03/20/2009 Market Recap: Hey, don’t you see intermediate-term buy signal?


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All intermediate-term signals on 0.0.0 Signal Watch and Daily Highlights are buy now, and I am not going to argue with them.  However my bottom line is that the normalized CPC on 2.8.1 CBOE Options Total Put/Call Ratio is way too bullish, so I don’t think this intermediate-term rally – if it does exist – could go too far.  In this report, I will show you what the profit/loss would be by following intermediate-term buy signal at the primary down trend, and this should be more meaningful than arguing whether the market would go up or down over the intermediate term.  The market has topped out over the short term, I believe, however it may bounce back up in the Monday morning and more likely close in red according to the statistics.

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7.2.3 Intermediate-term Trading Rule.  Note the blue dashed line on the chart.  Simply saying, it would be a consistent loss if one followed the intermediate-term buy signal to buy and then sell on the intermediate-term sell signal.  On the other hand, one could get a decent return by simply following the intermediate-term sell signal to short and then to cover on the intermediate-term buy signal.

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Why is that?  Some people say TA signals don’t always work which is frustrated.  Well, does the above 7.2.3 which shows buy signal doesn’t work frustrate you?  A very important thing prior to using the technical indicators is to check out the trend over the longer time frame.  For instance, one must take the primary trend in count while trading the intermediate-term trend on 7.2.3.  The primary trend is down according to 7.3.0 SPX Long-term Trading Signals, and this is why the buy signal isn’t so useful compare with the sell signal over the intermediate term, right?

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Now let’s go back to the analysis of the current market. On 0.0.3 SPX Intermediate-term Trading Signals, although intermediate-term signals are all buy, the momentum indicators on the top of the chart show that the market is overbought, which means it’s risky to go long at the current level.  Don’t forget 7.2.3, even going long at the intermediate-term buy won’t be consistently profitable, buy at the extremely overbought level will have no luck.

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2.8.0 CBOE Options Equity Put/Call Ratio.  This is a re-organized chart.  Basically, any breakout on the trend line pinpoints at least a short-term top of the market, breakout of trend lines across major peaks are more likely a top in the intermediate-term.  Now you see at least a short-term top, don’t you?  The good news is the trend line across major peaks isn’t there, therefore the intermediate term rally might not finish yet.  However, I doubt how far this rally could go according to the normalized CPCE as I mentioned earlier.

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1.3.7 Russell 3000 Dominant Price-Volume Relationships.  1587 stocks price down volume up, this is because the sell off is just a beginning so this reading is actually bearish which means the down trend may continue until the next price down volume up.  You may read the comments in blue on the chart and understand what I am talking about.

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1.0.3 S&P 500 SPDRs (SPY 30 min).  STO is extremely oversold over the very near-term, so the market may bounce back up at least in the Monday morning.

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2.3.4 Nasdaq Total Volume/NYSE Total Volume.  Here is a bottom sign.  However the assumption of this chart is that, Nasdaq is usually considered more risky/volatile than the broad market, therefore should the volume of Nasdaq be significantly lower than that of NYSE it means the funds are staying away from the risk, from contrarian’s perspective this scenario would be very bullish.  However according to 1.1.7 QQQQ Outperforms SPY Good Sign? Now the problem is that the funds are not afraid of risk but QQQQ way outperforms SPY, so I decide to overlook the bottom signal on this chart.  In fact, why NYSE volume becomes huge is because of the massive volume of financial stocks which are only one or two bucks, and the funds are not afraid of risks or staying away from Nasdaq market.

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