OK, I’m sitting here watching CNBC “Fast Money” and on comes a trader talking about the “Capone Index” and shows a chart of restaurant and gambling spending dropping as it has done before prior downturns in the market. Yeah, folks “tighten the belt” with the booze and meals out and gambling before they forego the house payment, new tires, or clothes. It’s an “early indicator”… and it’s saying folks are shutting the wallet.
So I decide to do two things.
1) Get my Linux based automated stock screener box (and part time GIStemp) box running again. In some “room moves” it had been taken down, then the network ‘issues’ hit. So it’s “been a while”) running again.
It’s now running and doing it’s “update tickers thing”… about 100 down, 4000 to go…
2) Do an in depth look at volume in SPY (a useful trade indicator. I’d rather use total NYSE volume, but Bigcharts doesn’t give me a graph of that and I’ve not had time to look elsewhere.)
This posting is #2. (No potty jokes! ;-)
First off, remember that I’ve already made a “call” in the very long term chart section of the last WSW posting that we’re headed for a toppy section.
First my comments on the NYSE, then the SPY.
Incipient “Red On Top” for DMI and Slow Stochastic clearly saying “be out right now” with it headed down. When it turns up again from near the bottom, then the market will be good for a few weeks again. MACD looks like a ‘crossover to red on top’ SOON, and prices are way far from the center of the SMA stack. I smell a ‘correction’ in progress. Not waiting for “sell in May and go away”…
Spiders (S&P 500) looks very similar. Again, the indicators are “be out”.
We’ve got a market set for a tumble longer term, and we’ve got really bad news flow. Not feeling the love from the long side… Short Stocks / Long Francs&Wip look best to me for a while.
Well, FXE, the Euro, has outperformed the FXF Swiss Francs. All those Arab Dictators sucking out their cash from Swiss bank accounts?
But what about a faster and closer look at spy. What does it say?
SPYing on SPY
Two charts, both with a bunch of ‘indicators’. First up, “the usual” with RSI, MACD, and DMI / ADX.
So, what do we see here?
This one also has “Price Channel” on it. (You can click the chart to get a larger one). OK, so we’ve got the generally rising price trend broken at about Feb 18. Then we have a ‘wobbling sideways’ but never reaching that upper “price channel’ level again. FXE, the Euro in dollars, that is the blue line, continues to climb as the dollar continues to drop. FXF the Swiss Franc has not broken its long term trend, but is ‘wobbled down’ at the moment to the lower edge of its channel. Now would likely be a good time to move dollars to Francs. It’s possible it’s a start of a new downtrend in the Franc, but the ‘best bet’ is just a dip in the ongoing trend.
But back at SPY… It’s not keeping up. In dollars, Francs, or Euro. It’s got “failure to advance” written all over it.
Look at the three SMA lines. The Simple Moving Averages are converging. They do that during “buy the dip” moments, too, so it could just be a ‘dip’ and time to buy based on this indicator alone. But it can also be the start of a ‘topping weave’ where the three lines weave together before separation into an upside down stack in a falling market. At a minimum it means “be very cautious now, the trend is no longer your friend”. But we must look elsewhere for further guidance.
RSI has come off of a “50-80-50-80” rising trend pattern where “buy the dips” is the norm; and it’s now split each side of 50. At a minimum, we’re in a sideways market (but you can tell that from looking at the sideways prices too). It’s not yet “near or at 20” so the downturn is likely not over yet (but we could wobble sideways for a while too… if, for example, the Libya and Afghan wars suddenly ended, news flow would shift the dynamic). But right now it’s saying “no joy in Mudville”. You’ve got all the risk, but gain is taking a break.
MACD is at the end of a long “be out” “red on top” phase and is calling a technical ‘trade in’ with “blue on top”, but it is below the zero line, so it is a ‘counter trend rally’ in a falling trend, per MACD. Which means exit if your price gets back up to the SMA stack. (If it’s a new rally, you can buy back in on the other side, you are managing the risk of a drop, not being greedy for the rise…) And the price is right on that SMA stack…
DMI? Still “Red on Top” be out. DMI is a bit dour and slow, so could be just slowing down your otherwise beautifully timed “buy the dip”… but he also brings sensible caution to the punch bowl… Notice he was “Blue on top” for the whole run up, only shifting to “red on top” at the roll over. Do not lightly dismiss his council… and right now that advice is “time to be sipping wine at a French Cafe in Euros”.
ADX is about 25, which nominally says to use MACD over Slow Stochastic (slower vs faster trade indicator) but also says this trend is of “modest” strength. And at the moment the trend is somewhat down. Finally, look at the “price bars”. Notice that 2 days ago we have one that looks like a cross or star? VERY narrow range. Ten to Eleven trade days ago, they were very wide ranging bars. That’s fairly typical. Volatility is greater to the downside than to the upside. But the degree of volatility on the down days ‘near the top’ in the last couple of weeks is a worry. That’s a classic “topping behaviour” in my opinion. Someone is shorting heavily on those down days and triggering stop loss orders. (IMHO).
So we’ve pulled away from the bottom price channel, but have not been able to revisit the top on. Not good.
Next up is SPY but this time with Volume, Slow Stochastic, and Williams %R indicators.
Well start with the other tickers first. TBT is the “bond short” and it’s moving with stocks right now. Stocks and bonds often move in opposition, so a ‘bond short’ ought to move in opposition short term. XAU is a combined gold and silver index. It is showing twin peaks of topping action with “failure to advance” at the moment. The “drop” in the middle of the peaks is a bit on the strong side. Be very wary of the metals markets right now, and gold miners in particular. Money leaving stocks is not going into gold, but looks like it may be headed to bonds.
Both Williams %R with the zero crossing and Slow Stochastic have been giving good ‘trade signals’ at this time. The trend breakdown makes MACD work less well (until a strong downtrend develops) and during the “confused times” Slow Stochastic and Williams %R can work a bit better for faster trades.
Slow Stochastic is “at a high”. If you look back to early February you can see that it can “hold a high” for “a while” during a trending market. But we’ve broken the trend. In this kind of ‘sideways roller’ with ADX ‘near 20 or below’ it is more likely that a Slow Stochastic at a high over 80 means trade out. At a bare minimum, put stop loss orders in place or buy puts.
Williams %R is rather similar to MACD in behaviour. It can ‘twitch’ just a bit faster sometimes, and hold you in a bit longer at others. You don’t really need both of them, but I use them both anyway. It is saying “trade in” and you can see that it called the trade in earlier than did MACD. On the 21st rather than the 24th. But he, too, is saying “be ready to exit the trade”. Not do the exit, just prepare for it. When Williams %R drops through zero, that’s the formal exit call, just as Slow Stochastic headed “mouth down” with “red on top” is a trade exit. So not quite there yet, but…
On the price chart you will find two thin red lines that are Bollinger Bands. They show the movement in std deviations of recent movement. We’ve stopped tracking the upper Bollinger Band and started tracking the bottom one. Yes, a recent ‘pull off’ but it’s not getting back to the top one. Just a “pop” before ??? the drop? Notice the two lines got close to each other at that last top? Losing momentum at the top. They’ve now widened a bit as we gain momentum in the drops. The direction of the band has also shifted from upward to sideways. Not good…
OK, last indicator. Volume.
Look at how it’s been higher on down days than on up days. The red bars are higher than the black bars.
As we’ve approached this ‘local top’ the volume is just drying up. At the last bottom, it was way high during the drop. Folks want to sell more than they want to buy. Current volume is well below that sideways moving average of volume line. Not good. Very much not good.
OK, put it all together and what do you get?
Folks pulling in spending. Market nervous about lack of jobs growth. A “questionable war” or three… Japan being rocky and with “spillover” globally on dependent manufactures. A long market run, with a context of “late in the game far from the 5 yr weekly moving averages”. Recent advance broken, and volume showing lack of buying interest with “someone” providing volume to the downside (most likely professional shorts ‘beating the bushes’.
To me it says “correction” and we’re going down for a while pretty soon. Maybe not tomorrow, but soon.
Mutual Fund and payroll auto investing plans buy stocks the first couple of days of the month. I’d expect we’ll see a couple of up days on that demand, with hedge funds selling out their long positions into that demand, then the shorts to come in about April 4 or 5 (Monday or Tuesday).
So I’m not putting any money into this market at this point. I just don’t like what I see. I’m in a spread of other currencies along with some WIP and TIP and waiting for a ‘shorting opportunity’. But mostly just waiting.
Live Versions of the above charts: