Wake Zone Continues

  • Posted by
  • on September 16th, 2011

Sometimes I enjoy trying to game the often fast-moving price action, but often a snapshot approach serves me better.  Like an old friend you haven’t seen in a decade, you can judge the changing state of the market easier when you haven’t stared at it in awhile.  Only a trading range environment gives us this opportunity to compare today vs. older days, so why not take advantage?

There has been a ton of talk about $SPX 1200.  I agree that it has significance psychologically, but the number that seems to be the magnet is 1180.  We’ve visited that number at least once each week going back to August 5.  So we have a chance to compare those 7 snapshots and see if the broader market has gotten in better shape or let itself fall apart.  Until I master the use of Excel charts, bear with the following:

Comparison of today’s numbers is useless, though we’ve obviously improved more from Wednesday when we were 20 points lower.  What I find revealing is the improvement in the average stock against a 7 week period of whipsaws.  Pick a date that fits your own timeframe, but in any snapshot we see better comparisons, not worse.  That leads me to believe that the eventual outcome is higher, with the following two major caveats that will reveal themselves when ready:

1) % Above 50 Day MA- this is still a poor number despite the improvement.  As a reference, on July 9, 2010 this number broke above 25% and never broke below it again.  $SPX chopped around for another 6 weeks but individual leaders like $CMG & $HANS & $CF were able to march higher without the market dragging them down.

2) Median Trend- this number indicates only the loss of the downtrend.  Like the number above, it has not shown that a large enough % of stocks have moved into uptrends to drive the indices higher.  This figure wasn’t able to clearly break and stay higher until September 7, 2010 but once there it stuck until March 11, 2011.

As much as I’d love a simple green/yellow/red light approach, we all know there are varying degrees of bullish or bearish that are appropriate for ongoing risk management.  I’ve been sitting in the middle of the whole spectrum for weeks, dancing around Sep/Oct call spreads in $SPY & now $SPX trying to extract a little income while waiting for clarity.  I lean bullish because the August 9 low was SO aggressive, but these are the figures that will guide me to hop off the fence in coming weeks.

I guess the easier way is to just wait for the week in which 1180 is not touched, and go with the new direction.  Peter Brandt says he likes a minimum 10 week period before looking for a reversal, next week would make 8 so we’re getting close.  I suspect that we’ll no longer have a range of 50 points on either side, but the magnet at 1180 remains in place.  Once the big players can no longer rely on the safety of that harbor, we should probably expect it to left behind as prices trend towards a new port of call.  Feel free to yell at me if I do anything but follow its lead when that happens!

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

blog comments powered by Disqus
Derek Hernquest Blog