Looking at the breadth readings this weekend two things stood out, the 10 day differential between buying and selling has been slowly trending upward and this weekend finished at its highest reading since this correction began and secondly and discordantly it has done so on limited buying. While this is a flag, I'm not sure which color to paint it just yet as the distribution that occurred over the previous two months was methodical without signs of panic so in kind perhaps there is no rush to buy just yet either.
 |
| 10 Day Differential |
 |
| 4% Adv/Dec |
A look at the intermediate trend still indicates a bearish oriented market, however there is a noticeable squeeze occurring as the differential drops to the lowest since 05/03. A cross could occur some time this week and as such I'll be paying particular attention to this as a filter as upcoming news hits the market.
 |
| Secondary |
A secondary tool I'll be looking closely at this week to filter the news flow is using historical volatility measure as a guide of market reaction. As the following chart shows volatility has been declining over the past few weeks. A declining HV in and of itself is not much of a tell as a comparison to last years price action showed; the market continued to chop for two months after the peak. What I did find noteworthy is the what happens to HV when the chop subsides and a smoother trend commences. There is what I construed as a volatility sweet spot where this indicator sticks and stays during the majority of the up trend.
 |
| SP Historical Volatility |
With the market firming I've begun to construct long oriented watch list in case there is a tradeable rally. If there's a momentum thrust to the upside and my indicators flip I'll be looking to take some light sized probing positions to see if I can build up a few small victories and take it from there. If I'm in cadence with the market cycle it should show up in the P/L column quickly and if I'm not then I'll step aside until breadth improves and the secondary and primary indicators both follow and align to the upside.
I greatly enjoy this post. I agree that the market is not poised just to resume a bullish trend. Could you comment on how many days your HV looks back on your Telechart Chart? Thanks.
ReplyDelete6/100 Day HV as discussed in Connors/Raschke "High Probability Short Term Trading Strategies" There is plenty of discussion online to research regarding this topic even if you can't come across the book.
DeleteI found the TC formula here: http://forums.worden.com/default.aspx?g=posts&t=42079
Thanks for the reply - much appreciated. I also look at the volatility and had found different TC formulas but was curious which you were using. Thanks again.
Delete