10/26/2010 Market Recap: ISEE, VIX and Trading Days Surrounding Midterm Election


Cobra's Market View Private Messaging System shows:


  TREND MOMENTUM COMMENT
Long-term 2 of 2 are BUY  
Intermediate 3 of 3 are BUY 3 of 5 are NEUTRAL SPY ST Model in BUY mode; Non-Stop in BUY mode.
Short-term Model is BUY 6 of 6 are NEUTRAL The trend is up but I hold no position overnight.
GANN DAY MOON:SOLAR CYCLE CONCLUSION
10/26 10/22 : 10/23 Next pivot date: 10/21 – 10/22, 10/25 – 10/27, 11/04
BULLISH 0.1.1 SPX Intermediate-term Trading Signals: Head and Shoulders Bottom breakout, target 1242.
09/27 Market Recap: 9 POMO within 20 trading days means 14%+ up in 3 months.
10/01 Market Recap: Positive September plus mid-term election means 11%+ up to year end.
10/05 Market Recap: 16 more trading days upswing?
*10/26 Market Recap: Average 2.7% gain during the 8 trading days surrounding midterm election.
BEARISH *1.0.6 SPY Unfilled Gaps: 20 unfilled gaps, the max was 21.
10/15 Market Recap: AAII bull ratio (4-week average) too bullish.
10/15 Market Recap: Commercial (smart money) short Nasdaq 100 heavily according to COT Report.
10/08 Market Recap: Up off-season usually means down earning season.
10/22 Market Recap: Institutions are selling into strength.
10/19 Market Recap: AAPL is way too stretched.
10/15 Market Recap: Euro may retreat which may cause US$ carry trade unwind.
6.4.2c Extreme TICK Readings Watch: TICK too low, lower low or lower close ahead? Failed!
0.0.2 Combined Intermediate-term Trading Signals: CPCE trend line breakout, topped? No confirmed!
6.4.0 SPX and NYMO Divergence Watch: New high on negative NYMO readings, topped?
4.1.0 S&P 500 Large Cap Index (Weekly): NYSI STO(5,3,3) sell signal.
SPY SETUP ENTRY DATE STOP LOSS INSTRUCTION: Mechanic signals, back test is HERE, signals are HERE.
TRADING PLATFORM:
SSO/SDS, UPRO/SPXU
Non-Stop 09/07 L N/A Partial profits on 09/24.
ST Model 09/24 L *10/19 Low *Adjust stop loss.

SHORT-TERM: MIXED SIGNALS AS WE HAVE TWO BAD SIGNS AND ONE VERY BULLISH SEASONALITY

Mixed signals, so the short-term direction is not clear:

  1. I see 2 bad signs, but both have some room for other interpretation, so they’re not solid bearish, need wait and see.
  2. There’s one very bullish seasonality which conflicts with the bearish seasonality for last week of every month since Aug 2009 (see 6.5.2c Week Seasonality Watch), so again, need wait and see.

Overall, my guess is probably we’ll go nowhere until 11/03 FOMC announcing Quantitative Easing II. Just a reminder though, because from my forum (well, the comments from my blog are always bearish anyway), I see people are yelling again “really really (add hundred really here) don’t understand why some people are bearish”, while in fact from SPX 10/13 high at 1184 to SPX close today at 1185, the SPX rose just 1 point in 2 weeks (thanks for Uempel reminding me). Well, I don’t mean it’s not bullish, just perhaps it’s not as bullish as we feel.

The very unique thing today is ISEE Indices & ETFs Only Index is extremely low while ISEE Equities Only Index is very high, which means at the same time lots of Equities CALLs were bought along with lots of Index PUTs. The chart below highlighted in red are recent cases when the ISEE Equities Only Index to ISEE Indices & ETFs Only Index ratio was very high. Looks to me, a top of some kind was not far away.

ISEEEquitiesOnlyIndexToIndicesOnlyIndexRatio 

Another unique thing today is both VIX and SPX are up 2 consecutive days. The chart below highlighted in red are cases when the same thing happened recently. Looks to me, either it’s the top or we’re still in the middle of a very strong uptrend. Also back test since year 2000 shows that short at today’s close, cover on the very first down day thereafter, the winning rate was 70%.

VIXandSPXUp2ConsecutiveDayVisualBackTest 

The statistics below is from Stock Trader’s Almanac, buy INDU at close today (5 trading days before 11/02 midterm election day), sell at close on 11/05 (3 trading days after 11/02 midterm election day), there’s only one loser since 1934, in another word is the seasonality starting from today until 9 trading days later WAS very very bullish.

SeasonalitySurroundingMidtermElection 

INTERMEDIATE-TERM: BEARISH BIASED, PIVOT DATE EITHER AROUND 10/22 OR 10/26 OR 11/04

Maintain the intermediate-term bearish view, the pivot date could be either around 10/22 or 10/26 or 11/04, see 10/15 Market Recap for more details. Below are summaries of all the arguments supporting my intermediate-term bearish view:

  1. As mentioned in 10/15 Market Recap, commercial (smart money) holds record high short positions against Nasdaq 100.
  2. As mentioned in 10/15 Market Recap, AAII bull ratio (4-week average) is way too bullish.
  3. As mentioned in 10/22 Market Recap, institution selling keeps increasing.
  4. As mentioned in 10/08 Market Recap, statistically, a strong off-season could mean a weaker earning season.
  5. As mentioned in 10/11 Market Recap, statistically VIX at 1 month low going into October was not a good sign.
  6. As mentioned in 10/15 Market Recap, US$ may rebound which is not good for the broad market.
  7. As mentioned in 10/19 Market Recap, AAPL MACD is now too stretched which could mean a top for QQQQ.
  8. As mentioned in 10/22 Market Recap, NYSI Weekly STO(5,3,3) sell signal means choppy ahead.

SEASONALITY: LAST TRADING WEEK AND LAST 2 TRADING DAYS OF EACH MONTH SINCE AUG 2009 WERE BEARISH

See 10/22 Market Recap for more details.

For October Seasonality chart please refer to 10/01 Market Recap.

HIGHLIGHTS OF THE OTHER ETFS IN MY PUBLIC CHART LIST

  1. The market appears a little stretched as lots of ETFs weekly %B are way too high.
  2. With possible Euro pullback, watch potential weakness on commodity related ETFs like XLE, XLB and XIU.TO.
  3. Financials and home builders are lagging, so how far can IYR (realty) go?
TREND COMMENT
QQQQ UP
NDX Weekly NDX to SPX ratio too high. %B too high with negative divergence.
IWM UP *Black bar plus hollow red bar, pullback?
IWM Weekly %B too high with negative divergence.
CHINA Primary downtrend line breakout? To be confirmed.
CHINA Weekly Extremely high %B.
EEM UP *Triple black bar plus hollow red bar, pullback?
EEM Weekly EEM to SPX ratio too high.
XIU.TO UP TOADV MA(10) too high.
XIU.TO Weekly
TLT *DOWN 1-2-3 trend change to be confirmed, TLT could start an intermediate-term downtrend.
TLT Weekly
FXE *DOWN
FXE Weekly Stalled at Fib confluences area, %B too high with negative divergence, too high above MA(40).
GLD UP
GLD Weekly
GDX UP On support, BPGDM sell signal though.
GDX Weekly
USO UP
WTIC Weekly
XLE UP  
XLE Weekly %B too high with negative divergence.
XLF *LA
XLF Weekly Head and Shoulders Top in the forming?
IYR *LA *Bearish reversal bar plus double black bar plus hollow red bar, pullback?
IYR Weekly Home builders are lagging.
XLB UP
XLB Weekly %B too high with negative divergence.
  1. Please make sure you understand how to use the table above. The purpose of this report is to provide info so contradictory signals are always presented.
  2. Position reported in short-term session of the table above is for short-term model only, I may or may not hold other positions which will not be disclosed.
  3. Conclusions can be confirmed endlessly, but trading wise, you have to take actions at certain risk level as soon as you feel the confirmation is enough. There’s no way for me to adapt to different risk levels therefore no trading signals will be given in this report except the mechanical signals such as SPY ST Model.
  4. * = New update; Blue Text = Link to a chart in my public chart list; UP/DOWN = Short-term trend; L A = Lateral Trend
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