Monday, March 21, 2011

Comments and outlook 03-22

Well another day of  "guess the open" .  If you discount the open  my comments about today being flat seem on target.  Now I am not a fan of conspiracies - but this "guess the open" makes one think.  What has it been  - 7 or 8 days we have gapped up or down on the open.    I don't believe I have ever seen the markets behave in this manner for this many days in a row.  So WTF is going on?  Maybe someone learned they can gap the market using futures from the "flash crash" experience and they are setting positions before the close and during the night hours are using the futures market to cash out profitably at the open?  Or maybe the FED or some other party is using futures to control the market direction buying futures contracts before the open?  I don't know - but this is very strange market behavior.  Just wondering .....

At the close we were green.  This is the third consecutive day up.  Last week I mentioned the VIX had made an extreme high and if we got 3-4 consecutive up days that should confirm a trend change.  So IMO we have met those conditions and we have had a trend change signal to UP.   Now this signal does not tell us how long this change will last.  We know the VIX has pulled back substantially since the high last week over 31.  So a 47.5% move down  (to around 16.25) would be needed to set us up for a new trend change signal.  The VIX is currently about 4 points above this.  My work with cycles leads me to believe this trend change could last at least 4-5 weeks (into late April).

What about tomorrow?  The 33TD (trading days) cycle is up tomorrow.  The 11+TD cycle is up tomorrow. The 5.65TD cycle is down tomorrow.  The 2.8TD cycle is up until around 1pm tomorrow.  In total the shorter cycles should give us an upward bias tomorrow.

Of the longer cycles the Wall Cycle (20 weeks or 100TDs) is down.  The 1 year cycle is down and far enough past its top it may have some effect.  The other longer cycles that are down have not had time since topping to have much impact (yet).  Overall, I would opine the overall bias tomorrow should be up. 

Here is a chart:

GL traders.  Do your own analysis and use care.


  1. Long story short since i dont want to retype the whole post i tried to put up before but got wiped out..........I think you are a tad premature in calling a trend change.....mainly because of the spreading unrest and violence in the Middle East and the apparent turn for the worse in regards to teh Japanese nuke crises.

    Just my two cents.

    Thanks for all the charts and analysis u do.

  2. C_K:
    Just calling it according to the rules that have worked reliably since around 2007 when I first started studying the VIX and found out that extreme moves alone did not work reliably. That is how I came up with a two step process. First the extreme move followed by a market action confirmation. It is not an emotional or just "because I think so" type of call - but something I back test for several years.

    Time will tell - no system is perfect, but this one got me out of the market in Aug of 2008 and did not issue a trend change UP until after March 9 2009.

    Question - Did we have 3 consecutive down days after the VIX bottom (under 15) in Mid February? Check it out. Hehehehe

  3. End of quarter approaching and 3 days of POMO to stick save market for a few days. After that, I would be scared to hold almost any equities into the next round of earnings reports, some of the biggest landmines ahead. Maybe the VIX will tell us so soon.

  4. Sue,
    Dang, there is always something to worry about.
    Agree there are landmines. Then there is all that liquidity from the FED. How do they balance out?