Showing posts with label Technical Analysis. Show all posts
Showing posts with label Technical Analysis. Show all posts

Sunday, March 24, 2024

S&P 500 March-April 2024 Seasonality │ Jeff Hirsch & Wayne Whaley

After 5 months of solid gains, are markets ready for a pause? Bullish Presidential Cycle Sitting President Pattern flattens out the mid-February to late-March seasonal retreat considerably without 2020 in the average.

 'Best Six Months' ends in April.

April is the final month of the “Best Six Months” for DJIA and the S&P 500. From our Seasonal MACD Buy Signal on October 9, 2023, through (March 21, 2024), DJIA is up 18.4% and S&P 500 is up 20.9%. Fueled by interest rate cut expectations and AI speculation, these gains are approximately double the historical average already and could continue to increase before the “Best Months” come to an end.


This AI-fueled bull market has enjoyed solid gains since last October and will likely continue to push higher in the near-term, but momentum does appear to be waning with the pace of gains slowing. With April and the end of DJIA’s and S&P 500’s “Best Six Months” quickly approaching we are going to begin shifting to a more cautious stance. We maintain our bullish stance for 2024, but that does not preclude the possibility of some weakness during spring and summer.
 
 
 
THE CORRELATION MODEL SEES A NEGATIVE LAST WEEK OF MARCH FOR THE S&P. Provided a time frame of interest, my correlation model calculates the Correlation Coefficients (-1 to +1) for the past performance of 4165 different time frames over the prior 3 months vs the performance for the time frame of interest in search of the period which has demonstrated the most barometric acumen in predicting the performance of the upcoming time frame of interest. 
 
This week I ask the model for it’s prognosis for the S&P in the last week of March. It responded that the prior ten calendar days (Mar10-24) had a very uncanny track record of forecasting the last week of March with those 2 time frames having a very strong NEGATIVE correlation which doesn’t bode well for next week given that March 10-24 was up 1.63% this year.  
 
Note the 3-10, March 24-31 performance in the far right category below in those 13 prior years where March 10-24 was greater than 1.2% for an avg wkly loss of 0.74% with 1% moves 1-7 to the downside.  This contrasts dramatically to the 11-2 performance when March 10-24 was less than -0.5%.  Fingers crossed that it is wrong this year. 
 
The outlook for April is much brighter. 
 
  
Reference: 
 
[ oftentimes true: ]
 
In Bull Markets, New Moons are Bottoms, and Full Moons are Tops. 
In Bear Markets, New Moons are Tops, and Full Moons are Bottoms.
 
The SoLunar Rhythm in March 2024.
 
 
 
 
 

Tuesday, January 2, 2024

State of the S&P 500 │ Tom

The S&P 500 stands as the final major index to surpass its all-time highs. The remaining horizontal line linked to price history is at 4818—the intraday all-time high recorded two years ago on January 4, 2022. Currently, the S&P 500 maintains robust health. In the chart’s lower panel is my preferred gauge of market breadth, Net New Highs. This metric reports the number of stocks reaching new highs versus those making new lows across the NYSE and Nasdaq markets. This measure of breadth has remains consistently positive during the best market rallies.

Given the prevailing positive sentiment across markets, stemming from the widespread advance since November, I speculate the likelihood of a healthy correction as the next probable move. To assess this, I will closely monitor market breadth, utilizing it as a key factor in evaluating the probabilities of whether the anticipated correction is likely to be healthy or potentially more severe.
 
 
A mere two weeks ago, the S&P 500 ETF SPY experienced its largest inflow ever. This encapsulates the current state of the S&P 500—a market teetering on the brink of all-time highs, with both retail and professional market participants joining with unwavering enthusiasm— the metaphorical “everyone is in the pool” moment.
 

 The leading observation for my initial 2024 thoughts that the market is ripe for a healthy correction is the condition of market sentiment, and equity exposure. For over a month now the CNN Fear & Greed Index has reported a market operating in greed, Extreme Greed for the last two weeks.
 
The NAAIM Exposure Index measures US equity exposure among active fund managers reported the highest reading for the year, the highest since November 2021. (The Nasdaq peaked in November 2021, and the S&P 500 just over a month later in January 2022). 
 
Source: NAAIM Exposure Index

The following chart of the S&P 500 marks the relative peaks in sentiment and equity exposure using the CNN Fear & Greed Index (marked by red arrows) and the NAAIM Exposure Index (marked by blue arrows). It is a clear observation that the combination of excessive greed and elevated equity exposure have preceded all meaningful declines since the 2022 peak. I do not think it will be different this time.

To end last week’s note I summarized this chart as presenting a compelling argument for selling into greed— I still feel this way. Momentum has propelled the market through the year, however this is recently being subtly being interrupted. In the lower panel of the chart is the Percentage Price Oscillator. This oscillator offers a quick insight into trend momentum. The red dots within the panel signify negative crossover events, a slowdown in momentum.
 
In my analysis, momentum interruption occurs when the initial negative crossover is not succeeded by a corrective price move. Instead, price continues to climb with successive negative crossovers, creating a pattern of interruptions. Based on my observations, the decline that follows such an interruption cycle tends to erase most of the earlier advance.
 

The previous instances of momentum interruptions in August 2021 and July 2022 exhibit an intriguing resemblance to the current scenario, with the index rallying approximately 5% as momentum decelerated. In both cases, the subsequent decline erased most of the earlier advance.
A comparable outcome today would potentially bring the index down to 4550. In my analysis the immediate term has the signals flashing caution towards a 5% decline. If this scenario unfolds, the speculated decline will initially be favored as being one of health that sets the index up for an additional leg higher.
I speculate the correction will have the S&P 500 trade between 4500 - 4600 in the near term. Should this unfold, it will initially provide a healthy technical appearance where price revisits the breakout area.

Sunday, March 19, 2023

Anything Can Happen | Mark Douglas

The semiretired chairman of the board of the brokerage firm was a longtime trader with nearly 40 years of experience in the grain pits at the Chicago Board of Trade. He didn't know much about technical analysis, because he never needed it to make money on the floor. But he no longer traded on the floor and found the transition to trading from a screen difficult and somewhat mysterious. So he asked the firm's newly acquired star technical analyst to sit with him during the trading day and teach him technical trading. The new hire jumped at the opportunity to show off his abilities to such an experienced and successful trader. The analyst was using a method called "point and line",  developed by Charlie Drummond (HERE).
 

One day, as the two of them were watching the soybean market together, the analyst had projected major support and resistance points and the market happened to be trading between these two points.  As the technical analyst was explaining to the chairman the significance of these two points, he stated in very emphatic, almost absolute terms that if the market goes up to resistance, it will stop and reverse; and if the market goes down to support, it will also stop and reverse. Then he explained that if the market went down to the price level he calculated as support, his calculations indicated that would also be the low of the day. 
 
As they sat there, the bean market was slowly trending down to the price the analyst said would be the support, or low, of the day. When it finally got there, the chairman looked over to the analyst and said, "This is where the market is supposed to stop and go higher, right?" The analyst responded, "Absolutely! This is the low of the day." "That's bullshit!" the chairman retorted. "Watch this." He picked up the phone, called one of the clerks handling orders for the soybean pit, and said, "Sell two million beans bushels at the market." Within thirty seconds after he placed the order, the soybean market dropped ten cents a bushel. The chairman turned to look at the horrified expression on the analysts face. Calmly, he asked, "Now, where did you say the market was going to stop? If I can do that, anyone can."

Sunday, February 19, 2023

Point & Line | Charles Drummond

Charles Drummond (1979)- And, with succinct regularity, it became obvious that all of the input for several days, weeks and months gave birth to each day's high/low/close in a constant manner and this expression when analyzed, signaled the story in relation to its past history - the mathematical dot, and the movement of prices around it.  
 

 
Gracious me, there were constants all over the place:
  • prices each day moved a maximum of "x" mm away from the ‘dot' line.
  • prices each day, moved a maximum of "x" cents up or down from the dot itself.
  • prices eventually stop moving above the main line in an up market into an area or channel just under the line, and in an up moving market, prices are topping.
  • the dots started to move closer and closer together in an upmarket and the market was topping.
  • dots swung off the main dot line - bells ringing left and right - market is topping.
  • the dot is swinging more, it's falling under or above. The dot didn't swing under or above. And since it didn't, and not doing what it's supposed to do, the opposite is happening.
  • instead of the dot going up exactly in a straight line, or down in a straight line, they are "snaking" very close to each other, horizontally - we're in a congestion.
Often I can tell, two days into a congestion that we're into a congestion.

Quoted from:
Charles Drummond (1979) - How to make Money in the Futures Market ... and lots of it.
 
 
See also:
Ted Hearne (2022) - Drummond Geometry: Uncover Hidden Market Structure.
Ted Hearne (2007) - Drummond Geometry: Picking Yearly Highs and Lows in Interbank Forex Trading.  
In: David Keller (2007) - Breakthroughs in Technical Analysis.

Friday, February 10, 2023

W.D. Gann's Personal Daily Bread & Butter Trading Strategy | Tom Hougaard

I want to tell you about a world famous trader named W. D. Gann. He wrote many courses on trading, some of which were exceptionally esoteric in content. Gann was supposedly a very clever man, so it came as no surprise to me that the man who made his millions selling forecasts to people actually made his money from a remarkably simple trading method.
 

My friend and trading partner David Paul once spent a whole summer at the British Library, researching past wheat and beans prices, and tracking Gann’s trades to get to the nitty gritty of his actual trading strategy. His conclusion was startling. He told me that ‘Gann simply traded double tops and lows in the direction of the daily trend, nothing more, nothing less’. After eight weeks in the archives of the library he was adamant that what Gann wrote in his courses and what he traded were two very different things. Maybe the lesson for all of us is to keep things as simple as possible.

Quoted from:
Tom Hougaard (2011) - Trading at the Top: Trading Tips and Strategies from a Professional Trader.

Wednesday, December 21, 2022

Accumulation & Distribution Schematics | Richard D. Wyckoff


An understanding of manipulative procedure in any-event helps us to judge the motives, the hopes, fears and, aspirations of all the buyers and sellers whose actions today have the same net effect upon the market as 30 many pool operations would have. So if we are squeamish about the term "manipulator" we may substitute the words "Composite Operator" with the same force and affect. Some people might object to this statement on the ground that regulation of the stock market has eliminated pool operations. Even though pool operations and old-fashioned manipulation are banned by law, for our purpose in studying, understanding and correctly interpreting market action, we must consider any operation a "manufactured" movement wherein the buying or the selling is sufficiently concerted and coming from interests better informed than the public as to produce the same effects as pure manipulation. 

[...] The market is made by the minds of men, and all the fluctuations in the market and in all the various stocks should be studied as if they were the result of one man’s operations. Let us call him the Composite Man, who, in theory, sits behind the scenes and manipulates the stocks to your disadvantage if you do not understand the game as he plays it; and to your great profit if you do understand it.

Great activity and breadth induces trading in large quantities by big operators on the floor and outside. Such a market enables the manipulator to unload a large line of stock. When he wishes to accumulate a line, he raids the market for that stock, makes it look very weak, and gives it the appearance of heavy liquidation by sending in selling orders through a great number of brokers.

You say all this is unethical, if not unscrupulous. You say it is a cruel and crooked game. Very well. Electricity can be very cruel, but you can take advantage of it; you can make it work for your benefit. Just so with the stock market and the Composite Man. Play the game as he plays it. I am giving you the inside view.

 

See also:

 

Range Extension & Contraction - Reversals - Time Cycles | Stacey Burke

 
oOo
 
Old Baron Rothschild's recipe for wealth winning applies with greater force than ever to speculation. Somebody asked him if making money in the Bourse was not a very difficult matter, and he replied that, on the contrary, he thought it was very easy. "That is because you are so rich," objected the interviewer. "Not at all. I have found an easy way and I stick to it. I simply cannot help making money. I will tell you my secret if you wish. It is this : I never buy at the bottom and I always sell too soon."

Jesse L. Livermore

oOo

Quoted from:
 
See also:
 
Weekly Cycle and Market Structure in Gold (1 hour chart):
Daily and Weekly Highs and Lows, Daily and Weekly Pivot Levels, Inside Days, Outside Days,
Daily and Weekly Accumulation-, Extension-, and Distribution-Levels, Breakouts, False Breakouts,
V Patterns, M & W Patterns, Peak Formation Highs and Lows.

Friday, December 16, 2022

The Four Guiding Principles of Market Behavior | Momentum & Trend

Principle 1:     Trend is More Likely to Continue its Direction than to Reverse
With price established in a clearly defined trend of higher highs and higher lows, certain key strategies and probabilities begin to take shape. Once a trend is established, it takes considerable force and capitalization to turn the tide. Fading a trend is generally a low-probability endeavor and the greatest profits can be made by entering reactions or retracements following a counter trend move and playing for either the most recent swing high or a certain target just beyond the most recent swing high. An absence of chart patterns or swings implies trend continuation until both a higher high and a higher low (vice versa for uptrend changes) form and price takes out the most recent higher high.

Be aware that recent statistical analysis of market action (from intraday to 20 day periods) over the last five years shows that mean reversion, rather than trend continuation is more probable in many equities/indices (as shown by more up days followed by down days than continuation upwards). For the current market environment, until volatility returns (as it may be doing now), this rule may be restated, “Trends with strong momentum show favorable odds for continuation.”
 
Principle 2:     Trends End in Climax (Euphoria/Capitulation)
Trends continue in push/pull fashion until some external force exerts convincing pressure on the system, be it in the form of sharply increased volume or volatility. This typically occurs when we experience extreme continuity of thought and euphoria of the mass public (that price will continue upwards forever). However, price action – because of extreme emotions – tends to carry further than most traders anticipate, and anticipating reversals still can be financially dangerous. In fact, some price action becomes so parabolic in the end stage that up to 70% of the gains come in the final 20% of the move. Markets also rarely change trends overnight; rather, a sideways trend or consolidation is more likely to occur before rolling over into a new downtrend.
 
Three Things Markets do:
1. Breakout and Trend.
2. Breakout and Reverse (False Breakout).
3. Trading Range (High and Low).
 
 
Principle 3:     Momentum Precedes Price
Momentum – force of buying/selling pressure – leads price in that new momentum highs have higher probability of resulting in a new price high following the next reaction against that momentum high. Stated differently, expect a new price high following a new momentum high reading on momentum indicators (including MACD, momentum, rate of change). A gap may also serve as a momentum indicator. Some of the highest probability trades occur after the first reaction following a new momentum high in a freshly confirmed trend. Also, be aware that momentum highs following a trend exhaustion point are invalidated by principle #2. Never establish a position in the direction of the original trend following a clear exhaustion point.
 
Principle 4:     Price Alternates Between Range Expansion and Range Contraction
Price tends to consolidate (trend sideways) much more frequently than it expands (breakouts). Consolidation indicates equilibrium points where buyers and sellers are satisfied (efficiency) and expansion indicates disequilibrium and imbalance (inefficiency) between buyers and sellers. It is much easier to predict volatility changes than price, as price-directional prediction (breakout) following a low-volatility environment is almost impossible. Though low volatility environments are difficult to predict, they provide some of the best risk/reward trades possible (when you play for a very large target when your initial stop is very small – think NR-7 Bars).

Various strategies can be developed that take advantages of these principles. In fact, almost all sensible trades base their origin in at least one of these market principles: breakout strategies, retracement strategies, trend trading, momentum trading, swing trading, etc. across all timeframes.
 
Concept Credit for arranging the four principles
 
See also:
 

Wednesday, March 7, 2012

SPX DMA Study & Delta Forecast

In the daily SPX the exponential 5 day moving average (solid red line @ 1,362.59) crossed the 13 DMA (solid blue line @ 1,362.59) to the downside.



























DMA 5 exp (red)
DMA 13 (blue)
DMA 21 (Yellow dotted)
DMA 34 (green dotted)
DMA 55 (magenta dotted)
DMA 233 (green)

The Delta-series now suggests the following:
  • ST Low on March 6(= ITD #7 LOW) followed by a pop-up into March 7-8 (= ITD #8 HIGH?). 
  • March 9 Low (10 TD Hurst Cycle Low is due on Full Moon) and turn-up intra-day. Week should close @ around 1,360.  
  • March 12-15 High (= ITD #8 HIGH).  
  • March 22-25 Major Low @ around 1,300 (= ITD #9 LOW = MTD #10 LOW) followed by a 
  • Higher High in May 7 (= SLTD #3 HIGH = LTD #8 HIGH = MTD #11 HIGH).