bad choice, with India and China dependent on the USA and EU that are auguring in, with… So looking mostly like ‘resource economies’ might have a chance. Yet there we have Australia with the Crazy AGW Cult calling the shots and Russia with Czar Putin making it grow, but with the threat of “off with their cash” at any moment a possibility. Maybe New Zealand and Canada are enough?

OK, time for coffee and a bit of a think… For now, in “home currency” with hedges and selected inflation protection instruments (high yield stocks & REITS, diversified funds, selected foreign positions.. in other words, a bit of a mess…) Probably going to put tight stop loss orders behind some of them, given that the fast trade chart below has about 10 days of run up and RSI bouncing off 80…

May take me a day or two to sort it out properly.

Fast ‘trader chart':

SPY vs other markets 10 day 15 Minute trader chart

SPY vs other markets 10 day 15 Minute trader chart

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Economics, Trading, and Money and tagged , , . Bookmark the permalink.

21 Responses to Quick Market Check redux

  1. crosspatch says:

    I don’t think we are at a “be in” point in the SPY but it depends on your definition of “in”:

    http://www.zerohedge.com/news/2013-01-22/us-macro-turns-negative-worst-almost-5-months

    If I were currently “out”, I would be dollar cost averaging my way “in” at the moment in order to accumulate shares as the SPY falls, which I believe it will do this year. You want to buy when it is tanking and people are unloading it. If you already have a substantial position and are no longer accumulating, I would liquidate a portion to most of it and go into cash for a while. If you are currently accumulating and plan to do so for some period of time in the future, by all means continue as I believe a good buying opportunity is just around the bend.

    I don’t try to time the market so much as I look at overall probability. Right now I feel there is a greater probability that the market will be lower in six months than it will be higher (barring a fundamental change in the market such as massive inflation or something) so I configure myself to best profit from a declining market (without shorting). When the market is falling, you want to be accumulating until you feel that the market is more likely to rise over the subsequent six months and then buy only into downturns.

  2. E.M.Smith says:

    @Crosspatch:

    I run a faster book, and I do time. I think my postings have shown a fair bit of skill at timing the turns. Dollar cost averaging does work; but is best for much longer time horizons than, IMHO, present market structure endorses. (i.e. it’s a high volatility rigged game now, due to high frequency trading, no ‘uptick rule’ and a few other changes).

    My first “enhancement” away from Dollar Cost Averaging was just to realize that a trailing “buy if touched” on the way down gave much better ‘entry’ than slavishly buying every month. Similarly, a “trailing stop loss” worked better than a slow sell with 1/2 happening way down from the top. Later I looked for ways to tighten the timing even more. It works.

    But yes, if you have a 20 year time horizon and 1 year minimum action period, dollar cost averaging is better than “buy a big lump and hope”.

  3. adolfogiurfa says:

    Wait until the springtime equinox…..

  4. crosspatch says:

    Well, I don’t strictly DCA, either, using a sort of hybrid approach. I mean, I had been for several years starting at around the bottom of the market in 2009 until before the election in early October. Then I took MOST of it out and parked it in cash while continuing the regular purchases. This allowed me to escape the meltdown that happened in late October to about mid-November while still purchasing shares at the lower price. So it might be time to move some more out of SPY into cash taking the profits made since then but still continuing monthly purchases of SPY. So my approach is a sort of “buy all the time in small increments but sell the accumulated total when the market feels toppy”. When the market starts to tank, I might start to DCA the cash from the cash pool back in to SPY again. But generally, I am always adding a small amount of new cash into SPY every couple of weeks though I might move the accumulated balances around.

  5. R. Shearer says:

    Speaking of coffee, you might have a look a JO. It might have put in its low.

    I see numerous stocks at resistance. Eg. ACI, SGEN. I sold ACI and held SGEN; probably should have sold both.

  6. E.M.Smith says:

    @Crosspatch:

    Interesting approach. Something like that might solve one of my faults. I tend to ‘cash out’ then get bored waiting for a new ‘entry’ call and often end up just sitting too long. Sloth and boredom intersecting rapid bottom bounce… I’ll have to think about the relative advantages (or just require, somehow, that I look at a chart Every Single Day… ;-)

    @R Shearer:

    Can’t see how Arch Coal can do anything but lay there as long as Obummer is in office and set on killing coal. Don’t know anything about Seattle Genetics. Biotech is prone to big largely unpredictable pops and plunges, so I usually avoid it, though.

    Jo (Coffee) does look bottomed, but what’s the catalyst? Usually takes a freeze somewhere or a supply shortfall to get it moving. Haven’t heard of any. So if some folks ( a lot of them ) just decide to drink tea for a while, you get a surplus. Price is ‘weaving’ in the SMA lines on what looks bottomed, but not moving anywhere either. RSI looks to be ‘ringing down’ into a mid-line position and looking like a trendless dead money behaviour. MACD is at zero, and looks like it is trying to stay near there. DMI has a red / blue weave and ADX going toward 15 (well below 25). So all in all it looks like “nothing happening”

    While I don’t think coffee will stay there forever, not seeing any attempt to move either. Worth watching (and watching weather news in S. America) but just not seeing the angle to make it worth the time.

    Remember that this isn’t like owning a warehouse of coffee, it is a synthetic instrument that has “time value” as the underlaying contracts expire and roll over. So only for fast trades, not 1 year hold and wait strategies.

  7. KevinM says:

    You get fewer responses to market posts than science posts, but please keep them coming. I originally started reading here in 2008, when I discovered Calculated Risk was not the only finance blog out there. I appreciate these posts.

  8. Sera says:

    I don’t see coal production in the US slowing down anytime soon, regardless of the EPA. What we don’t use, we sell to China and Europe.

    http://www.platts.com/newsfeature/2012/coaltransport/map2

  9. Sera says:

    Oops- I meant Canada (not China).

  10. E.M.Smith says:

    @KevinM:

    Oh, I’ll keep doing them. It’s just that the ‘ambition’ level drops when the market are largely driven by political news events. The only folks who make money on them are the insiders and folks who guess the insiders well. I prefer markets driven by natural causes and events… market dynamics. They can trend longer and more predictably. Point event news driven political things are short fast moves hard to detect ahead of time…

    @Sera:

    I suspect coal trains to be more profitable then USA coal itself.

    Basically, if the POTUS wants to pee on it, avoid the ‘golden shower’… Move up wind…

  11. DirkH says:

    “The only real worry is that RSI is ‘approaching 80′. That tends to mean “about a month” left to the run.”

    Yes. Only a few percent potential gain to be made overall in S&P and DAX; not worth the risk and cost to get in now. I will exit stocks starting JAN 26 , and plan to be out completely on FEB 08.

    Will buy SLV (iTrust Silver ETF) and Xetra-Gold (German ETF). Better than even AUD or NZD. Will stay there til October.

    (if I don’t develop new ideas)

  12. crosspatch says:

    I don’t see coal production in the US slowing down anytime soon, regardless of the EPA. What we don’t use, we sell to China and Europe.

    Have you been keeping up with the mine closures? We are really cutting back on coal for power plants and pretty much keeping only “metallurgical coal” production.

  13. DirkH says:

    E.M.Smith says:
    22 January 2013 at 9:28 pm
    “But yes, if you have a 20 year time horizon and 1 year minimum action period, dollar cost averaging is better than “buy a big lump and hope”.”

    About my time horizon: Objective is maximizing each years return. I’m working in a strictly seasonal way ATM. Trading each Euro 4 times a year (sell stock, buy ETF, sell ETF, buy stock).
    (Seasonal strategy was evolved by computer and spiced up with selfmade stock picking script)

  14. DirkH says:

    E.M.Smith says:
    23 January 2013 at 6:04 am
    “The only folks who make money on them are the insiders and folks who guess the insiders well.”

    Easy to guess. No way out of ZIRP. Currency war, inflating govt debt away, in Japan, US, EU, UK.

    “I prefer markets driven by natural causes and events… market dynamics. They can trend longer and more predictably. Point event news driven political things are short fast moves hard to detect ahead of time…”

    The market will do what it has to do (Next: correct); and use the shock du jour as the pretense (Next: Some of the usual Eurozone shocks; they tend to happen in Spring/Summer. To a lesser extent year round. Why? Dunno. Remember they are a pretense, not a reason, as the Eurozone is doomed anyway and everyone knows.)

  15. Sera says:

    @ Crosspatch:

    Some of the mine closures were because the coal mine failed to meet acceptable standards for safety, compliance and operating performance, and these ongoing issues make the operations unsustainable.

    http://www.kfvs12.com/story/20198152/coal-mine-near-harrisburg-closing-affects-400-workers

    As for coal exports, they have gone up every year except for 2009 (and we all know what happened in 2009). That being said, I don’t foresee China doing anything other than bringing the world into the Golden Age of Nuclear. Their air quality is soooo bad, they just can’t do coal for much longer. Plus, they have the French designs and engineers in China, right now.

    http://www.reuters.com/article/2013/01/23/france-china-nuclear-idUSL6N0AS86X20130123

  16. DirkH says:

    Sera says:
    23 January 2013 at 11:46 am
    “Their air quality is soooo bad, they just can’t do coal for much longer. ”

    They could; all they need are flue gas scrubbers. Many German cities have coal power plants (cogeneration; district heating and electricity) smack bang in the city centre with no smog whatsoever; Frankfurt for instance.

  17. Stuart says:

    TLT and TBT are interesting instruments. Most of what I have learned about TBT cost me a lot in tuition. They are ETFs with internal friction losses that compile daily. TBT has been through a 10:1 consolidation during its short lifetime on Earth.

    So maybe the right approach is to use their internal weaknesses to profit. Don’t buy TBT, sell TLT short. The friction losses alone should make this an attractive bet if you can make the trade.

  18. David says:

    A deflationary expectation post here could be worthy of discussion…
    http://globaleconomicanalysis.blogspot.com/2013/01/why-im-deflationist-who-likes-gold.html

  19. DirkH says:

    Remember I mentioned my timeline – get out of stocks FEB, get in in OCT?
    Turns out that some other people have recognized the same pattern over the last 3 years. Which is, incidentally, the period over which I ran my genetic algo.

    Goldman Sachs. Smart guys.
    http://www.zerohedge.com/news/2013-01-24/spot-different-time-seasonal-fudging-macro-data

  20. DirkH says:

    David says:
    24 January 2013 at 9:11 am
    “A deflationary expectation post here could be worthy of discussion…”

    Thanks. I only now got around to listening to it now.
    His argument that 1 tn USD printed per year compared to 70 tn credit is valid. So in my opinion an Italian Lira style devaluation of the USD is more likely than a Weimar style hyperinflation.
    My expectation is that the 1 tn USD per year, or maybe 1.4 tn USD, will grow exponentially, though.
    It might work for 10 years more before it blows up in the US.

    He is too enamoured with Peak Oil; and should be asked, if you expect oil scarcity, should that not be a huge inflationary driver (somewhat contradicting his deflationary hypothesis).
    In his argument about robotic manufacture in the US he says, we will not need to ship stuff from China in this age of Peak Oil. Well, shipping a fridge from China to Germany costs a Euro. Bringing it from the harbour to the customer at least 10 times more. So that argument, whenever I hear it, just doesn’t make sense. The 17,000 TEU container ships are the cheapest means of transportation ever built. Even considering the long distances.

  21. George says:

    Time is money.
    Time is relative.
    Money is relative.
    A wage has units (relative per relative).

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