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:

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

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

https://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

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

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

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