Wednesday update

SHORT TERM: gap up opening, DOW -42

The first two days of the week markets worldwide have seen selling, especially in Asia and Europe. The US had two gap down openings, but recovered more than half of the early morning decline each day by the close. Today markets settled higher in Asia, and mixed in Europe. The SPX gapped up to 2773 at the open, had closed at 2763, then dipped to 2764 by 10:30. After that the market worked its way higher to reach SPX 2775 by 1pm. Then pulled back to close at SPX 2767.

During yesterday’s decline the SPX dropped to 2743. This was an important level because the high of our Minute wave i was at SPX 2742. No overlap occurred, and the market has rallied 32-points from that low. Short term trend remains up unless those levels are broken to the downside. Short term support SPX 2741/42 and the 2731 pivot, with resistance at the 2780 and 2798 pivots. Short term momentum hit overbought during today’s high, then declined to neutral. Best to your trading!

MEDIUM TERM: uptrend

LONG TERM: uptrend

CHARTS: http://stockcharts.com/public/1269446/tenpp

About tony caldaro

Investor
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448 Responses to Wednesday update

  1. mcgcapital:
    The A-D line certainly does put the appropriate weight on how many stocks go up or down a given day. If you only added in a + 1 or – 1 for up or down days, your objection would be correct, but that is not how the index is constructed. The total number of declines are subtracted from the total number of advances and that difference, whether positive or negative, is added to the previous day’s total.
    If you want adjustment by volume, look at the on balance volume as well. The A-D line did warn of the steep early fall 2016 correction. Why don’t you post charts of the 2015 A-D line and SPX price chart so we can see the failure to forewarn that you referred to?

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    • mcgcapital says:

      Hi George, my point with it was that markets tend to take the stairs up and the elevator down. So if you take an example of every stock on the index falling 3% on one day, that would be a cumulative -2000 (or however many stocks are in the calc) added to the A/D line. Then if every stock were to retrace that fall and add 0.3% a day for 10 days, you’d be adding +2000 a day to the A/D line. So over 11 days you’d have an A/D line that was +18000 and a market that was flat. Obviously that’s an extreme example. What people are hoping to use it for is to show that most stocks are already in downtrends hence the market is weakening prior to the wider market falling, then using that as a signal to get out.

      https://en.m.wikipedia.org/wiki/Advance–decline_line. Wikipedia says that it didn’t start diverging until March 2008 in the last bear, which is a full 5 months after the high. Who’s to say that can’t happen again and the market hasn’t already peaked in January 2018 with the A/D line about to diverge? We just don’t know. On 2015/16, I was meaning that the line did diverge and we also got a negative crossover on the monthly MACD, so anyone using these indicators would have been thinking ‘this looks similar to 2000 and 2008’. But quite shortly after we began the huge rally we’ve had. So although we did get a correction that time, I’d regard it as a false signal for a bear market.

      Each market environment is different and unique. If you invest in the US equity market on a market cap weighted basis then the biggest factor on your returns will be how large caps do. A lot of these companies are global, not US centric. There are a number of potential reasons why small caps are doing well. It could be the stronger dollar, it could be the fact that the US economy is the strongest at the moment and they’re more domestically focused, it could be that they’re the ones getting the biggest sugar high from the tax cuts, or that Trump’s America first agenda is seen as benefitting small American companies at the expense of those exposed to globalisation.

      My point is… the bulk of equity market returns come from large caps. Just because small caps have risen that doesn’t mean that large caps have to follow. I prefer looking at price to any of these indicators. And price is still saying there’s indecision and a lot of volatility. 2800 is key and so far it hasn’t taken it out. Just because small caps and the A/D line are doing well, that is providing zero info on whether or not we’re going to break this trading range up or down. It’s difficult at the moment to hold trades in either direction, have to stay very nimble

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      • tommyboys says:

        1) If every stock in an index went UP for ten days the index would NOT be flat. Same if they all went down. I dex would be in line with A/D in either of these scenarios.

        2) The A/D I follow sure did negatively diverge for almost a year prior to the ’07 top & two years prior to the ’00 top. A/D I follow positively diverged for months prior to the ’09 bottom…🤔

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        • Anne Day says:

          Tommy, which/what A/D are you following?

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        • mcgcapital says:

          For point 1 you’re misreading what I’ve written.. if we went down 3% on day 1 then rose 0.3% for 10 days on days 2-11, we’d be flat. (1+ -3%) * (1+ 0.3%)^10. Obviously doesn’t quite equal 1 due to compounding, would need to adjust the numbers slightly but you get my point. The A/D line would register 10 times the number of advancers over the same period wouldn’t it as there’s no weight given to how much we rise or fall by.

          Point 2 I’m not sure, was just going on the Wikipedia article I linked.

          But if you’re basing your investment decisions on whether or not A/D is diverging, why didn’t you turn bearish in 2015/16? Obviously that turned out very well for you, but my point is you’re posting about the A/D line most days but when it gave a negative signal back then it was ignored. I just feel like you’ll be bullish no matter what and hence must be long all day every day since nothing is ever bearish to you.

          I’ve got no problem with that as an investor, I’m with you on higher prices in the long long run. But have to be prepared to sit through 50% drawdowns from time to time, and that’s something traders shouldn’t be comfortable with.

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      • Anne Day says:

        There are always perceived volatility (news based) and real volatility (number based).
        The latter is VERY low right now if we talk about SPX and NDX.

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        • mcgcapital says:

          It’s all relative.. the long run average vix is 20 but over the last 15 years it’s been nowhere near that on a day to day basis, only during corrections and the financial crisis. Rest of the time it seems like 10-13 is about normal in this market when it’s rising. Currently it’s nearly 14 and we aren’t far from the top of the trading range.. it’s picked up over the last couple of weeks and could pick up more if the market was to drop. When I used the term volatile, I’m referring more to the indecision.. one day we’re up and the next we’re down, all within a 1.5% range of course but it’s still pretty indecisive

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          • Anne Day says:

            Relative is the word.

            And there is another kind of relativity here.

            Sometimes, I do a little thought experiment, assuming I had not read the news. Usually, this is what we should have in terms of volatility (number based):

            DOW < SPX < NDX

            Right now, the relative order is like this:

            NDX = SPX < DOW

            Why is that? I have been trying to get a clue of it.

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          • mcgcapital says:

            I think it’s because of the market environment we have at the moment. Traditionally Dow stocks are blue chip, stable cash flows, mature companies. So you’d expect these to be the least volatile. Then SPX is large cap but has more of a mixture, and Nasdaq is growth orientated so the least stable cash flow wise and the most sentiment driven/risky.

            But at the moment the political agenda is about protectionism, so I think that’s increasing the vol on stocks that are global vs domestic. Plus the dollar is rising and that has a translation effect on multinationals profits. That’s making the Dow the most volatile index.

            Then you have the FANG stocks in what I see as a bubble.. that’s keeping NASDAQ volatility low on a relative basis.

            But low volatility doesn’t mean low risk to investors and high volatility doesn’t mean high risk. Sometimes it’s the opposite (contrarian) and sometimes it’s a continuation pattern. It depends on a myriad of other factors

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          • Anne Day says:

            >>Then you have the FANG stocks in what I see as a bubble…

            I deduce that you are likely from an older generation than I 🙂

            The tremendous value brought by A and G in my work and business cannot be
            overstated. I feel I owe them. Buying their stocks could be construed as a form of appreciation on my side.

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          • mcgcapital says:

            Haha.. I’m 30. There’s a difference between valuation and a good business though. Just because FANGs have contributed a lot to business and are innovative it doesn’t necessarily mean they will carry on rising or are fairly priced at current levels. Some very good companies fell a lot in 2000-2002 and 2007-2009, then recovered and some.

            I 100% wouldn’t short them given the strength of the trend but also wouldn’t be surprised to see price break at some point given how frothy sentiment is in them. Incidentally, if that happened it would probably coincide with a wider bear market given the importance to global markets of FANG in recent years. We’d be a lot lower without them

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          • Anne Day says:

            You are definitely younger 🙂

            Just felt that you were older because you always considered so many factors…

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  2. tommyboys says:

    Today pushed WEEKLY A/D to new ATH, with DAILY very close.. No huge calamity anytime soon. Sorry doomers 🤢

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  3. kvilia says:

    Keeping a bad CL short over the weekend and looking for pullback to cover – this one gone bad.

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  4. Billy says:

    DOW held off calling 9 reds in a row. Yesterday was a fib 8 equaling a record going back all the way to 1978 surprisingly. So a green for the DOW today was very short odds. However the heavy lifting was done overnight. Some will call it distribution, perhaps rightly because come the cash session and there’s no interest to buy. SPX started near its high for the day & finished near its low. DAX and CAC where green but they were more oversold than the DOW to begin with. The uncertainty still lurking in the markets is still clearly evident. What will happen Monday? Well your guess is as good as mine. At the close both DAX and SPX do have potential 3 of 3 down set ups in place but such an outcome actually coming off is rare so I choose discretion and a flat weekend as the markets could just as easily move up early next week. Interesting mix at the moment with the DOW, DAX and CAC oversold and providing a bounce whilst NDX and RUT are coming off a bit after being overbought. SPX lies somewhere in between. Nice and safe weekend to all.

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  5. E says:

    Looks like the rebound I was talking about yesterday happened and likely just finished. Will most likely go down from here.

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  6. Third strong finish in a row. higher that open each time. The market is so absurdly over valued with trade wars to boot that a drop of a few thousand DOW points seem down right logical if not mandatory. I did add more PUTS at close today. lots of 7/6 expiration.

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    • vivelaamo says:

      I love reading your posts yet you make my blood boil. It’s bizarre.

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      • Words can’t hurt remember? I control the market as much as a fly controls the wind. Bullish stay bullish. No one listens to me anyway. I do get excited when the timeframe seems very compressed. A breakout next week and all is clear. that simple.

        Liked by 1 person

    • Why would smart money exit at last moment? nothing to fear but fear itself. What could possibly go wrong over weekend? Am I the only one loading up on Puts here?

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    • torehund says:

      Like Martin A points out, stocks arent all about p/e ratios, its about clinging to the lesser evil at times. This time its about fleeing currencies which favor stocks. Even oil catches a bid which is good for freight. Look at this chart commin of a long drawn 2, bulish or ?

      https://www.investing.com/indices/baltic-dirty-tanker

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    • tommyboys says:

      Can’t look at indices levels in a vacuum. A whole lot more goes into it than it’s “under” or “over” valued. Says who? At times a 15 forward PE is way too expensive and is sold down for months. At other times a 25 forward is cheap and bought for months. Sentiment way more meaningful than level.

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  7. gary61b says:

    ES 2761 last LIS for today.

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  8. CL had a massive breakout, not sure how sustainable it is, looking to exit before Inventories next wed. Thoughts?

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