The Magazine Cover Indicator Strikes Asia

As I write this, the Asian markets have continued to fall.

Bearish Projections Come Out of Hibernation

A few weeks back, I wrote that the market was incredibly overbought. Well, that was back when the S&P closed at 954.58. The market continued to surge higher and get even more overbought as it surged past 1000, tagging 1015 last Friday.

The market's downward action this week has worked off some of that overbought condition, and some tremendously bearish near-term projections have come out of hibernation.

The first one appeared in a Marketwatch headline from earlier today:

But one market technician believes trading volume in recent days on the S&P 500 Index is a sign that the broad market gauge will test last month's lows, then likely fall under its March low either next month or in October.

The decline in volume started on Friday and suggests the S&P 500 will make a new low beneath its July 8 bottom of 869.32, probably next week -- on the way to a test during September or October of its March 6 intraday low of 666.79, said Tony Cherniawski, chief investment officer at the Practical Investor LLC, a financial advisory firm.

"In a normal breakout you get rising volume. In this case, we had rising volume for a while; then it really dropped off last week," said Cherniawski, who ascribes the recent rise in equities to "a huge short-covering rally."

The S&P has rallied more than 50% from its March lows, briefly slipping in late June and early July.

Friday's rise on the S&P 500 to a new yearly high was not echoed on the Nasdaq Composite Index, bringing more fodder to the bearish side, according to Cherniawski. "Whenever you have tops not confirmed by another major index, that's another sign something fishy is going on."

The second bearish projection appeared in the comments at Slope of Hope. The chart drew my eye, and soon enough, the host of Slope of Hope featured it in its own post. Here's SoH commenter Virginia Jim's handywork:

Rural Alberta Advantage

The Rural Alberta Advantage first caught my ear while listening to the weekly CBC Radio 3 podcast. This three-piece from Toronto?!? has a catchy lo-fi pop sound that you may find enjoyable, so here are three examples of their work:

Trashcan Sinatras - In the Music - Live in Japan

The Trashcan Sinatras have returned with a new record (soon to be available here in the States) and are touring starting right about now. Here's the title track, recently performed live in Japan:

Superchunk Live at South Street Seaport

Superchunk live at South Street Seaport last Friday.

I first saw 'em play outdoors at Swarthmore in 1993. They still rock.

"Learned to Surf," off of the Leaves in the Gutter EP released earlier this year:



"Driveway to Driveway," off of 1994's Foolish:



"The First Part," an ode to foreplay (I believe), also off of Foolish:



And they closed the set with "Slack Motherfucker":



Or you can watch the last three songs together in this superior video:

Superchunk | NYC @ South Street Seaport Pier 17 | 17 Jul 2009 from UN:ART:IG on Vimeo.

As you may be able to tell, there were lots of different people videorecording this show and they kindly posted the results on YouTube.

Word for Wednesday is OVERBOUGHT

Metric

I think I'm meeting the CanCon requirements considering how much music I post on this blog from up north.

I've been digging on the new Metric record. The Grey Lady just posted an article on Metric's Emily Haines and other DIY musicians who are eschewing the outmoded record label business model.

Here's the video for Gimme Sympathy, which has a Chinese fire drill much like Sloan's Losing California video, which is not available on YouTube.

Nimbly Trading The S&P Next Week

The markets in general had a spectacular run this week. The major U.S. indices are extremely overbought according to RSI(2). However, that doesn't mean one should load their portfolio with puts or uber-short ETFs, take a week off, and then sell 'em for substantial profit. It's not quite such a sure thing...




I wrote the following on the above chart, but it's the key takeaway, so it's worth reiterating: Where will the S&P go from here? The previous three extreme RSI(2) events give us three possibilities: 1. S&P goes down; 2. S&P goes up; or 3. S&P goes sideways.

Let's take a step back, filter out some of the noise, and note the general S&P trends:




The market trend is still sideways, with the price action soon to bump into some nice overhead price resistance.

I'm holding nimble short positions right now, meaning I'm looking for some profit-taking opportunities if the market decides to become less overbought next week, but I'm ready to dump my shorts quickly if the S&P convincingly breaches the ~950-955 overhead resistance level. That would mean that sideways trend F is giving way to upward trend G.

Update on the S&P Trading Outlook

This is the chart I made quite recently with my near-term outlook on trading the S&P 500:



And here is an updated version, with an educated guess as to what may happen to the S&P 500 after the initial excitement of some earnings beats gets priced into the market:

Gold Bust

My dour gold trade hasn't worked out quite as planned:

Trading Outlook for the S&P 500 Next Week

Charts for Wednesday

Coeur de Pirate

Listening to the 200th CBC Radio 3 Podcast this afternoon, I heard the lovely lilt of Coeur de Pirate. Grab a plate of poutine and enjoy:

End of a Rangebound S&P 500?

Here is an up-to-date chart of the S&P 500 for the past three months:


The market has been trading within a 60-point range over the last two months. The S&P is currently heading toward the lower end of the range after last Thursday's 2.6% dump.

The questions for me are:

1. Does the convergence of the 200DMA line and the lower end of the recent trading range mean we'll see the S&P fall toward the ~880-level, fail to penetrate it, and perpetuate the rangebound trading action through the summer?

2. Or, on the other hand, if the ~880-level is convincingly broken, should I then pile into a healthy short position as the market breaks down yet again?

I'm waiting and watching, with a small amount of money currently engaged in the market.

With these questions in mind, I have a couple of other annotated charts in the back of my mind.

Here is a longer-term chart of the S&P showing an interesting trendline I found. The red line shows support in late-January and early-February became overhead resistance in May and June.

On the chart below, we see another recent, related trading channel broken to the downside:

Matt & Kim

Pitchfork pointed me to Brooklyn's Matt & Kim. My first impression is they've got that Beat Happening DIY-thing going, but with infectious energy. And they make good videos. Here are a couple:

Ed McMahon's Legacy

On a more tasteful, serious note, I bet Ed said "Here's Johnny" during the golden toilet scene. And the lawyers flushed that line. No, really.

Speaking of flushing, the price of gold is swirling down...

Tim Knight at the Slope of Hope convincingly made the technical argument for going short gold in several posts. Here's the post that caught my attention:

06/18/2009
I {Heart} GLD Short

Sorry to keep harping on this - - particularly to those who belong to the First Church of Precious Metals, but I'm just ga-ga over shorting GLD right here. It's (a) a clean trend break; (b) a terrific failed pattern; (c) has a clean-as-a-whistle stop; (d) a great risk/reward ratio.

Unfortunately, Tim closed out his GLD short just as I piled into some puts. I think he may have pulled the trigger too soon. Let's look at some charts (click on 'em to make 'em large and legible):







A fundamental reason for gold to fall is deflation.

Here's an updated annotated chart with my trading plan:

Innocence Mission on PRISM circa 1995

Below is the Innocence Mission's appearance on a PRISM show featuring performances from the Chameleon club in Lancaster, PA. The band had recently released Glow, my favorite record of theirs, so enjoy.

Throwing Back the Apple

This is Pale Saints, a shoegaze band signed to 4AD Records during the late-80's and early-90's. "Throwing Back the Apple" appeared on their 1992 record, In Ribbons.

Looking at AAPL, if I were long, I wouldn't be throwing back the apple just yet:

Golden Crosses

Bloomberg ran a premature piece yesterday by Julie Cruz on the golden cross. What is the golden cross? Here's an excerpt that explains the phenomenon:

The Standard & Poor’s 500 Index is approaching a so-called golden cross that’s considered a buy signal by analysts who make predictions based on patterns in price charts.

A golden cross occurs when the 50-day moving average, which is currently at 878.04 for the S&P 500, rises above the 200-day moving average, which is at 918.33, Bloomberg data show. The formation implies further gains for the stock market, according to this type of technical analysis.

“If the S&P can hold above its 200-day moving average, the potential for a golden cross increases,” Mary Ann Bartels and Stephen Suttmeier, technical analysts at Bank of America Corp., wrote in a report to clients yesterday.

The U.S. benchmark index’s 50-day moving average has been below the 200-day moving average since December 2007. The 40-day moving average already went above the 150-day moving average in May this year, forming a so-called silver cross, according to Bank of America.

As much as I enjoy playing with technical analysis, I find I'm still quite skeptical of its reliability and predictive capabilities. So I fired up charts of the S&P 500 since 1980 and picked out the twelve golden crosses over the past 30 years.

I have attached and annotated those twelve golden crosses in charts below. I have marked the date of the golden cross with a purple vertical line, the next day's open price with a red/green line, and charted the next six months-or-so to see if the trade was profitable or not. Please click on the image to make it large and legible.














Before considering the success rate of buying the index at the open following the golden cross event, one should note one significant caveat: the bull market of 1982-1999 encompasses nine of the twelve S&P 500 golden crosses since 1980. That means there's already a positive bias on these results. However, the most recent three golden cross trades were post-1999, and were all very profitable.

Taking into account upwards of a six-month holding period for the trade, my quick-and-dirty analysis says that golden cross trades numbered 1, 3, 8, 9, 10, and 12 provided excellent returns. Trades numbered 6 and 11 provided good returns. Trades 2 and 5 had their moments but were mediocre. And trades 4 and 7 were craptastic.

From this admittedly small sample size, the golden cross S&P 500 trade looks pretty good, but with a one-in-six chance for craptastic results, is far from foolproof. Golden crosses can engender golden blunders.

Kingdom of Rust/Ill-Placed Trust