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Predictably Irrational Bounce

A world hankering for war?  No problem.  Despite rising geopolitical tension, it looks like the U.S. markets may be done with negativity for now.  Though the longer term patterns remain bearish, and I still believe the end is in sight, it looks to me like there is another push higher (maybe to S&P 2000?) in the cards.  Let’s look at some charts.

First, the S&P (SPY), which never got down to its support line, but did post a nice reversal pattern last week.

2014-08-11-SPY_CHARTS

Here’s a closer look at last week’s SPY reversal:

2014-08-11-SPY-ST_CHARTS

The most interesting chart to me is the inverse-VIX ETF that I had been short, (XIV).  I closed my short on Friday and opened a long position today.  We’ll see how that goes…

2014-08-11-XIV_CHARTS

 

Small caps (IWM) seem to have found support and may be moving into a sideways channel.  I still expect to see it break down to new lows, but I am open to being wrong.

2014-08-11-IWM_CHARTS

Nasdaq is one of the most interesting charts because it barely budged off its highs!  Wow.  I wonder if it’ll push to that upper line?

2014-08-11-QQQ_CHARTS

 

With bulls still running amok and geopolitical risks rampant, it seems like a good time to stay nimble regardless of bull/bear bent.

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  1. Draft
    August 26, 2014 at 6:49 pm

    Looks like we’re at resistance in the lower of the two wedge SPY wedge lines (or did we break it?)…but it seems to have been hitting the other wedge line this year. Sign of a top?

  2. August 27, 2014 at 9:47 am

    Draft, I have been swamped with work lately and haven’t had time to survey any charts, but yes I imagine we are close to those resistance lines. If you say we are there, I believe you. To that end, I have been rolling from long to short. I am not closing my chart-specific long positions like AAPL, DDD, EWZ yet, but I closed XIV with was a straight momo play. I opened an RWM short last week. I will be looking layer on more short positions, though not sure what just yet. I am not in a particular hurry because I think we may drift higher until early September. August is notoriously low volume, which it easier for bulls to push the market higher, and September is historically the worst month and a frequent point of major trend change. So will likely wait until next week to start adding more short positions. How are you trading this?

    • Draft
      August 27, 2014 at 12:39 pm

      Right now I am long XIV and GDX but nothing else. I have very bad timing with going short. I always short too early. Do you have clear signals you are looking for for a turnaround?

  3. August 27, 2014 at 1:43 pm

    Nothing rigid. Proximity to trendlines. Like you said, the S&P has been pressing the upper, shorter term line (more of a channel than a wedge, I think) this year. I also like to watch for divergences, like VIX (XIV, for example, has stalled here in the 43-44 range even though SPY has pushed higher), small caps, junk bonds. Weakness in those riskier assets can be a good tip to overall risk appetite. Before the previous pullback and rally, XIV tipped both ways: started falling before S&P, then found support before SPY hit bottom. To me, the weakness in XIV is noteworthy. Also, I am curious to see what the calendar turn does, just because September has a history of poor performance. Maybe at end of the day on the 1st or sometime later in that week I will start looking to add shorts. In general though, I do not use particularly strict guidelines. I think rules are made to be broken, and my own internal “rules” are no different.

  4. August 28, 2014 at 3:25 pm

    You can draw a line in the first chart on Jan 1st, 2011 and mark the effective death of equity markets. Just look at the drop in volume, for which there has been no recovery.

    • August 28, 2014 at 3:28 pm

      Nasdaq chart at the end is even worse!

  5. August 29, 2014 at 8:24 am

    Steve, yes, I agree. The pullbacks since 2011 have been few and shallow. It would seems be very artificial behavior. And the Treasury market would appear to be screaming that this growth that is currently priced into equities simply is not on its way. Plus, have a velocity of money chart lately? Last I checked, it was still in a downtrend that started in 2000

  1. August 29, 2014 at 12:06 pm

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