A place for the old and slow to reach investment decisions, dedicated to the teachings of Terry Laundry
For those who don’t look at the main T-Theory chart every day. I did add a note to the Main Chart yesterday regarding a Point of Recognition:
I’m sorry for the late notice on this. Keep in mind that Points of Recognition are an “art”, not a science.
The bad news is that we will not see a Volume Oscillator T for a while.
I have removed the potential of a T developing in March (posted February 9, and shown in the light purple descending dashed lines) from the above chart. That being said, the “missed” VO T through February 21 is over. We’re now in a period where the market is no longer in a period of “magical” strength.
There are rules to create a new T, and we are up against an important one. A new T is developed when a center point low is created at the bottom of Cash Buildup period. Since the VO low in mid-January, we are seeing an uptrend on the VO that is clear and unbroken. That is designated by the dark green lines. Those dark green lines show continued Cash Distribution–money being put to work. So far, that cash distribution shown by the VO has not exceeded the highs of the prior week, but they still haven’t broken down through support.
All of the positive aspects of the market’s inner strengths discussed last week are continuing, with a positive A/D line. The MACD of the A/D has just crossed up in an already positive environment. The “Simple” chart is also showing small scale positive crosses. (One should note that the recent 14 days charts is exaggerating a very small move out of a neutral perspective)
Last week I highlighted that support looked strong, and that until it broke, it should be expected to hold. We broke the hourly support at the open on Tuesday, and continued down to a low of 4955 (which was above the hourly secondary support of 4932) before moving higher Thursday and Friday for a weekly gain of 1.66%.
We have been living above the weekly upper Keltner Band for the last month. Both MFI and RSI are overbought. But this can be disregarded until Price, MFI, and RSI move below their overbought levels. That’s about 2%, at 4983.
We “lived” in that area above the upper Keltner band for most of 2021, but the corresponding technical indicators were never as overbought during that period as they are now.
The Daily Companion chart is also living above that upper Keltner band. There are two versions of that chart that follow–one using the Keltner Band formula which I normally use for SPX, along side the same SPX Price chart, using NDX Keltner rules:
You can see that using the NDX Keltner formula, we aren’t overbought. (Perhaps that’s due to the “magnificent 7”?) And looking at the participation in this price move using BPSPX, we can see that while BPSPX is positive, it is hitting its head as it tries to move above the Keltner mid-line:
It may have reset here at the important 62.5 area, but it needs to cross that midline soon.
The Hourly Companion chart is overbought in terms of RSI (while MFI is receding), and MACD appears to have turned down, without yet crossing. Lots of energy was spent this week.
Reviewing all the above, as overbought as we may appear the charts suggest looking at support as strong. Just set stops where you will not look back should we hit them and quickly reverse. You have 4983 as the upper boundary support on a weekly level for those playing the long game. 5023 is the hourly first support area. That is very close to the 5019 support on the Daily chart.
On another subject, let’s review the Hourly VO chart shown on my site. There are important clues there for short term traders.
On a short term basis, you want to see if Price peaks with the VO. That is a sign that Price may need to reset with the VO. I’ve noted on this chart that after the center point low of the VO that coincided with the T that ended this week, Price didn’t follow the VO lower, it continued higher. That’s a first sign of a potential new T.
Since the Hourly VO is the MACD of the $NYUD (shown below it in green), the immediate direction of Up/Down volume can be seen below the VO. (The MACD takes time to create a smooth direction of $NYUD.) I suggest keeping an eye on how the three interact. Peaks and troughs on this chart can offer short term directional advice. Right now, it is showing an improving hourly VO that is remaining above the zero line. Watch for Monday’s movement.
Interestingly enough, TLT managed to gain 1.1% this week. It is still living below the middle 50 EMA line at 95.61:
I was stopped out of my GDX long at $26.50 this week. I lightened up on GLD yesterday, as it bounced off of the resistance of the upper hourly Keltner band at the end of what was a short term T. We need to stay above 187.30 to keep the April 7 T viable.
Have a great week. I’ll be back when the market says something new.
It would be great if every miniscule move in the market was visible before it happened. But face it, that would mean the extinction of Price Discovery. Price Discovery requires reading sentiment, reading supply and demand trends, and recognizing that for any particular moment, a transaction has taken place that is acceptable to both the buyer and seller. It has some, but not necessarily a full connection to Price Valuation. Price Discovery occurs with every trade, while Price Valuation is an analysis of what an asset is presently worth, or will be worth. One might think that “we” are overbought based on present, future, and historical perspectives. The concept of being extremely overbought or oversold is theoretical and subject to bias, while Price Discovery is where we are today.
I used to note on my SPX Companion Chart that ‘In a strong market, we may not get lower than a 50 reading on techs“. We have seen situation since November. MACD confirms that, as it has remained high since this period began. A consistently high MACD reading shows that the short term Moving Average is significantly above the long term Moving Average, and that momentum is positive. Since it is a slightly lagging indicator, one can watch it for crossovers that might suggest a change in direction, but on its own, MACD suggests rather than tells us what is coming.
The MACD chart (which I used to show on my Charts page) reflects the present Positive MACD period:
The market, as I suggested above, is constantly looking for Price Discovery, and in terms of utilizing that concept, one can make decisions based on Support and Resistance in Price, using MACD and other technicals such as RSI, and MFI as accessories. In the past, I have looked for peaks above the RSI and MFI overbought regions that coincide with each other, and with MACD crossovers to advise when caution is required, and similarly the opposite when they are at the other extreme. This market is one that suggests that Support areas should hold.
When there are no major signals in T-Theory–or any process that you utilize–it might be worthwhile to keep in mind that the rule of “Buy Low, Sell High” is key to short term or long term success. Knowing whether support is strong or weak tells you where to take an initial stand if you have no position. Knowing where resistance is strong or weak allows you to take profits. (And of course, there are times when it’s better to watch events unfold. It all depends on your risk tolerance.)
Over the last week, I suggested that there was possibly some trouble brewing, and hedging might be in order. We moved down to the lower hourly Keltner band, which held. On that one day move, we had a 33% retrace from the 100 point move lower, followed by a total reversal the following day. with the “frog” jumping almost all the way back up to the upper Keltner band. It then headed to the midline. (In fact, SPY closed below there after hours on Friday–Sentiment speaking for a long weekend?)
Here’s where we are today:
As shown in the Companion Chart, we are still above the magical Daily Keltner Bands. We dipped below the upper band for an eyeblink, but closed above them. Until we do close below them I wouldn’t expect a strong retreat. Support is support–until it’s not. And for now, it is still support.
In fact, as I posted on elliottwavetrader.net at the close of February 14, I missed a T on the Volume Oscillator that ends February 21. It was the potential T that I mentioned in my January 20 and January 27 posts. Unfortunately true confirmation–by having the VO pass above its last peak prior to moving below the zero line–didn’t happen until February 12. It didn’t suggest any hint of a positive structure until Valentine’s day.
We can tie this chart to the opening discussion regarding MACD. Keep in mind that the VO is the MACD of NYSE Up/Down volume. When it is at zero, it really isn’t offering us much information. Up/Down Volume has no direction–it is neither building up or distributing Cash into the market. It’s churning. We can create a T when this chart shows us a pattern of descending tops or ascending bottoms, but that doesn’t allow me to create a T. Right now, however, it is doing this “churning” as Price Discovery keeps moving higher.
The Bullish Percentage BPSPX is still in sell mode, but attempting to hover around the middle of the Keltner bands. The “Simple” chart is acting similarly, too simple to be giving any advice. PMO appears to be retreating, but is still positive.
I haven’t mentioned the Advance/Decline chart since the A/D T ended on January 26, but taking a look at it shows us that the 20 EMA has been superb support since the end of that T. RSI and MACD have cooled off since reaching an extreme just as that T ended, but they both have held positive support since then.
On a Weekly basis, A/D appears extremely overbought, but warnings will come on the chart above, rather than the chart below this paragraph:
In my opening remarks, I discussed Price Discovery. Price Discovery gives us levels of support that we need to utilize based on our risk tolerance. As I questioned in Wednesday’s post, is a 1.5% decline enough to cause a massive exodus from equities?
The hourly support for SPX is 4991, with secondary support at 4932. (That’s about 1.5% again.)
The daily support for SPX is 4995 above the upper Keltner band, 4799 for the mid-Keltner bands (that’s 4%), and 4613 for the lower band.
Enjoy the long weekend. And remember:
That was a very quick 100 SPX point drop, with a 1/3 reversal at the end of the day.
| SPX | -1.38% | |
| IWM | -4.10% | |
| QQQ | -1.55% |
As I posted yesterday afternoon on elliottwavetrader.net, 5029 was initial support, and it was broken shortly after that post. The following shows the hourly chart at that time, as well as at today’s close:
As Terry Laundry would say, the Frog (Price) began to jump yesterday afternoon, and this morning it began below the middle Keltner band. 4919 was the location of that lower band yesterday. Today, when it touched that 4920 level, we jumped about 33 points higher, which is still below that middle Keltner band resistance, but also a strong retracement. That retracement did not cause the hourly MACD to cross, which means we need to be on guard for lower on Price until it does.
Daily SPX MACD has started to turn down, but it hasn’t crossed negatively.
Today’s movement on the Volume Oscillator and McOsci may have created an environment where we will not be able to create a new T for at least a month. That doesn’t mean Price can’t move higher, it means that there will not be a strong move higher. T’s have rules, and the angle of descent on the peaks in the VO and McOsci are not really shaping up for a new T. Interestingly enough, today’s price low was fairly close to the January 26th T’s closing Price. That was 4890.
The BPSPX moved back below the middle Keltner band. It is still above 50, which means that those who follow its traditional meaning can see this as bullish. For me, it’s below the middle Keltner, which is not bullish. Price, however, is still about 200 points above where it was when we got the sell signal in January.
The Simple chart doesn’t give great direction here, as it is also still in positive territory, but it has not turned higher from its recent fall in both Breadth and Volume momentum. In other words, like the BPSPX, it’s sending 2 different messages, and can’t really help direct future direction. One needs to rely on their instinct here, but hopefully without bias. If you are in capital preservation mode, this is not a time to enter large positions.
So all the technicals are giving mixed signals. What to do? If you watched the SPX in 2008-2009, today’s move lower of 68 points would have constituted a 10% drop. With today’s price levels, it was down less than 1.4%. If you’re playing for daily trades, I hope you made money today. If you are a long term investor, showing a large positive move over the last year, was today’s move enough to cause you to take everything out of the market?
What would have worked today?–either of the two hedges I suggested over the last week. One was buying a straddle, which is the equivalent of buying volatility. The second was to hedge SPX against either QQQ or IWM. Those would have worked pretty well today. I leave it to the reader to decide when to remove them.
On another topic, the BPGDM, or Gold Miners Bullish Percent Index, has quickly come into a position to reverse course. Not my favorite Asset Class, but what is, is. I find myself owning some GDX today, but it’s a trade that I won’t offer follow ups on. I hate miners enough to get out quickly, win or lose. My stop is 25.50.
Gold itself is only about 1% away from major support. Unfortunately, the Sprott Discount to NAV reading needs to be a bit lower. The Silver and Gold Trust Discount to NAV is better positioned for a rally. I did buy some GLD today.
As for Bitcoin, please remember that my post last Wednesday regarding it was not a commentary on Price direction, but a warning to me that a large move may be coming in other asset classes. We can see that today’s move lower stopped at the resistance of February 11-12 around 48500. That should be a key number of support right now.
Events have led me to post more often than I expect I will on a regular basis. I am still holding TLT, and I bought some IEF near the close. I am not expecting too much quick movement out of either, unless there is a volatility event coming soon.
Some people look at relationships, and instead find coincidence. The following chart shows the relationship between SPY to both QQQ and IWM over the last 4 years. These are really not relationship charts, but rather ratio charts of SPY to each of the others. One shouldn’t think that these ratios will stay where they are, because the evidence over time says that these ratios are in flux.
And yet, if you care to believe in support and resistance relationships, the above charts can show you where the momentum is, and where it should end.
A long term view of the IWM:SPY chart shows you that the ratio reached its peak back in 2010, and did not drop below 53 until 2020. But with the exception of the period between October 2020 through September 2021, it has not recovered to its old status above 53.
Looking closely at the IWM:SPY ratio, we can see where it is about to hit initial resistance.
At times, I have personally used trading long or short IWM versus an opposite position in SPY. This is a hedged position, as it allows one to maintain profits riding a trend. I mention this as a thought for those seeking a way to hedge longs, with a very close-by stop to that hedge.
Looking at the relationship between QQQ and SPY, we see an entirely different picture:
Prior to 2020, this ratio never increased above 68. Today it stands at 87, very close to an all time high.
We can go through the mental gyrations as to why one Index has suffered while the other has surged against SPY since 2020. But the chart is Price, and that’s all you need to know.
On Wednesday I posted a warning message. It was not a call for shorting, but I did suggest that it might be a good time to begin planning for hedges or sales. I don’t believe that T-Theory, as developed by Terry Laundry, ever suggested shorting the market. Instead, the concept was to find alternative investments that might do better than the one whose T had ended. We expect equities to return no better than the rate of the Ten Year Treasury when a T ends. At least, that was the initial concept. Traders like Marty Schwartz (known as Pitbull), probably did short at the end of a T, but that’s not what a capital preservation perspective would suggest. And the following charts have not broken down, even though Price is extremely high on many levels.
Looking at how the internals have changed since Wednesday’s post, the Bullish Percentage index BPSPX is still above 50, and seems to have turned higher: It is attempting to break above the middle Keltner without a move to the lower Keltner. Remember, until this index is below 50, it is still showing that more than half the SPX has Point and Figure charts trending higher.
The Simple chart shows a slight move higher in Breadth and Volume momentums, but it has not yet confirmed a renewal of a positive path.
The main T-Theory chart is at an important point. The Volume Oscillator and the McOsci have both reached their zero lines, but haven’t yet crossed above them. Furthermore, they are both at their respective down trending lines:
Should both fail to cross their trend lines in a positive manner and move downward from here, we could be looking at a month of weakness before they create a new bottom.
The Hourly T chart shows NY Up/Down Volume to be neutral, even with Friday’s advance:
Lastly, I mentioned Bitcoin as recently being a point of concern for its recent run. As I mentioned, I use 35 as the Optimum Moving Average for this asset.
The two charts that I posted looked like this on Wednesday:
They now look like this:
The Daily chart is maintaining its support, and the Hourly chart now follows its support more closely. I would watch those supports carefully.
I’d like to take this opportunity to thank those of you who responded to my request for donations to the Cat Museum of New York City. It’s most appreciated. We’re about halfway to our goal to register for non-profit status. If you haven’t donated yet, the link follows:
Again, many thanks.
T-Theory Thoughts 