Well so much for my guess about the bears disappearing ahead of the Fed meeting. Today's selloff did a lot of technical damage to the charts, especially with respect to moving average breaks. Probably the most-watched breaks were the S&P 500 breaking both its 50 and 200-day averages. But I also saw tons of individual stocks slicing below one or both of those averages. T2108 (% of NYSE stocks above their 40 DMAs) gives us a good idea of how stocks are breaking down with its 42% drop today.
Back in April I linked to Dr. Duru's post about the rare technical sighting of T2108 above 90. I pointed out then (as I always do) that I don't like to use T2108 for tops. In the past I've found it to work much better at bottoms than tops (it worked well at the January top though). I guess it takes longer for people to snap out of a greed phase and to allow a top to form. The S&P 500 rose another 10% since it first cracked 90 and even now is still up about 4%. So I'm not sure what's the best use of T2108 at tops. Perhaps it could be implemented as some kind of early warning of froth.
What's of interest to me now is how close T2108 is getting to 20, which has been an important bottom signal. That signal worked like a charm for years but fell apart, like so many other indicators did, in last years market massacre. I'll be keeping a close eye on it over the next week or so.
Here are the index charts.
Some downgrades today.
| Trend | Nasdaq | S&P 500 | Russell 2000 |
|---|---|---|---|
| Long-Term | Up | Lat | lat(-) |
| Intermediate | Up | Lat(-) | Lat(-) |
| Short-term | Down | Down | Down |
(+) Indicates an upward reclassification today
(-) Indicates a downward reclassification today
Lat Indicates a Lateral trend
*** I'm simply using the indices' relations to their 200, 50 and 10-day moving averages to tell me the long, intermediate and short-term trends, respectively.
TM, last week I asked about how you look at the longer time frame chart in relation to the 15 min. What I meant was do you wait for a set up on the daily (pullback in a trend, reversal candle, oversold/bought...etc) or are you strictly focused on the lower time frame? Would you pass on a long if the market was near a high? Thanks.
I might pass (or wait) if the market or the particular instrument I was looking to trade was bumping up against clear resistance. I'm mainly focused on the intraday charts (30 minutes bars) but I always check that there's no obvious wall just ahead, like a major moving average or a double bottom (or top)
Ok. I always feel tempted to pass on trades that have pulled back and are making new highs/lows. Looking back I see that those would have been larger than normal winners.
Do you ever look at 3 min or 5 min charts to get a better entry and tighten stops? Or are you strictly a 30 min guy? I wonder if my fear of losses and my desire to squeeze every cent out of a move keeps me focused on the small picture, not the big.
Thanks.
I think "early warning signal" is a good way of putting it. I have been using the concept of "capital preservation." The trick is figuring out the point of re-entry. As you noted, the T2108 oversold indicator has acted fairly poorly lately, along with almost every other technical indicator we have come to love.
Dr. Duru Said - "I have been using the concept of "capital preservation.""
Rule 1 - Don't lose money
Rule 2 - Don't forget rule number 1