Looking To Germany For Clues

UPDATE: Jan. 3, 2012

Well it's certainly time for a re-think on that idea.  The DAX appears to have spoken loud and clear when it exploded higher and, with gusto, broke one of the yellow trend-lines that defined the triangle.  But it did not break the one I was anticipating.  This certainly changes the landscape and obviously has far more bullish implications, in spite of the fact that it happened while the American markets were closed and no doubt on miniscule volume.  Nevertheless, the pattern has evolved to the upside.  Here's what it looks like after the $DAX popped by 4.55% in two days:

Click here for a live and updated chart

This action changes the picture in a big way with the $DAX now apparently setting its sights on the first logical resistance level of 6500.  It might also have plans on surging higher to tag the gap that occurred in the first week of August at the 7060 range.  In doing so, it would likely still remain within the yellow channel and take on a five

Where Friends Gather - Dec. 20th

After chatting briefly with BrightFire, I thought I'd put together one space where friends could gather to chat about anything related to markets.  I put up no charts, set no stage and suggest no topic. As it turns out, several friends have dropped in from time to time but they been spread all over the place.  But I know that they know each other.  So we'll give this a whirl for a couple of weeks and see what happens.  I'm not a fan of this particular Blogger format and it's possible many of my friends won't like it either.  But we'll see..  I also don't have the time nor the inclination to run a message board or chat room but it does no harm to offer the space.  Maybe the friends who want to stay together in a nice quiet place will gather.  It's a courtesy as much as anything else... simply a nice alternative for those who prefer a respectful environment.

We've moved our conversation to the pub next door.  Feel free to top up your mug there.

The videos have been moved to here... and
We have move on to another pub.  Please join us there

Signals From Libor3

One popular method of measuring liquidity and credit risk has been that of keeping one's eye on the TED Spread.  What exactly is the TED Spread?  It's the difference between yields on the 3 month US treasury and the 3 month London Interbank Offer Rate, or LIBOR.  On charts this 3 month LIBOR is usually given the label LIBOR3.  It is generally accepted that U.S. T-bills are risk free while the rate associated with the Eurodollar futures is thought to reflect the credit ratings of corporate borrowers. As the Ted spread increases, default risk is considered to be increasing, and investors will begin to lean toward safer investments. Risk off!  In a nutshell, as inter-bank offer rates rise, it's a reflection of the fact that banks are becoming more and more reluctant to loan money to each other.  Generally speaking, when one loans money he'd like to get it back some day.  In the dark world of giant European banks, these days the odds of getting your money back at all are growing worse with each passing week.  And as a natural result, the TED Spread just continues to surge while the equities markets continue to pretend it simply isn't happening.  Those silly equities markets... they're in for one hell of a nasty surprise.  It should be no surprise, but a surprise it will.be... to all but us.

At one point I became more interested in the question "of the two components that make up the TED Spread, does one move more than the other"?  You'd better believe it... it's the LIBOR3 component that is doing all the moving.  So rather than focus on the TED Spread, I've recently turned my eye directly onto the trouble spot itself, and that of course

The Copper Canary

We’ve all heard the cliché about Dr. Copper.  It’s so cliché by now that I’d almost be embarrassed to repeat it.  But Dr. Copper's PHD has more to the fact that the price of copper is a relatively good gauge of the health of the underlying economy than offering a true reflection of the health of the equities markets.  After all, the action in the stock markets has become so disconnected from the real economy (in essence, from 'reality') that one sometimes has to wonder whether the stock markets are even going to exist in their present form a decade from now.  But how distorted are they?  How do we measure that?  What I’d like to demonstrate here is that copper, as a truly fitting representative of the entire industrial materials basket (commodities), also relates to the stock markets in such a way that it can provide us with sound signals about the future direction for equities.  And at this time, copper appears to be issuing a rather stern warning, a warning that in the past has been very accurate and dependable… to get the heck out of equities.

In the past, we have seen charts showing the S&P 500 when it is priced in terms of various other vehicles... gold for example.  Those studies are very interesting and offer some guidance about whether or not investors are really getting ahead after inflation is taken into account.  The unfortunate problem with that particular gold analysis is that the price of gold has for decades been clandestinely, and later proven to be, manipulated.  Clearly, it still is.  Gold had been held down by those who wish to hide the fact that the only real money “is” gold, and that the illusion of a soaring stock market is just that… an illusion based on ever increasing liquidity that continuously and severely erodes the value of fiat dollars.  No folks, when the equities markets are soaring, you are not getting your money’s worth.  But the global banking oligarchy doesn't want you to know that.  So

The Hindenburg Omen

UPDATED May 10th, 2012

Over the past few days I have been asked a few times about what is happening with the Hindenburg Omen.  I assure you, I have been keeping tabs on it every day but really in the past few months there has been very little to report.  I suppose the most notable item is the fact that since the first part of February the number on new 52 week highs being generated by the NYSE has been diminishing even as the market continued higher right into April.  And of course, when the markets sold off in April, so did the number of new highs.  But throughout all the action in the past 6 months, the HO really hasn't come all that close to issuing a signal.  That isn't to say that it didn't still reveal some real market weakness... it did do just that, especially at the April low.  But that isn't the Hindenburg Omen's job (to alert us to market weakness at a low in the markets).  The HO is almost binary in its performance.  It either issues a signal or it doesn't, one or the other.  Also it can be switched off in binary fashion... it's either "on" or "off", due mainly to what is happening with the 50 day moving average of the NYSE.  And this is actually quite natural because at a market top, the 50 day moving average rolls over.  Usually it's not clearly defined though and that average, just like any other, can 'flicker' up and down while in the process of turning over.  and that's exactly what flips the HO on and off at a market top.

And I can report that as of  April 19th the HO has been switched "off".  It cannot issue a signal no matter what happens with the dynamics of the new 52 week highs and lows because the 50 day moving average on the NYSE is pointed lower and will remain lower for quite some time to come.  At this point I'll insert the chart I use for monitoring this metric alone... the 50 day moving average on the NYSE:

I try to keep this chart updated on a regular basis.  Bottom line is that price on the NYSE absolutely must be higher than the orange line in order for the 50 day moving average to be pointed higher.  If that MA is not pointed higher... the HO is switched off, unplugged, batteries removed.  Click here for the latest updated version (usually updated every day).

I would also like to assure you that if the Hindenburg Omen gets real close to issuing a signal (once it comes back on line of course) I will report on it here.  Further, if the HO 'actually goes off', I will be issuing a new post dedicated to that event and the necessary follow-up.  So no worries, stay tuned to this station and you "will" be kept up to date. 


UPDATED Apr. 10th - Just with a simple comment in the comments section.

Perhaps some of you are wondering what has been going on with the market internals now that the torrid ramp job in the markets seem to be slowing down. I apologize that it's been so quiet in here, but really there has been so little to report.

Basically, during the last half of the run-up the number of new 52 week highs (say from early Feb. onward) has become very anemic and has fallen off sharply, especially as of late. From the beginning of the rally though, starting in November, those numbers had been rising nicely. Here's a chart showing what the production of new 52 week highs looks like graphically: In order to smooth it out a bit, it's probably helpful to note the white line which is a 7 day moving average of the new 52 week highs. You'll also note how badly it is diverging from the rising NYSE:
New 52 Week Highs

All this is telling us is that the rally is weakening considerably. However, during the past week or so, the numbers of new highs has been so low that it has actually been "too low" for the HO to issue any form of warning. Really, the only warning we're getting right now is the evidence shown on the chart above.

As far as the new 52 week lows are concerned, they too have been so low as to not be raising any warnings yet... averaging about 25 per day as of late, and remaining relatively steady.

So that's the reason I've been very quiet in here... the market is relatively fragile and is in range of triggering an HO signal... but the stars just haven't been aligned for it to occur. If we get fairly close though, you'll be the first to know.


UPDATED MAR. 6th -

   Further update:

At the end of trading today the numbers are quite muted.  According to the WSJ they are as follows:

New highs - 25
New lows - 30

And for backup, according to StockCharts there are 28 highs and 27 lows.  So I think we can trust the WSJ's figures for today.  Bottom line is that although the numbers of new highs had been incredibly anemic running up to the recent top, the HO is not all that upset just yet.  I'm guessing that on the next bounce we'll actually see both numbers increase from today's levels.

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Yesterday, when I posted a notice on a few sites where most of my friends hang out, that I had some news on the HO front I had also mentioned that I was a bit taken aback, surprised that the HO had sneaked up on me and had come so close to issuing a signal so quickly.  It was almost embarrassing because if anybody is on top of this issue I'd say it's yours truly.  I've been doing this for 29 straight months now.  I'd mentioned that I was almost caught with my pants down... feeling like I hadn't been paying close enough attention.

Let me explain why I was caught off guard.  Yesterday (Monday) before the market opened, there were only 42 stocks that were even within 2% of hitting their new 52 week low.  Therefore, considering that 85 new lows would be the minimum requirement I knew that the odds of seeing an HO signal yesterday were very remote, barring a heck of a pullback in the equities markets.  No such pullback was in progress.  Why then were there suddenly so many new lows? 

Carrying on with the explanation... with about 2 hours to go in the trading day I was stunned when I checked in with the Wall Street Journal (the only official source of data for the HO) to discover that there were already 61 new 52 week lows.  The highs were also nearly sufficient for a signal to be issued so suddenly it appeared that the HO would come much closer to issuing a signal yesterday than I thought possible.  After the market had closed, that number for the new lows was reduced by one unit... to 60 new lows.  That type of after-hours adjustment is very common.

As it turns out, my dismay was well placed because the Wall Street Journal had indeed been publishing false data all day long.  I didn't discover that until I returned to my desk last night at midnight.  At that time the WSJ had changed it's data and were reporting that only 20 new lows had been established yesterday.  What the hell?  So I checked with StockCharts and sure enough, StockCharts was also reporting 20 new lows.  So the bottom line is that as long as the WSJ cannot be trusted to issue factual data, how can I blame myself for being duped like that.  I can't... and I won't.  But let's give the WSJ the benefit of the doubt and trust that it was a one time glitch (HINT: It wasn't the first and it won't be the last).  But since the developer of the HO, Mr. Jim Meikka has ordained that the WSJ is the only official source, I have no option but to obey the rules and use their data.  But from now on I'll go to StockCharts for some form of verification (even though StockCharts almost always shows slightly fewer new lows than the WSJ does).

OK, onto the current status:

Needless to say, with today's hefty pullback there aren't very darned many issues attaining a new 52 week high.  At the time of this writing, there are only 23 (about 85 are required).  And this may surprise a few people, but there are also only 28 new 52 week lows.  StockCharts reports similar (but not identical) numbers so we can be reasonably assured that the WSJ isn't playing games today.  So the odds of seeing an HO signal today are very remote indeed... just as I thought before Monday morning's open.

Although I let this particular post go very quiet when there is little to report, rest assured that I'm still monitoring the components of the HO on a daily basis and will report more here as it becomes necessary.  For the moment then, it's one of those "Move along folks, nothing to see here." type of days.

But feel free to check in whenever you like.  If there is something to report, it will be here when you get here.

Best of success to all.  Stay safe!

UPDATED MAR. 5th -

As I pointed out about 10 days ago in this piece, the number of new 52 week lows has been very, very weak considering that the market has been jacked up for something like 50 days straight.  Be sure to check out the chart and click on it for a live picture of what's happening.  Normally we'd be seeing much higher numbers for new 52 week highs after such a run.  For example, just prior to the April, 2010 high the $NYSE was generating an average of about 400 new highs every day with a peak near 650.  With 1.5 hours to go in the trading day today, the number of new 52 week highs is currently at a paltry 72 with 85 required by the HO.  The number of new 52 week lows has risen sharply over the past few trading days from an average of about 20 to 63 at the moment of this writing.  85 are required.


The bottom line is this... the Hindenburg Omen is rumbling big time and is threatening to issue an 'initial signal'.  For those who haven't yet read the piece entitled "So The HO Issues a Signal.  What Happens Next?" I highly recommend that you do.  I've been urging readers for months now to do that ahead of time.  It's very important to really understand what an HO signal means and to be fully cognizant of what we might expect going forward. 

Stay tuned.  This particular post is going to become quite active after 2 months of silence.  Now you know why I keep this particular post quiet most of the time. 

At the end of the day the numbers ended up as follows.  85 of each were required:

New 52 week highs - 81
New 52 week lows -  61

Those numbers are often adjusted by a digit or two after hours but they're close enough to paint the picture.  So clearly the market internals are shifting from very weak to 'weaker yet'.  All I can say is that the market internals are residing in an area where the HO is more or less drooling, and at a time when we've just witnessed almost 50 days of straight 'up' action.  It's also an occasion when I saw the HO awaken from a slumber faster than I've ever noticed in the past.  Obviously something's wrong.  We'll post updates tomorrow for sure.


UPDATED JAN. 10th - Things are starting to get very interesting on the HO front.  As many of you know by now, one of the parameters that go into the HO formula is that the 50 day moving average must be pointing higher on the day the HO triggers.  And as we all know, when a market reaches a top, sooner or later that 50 day moving average is going to roll over and start moving downward.  This obviously is a very bearish development.  How ironic is it then, that at a market top, when the 50 day moving average does roll over, it also switches off the HO.  The HO cannot issue a signal once the MA has turned lower.  That's exactly where we are today.

This is one of many reasons why the HO does not go off all that often. The rules were strict enough 10 years ago, but with the advent of the changes instituted by its inventor at least two years ago, today it is even 27% more difficult for the HO to go off.  And contrary to numerous reports (by the experts who are still unaware of those rule changes), the HO has not issued a signal since August of 2010.  And as of today, it is not permitted to.  This condition is most likely going to persist until at least Thursday, Jan. 12th.  

It's too bad that the HO doesn't issue a signal just before a market top, but by it's very strict nature... it won't.  It needs to see very strict and concrete evidence.  Therefore it is usually late, just as a 50 day moving average is late.  But once the HO

Tracking the 10/80 Weekly MA Crossover

UPDATED: Mid day trading on Friday, Jan. 20th.  Scroll down to the bottom of the post (not the comments) for weekly updates.

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ORIGINAL POST

Many of you have become interested in BullTart's 10/80 weekly moving averages and his solid assertion that since the 10 week 'had' crossed below the 80, the equities markets were heading for a major downfall.  His assertion was based on past history of that moving average pair and it was as solid a conclusion as one could ask for.  Much to the chagrin of almost everybody though, that pesky 10 week turned back up and by golly, it crossed back above the 80 week again.  How was BullTart to possibly know that was going to happen?  I mean we hadn't seen a "failure" like this in the past 21 years at least.  Probably much longer, but that's as far back as I can look with the charting service I use.  Yup, the conclusion drawn by our friend BullTart was perfectly logical and very solid indeed.
  

                                    Click here for a live and updated version or better yet, click here for a real good close-up.

Fortunately, several years ago I developed a handy little calculator that can figure out what price is required for all kinds of different things to happen.  It can calculate what price it would take for a MACD to turn lower or higher, for a histogram to turn north or south, for any type of moving average pair to cross each other in either direction, etc.  It's at interesting times like this when that calculator is worth its weight in fresh lobster.  For example, as of tonight (Sunday, Dec. 11th, 2011) I can report with 100% certainty that in order for the 10 week MA to cross below the 80 in this coming week, the S&P would have to take a

$VIX - The Bigger Picture

UPDATE: Dec. 29th, 2011

Something interesting is developing in the ratio as can be seen if you visit the live and updated version of the chart.  The original blue down-sloping trend line (as seen in the static chart below) was breached to the upside but the ratio appears to have stalled before even reaching the more dominant one.  Perhaps the S&P 500 has reached another (and lower) peak as priced in VIX units and is about to head lower.  If that's the case, equities are about to continue lower.  It also appears that the VIX may be putting in a new higher low which would also be a very bearish development for equities.

ORIGINAL POST

I'd like to show you a chart which was included in an article that I wrote on the $VIX back in June. I don't show it for any particular reason other than to show that it's behaving pretty much as I suggested it would back in early summer.  At the time, I didn't know why the $SPX:$VIX ratio behaves in the manner that it does, only that it does. But neither did I need to know why because in the purest form of TA, as long as we can see a meaningful relationship that reveals information, we can work with it.

                                                            Click here for a live and updated version. 

The bottom line is this: as long as the ratio between $SPX and $VIX is falling, equities are heading lower relative to $VIX. In other words lower,  Period, lol. At the present time the ratio is still suggesting equities are likely heading lower. But admittedly, it's still entirely possible that the investing world is going to buy into the notion that the European debt crisis has been solved (YAY!) and the S&P is now headed for new highs.  Perhaps to 1666 before Santa gets here.  In that case, this ratio will spike much higher. I seriously doubt that