Archive for category Trading

China Stock Market Dynamics–Only Happens In China

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China Stock Market Dynamics.  Massive bubble reaction with government intervention.

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China Market Upmove–Shanghai Stocks October 2014 Update

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China market is giving early signs of temporary stabilizing of economic activity.  We would expect the market be 6-9 month ahead of the economy.  Notice that SSEC (stocks) hit a “capitulative” sort of low mid June 2013 while Copper prices (fundamental economy) hits a similar low in March 2014 (almost 9 months later).

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Copper prices have retested the 3.00 prices with increased negative divergence signifying a base is being build.  With the global economy in slow down mode including China.  Activity here is key for revealing fundamentals in the Chinese economy.

If SSEC prices go pass the next resistance of 2450, we would expect a confirmation with Copper prices moving up.  Copper resistance is at 3.30.  However if prices go below 3.00 and break below 2.85 significantly, we would have a serious fundamental problem.

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With all this said, SSEC next resistance of 2450 and then 2500 will determine the next move.  However, this strong move (nearly 130% up) is reaching now overbought conditions with wide resistance at 2450 and 2500.  We can expect prices to come to 2300 or 2250 to rest which will allow us to see the next move ahead.

At this moment, we are watching the minuteness of a macro trend reversal which obviously has many twist and turns.  If we can be 80% it would already exceptional.

Volatility – Fear & Complacency

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There is no better demonstration of the herd mentality and contrarian behavior shown than in the Volatility charts of the VIX.

Here is the VIX showing clear peaks and valleies corresponding to the top and bottoms of stocks.

And compare that to the S&P 500

Here is a simple confirmation signal:
Oversold at VIX > 40
OverBought < 16

Short term S&P Overbought Condition Signal Change

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A change in short term trend of March 1 from the S&P high of 1370 shows a near term correction in place.

If prices break below 1335, a 100+ point drop can be expected.

Notice below the RSI overbought condition.

We are also covering Copper here as well as our research system has found it to fit a near perfect trend for this secular equity bear paradigm.

Equity Market Update Oct 13 2011

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Prices are now overbought in most timeframes from Daily down to hourly.

Weekly was oversold and Monthly below 80.

Prices willcome back down from 1200.

Equity Market Update

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S&P prices are in a consolidating mode over a wide price range 1100-1200.  This is clearly seen in the weekly graphs.

Probability is high that it will resolve in the next week as it already reaching the EMA’s.  Pattern shows a down move probability of better than 70%.

Meaning while prices are oscillating in that range with prices in the 3rd move downward.

MACD Divergence Don’t Always Work

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Recently there has been many writings, video’s and training about the MACD indicators.  Although most indicatoare overly hyped, the MACD is a good tool but any good tool is only useful is used within its limits.

One of the most effective uses of MACD is in determining last moves (move that are losing momentum).  This is reflected by a MACD that goes against the direction of the prices.  Prices moving up and MACD not following.

Here is a graph of a Divergence that does not work.

(1) Prices a new peak but MACD does not exceed its prior peak (Divergence).

(2) MACD continues to deteriorate

(3) Prices keep advancing

While is true that the MACD shows declining momentum, price movement here has a strong momentum.  You cannot assume that the MACD is signaling a correction in any given time.  This chart ws taken in minutes but there are similar situations with Daily charts and the time delay waiting for a correction could be months and even years.

No indicator can be taken at face value without knowing the recent history up to that point.

The fact is that this chart follows a severely Oversold condition and the counter rally bring momentum to the upside.

This story is not finishes as it is being typed however it would take a double top formation to stop it and that formation has to occur at a higher timeframe.

A Perfect Lesson in Trading

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The 60 minutes is one of the clear time frames used ever since technical traders have been around.  All famous ones do.

You can see a very clear counter trade in this record.

On 9/20 after a SHORT signal was identified, prices came down from the highs of 1200 to 1107  om 9/22.

  1. STO went into oversold and a parabolic move was shown as a long down candle.
  2. MACD cross over signaling a potential BUY signal.
  3. On the next bar, prices attempt a rally but resistance at the 34EMA resulted in a failed attempt (expected) as the Oversold condition is a longer time event.
  4. Prices drop back down passing the prior LOW this time to 1102 but MACD does not follow and in fact gives a Negative Divergence.
  5. At the same time STO again become Oversold and we get our last LONG signal.
  6. This time a volume extreme is recorded. ( a sort of a min-capitulation).
  7. Prices move up from this last bottom event and begins a Impulsive Rally. So we wait for MACD to cross above zero (0) as a confirmation of the rally maturing into Wave 3.  An Overbought STO condition is measured at 1150.
  8. STO becomes Oversold again but 13EMA never crosses 34EMA and more importantly no new lows are recorded and as a matter of fact the new low is at 1115, higher than the prior low at 1102.  We have a new pattern of higher lows.
  9. From there on the pattern takes off in an accelerate move.  We expect this move to last at least 1 or 2 more days with some corrections in between.

Market In Extreme Volatility Wide Basis

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Selling in all asset classes intensified by pressure created by the exchanges increasing margin requirements.  When margins are removed, leverage requires hedge funds and other major speculators to increase their cash position.  Increasing need for cash creates a circle of further selling.

Behind the scene notice that the Baltic Index has been increasing and the US Dollar has been gaining strength.

S&P ends with a low a 1102.

US Dollar in Uptrend

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The US Dollar has now broken up from its low base. Prices broke the 200MA on the daily charts with strong momentum.

As we said in our Long Term Study of the US Dollar, the could be the beginning of a multi-year rally.  (Don’t forget, the value over long term has been coming down – is all relative).

Since 2009 and then earlier this year, the US Dollar has attempted to rally coming back to its low base.  There is a good chance this time it will make a stronger move.  The main reason is because everyone is totally pessimistic about the US Dollar yet from all the major currencies and countries (like Italy, Spain and Europe in general which are in bad shape) is the less bad.

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