Quick Market Check

This is a live image of the One Stop Chart for today:

One Stop Market Check live chart

One Stop Market Check live chart

SPY  - S&P 500 - the Benchmark for all other tickers
GLD  - Gold ETF - Fear and Inflation index
RUT  - Russel 2000 index ETF - Broad market and small caps
EEM  - Emerging Markets ETF basket
JJC  - Copper ETN -  Broad manufacturing indicator
TIP  - Treasury Inflation Protected bonds - Benchmark safe haven.
USO  - US Oil ETN - energy sector AND broad economic indicator
QQQQ - NASDAQ 100 - Tech indicator - more consumer sensitive less financials
JJG  - Grain ETN - Ag proxy and weather sensitive
TLT  - US Treasuries long duration - "Flight to safety" indicator and moves more than TIP

The analysis will look at this chart. There is a static version at the end for comparison later in a historical context.

So what do we see in this chart? First off, look at JJG, the grains ETF. Big rocket up on the US Midwest Drought. One time news driven event. If you watch that market closely (and live on the weather news) you can make that kind of trade. Right now the move is mostly over (but could have more overshoot on folks getting in late) and entirely dependent on future news. Will it rain “just in time”? Will it not rain and the crop gets ploughed under? Will some other country have a drought / flood / freeze / whatever that makes grains even less available? Will Brazil have a bumper crop?

That has to be answered to pick a direction. Right now global weather has returned to the patterns of the 1950s with less reliable monsoons in India, crop failures in China (often cold drought) and a dry US Midwest with a cold wet United Kingdom. Looking at the weather / crop history of the early / mid 1950′s would likely be helpful for placing grain bets.

For now, it is just an incredibly volatile market and I’m less interested in that kind of activity.

Next notice TLT the USA long duration bond fund. It had started a ‘failure to advance’ with a downturn from that last high blip that matched the height of the prior high at about June 1. Now it has turned up (on crappy European news and bad economic outlook) and it is slightly higher than that prior high. Not enough to be definitive. Could just be a little news driven reactionary trade.

Given how low interest rates are, and given how little they can be cut more; there just isn’t much room for The Fed Monetary Policy to cut rates and cause higher bond values. It is remotely possible, but very unlikely. (They are presently at “0% to 0.25%” so they can do what? Go to “0% to 0%”?) So I’d fade this bond rally (if I were in bonds right now) and be building plain old cash. ( Likely a mix of 2 or 3 currencies). Load the cannon for use “soon”… Holding cash is not costing much in ‘forgone interest’ from bonds right now.

TIP continues to be a stable very slightly rising line, so if you want to stick money somewhere that is inflation protected, it looks like the more stable place to be. Largely just cash with an inflation hedge on it a this point as the yield is a bit low. Still, better than high risk with no return at all in other asset classes during times of low yields and high risks.

Equities?

Looking at SPY QQQQ and even EEM we had a long term rise, a rollover and drop, and then recently a ‘go flat and wobble’. This is a ‘traders market’. Buy when near one of those periodic bottoms; and sell near one of the tops. Just draw a trend line along the peaks and that’s your target zone.

Look at RSI. Just doing a wobble around 50. Typical sideways market. A bit above the 50 line, so generally a slight positive, but nothing spectacular. Using Slow Stochastic to trade is likely the best indicator. Next look at ADX / DMI. Black ADX line is about 15. Below 25 or so it means “low trend, use Slow Stochastic and range trade”. The Red and Blue DMI- and DMI+ lines are more or less in a crossover, but in a trendless market this tends to be a trailing indicator of the status of any given wobble, not a longer term trend indication. MACD is above zero (so generally a positive trend) but only by a little bit. We’re about to have a negative crossover on it, but those are not lasting long anyway.

What does copper say about future economic activity? That JJC line is low and rolled over. Demand has fallen off from a few months ago, and the shorts covered in the Dead Cat Bounce, yet now it is headed down again. Watch for a ‘re-test’ of that recent prior low in June as a long term accumulation point. If price punches through that, we’re likely in a new recession. (Did the old one every really leave?…) Copper is saying not much demand from China, which means we’re not buying much stuff, which means China will start having “issues” with their first real slowdown in decades and the idea of a China driven recovery from internal growth becomes much less likely. Copper is predicting more slowdown.

All in all, no reason to invest in equities, but a nice “swing trade” market trading the wobbles. NASDAQ, S&P 500, and Russel 2000 generally leading (as Europe is “having issues”…) and with the UK and Australia right behind them (having more exposure to European “issues” and China trade slowdown). Eurozone in the dumper… And Emerging Markets doing what they typically do of ranging further in either direction, right now way down.

Oil had spiked up briefly, and now has taken a bit of a dip. ( I’d expect a ‘retest’ as a buying opportunity). Copper too.

Here is an Equities focused chart that shows Slow Stochastic. Buy at the bottom and sell at the top. That’s a ‘trading range’ trendless market method.

Equities 6 month chart with oil and copper

Equities 6 month chart with oil and copper

The same chart at BigCharts.com where you can change the settings and tickers.

The added tickers on this chart are:
EWU - U.K. ETF
EZU - EU zone ETF
EWA - Australia ETF

Here we can see that the global stock markets are mostly moving in synchronized ripples.

You can also see how the ‘shape’ of the William %R indicator can match the Slow Stochastic. Harder to read as there isn’t a ‘crossover’ to hang onto, but similar information. It is sort of a hybrid of the information in MACD and Slow Stochastic. Watching for reversals and zero crossings for action calls. During trending phases (see the start of this chart for an up trend) you ‘buy the dips’ when W%R drops to or below midline (or in down trends, sell the blips above and short); and use trailing stop loss orders to exit.

During trendless periods, the rule is to buy low excursions and sell high excursions. So start with DMI to tell you ‘degree of trend’ then use the right ‘rule’ for the chosen indicator.

For now, it is “trendless” and “trade the ripples” with Slow Stochastic or W%R ranges.

Now look at Momentum. It was clearly positive (above the line) during the early run up, then below the line during the drop. Now it is more nearly ‘wobble each side’. (with a bit of positive bias in the last month or so) In this way, Momentum can help define trend similar to DMI, but it also generally makes a ‘be in’ or ‘be out’ confirmation. Be in when above the line, otherwise be out (and ready to buy in swing trade markets…) The “hard bit” with momentum is that it will be below zero when the ‘wobble’ reverses to the upside. That is where Slow Stochastic is more comfortable as it gives a clear crossover and takes less ‘interpretation’. (It is helpful to imagine a line connecting the tops of the bars and watch for inflections of that line.) Frankly, once you know it is a ‘swing trade’ market, just using trailing “stop loss” orders to exit and “buy if touched” orders to buy seems to get the timing right faster than looking at charts, especially on days with large machine driven trade spikes like that down bar at the top of about 2/3 into June.

At any rate, this chart indicates why I’ve been ‘lax’ about the money postings. Just not much there-there for investors. Swing trading, sure…

Heck, even the GLD Gold line has gone nearly dead flat. We had a run up, drop, Dead Cat Bounce as the shorts covered, and now the ‘wedging down’ to trendless. Didn’t even react to news flow much.

Overall, it looks to me like folks have mostly scrambled into “risk off” assets (like cash, $US Treasuries, and gold) and are mostly just sitting on it waiting for our collective Idiot Governments to stop screwing around with things (like the banks, the currencies, the rules, the taxes, the regulatory burden, the…) IMHO, likely to remain a range bound swing trade market through November (but could start a trend ahead of the election if a probable outcome becomes clear. Or if the EU decides it really doesn’t have any net wealth so rearranging the deck chairs isn’t doing anything…)

What am I doing?

Mostly cash, a few ‘deep value’ investments, and some small swing trades. “Watchful waiting” mostly, but I need to start being more active if I’m to keep up with bills. ( I did get a couple of small contracts that let me cover things, for which I’m very thankful; and that they arrived during a ‘challenging’ market time was extra special, even if they did let me ignore markets a bit too much ;-)

Looking at the equities chart, it looks like a ‘buy’ is ‘soon’ for trading the ripples, so I’m likely to swap to a 10 day hourly chart (with MACD) that is about the same as Slow Stochastic on a daily interval chart, but makes crossovers (or ‘calls the market’) on hourly intervals so makes decisions mid day.

Static version of the One Stop Chart:

One Stop Market Check 23 July 2012

One Stop Market Check 23 July 2012

Static Version of the Equities Chart (so those comments above can make sense in a future historical context:

Equities Chart 23 July 2012 6 month daily with Gold, Copper, and Oil

Equities Chart 23 July 2012 6 month daily with Gold, Copper, and Oil

Remember that both of these are very large charts so you can click on them to make a much larger more readable version.

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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.

14 Responses to Quick Market Check

  1. BobN says:

    EM – very good charts and analysis. Can’t disagree with what your saying at all. I’m a bit more pessimistic and expect the market to fall out of the trading range, probably September, as typical down period. I hear what your saying about the election affecting the trading. I think there will be upward pressure if it looks like Obama will lose, but I think that will be over ridden by market forces. I expect we will soon be in an official recession and it will be much deeper than the last.
    I’m covering shorts on rallies, but put them back as soon as it end, which have been very short. So far I’m making money on my short positions, but had a scare the other day on earnings, but ended up getting out OK.
    For about the last 4 years I have stopped buying stock and have replaced the stock buys with leaps. I then sell short term calls out of the money trying to make money each month that pays for the leaps. This has worked very well for me and most of my leap buys are free. I think the market is headed down so I’m looking at a strategy on the down side, but don’t feel comfortable doing the same thing as the down side moves faster and the likelihood of losing on the near term is a lot higher. You hit the nail on the head with the election comment, I just don’t know how that will play out to market movement..
    I can make good money in any market, its the fear of the 500 point moves that make me hedge everything. I would probably double my income if I didn’t worry about those big days.

  2. Pascvaks says:

    For some reason I got a picture of a 6′ man in fear for his life splashing around in 4′ of muddy water and drowning; or maybe it was not even 4′ deep, but the fear was real, very real.

  3. E.M.Smith says:

    @BobN:

    My general bias to to long side trades. Sometimes I use “short ETFs” and on occasion I use protective options; but I’ve not yet internalized the short seller mentality. I can do it as an artifice, but it just isn’t natural to me, yet.

    Since most of my money is in retirement tax exempt accounts, that are not approved for options anyway, it isn’t that much of a loss. But something I need to be aware of… that bias.

    I need to expand my repertoire to include more options and shorts strategies.

    Longer time scale I ‘expect’ this is a rollover into a new recession and has more downside; but I generally try not to ‘expect at markets’ but just read the charts instead. Yet I still have my expectations, just tempered by the facts on the ground.

    @Pascvaks:

    You can drown in a cup of water… Best to know what you are doing with it…

  4. Pascvaks says:

    EM-
    I’ve even started drowning in a sip of tea, I must have spray-washed this monitor 30-40 times in the last 10 years and it’s becoming more frequent too. Seems to happen most when I’m not thinking, thought lately it doesn’t seem to really matter whether I am or not;-)

  5. E.M.Smith says:

    Well, that’s gotta hurt… Apple just announced a “miss” on revenue and earnings.

    Nasdaq will be down tomorrow too most likely as Apple is a large part of it.

    Down 5% in after market trading. Likely a bit less at the open tomorrow. $566 right now.

  6. p.g.sharrow says:

    Early this morning, before opening, A stock “expert” claimed that Apple at $600 was cheap as it was worth $800 and was going to $1,000. Fool, the three piece suits took over early this year. Apple is toast just like the last time the professionals took over and ran it into the ground. This time Jobs is not coming back to rescue them. pg

  7. This from twitter:

    @ScotClimate: Scottish Government found to have lied on key figure. Is the Scottish Climate Bill dead?. Will the minister resign? http://bit.ly/OwkVl1

    The Scottish government lied to politicians about key financial data which was central to the argument for the bill when they passed the Scottish Climate Change Bill. The government citing Stern said that the economic cost of a 2-3°C rise would be “between 5-20% of GDP”. In fact Stern suggests there may not be any net economic harm quoting figures of 0-3%

    The figures are so key to justifying the bill, that it really is difficult to see how this bill could withstand a legal challenge.

    … but the scandal gets worse. The Scottish paper (The Courier) which broke this story seems to have been lent on to remove the story. Presumably by someone in government.

    This is about as bad as we can get. It appears the world’s most enthusiastic government for climate change is now embroiled in lies & cover-up.

  8. E.M.Smith says:

    @P.G.Sharrow:

    Apple still has some products in the pipeline from the Jobs era, but the tone of the company is shifting. If slowly.

    This miss had a lot to do with effective competition from Android and Samsung along with a drop in sales for a typical Apple screw up. They started talking about the iPhone 5 a half a year before they can ship it… Killing sales for the rest of the year…

  9. p.g.sharrow says:

    Bad luck or poor planning? Samsung is eating their lunch and they are starving present sales with promises of better products in the pipeline, somewhere! You are supposed to do that to your competitors not to your self. Ah, well the bloom is off this rose. They do have $180Billion in cash to burn through. Even Idiots will have to work at that. pg

  10. George says:

    Lots of stuff happening in tech right now. Zynga announced horrible earnings and their after hours trading sees them down 40% from the close today. That stock is 6 months post IPO (meaning insiders can now sell) and the stock is under $5. Facebook is down close to 10% in after hours trading. The network manufacturers are seeing a slowdown in sales. Cisco is laying off something like 1,300 people. Juniper is getting jittery. Alcatel is going to lay off about 5,000 by the end of the year, they are also reporting a slowdown in network gear sales.

    California electric bills are due to start rising and rising fast. That will put the hurt on many of the major data center operations. Electricity is already the primary cost constraint in data centers as it is, double or triple the cost of power and the people with tens of thousands of servers start moving to Salt Lake or anywhere to get out of California. The large data centers are going to start migrating out of Silicon Valley within a year.

    Increases in capital gains and dividend taxes are going to slam the brakes on new investment. People are going to start taking their capital gains between now and the end of this year in order to cash out at today’s lower tax rate. I don’t see a single glimmer of good news anywhere on the economic horizon. Anything positive happening is not based on fundamentals. Manufacturing is down, employment is down, everything is headed down.

  11. BobN says:

    I started out playing only the long side, but I trade for a living now that I’m retired. If you only trade the long then much of the time you can’t trade or make little or even lose when the market goes down. To keep a stream on money coming in I decided to trade the down side. To my surprise I made more on the downside as down moves a quicker and deeper. If you are going to be in the market I think one needs to look at trading both ways. The days of buy and hold are long gone in my opinion and are a recipe for disaster.

    Right now I’m looking for an entry point in 3D printing. I believe that may be the next big growth area. They have moved on from just plastics to stainless steel, brass and even some wood textures. I see where you can now print guns with the technology, even automatic rifles. This should help preserve the 2nd amendment. Every home will be manufacturing capable. Go to the store, want something, scan it into your cell phone and it dumps the data base into your phone after you paid. The phone sends it to the 3D printer and its ready when you get home. I can’t decide who will dominate this as right know the Maker Bot hobbyist is doing well, but not sure it will grow into a dominant business. Maybe one of the printing service that are available.

    I hate Samsung with a passion, they wait to see a product be a big success and then wade in and kill everyone with their manufacturing muscle. Patent infringements, not to worry, just a cost of doing business to them, figured into the pricing. I bet in 10 years Apple is out of the cell phone business. I know, that sounds pure stupid, but its the Samsung affect.

    If you don’t fear the market, it will kill you! Any business is done with a lot of hard work and paranoia, with out either it operates on luck.

  12. p.g.sharrow says:

    @BobN; My son creates 3D object files for computer games and at times has them “printed” up as real objects in different materials. There are a number of startups that supply these services using CNC printers that work with different technologies for different finished materials. At present the technology is fairly crude, both DIY and small manufactures I don’t believe patents are of any concern. Using lasers to sinter metals is the most advanced technology used that I know of. pg

  13. BobN says:

    @p.g.Sharrow

    Here is a link to a gun from 3D http://www.popsci.com/technology/article/2012-07/working-assault-rifle-made-3-d-printer

    Another clever use of 3D printing, light track shoes. I have trouble getting shoes to fit, I may just design my own and see how it works. http://www.popsci.com/technology/article/2012-07/3d-printed-shoe-could-help-save-sprinters-precious-seconds

    Here is a good example of a 3D printing service with pretty good turn around. http://www.shapeways.com/ I’m looking at some art objects in ceramics

    I had not heard of anyone sintering metal with lasers, I will go look as this is an area I have some strong interest. If you have a handy like I would love to see it.

  14. P.G. Sharrow says:

    @BobN; My son uses shapeways for most of his work. For metal jewelry he does plastic and then burnout as in lost wax process. He does lots of research on cost and quality and has tried a number of providers. As for me, I really have no personnel knowledge about 3D print service providers. pg

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