Trembling Hand Trader

This move is not yet over done

Markets are not meant to move in a straight line. Well that's the saying but as with most market cliches they let you down when they become most obvious. Have a look at the last 8 days of the XJO, up every day, straight up! Ok so you missed that move but surely we are due for a decent pull back if not the start of an all mighty fall? I wouldn't put my money on anything other than a bit of a flip flop around these levels, that's if we don't push higher still.

Here is a some stats from a similar situation last year in July,

So the bears got the shaft last week but surely this week they will fight back and smash the market? Well maybe not. Since this Bear market has started in late 07 we have had 11 weekly gains greater than 4%. The week after such gains has averaged -0.5% against the average weekly loss for that whole period of  -0.28%. So there is a bearish bias there but looking at the figures a little more we can see that there are 5 down weeks and 6 up weeks. Most interesting is we have two weeks that are right in the savage part of bear market in late 08. Weeks where I don't think we will see down moves again for some time. Without those two weeks the weekly move after a 4% or greater gain would be a 0.66% gain!!

I don't see any great edge in being bearish because of the gains last week.

I see now as a similar position. That is that we are not "over bought". And any pause for a few days will reload the spring, readying the indexes for a further push. Have a look at my super duper never fail squiggly line prediction meter (yep I'm taking the piss on TA)

The way the market stands at the moment the falls from late January to early February created a very over sold market. Then we had a nice bounce back into the middle of the 6 month range with a 1 week pause. That 1 week pause has been the key to where we are now. At the end of that week we had a huge range down day. The SPI moved 100 points down intraday and washed out many stops from positions that had been built up from the early Feb bounce, adding to the bulls pain has been a wrong footed signal to the bears. Perfect situation for a push higher, bears short and bulls in cash. And we are neither over bough here or over sold looking at the Adv/Dec line. Plenty of room to move higher over the next 4 or so days.

 
 

 

The problem with the ASX Indexes

Ever noticed the lack of Gaps on the ASX Indexes? Have a look at the three charts below of the S&P 500, the HSI and the All Ordinaries (XAO).

Notice in the first two, S&P 500 & HSI, that there is all sorts of gap games going on. Gaps and continual moves and gaps and rollovers to fill on the same day etc. They don't look all that dissimilar to the average stock chart. Now have a look at the third one. A lot of the bars actually start where they left off the day before. Most have the tiniest of gaps. Out of 276 days since the start of Jan 09 there has been 176 days (63%) with an overnight gap of 10 points or less and 108 days (39%) with an overnight gap of 5 points or less. That means the index data suggest that it is a two out of three chance to open 0.215% within yesterdays close and a one in three chance of opening within 0.1% of yesterdays close! BS!!

Compared to the S&P 500 taking similar % moves you get 26% and 14%. Half the chance?

Whats going on? Well it isn't that the ASX is less volatile or sluggish on the open. They both move about the same range per day. The problem with the ASX indexes are two fold. Firstly because of the staggered open from 10:00 to 10:08 the opening tick of XJO/XAO is not the true value of "opening price" of all index constituents, this is unique to ASX. In fact the data from 10:00 to 10:08 is really twilight zone stuff.

Secondly and even more strange is sometimes the first tick that the ASX provides for indexes is magically exactly the same as yesterday close, to two decimal points?? Now that would only be possible if all 400 or so stocks, particularly the big caps, that open in the first round at 10:00 am (A to B) traded at their closing price. It doesn't happen! Where this comes from is that the opening auction is at 10:00 am +/- 15 secs BUT if its say 10:00 am +12 seconds the ASX will still take the index quote from 10:00. If you have a look at the data post February 08 virtually every open tick for the ASX is exactly the same as yesterdays close. In fact only 5 of the opens were not exactly the same as the previous close of all of 07's and to two decimal places. It seems that the ASX from February 08 has changed slightly their method for quoting the first tick for indexes but it still doesn't get around the problem of the staggered open.

If you think gaps are at all significant you cannot us the ASX Index charts for a reference. There is simply 100s more gaps in the index than what shows up on the Dodgy charts. The better reference to find gaps for the ASX is the ASX200 SPI chart without the overnight trading. Here is an XJO chart and a SPI cash hours only chart. Notice all the twilight data (circled) in the ASX XJO chart that never actually happened.

 

  

SPI range

Since its a buy and hold type of day, even for a scalper I've had some time to waste. This is what I've done with it. The changing daily range of our markets. Below are two charts of the 20 day average of the cash hours SPI since mid 2007 (that is between 9:50 am & 4:30 pm). As you can see times have changed. In fact times are always changing. Thats just another example of why this games is full of torment. Just as you become use to a certain type of market and refine an approach to really push it is also just about the time its going to change on you.

 
And expressed in percentage terms,

 
 NOTE: I have excluded data from one day in DEC 08 when there was a stack of trades scratched after a fat finger resulting in a 400 point sweep.

The back end of a bull?

This is what the back of a bull looks like.

And I think so does this,

This looks like distribution - not a healthy pause before the next run.  Fewer and fewer stocks are participating in the upward momentum. My last post was about looking for direction when the inevitable bounce came from the falls from yearly highs and its been disappointing. Maybe Santa can save the indexes by holding up a couple of big Caps but underneath them less stocks are rewarding holders and it would seem more are heading for the exits. AUD could bring back some specie juice if it takes the highs out. But I'm only watching that as an "if" at the moment. Not trading it like I expect it to happen with any gusto.

Interesting Rollover on the cards?

Many an internet Guru has lost their Guru status on calling for falls this year and been given the cucumber rumba as the indexes continued on a relentless climb. But is this rally finally losing momentum? We will be down today but will this develop into something more? I actually think we have chance here to see a deeper fall than we have had on previous pull backs. Have a look at the chart below of the 10 day average of the advancing stock minus the declining stocks. This chart gave me a good heads up of the end of the bull run back in December 07. The problem with the Indexes as an indicator of market strength is that a few big caps can hide the underlying weakness in the broader market. Just like we got back in 07.

The blue lines are the points where we have had divergence from the broad market index this year and what great signals again they were. The first one was a ripper. As we were making possible generational lows the downward momentum had well and truly come out of most stocks months before the low was reached on the index. Then we got some significant divergence on each push up to new monthly highs in May and June signaling the 8% fall we had in late June. Now we are at a similar point in October where the index has made new yearly highs yet the adv-dec has made 2 lower highs. These are signals of weakness in the broader market. The money isn't chasing higher prices here. A decent pull back would actually be healthy.

If we get a good pull back the bounce from any such fall will tell us a lot about the health of the market for the next medium period. If you're a Bull you would be looking for something like I have marked on the chart below of the same 10 day Adv-Dec (red) and the XAO (blue).

Good time to be Bearish?

Last week the markets off-sided most with 5% gains while people were looking for sense to come back to this delusional rise and start the next leg of the bear run. After all its reporting season and that's got to mean a sell off on bad news - right? Nope the ASX XJO had the 5th best weekly percentage gain since the bear market started(5.33%).

So the bears got the shaft last week but surely this week they will fight back and smash the market? Well maybe not. Since this Bear market has started in late 07 we have had 11 weekly gains greater than 4%. The week after such gains has averaged -0.5% against the average weekly loss for that whole period of -0.28%. So there is a bearish bias there but looking at the figures a little more we can see that there are 5 down weeks and 6 up weeks. Most interesting is we have two weeks that are right in the savage part of bear market in late 08. Weeks where I don't think we will see down moves again for some time. Without those two weeks the weekly move after a 4% or greater gain would be a 0.66% gain!!

I don't see any great edge in being bearish because of the gains last week.

3950. Line in the sand

It looks like the Bears, or at least 1 big bear, has decided that 3950 is enough for this run. It has been defended twice with some serious volume two days in a row. Will be watching for a roll back into various 50% support levels. Last weeks mid point being an obvious support at 3860. Below this the shorts may be back in control.

First things first

So here is the first good sign since about October 07. I've got the last highs marked on the XJO at 3818 and an eye on the sub-indexes as well as the big caps. They have a chance next week of giving them a nudge if not pushing through. If we can get that and IF we can get a higher low come late April/May that's going to be some sort of signal for tech traders that look forward rather than worry about yesterdays news.

That was your chance Junior.

All the way back in fairy land when the world was a happy and wonderful place where you could just bend over and pick $100 notes off the ground I started to call for the end of the Bull market. That was only one and a quarter years ago. Little did I know then that we where about to fall straight into the biggest and nastiest bear market the world has seen since my Grandfather was trapping rabbits for food and gold panning washed out creeks for a way to survive the great depression.

What a lost opportunity that was. I will be surprised if I see such a movement in markets in such a short period in a very very long time. So yes yes as a trader that's just another amazing trade not taken. But what is ahead? Where to find the next great trade. I have been bullish since the start of March looking for a Bear market rally and well we have had a ripper but will this turn into something more? Are the lows we put in at the start of March the lows of this generation of punters? Yes I know the economy stupid. I know unemployment has a long way to go and this and that. But the stock market isn't the economy now. Its the economy in the next 6 to 9 months. Like at the top the share market topped out way before the economic numbers started to roll over. I expect the same on the way up. That the market will have hit a low and already put in a solid 20% to 40% rise before people are thinking well this might not end in a depression.

So what we need is some evidence of bull markets. We need some of the basics, higher highs, higher lows. We need some leadership from sectors. We need something to hang our bets on if that's what we are going to do. So I'm looking for this evidence now. Not after another bull has bolted, too far. Will post some findings here soon.

Quieter times?

Is the market changing? As you can see from the chart of the Australian XAO the weekly range started to go nuts at the end of 07 and made some truly extraordinary moves through 08. But what can we expect of 09? If you trade intraday I am afraid that last year was probably as good as you will see for some time, maybe for your lifetime! All that leverage has been cleaned out and not likely to come back for some time.

As the chart shows we are still at elevated levels, making higher lows. That's an up trend. But I will be watching this chart for clues. Are we about to fall back towards the "norm". If so it would be wise to know it and adjust trading targets and stops appropriately.