Tuesday, September 29, 2015

Trading Notes: Week of September 28th

Friday, October 2nd

*  I'll be presenting at two trading conferences in October; both have unusually strong programs and are worth taking a look at.  

*  The weak payrolls number has led to a premarket selloff after we dipped and bounced back yesterday.  As noted yesterday, all of this is consistent with a market that is in a bottoming process.  My intermediate-term measures are significantly oversold; my models are neutral.  I am watching carefully to see if we can stay above yesterday's lows.  If so, we could see an excellent intermediate-term buying opportunity follow from that.

Thursday, October 1st

How we develop ourselves through adversity; do losses defeat us, or help us grow?  Very important topic.

*  Yesterday's entry mentioned good odds for a bounce and we sustained early strength into the day session and then overnight.  Two perspectives strike me as important here:  1) During the corrections of 2010 and 2011--ones that were not outright extended bear markets--bottoming took place over multiple months.  Further tests of the downside are not out of the question; 2) The intermediate-term oversold measures referenced yesterday are nowhere near being worked off.  I expect those to be worked off in time and price, with limited upside if we are indeed to see more bottoming and more upside momentum if we've truly completed a test of August lows.

Wednesday, September 30th

*  Overnight action in the stock index futures has given us the bounce referenced in yesterday's post after a day of again testing lows and holding in the 1860 area.  We continue to be short-term oversold and my swing models are moderately bullish.  

*  We continue at oversold levels on an intermediate term basis that have led to positive swing returns, as the chart below indicates.  This measure takes the number of SPX stocks registering fresh 5, 20, and 100-day highs minus lows and calculates a five-day moving average.  (Raw data from Index Indicators).  When this strength measure has been in its bottom quartile (lows outnumbering highs), the next three days in SPX have averaged a gain of +.57% going back to 2010.  All other occasions since 2010 have averaged a loss of -.02%.

Tuesday, September 29th

*  Yesterday's market was a textbook trend day to the downside.  It's very worthwhile studying the characteristics of trend days, so that they can be identified as early in the session as possible.  I find the distribution of NYSE TICK readings to be especially helpful in that regard.  

*  I had mentioned last week that my intermediate-term indicators were relatively overbought.  With yesterday's broad decline, we find ourselves at much more oversold levels, nearing the August lows.  Interestingly, we had 1212 stocks across all exchanges make fresh three-month lows yesterday.  On August 24th, that number was 2906.  Per earlier market notes, I am open to the idea that we are testing those August lows and that we will ultimately succeed in that test. Note, however, than past higher volatility corrections in May, 2010 and August, 2011 took multiple months to find an ultimate bottom.

*  We're seeing elevated index and individual stock put/call ratios, also supporting the idea of a bounce here.  Fewer than 10% of SPX stocks are trading above their three and ten-day moving averages, a level that in the past has tended to yield bounces over a next five-day basis.  My models are moderately bullish over the next three to five day horizon.

*  Thanks to readers for the many positive comments about the recent trading conference and the lessons learned.