SPY Interesting Charts

This chart is a 4 year weekly tick mark chart for SPY vs a variety of other tickers. I often keep a “herd” of tickers on my charts for personal use as they remind me to “look out the window” from time to time. So this is a bit “busy”, but interesting. From time to time, “odd things” are surfaced this way.

First off, notice that SPY has just “touched and rebounded from” the 100 day ( 40 x 5 day week) moving average line. That grey one. But first off: Why 4 year and not 2 or 6? I usually use 5 for my longer term “look”. Well, simply because I wanted to spread out the tick marks a bit more and have an easier time reading the chart, plus, I already know what 6 to 5 years ago looks like, so it wasn’t adding much value to me. But it DOES change where “zero starts”. The tickers all get alligned at zero either when the ticker comes into existence or at the start of time of the graph (so a 1 year old ticker symbol would appear at one year ago at the zero line, even if an identical instrument (say an index fund) that had “started time” at the beginning of the graph was higher or lower than zero). Sometimes variation in the “start of time” can illuminate relationships that are hidden with other “starts of time”.

So, I’ve made some money in the last week using a shorter term “counter trend rally” trade. On THAT time scale, we are “back at the moving average lines from below”. Do I “take off the bet” now, based on that time scale, or ought I let them run due to other, larger, patterns? Decisions, decisions.. Making money for my trip depends on just what I do today. (Nothing like a little pressure to make trading more fun ;-) It’s not like I’m playing to make the grocery budget… Oh, wait, I am!)

SPY vs Mix June 2011 4 yr W RSI Macd SlSt

SPY vs Mix June 2011 4 yr W RSI Macd SlSt

So, there are several interesting things to note here. First off, we have a very neat “touch” of the 200 day SMA line and a bounce from it. On this duration, it looks like a perfect “buy the dip”. Also notice that, on this slow time scale, the “fast indicator” of Slow Stochastic has made an “all in” signal. Inflection off a bottom. MACD is still pessimistic a little in that it is “red on top” but the slope has gone sideways and it is “above zero”. That says “positive trend in progress”. Week over week. Month over month.

The biggest worry is that RSI after being ‘near 80′ has done a ‘stair step down’ to near about 75 with a ‘lower high’ and then a further step down to ‘near 50′. That implies that the very bullish run up until this point is ending. The market going forward could be flat, or could be getting ready for a longer term roll down. So a “bit of worry” in the “few months” time window. But, for now, the “bet” is positive. We have had a ‘failure to advance’ as the two most recent peaks are the same height. That, too, argues for “stairsteps down” from this point forard, and not so much “up”. But this is a very slow process on this time scale. Look at the far left margin. Notice the rollover there? That “third peak” is about as high as the first one. That’s the kind of price target we ought to have this time.

A little more to run, but not a lot…

(It IS always possible that we could have a breakout to a new upward run. This doesn’t have to end as a roll down. But that’s the mostly likely scenario at the moment. It most likely all hinges on August 3rd or so and the budget / debt impass… I’d plan to be “out” about July 15th or so, latest, unless there is a major bull run underway. LOTS of “smart money” will want to have cash on the sidelines to make big bets as the debt deadline appoaches and will be selling “risky” positions headed into that date).

OK, we’ve got our context. Nice “roller” with price target a bit below the prior peak, possible flat into a roll down depending on Congress and Sovereign Risk…

But is there anything ELSE we can notice while we’ve got this chart in front of us?

Well, first off, notice JJG. That is a “Grain ETF”. It is, more or less, tracking SPY. Say What?

It moves further, and has some “slop” in the exact timing, but clearly grain prices and the stock market have a very high degee of coorelation. This is related to folks who have found the stock market following solar activity and those who have found sunspots vs grain prices to be anti-coorelated. Jevons studied this a very long time ago (1800) as did Hershel and found the same thing. What surprised me here was just how obvious it was on this time scale / chart.

Another thing to note is that the Swiss Frank looks a bit like “failure to advance” after a long run up. That may need closer inspection, as the dollar has had a bit of recent strength, but it also looks like that ‘mid run’ when pausing before a holiday… so more to do there…

TLT, 20 year Treasury Bonds have a very clear opposition to stocks (and, it seems, to grains). They are rolling down at the right edge as QE-2 runs out. Perhaps a look closer there, too, would be in order.

And JJC, Copper, is showing a turn up after a long slide. Economic recovery starts with a lot of demand for copper to make things. Hmmmm….

Finally, note that IWM, the Russell 2000 Index Fund, moves up more than SPY in “up runs”. For that reason, I often use it for “bull bets” and bonds for “bear bets” on the stock market. When “going neutral” I’ll oven mix SPY with TLT (or similar instruments) and wait for one of them to ‘break out’ in a direction to “double down” on that one. A decent “balanced portfolio” long term is made from a mix of bonds and stocks in just that way. Draw a line 1/2 way between the SPY and TLT curves. It wobbles, but not as far as either of them…

OK, lets “zoom in” our Time Scope to a faster chart. A 6 month daily tick chart. Two versions with 6 total indicators. Fist is my “standard” of RSI, MACD, DMI. Then one with Volume, Slow Stochastic, and Williams %R. As today is not yet done, volume for today is lower than the reality at the end of the day. I’m leaving these two charts side by side so you can see what they look like compared to each other.

SPY vs Mix June 2011 6 mos day Rsi Macd Dmi

SPY vs Mix June 2011 6 mos day Rsi Macd Dmi

SPY vs Mix June 2011 6 mos day Volume SlSt W%R

SPY vs Mix June 2011 6 mos day Volume SlSt W%R

OK, what do these indicators show?

First off, price is right AT that SMA stack. If we really are in the “third hump” of a “head and shoulders” pattern, we ought to drop back from this point (perhaps with a bit of ‘overshoot’ to the topside as it is an “end of month and quarter” and a lot of new money comes in.

Next, notice RSI. “Rolling down” but not yet at “near 20″. Recently with some tiny ‘steps up’, so a bit ambibuous very short term, but generally moving down. Still argues for this being a ‘counter trend rally’ not a new ‘bull market’.

MACD is “blue on top” so saying “BUY!”, but is below the zero line, so sayin “Buy in a falling trend and get out early if spooked”. Yet is also looks like that right when a trend is reversing. Any real reason to think the world is suddenly getting rosy tomorrow? I can’t think of much either…

DMI has “blue on top” so DMI+ is dominant over DMI- (the red line) and says “It’s been good”… but being a slow indicator does not talk as much about the future as we would like. ADX (the black line) is in that ambiguous “between 20 and 25″ range. MACD could work (if ADX is rising) Slow Stochastic could work (if ADX is dropping) and ADX is mostly sideways with a bit of down. Our prior “trend” was all “Red on top”, so the trend that is ‘fading’ is the negative one. OK, still fits with the “counter trend rally” thesis of the trade, and not yet saying “new rising trend”.

From just that, the most prudent thing to do would be to exit the trade and only restablish the “bull trade” if prices continued up.

OK, now look at “Volume”. This is the “Volume+” indicator that collors up days black and down days red.

Volume was high yesterday. Very high a few days back a the bottom. But today, volume looks to be fading. The “energy” in this run is fading a bit. Common before a holiday… but also at “tops”.

So too, Slow Stochastic is up a the top of the range. It can go sideways for a few days, but…

And Williams %R is still saying “be in” having not crossed back below the midline.

So I’ve taken off about 1/2 of my ‘trade money’ (and the money in Swiss Francs). Tomorrow I’ll asses the other 1/2 of the positions. Yes, just as I “legged in” or “averaged in” to my trade positions, I’m doing the same thing at the exit. Reducing my exposure as the trade ages.

As we “zoom in” to the 10 day, hourly, trader chart, we can see more clearly “why”:

SPY 10 Day Hourly with Mix

SPY 10 Day Hourly with Mix

RSI near 80. MACD looking like a crossover “soon”. DMI showing the blue line fading and the trend weakening… Not yet a fully formed ADX inflection down, DMI+ below ADX. DMI- rising for a crossover. But looking like it’s thinking about it ;-)

So, perhaps a bit early, I’m taking some profits. Tomorrow, if it opens “gap down” I’m still OK. If it runs higher, I’ve got some bets still on the table. I’ll watch closly into the close and then reanalyse at the end of the day. Perhaps buying a “short the market” ETF if warrented to “neutralize my position” for tomorrow (they trade a while after the general market close), or perhaps finding another instrument that runs out of cycle with stocks to start a new trade. One thing I note on this chart, though, is that JJG, grains, have dropped rather a lot… while bonds have nudged up just a tiny… If those are ‘the other trade’ someone is moving money against the stock trend…

Here are some “live charts” to watch as things progress:

SPY vs Mix 10 Day Hourly

This one has volume where you can see it’s dropped off a bit mid day today:

10 Day Hourly with Volume+, Slow Stochastic, and Williams %R

10 Day Hourly with Volume+, Slow Stochastic, and Williams %R

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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...
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2 Responses to SPY Interesting Charts

  1. R. Shearer says:

    I think you are wise to start scaling out on long stock positions. I’m looking for 134-135 on SPY where I hope to reassess. In my opinion there are still a lot of people sitting on the sidelines and the real dump won’t happen until most are in.

  2. E.M.Smith says:

    @R. SHearer:

    I’m running a couple of “time scales” at the same time. So, for example, my BRKA share will not be sold in my lifetime unless I’m under “dire needs”. It is a “decades plus” time scale.

    I’ve got some other holdings that are “one decade scale” and held for a hope of a breakout technology making them worth a great deal. A crap shoot.

    There are some “year scale” investments, like some trusts paying 10%+ that will be held for a long time (months) but dumped if they head down too fast.

    Then we come to ‘trade money’… That’s where I’m “scaling out”.

    Markets often fade a bit over holidays. I’m expecting that to happen.

    Then we will ‘test’ the SMA lines. Do we run up, or break down? WHEN that happens, I will jump on the momentum from that resolution. Probably about July 11 and then getting rocky into whatever the Congress Critters do…

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