What Is, and What is Not a T

The menu has been updated once more, with a category called “Existing T’s”. As of Wednesday, there was a Trading T in SPX added as we had 2 consecutive hours back inside the hourly Keltner Bands. This is a short term Trading T which should last until October 15, based on Price and RSI.

There are parameters to keeping this T in force. Price needs to stay above the mid-Keltner at this point, and RSI needs to stay above 50. For those who follow my posts on elliotwavetrader.net, I have been highlighting these requirements since Wednesday’s opening, while looking for a retrace yesterday no lower than 4420. The 50 hour MA is 4417.

There is no investment T in SPX at this time.

Let’s start by looking at the unmarked Live T Theory Chart. The Volume Oscillator has not regained the zero line yet. The McOsci has gained the zero line, but it is till below its last peak of 46. In the event of a positive T, it would only mimic the Short Term Trading T in time, as was mentioned above.

Unmarked T theory Chart

The Bullish Percentage Chart has yet to regain its Keltner Bands. There is a symmetry at present that would be very bullish should it move above the mid-Keltner band. The mid-Keltner band is at the point where it meets the downtrend that has existed since the peak in June. It would be a very positive situation for that line to be crossed.

BPSPX with orange downtrend line

The ‘Simple Chart’ is just starting to turn up from negative territory, but you can see on the two week chart of price on the right side of the chart that we have just barely moved above the downtrend in price. This chart has more promise of upside than BPSPX and the T Theory Chart.

The T in TLT

Looking at TLT, we have reached the bottom of the Keltner Bands on this T. 146.13 is the lower band, and we closed Friday at 146.91. As per last week’s post, I expected a poor outcome no matter what the Federal Reserve decided to do with rates. Further down the road, when tapering actually starts, I expect buyers to come back. My hedge did not fully cover the loss of this week, but it did mitigate it.

If you look at last week’s historical chart on TLT, you can see that TLT actually rose once Tapering started. We could see a similar response in November, should that be when Tapering begins. Long term bonds are more volatile than shorter term ones but in the end tapering allows for bond yields to be lower for longer, because it keeps inflation lower for longer.

I intend to remove my hedge, but not until I see how price develops. Over time I have realized that if there is not a T in equities and I have a T in bonds, I need to have patience.

Review Time

The Present T in TLT

We are reaching a critical point at a critical time for TLT.

After reaching the top of the Keltner bands earlier this week, we’ve done the ‘normal’ correction back to at least one degree lower on the T chart. We are now at the middle of the Keltner band. (I’ve pointed out in the past that moving above and then below the upper band makes us vulnerable to a retreat to either the middle or lower Keltner band.) The mid-Keltner is 149.15, and we closed at 149.17. I’ve also pointed out that I expect TLT to be rangebound between 152 and 144. While I try to avoid fundamentals, we do have the Fed meeting this week. TLT is walking a tightrope on price. I am expecting a bad reaction to the Fed’s policy on rates in any event. If they decide to leave tapering alone, TLT becomes less attractive to bond buyers, because it shows that the Fed is allowing what appears as inflationary pressure to continue to build, which will cause a stronger reaction later. If the Fed does reduce its bond buying program, it will create a momentary shock that should eventually be bought by long term bond buyers, because it would mean lower rates for longer. Perhaps not as low as they are, but ones that are not going to skyrocket in the future. Please note that word ‘eventually‘.

You can see on this next chart what happened in 2013-14 when tapering was announced, and enacted. TLT actually went up after tapering began.

TLT price 2010-16

I do have protection on at this point. As I said, I was going to be placing a short on IEF or its equivalent at some point. We hit 152 in the premarket on TLT last week, and that is my upper limit for TLT. While TLT is more volatile than IEF, it’s my belief that in the long run, changes to the Ten Year Bond’s price may be more extreme than longer term bonds, based on the lower for longer scenario. This would in fact require some shorter term rate adjustment.

SPX

There is no T in equities at this point. However, we are reaching levels in the Volume Oscillator and McOsci that should lead to a bounce. We are close to the mid-Keltner price of 4417 (which I expect to move up to 4420 on Monday), and we have reached support on the McOsci.

If you looked at the Live T chart in the menu, on 9/14 I suggested that we should be hitting support. It was not a T, but created a 45 point (1%) move the next day. In elliotwavetrader.net, I followed up by saying I expected the VO and McOsci to hit the zero line and reverse lower. Which leads us to where we are now:

present SPX T chart

Notice that we have trend lines that have not been broken in the McOsci but probably have been broken in the VO. The VO is only updated Monday, so it shows an excessively strong down day. It will be revised on Monday. The McOsci actually shows a higher low than it did on September 14, and it is still above the trend line. I am once more expecting a bounce. The fact that we have higher lows in the VO and McOsci point out the fact that there has not been a breakdown of money ready to come into the market at supporting levels. While that is always to be followed by a “so far”, support still means support in a bull market.

Something to think about–

In the period since the end of the ‘Weak T’ (which ended September 3), we have gone down about 100 SPX points. That’s less than 2.5%.

It’s more important to look at percentages than points. In 2008, this would have been a 10% loss. If 100 points affected your portfolio by more than 3% when there is no T, you are invested at the wrong time. If you are trading within correct risk standards, you would have no more than 3% of your capital in a trade, and have a maximum loss of 3% if your entire trade went bust. This should not be affecting your sleep habits, or causing excess anxiety. Each daily move has been less than 1% moves at today’s prices. Daily moves in the market should not become a life or death situation. Many of us have been through type of situation, and hopefully you come out the other side knowing how to manage risk.

Housekeeping note–

I have changed the menu on the site. It now holds submenus for the T-Theory charts, as well as having submenus for existing and recently completed T’s. It also shows the 2020-2021 Equity T chart.

That live equity T chart was much more active from March of 2020 through June of 2021. There are times when there are many months of no long term Ts, even as price advances. I have a personal rule–I need to see a difference of 100 points on the Volume Oscillator from the last peak above the zero line until the deepest low before I can look for a new T.

For reference’s sake, I’ve added a link to an old T chart that I maintained from 2012-2016. It shows how I’ve used T-Theory over the years to help get a better return and to be invested at the right time.

2012-2016 T chart

Please feel free to ask questions about T-Theory in the comments section. I’ll be happy to answer them to the best of my ability. I am planning on minimizing posts for a while.

And while I was hoping I wouldn’t have to say this again, stay safe.

Just Another Chart–XOM Update

The extreme collapse of XOM is probably behind us. While it continues to be about 3% lower than the point at which I recognized the bearish potential, the $52.16 print was almost 7% below $56, and that could be support now. While I no longer see an imminent collapse, the chart continues to show weakness. We are still dealing with lower lows, although only on a minimal basis.

Watch for a low on RSI and MFI, and then a break of their downtrends.

The SPX Weak T’s end has resulted in weakness showing up in the market for the last week.

Watch the new trend support lines on the VO and McOsci. They should hold.

The XOM T is Over

The XOM T should have completed a period of strength yesterday. Instead, it brought the potential for a strong move lower next week.

Click on the chart for a live view

This T had a center point of July 20. It was a strong area of support based on price, RSI, and MFI lows against their respective bands.

It was evident that XOM could not crack through its middle Keltner, nor 50 on the two technical indicators. When price dropped below 53, this structure became a Bear T. A Bear T has a lower low than the center point of the T. Near the end of the T, there is usually a rally from Hell, which is followed by a price collapse. That is the expected outcome at this point. I think XOM has shown all the ingredients of this potential.

Unfortunately we have the potential of a hurricane passing through the Gulf, which is both alarming on a humanitarian level, and may have an impact on the future of the chart. I can only account for what the chart tells me.

With the “Weak T” on the McOsi ending September 3, the outlook for equities is in jeopardy. (Please ignore the last VO reading as StockCharts hasn’t updated it yet.) The McOsi has peaked at the same level as the last descending high trend line, unless Monday’s action moves it higher.

Click on the chart for a live view

As for the T in TLT, we have stayed within the 144-151 range I have suggested. For those who follow me through Avi Gilburt’s site, you know that I sold calls around this week’s high, and repurchased them around 148, the day before Jackson Hole. While this enabled me to regain some of the reduction in price, it didn’t cover it fully. These were ITM options, which moved to OTM, leaving time premium.

Click on the chart for a live view

It’s become clearer to me as to how the T in the Ten Year Bond can exist as well as the T in TLT. This T can continue to result in higher rates, which longer term bond holders may accept as helping to keep long term rates lower for longer. I will shortly be taking a converse position on IEF or use some other vehicle. I don’t intend to post on that position.

Click on the chart for a live view

Below is a chart showing the asset class performance since the T in TLT was discovered. Returns were increased by successfully trading my TLT position.

IWM has shown a surprising amount of strength recently. Its value has returned to 50.03% of SPY.

It is still below the resistance level on this chart. Watch for a breakthrough.

Have a safe and enjoyable Labor Day. I don’t expect to post before then. This is a copy of the present chart before I remove some old comments and lines:

Chart as of 9-2-2021

Added Pressure

In last weekend’s post, I mentioned that I would close the XOM T if it closed beneath 56. It closed at 55.94 on Monday, and I closed the position. With a new low in price, the T is now a Bear T. That means expect weakness for a week, then a sharp rally that fails. Watch for 50.61.

The expected rally does not mean there will be new strength in Exxon, but a sharp rally before collapse.

Regarding equities, I also noted in the August 14 post that there is no T in equities. Even though price is higher by 9 SPX points as I write this, the VO for today (which is incorrect, but shows direction) is not bouncing.

As noted on the Simple/Complex chart, we had a complex structure that was capped at the zero line.

We held this morning at 4367 SPX, and the mid-Keltner is about 20 points below that. We need the 50 RSI and MFI to hold in order to create a low. We broke the trend line from March 2020. I expect this week’s Options Expirations to gyrate price through the close Friday.

Being in TLT is still more rewarding, even if we are on the lookout for a top at 151-152. This morning’s high price was 150.99.

I hope some find this update helpful.

Knowing Your Limitations

Sometimes it’s helpful to know the smoothest ride. Since recognizing the T on June 6, it’s up over 7%. Over the same period, SPX is up about 4%, or about 160 points.

While SPX can go up indefinitely, TLT is bound by what it represents–rates.  I don’t see us getting back to the rates we had a year ago, and that binds TLT to a lesser number than its all time high. (That is not the case with SPX–the sky’s the limit.)

We have had 3 declining tops from 152 on TLT, and I think that shows its limitations:

A pasted image

Back in December I posted a TNX chart showing a rate T which would last until the end of 2021. Luckily, I acknowledged in early June that it was in conflict with the TLT T.

That chart is posted below, along with the earlier TNX T‘s that I suggested as they occurred. This T may once again begin to control the narrative.

The TNX chart in the menu shows the shorter T, which ended in May:

I am now on high alert as to whether or not we have a sustained rise above 50 on the RSI chart, and whether MACD kisses or crosses.

In my opinion, we may stay between 144 and 151 in price on TLT until the TLT T ends in October. This is based on staying below 1.43 on the Ten year until that time.  I don’t like talking fundamentals, but even if we begin tapering, bond holders take that to mean that longer term inflation will be kept in check. That would keep interest rates lower for longer, even if not as low as in the past.

Conflicting Charts, Price Moving Higher

I did not track the NYSE McClellan Volume Oscillator until recently. The McOsci, as I refer to it, is available hours after the daily close, while the VO gives an incorrect reading until Stockcharts updates it the following day. Recently the McOsci has been a better arbiter of price than the Volume Oscillator that I have traditionally followed. Following the McOsci, you can see a T with a left edge of June 1, a center post of July 19, and an ending date of September 5. But it is a ‘weak T,’ if just barely one. The McOsci really needed to get above 43, and it failed.

Keep in mind that as the VO and McOsci move higher (with higher lows), money is being dispersed–conversely, lower lows in the VO mean cash is being built up for the next advance. A T looks for bottoms on cash buildups as investment areas in a bull market.

According to the VO that I have used for years, a T has not formed. When two views using similar evidence point in different directions, it creates a murky view of the future. Additionally, based on a September 5 conclusion to the McOsci T, I would look for turbulence around Friday, September 3. It’s perhaps worth noting that September 3 marks the beginning of the Labor Day weekend in the US.

REVIEW OF THIS YEAR’S T’s

The last major equity T had a center post in March 2020 and lasted through April 29 2021. Since the end of that T, SPX price has moved from 4211 to 4466. That is about a 6% move, and for investment purposes, it’s always great to have a positive performance. I have not had an equity investment T confirmation since April 29. I can’t force the creation of a T, and I follow my rules. You can find them on the Concepts page.

Reviewing this year, using T Theory we garnered all 500 points (14%) from December 25, 2020 through April 29, with additional gains from my December 21 post which explained things were not going to be easy, and when to take profits.

Prior to recognizing the present TLT T, I posted on December 25 that there was a Ten Year Bond T that would continue throughout this year. TLT was at 156 on December 25. As I posted here on June 6 (with TLT at 139), a reversal was in order with the creation of the new T on TLT. Since June 6, the present TLT T has manufactured more than an 8% return, when you include the timely moves in and out of it.

The Exxon T has not garnered any profit, and is minimally behind. I will not be patient with it much longer, and have set a closing price of 56 as a stop.

GOLD

I have been known to be a gold bear, but the truth is I am more of a miner bear. In my mind, miners are dumber than rocks, or at least much less valuable. Looking at the chart below, GDX was at 31 in 2007 when Gold was about $600 per ounce. Unlike oil, which is mined and then utilized, practically all the gold ever mined is still in existence. There’s about 45,000 tons of gold that have been mined over the last 15 years, considering the Gold Council’s estimate that 2500-3500 tons are mined each year. How does adding more of an existing commodity raise the price of that commodity? Mining companies seem to always shoot themselves in the foot when it comes to mergers, hedging, or adding to their capital expenses.

In any event, that doesn’t keep me from looking for opportunities when GDX is close to 31. Between 2014 and 2020, I posted many times on Avi Gilbert’s elliotwavetrader.net that I did not see GDX making it above 31. But now I feel that 31 is extreme support. For a trade, because miners are still dumb.

I have posted this contrarian chart on the discount to NAV for two major gold funds in the past, and once more I give credit to Carl Swenlin of Decisionpoint for creating it. While many were laughing at the gold futures trade that marked gold down over 4% (for a few moments) last weekend, I think it is more relevant (and potentially profitable) to look at gold when we can all purchase it at such an extreme discount.

Gold negative sentiment is reflected by extreme discount to NAV

Even with Friday’s move higher on GDX, the discount grew in Sprott, and fell only slightly in the CEF. We are close to a buy. For a Trade. After all, we have completed Terry Laundry’s 20 year bull market in gold, until the next one starts.

Let’s see what happens around September 3. Stay safe.

Another Quick Note

For those interested, I have reduced my TLT holdings. While the T should continue until October, I am looking for the Ten Year interest rate to bounce here. (The note from July 21 would now read to watch out for a rise above the 20 EMA at 12.68–this might just be a temporary glitch allowing for a reset of technicals to bounce off the 50 region of RSI).

A pasted image

The Ten Year Rate T, which I suggested in my post on December 25 (and rescinded June 6), may have some short term legs here.

This is the updated version of that December 25 chart, which also shows the earlier rate T’s I had projected.

A pasted image

When Terry Laundry managed my money, he did so in an ‘all in’ manner. At this point, I am “more in” to cash right now.

At the time of this post the TLT T has garnered a 7.8% return, while SPX has gained less than 4.5% since the T’s inception on June 6.

Failure to Launch

The IWM/SPY ratio has failed to move productively. While this is not a big hit, I’ve taken this trade off. Here is a view this morning.

This trade takes up a good amount of capital, as you are trading two vehicles for one outcome.

TLT is still within its T, but there are constraints on rates. More on this shortly.

As for the volume oscillator on equities, there’s so much noise regarding the meaning of the low readings on participation in this rally. That by itself is inconclusive on direction, because when the VO moves lower money is being removed from the market, waiting to be put back in to the market. But the Complex/Simple chart has built up complex resistance at the zero line. Keep in mind that the VO represents the MACD of up/down volume on the NYSE. That means there’s resistance at creating a positive volume flow.

I don’t trust this market, but that means nothing as long as price continues to move higher. It’s been easier to be long Treasuries.

You may have noticed a new chart on the menu for a T on Exxon. It’s based on the technical indicators, not price. This hasn’t triggered yet, but I’ve taken a small position. My stop is 54.

Please keep your eyes on the charts in the menu, as I do make notes on them. Also, please look at the unmarked VO chart, and make your own observations.