I thought I would update a few of the measures that I follow to assistance us brand feel of the relative weakness that we’ve seen ushering inward 2015. In the grand system of things, the weakness is non extreme; indeed, my Cumulative NYSE TICK mensurate has made novel highs together with advance-decline breadth has non been lopsided at all. Still, the weakness has exceeded my expectations; the charts inward a higher house capture a worthwhile perspective.
First, however, a trading psychology comment. When I’m stopped out inward a trade–as happened latterly with my long position inward ES–I stop. My stops are placed far plenty away that, if they’re hit, I’m wrong. And earlier I resume trading I demand to figure out what the hell I got wrong. One of the some destructive patterns I’ve observed alongside traders is a vogue to continue–or fifty-fifty accelerate–trading later halt outs. Insanity, the proverb goes, is redoubling one’s efforts later having lost sight of one’s aim. A to a greater extent than sane strategy is to work losing trades every bit learning experiences. The charts inward a higher house are purpose of my review together with reflection procedure later a merchandise that I thought was proficient turned out to last a losing one.
The top nautical chart is a mensurate of breadth for SPX stocks. It represents the per centum of shares trading inward a higher house their 3, 5, together with 10-day moving averages. (Data from Index Indicators). You tin run across how this breadth mensurate reliably tops out ahead of cost during marketplace cycles; it’s also done a reasonable labor of bottoming ahead of cost at wheel troughs. We’ve come upwardly off quite sharply inward this measure; to a greater extent than hence than is typical inward a marketplace cycle. This invites the hypothesis that we’ve already seen a momentum peak for the electrical current cycle.
The middle nautical chart tracks all NYSE stocks closing inward a higher house their upper Bollinger Bands vs. closing below their lower bands. (Data from Stock Charts). It likewise has shown an admirable vogue to top ahead of cost at wheel peaks together with ahead of wheel lows at troughs. That has non come upwardly off every bit sharply every bit the breadth measure, exactly also has moved steadily lower since a rapid peak off the mid-December bottom.
Finally, the bottom nautical chart tracks a handbasket of stocks that are institutional favorites together with the upticking versus downticking inward those stocks. When the bulk of stocks inward the handbasket uptick simultaneously, that is deemed to last prove of the presence of institutional buying programs; when they downtick simultaneously, that is counted every bit the presence of selling programs. We tin run across that buying programs dominate early on inward a market’s wheel history together with give means to selling programs every bit markets brand cyclical peaks. Note how nosotros showed real potent buying programme activeness off the Dec lows together with similar a shot bring moved to a authorization of sell programs.
These measures acquire out me opened upwardly to the thought that we’ve hitting a momentum peak for the electrical current cycle, which volition bring me looking closely at whatever bounces from hither to run across if nosotros run across waning or strengthening breadth. This could bring longer-term ramifications, every bit it invites the hypothesis that the terminate of yr forcefulness was non a fresh leg inward a bull marketplace exactly rather purpose of a much larger topping procedure that began inward 2014.
Further Reading: Losing Your Money Begins With Losing Your Focus