08/04/2012 Weekend Update

[Cobra]

The story this weekend is the Smart Money is record short. This is not a good sign but sometimes it takes months to realize, so might not be an immediate threat.

[Cobra]

Institutional accumulation and distribution from stock timing. It doesn't reflect the Friday's change though.

[Cobra]

AAII and II.

[Cobra]

gas price rose again. Here in Toronto area, I pay 1.3 per liter. 1 CAD almost equal to 1 USD now and 1 US Gallon equals to 3.78541 litter. So 1.3 per litter = 1.3 * 3.78541 = $4.9 per gallon.

[Cobra]

Dow theory, averages still not confirm.

[grachu]

cobra forgive me to ask but I don't know how to read AA II and II .. please

[grachu]

cobra DOW THEORY shows not confirmed meaning the new high we just did was not done by TRANS therefore bearish... sorry I must be in slow day today...

[Cobra]

cobra forgive me to ask but I don't know how to read AA II and II .. please

Only care when they're extreme. They're not, so you don't care.

[Cobra]

cobra DOW THEORY shows not confirmed meaning the new high we just did was not done by TRANS therefore bearish... sorry I must be in slow day today...

yes, your understanding is correct. However, divergence is difficult to time, so maybe TRANS would catch up in the next couple of weeks to eliminate the divergence. So divergence is not the reason to act, it's just a warning.

[Al_Dente]

Good morning weekenders

Correlation between SPY and the other indices
(Above .50 is considered positive correlation, with 1.0 being perfect 100% correlation.
Below .50 is negative corr, with -1.0 being 100% neg corr.)

[shaca]

i am really disappointed..
there is no need to comment NAUD and NYUD, NAUD divergence is so big.. and NYUD in the last 10 days is also in a negative divergence
tickq ma10 is negative while market is rising.. if they are going to start buying again, im sure spx would break 1420, if not..
nasdaq new highs are in a negative divergence, and so new lows
nyse new highs also in divergence

[wayne0708]

SPX and INDU weekly seem bullish, however, patterns look familiar!

[taggard]

http://medicalxpress.com/news/2012-08-i ... brain.html

above link to very simple idea--yet one rarely considered by traders. there is much chit-chat about "conformation bias" but in fact this is a tiny subset of a larger problem for traders which is something like "perceptual bias" eg more all inclusive. both the smaller subset (conformation bias) and the larger perceptual bias happen in a global manner. they can be an individual issues (your take on the world)--or they can be temporal (when you exist in history)--or they can be locational (where you live hang out etc). they can morph from one belief to another for example we have a one god bias--we also have a unified field theory bias--that there is somehow one core idea that will underlie everything and be a solution in whatever area of human experience you are talking about. this may very well be the case--it also very well could not be the case. The object here is not to get into a dispute about single god or single field theory stuff--it's simply to point out that for whatever reason people often have a perceptual bias.

the story above simply notes that when people focus too much on one thing--they pretty much miss everything else. a lady i know sent me some very unusual (and beautiful) tiny shells that she found on the beach. she was looking for another kind of shells and walked past these simply because she was not looking for them. then walking back on the same beach (so over the same ground) she saw these and was blown away. more to the point she instantly realized the really important thing which was this brain focal point thing=when every you look for one thing--you have (at the very least) a higher chance of missing everything else.

key idea--the reason she saw them coming back--was due to the fact she stopped looking for the other shells and was just looking at the beach as it was.

if you go into nfp days expecting the typical reversal (eg strong up moves at open usually/often "moderate/choke" later in the day and strong down moves do the same thing) you are going to see a strong move up as a way to short. you actually are going to discount or ignore the move up--and focus on shorting the top.

so what happened? You used a logical fairly provable "frequency of event" idea to find the trade that didn't really exist. This is the same as the lady on the beach.

the object is to unify the idea that you can short at the top--with the morning action. and this is one of intensity of focus and time frame not discarding either the POSSIBLE frequency of event idea--OR THE ACTUAL action as it played out. and the trick is to do what the lady on the beach did--only to merge the 2 approaches.

so the problem comes from mentally gripping the core idea "i am looking for this" and as a side effect "inadvertently discarding the current action". the object is to relax a bit on the "i am looking for this" and slide a bit of attention over to "the current action".

the other issue is time frames--if you are trading say 1min to 5 min--the move up looks pretty decent (you can nail a small trade) if you are looking at 1hour to 1week you could argue that the short "has to work unless it doesn't" next week. of course this still ignores the idea that it is supposed to happen on nfp day. So if you want to see more action--scale down your time frames--and leave out indicators is one take. again the point here is not trading 5 min charts being "better" it is a discussion of why people actually miss what is going on around them. Further the point here is not that the shorter time frame by itself is the answer--since you could watch the 5 min with the idea you have to short the exact top at which point the nfp move down will come.

the point is when we fail to relax and use part of our energy to look at the action and act 100% on a belief based system--it is going to diverge over time. or the more we have a trading system--or style--the less we tend to actually look and feel the action going on. Again the issue is not "this is right or this is wrong" it's that you want to consider and blend . only you can figure out what degree this blending can be.

We obviously cannot just let in all information or we would be stuck in one spot looking at the atomic structure of our computer--yet most traders wind up with a system which excludes a lot of information esp in a nutty market. so the object here is to think of attention as say "narrow focus" and "wide focus" and experiment by changing your dial settings. hint--if you have something that works say 3-10x and then you are scaling your position size up and so on--your vested interest in excluding data becomes huge. so perceived success tends to cause one to ignore potential or more likely inevitable failure. (or pride goeth before a fall). the solution to this is to really make every possible effort to widen your attention as your idea works over and over--in other words to do exactly what is counter intuitive.

thinking of the trading idea you are using as a "trend" then taking small "scalps" in exactly the direction you think is not the issue would be one idea--this forces you to stay in touch with the actual action--and allows you to trade the idea. likely the same thing works in one''s personal life. so if you are putting in 14 hour days the key is likely to do something else for 10 of those for a while--or at least to build in some version of this so that you don't get overly influenced by your trend.

[Al_Dente]

[Thanks shaca, here is another volume tidbit to add to yours]

Note the difference in volume between last week and this week.
Bulls need a bit more volume to continue levitating.
This could occur if 1) bears cover more shorts, and/or 2) more longs crawl out of the woodwork.

[shaca]

[Thanks shaca, here is another volume tidbit to add to yours]

Note the difference in volume between last week and this week.
Bulls need a bit more volume to continue levitating.
This could occur if 1) bears cover more shorts, and/or 2) more longs crawl out of the woodwork.

84wknd.png

yes, levitating is the correct word to describe this market
but if you look at a TRIN ma 10 or 15, shorts are at the lowest level since april.. not much to cover here

[tkvprasad]

[quote="Al_Dente"]Good morning weekenders

Correlation between SPY and the other indices
(Above .50 is considered positive correlation, with 1.0 beitng perfect 100% correlation.
Below .50 is negative corr, with -1.0 being 100% neg corr.)

84wkndcorr.png

[/quot
Thanks Al, very good chart to understand the correlation

I will try plot for $indu

[Al_Dente]

XIV daily, at triple top with negative divergence.
Folks were buying calls yesterday, even into the late-day dip.
With SPX purple behind price, u see how the vixen can diverge from SPX (which Tradergirl mentioned yesterday regarding VXX, UVXY).

“You know, I've got a plan that could rescue Apple. I can't say any more than that it's the perfect product and the perfect strategy for Apple.
But nobody there will listen to me.” [Steve Jobs, 1995]

Golden Oldies: http://www.youtube.com/watch?v=14Dgw_LS ... re=related

[Harapa]

Update on ECRI's Weekly Leading Indicator Based Trading Model developed by G. Vrba:
This model switched to "Buy" mode as of close of August 3rd, 2012 (original communication available free of charge at http://www.advisorperspectives.com/dshort/) . Now, I am back to Investor (B&H) mode. Also, note longs will do batter than shorts even for short term setups, as presented here in the past.

[Al_Dente]

FAIL
It’s only fair that I update this failed IWM signal posted last weekend.
The theory is sound: anything that gets too overextended (either way) will eventually “mean revert.”
[Analogy = overstretched rubber band….]
It failed (fail is marked in blue) mon thru thurs when the smalls got even more stretched.
Yesterday it signaled long again, when IWM “decided to” start reverting due to NFP.
This is no help for day traders, as being four days early/late can be costly.
So, I’ll put this ratio in my intermediate/long-term file, and I won’t hold my breath on its current signal….

However, these ratios are keepers, but note that they are also intermediate/long term, weekly.
The small to large cap VOLATILITY ratio is here paired with its STOCK ratio.
It is clear that the smalls VOLATILITY ratio yesterday spiked up bull (pink arrow), but its STOCK ratio did not confirm (red arrow).
[CAVEAT: grain of salt …]

“Everything comes to him who hustles while he waits.” [Thomas A. Edison ]

Beethoven on glass harp: http://www.youtube.com/watch?v=47TGXJoV ... re=related

[TraderGirl]

XIV daily, at triple top with negative divergence.
Folks were buying calls yesterday, even into the late-day dip.
With SPX purple behind price, u see how the vixen can diverge from SPX (which Tradergirl mentioned yesterday regarding VXX, UVXY).

84wkndxiv.png

“You know, I've got a plan that could rescue Apple. I can't say any more than that it's the perfect product and the perfect strategy for Apple.
But nobody there will listen to me.” [Steve Jobs, 1995]

Golden Oldies: http://www.youtube.com/watch?v=14Dgw_LS ... re=related

Great chart Al!! Looking at the SPX compared to XIV, looks like XIV is outperforming SPX (purple line), where as up until April of 2012 SPX was outperforming XIV...what does this chart look like longer term...what do you make of this? Does this mean too much complacency in the market?? Need something to compare it to, but XIV only been around for 3 years, but does have a good measure....

Edit: I guess up until July 2012 SPX was also outperforming XIV, but is now lagging...

Also, what is the turquoise blue line on the lower XIV chart??