I'm going to try to do these wrap-ups every day, even on days like today when there's not much to say...
It was obviously another good day for the bulls. It felt like a low volume affair to me today so I was surprised to see the volume surge on the Nasdaq chart. I'm not sure what to make of that. Maybe it was due to all the volume in RMBS today. Hmm...
Anyway, I'm really feeling like I need to take another vacation until the market cools off. I'm having a tough time playing the long side with the market so extended so I'm not finding much to do. I'm sure things will pick up once the earnings reports start flowing though.
Here's the chart of the Nasdaq which is continuing its walk up the upper Bollinger Band.
And here's the indicator which shows the % of S&P 500 stocks that are above the 200-day moving averages. This works just like my beloved T2108 indicator -- they both are overbought/oversold indicators. Like T2108, this indicator is currently near a level which (often - please see Michael Taylor's comment below) indicates the market is due to cool off. (T2108 is at 82 today.)
Here's Briefing.com's recap of the market internals:
The Nasdaq finished up +0.47 to 2331.36, the S&P was up 0.34% to 1294.18, and the Dow was up 0.28% to close at 11043.44. Leading sectors included: home entertainment software 4.1%, semis +3.3%, office electronics +2.4%, computer storage +2.4%, photo products +2.3%. Lagging sectors included: internet software and services -2.6%, airlines -1.8%, diversified chemicals -1.7%, internet retail -1.6%. Today's action came on above average volume (NYSE 1741, vs closing avg of 1583; Nasdaq 2306, vs avg of 1777), with advancers led decliners (NYSE 1854/1448, Nasdaq 1545/1478), and with new highs outpacing new lows (NYSE 298/39, Nasdaq 216/24).
About the S&P stocks % over 200MA chart: If you look at a longer interval, you'll see that this particular indicator stayed over 80 for approximately 1 year during 03-04. Do you think there's a fundamental reason now that it won't do it again, or are you strictly thinking of short term plays?
http://stockcharts.com/def/servlet/SC.web?c=$OEXA200R,uu[l,a]daclyyay[df][pb50!b200][vc60][i]&pref=G
Hakan Aydin
http:/www.aydin.net/blog
Hakan,
I don't think that's the same indicator. The ticker is SPXA200R.
I have many years of data on T2108, which is basically the same indicator. It never spends much time above 80 -- and certainly not months at a time.
PTL! Nightly recaps from Trader Mike! Great GooglyGoo!
As long as these chip stox keep rockin' the Naz looks strong strong strong.
(...& let's see how much ZGEN & MYOG gap up in the morning, since Cramer was pumping them tonight as his New Biotech picks.)
Just pulled up the T2108 (weekly) and noticed it stayed above 80 for 8 weeks straight back in April 2003 - June 2003. And above 80 for 4 weeks straight back in January 2004.
While it may not stay above 80 for long, the two time periods mentioned had sizeable gains.
April - June 2003: 14% gain on the Nasdaq.
January 2004: 7% gain on the Nasdaq.
In fact, just buying the next market open after the T2108 closes at 80 or above and selling at the next market open when T2108 closes below 80...proves to be a winner 67% of the time from the time period of 1991 - current. Weekly data was used in this test.
Take care,
MT
Thanks for the analysis Michael. I just looked at that period on the daily chart, and technically, it spent about 3 weeks above 80, then closed just below, then went back over for about 4 weeks. But your point is well taken -- overbought can stay overbought for a good while. Nonetheless, I still have a problem putting NEW money to work here. It's actually more the straight up price patterns on the indices vs. these overbought indicators that's causing my "consternation".
MT, did you happen to test the winning ratio if you buy at other points and sell at that same point? It stands to reason that if you can time the buy of an indicator on the way up and sell before it goes back below your entry, you should "win." And do the gains from the 67% outweigh the losses from 33%? If you want point to outliers, I could have bought this last poke through 80 for the hot minute it achieved those lofty heights, and lost my shirt today scrambling to outdo my jubilant overbought trade.
Duru, I don't understand what you mean by your "stand to reason" comment: If you time the buy of an indicator on the way up and sell before it goes back below your entry, you should "win"?
Isn't that a trader's objective? Profitable timing? I'm sure there's more to what your asking than this tired old brain of mine can understand. So, please explain.
I'm afraid the last poke through 80 you're referring to was not achieved based on the test system. The system test was looking for a weekly close above 80 on the T2108. The most recent close above 80 was the week of 06/13/05 - 06/17/05.
If you bought the QQQQ at the market open after the 06/17/05 above 80 close...you would have sustained a loss of 2% when the T2108 closed below 80 the following week.
Does the 67% wins outweigh the 33% losses? Yes, the average win is 4.15% and the average loss is -2.44%.
Different entry points? Delay the entry one week from the original entry point and the test results improve (looks like the initial break above 80 is met with a bit of selling the following week).
Different exits? Use an ATR trailing exit and ignore the T2108 after entry and test results improve.
Variations are endless. But, please keep in mind, this was a quick little test on TraderMike's favorite indicator...showcasing a different use than the typical ob/os method. Wasn't meant as a post on system creation.
Take care,
MT
MT,
I think you answered all my questions. My comment about timing entry and exit on the T2108 was to question the selection of 80 as the magic point on the T2108. There are many other levels to choose, and I was thinking that you get decent win/loss ratios over a wide range whereas in the end what matters more is that the wins outpace the losses by a large enough margin.
Duru, I understand now...thanks for your patience. Yes, the magic 80 datapoint was based on TraderMike's use of the indicator. You are right, many other levels to choose from. In fact, in creating systems...I usually try to avoid hard levels such as 80.
Instead, use moving averages and other measures to gauge levels. And believe me, that's where the real fun begins...
Take care,
MT