Wednesday, February 26, 2003 8:00 PM EST
As you can see from the Indicator page, our measures as a whole are almost exactly dead neutral in the short-term, and a little positive in the intermediate-term. This goes well with our models, which reflect the same conditions as the indicators. We've seen no substantial change in our posture for the past week, which I guess is good considering the market action during this time. No sense in getting chopped up if there's no edge to be had.
I know that many of you don't take advantage of the tools on the site, and instead rely on the commentaries as they are sent out. They've been sparse lately and unfortunately there is really nothing to say again this evening. I've literally gone through each of our indicators and models three times today, looking for something that would shed some additional light on our current situation, and give us some edge with which to work. To be perfectly honest, I cannot find one item. This is the never-ending cycle of this type of analysis - we'll go through periods of a week or two or three with really no edge present in any of our time frames, so the commentaries will be light. Then we'll get to a point where we can define multiple good opportunities, and things really heat up. Right now, we're just sitting in the bushes, waiting for some prey to amble by. It's best to not jump too early and blow the whole deal. In a word, patience.
My stance remains the same. Take advantage of the very short-term (intraday) extremes when they occur, but keep it light and very quick. The cumulative TICKS and price oscillators have done a decent job at identifying these extremes lately, so be sure to check them if your time frame is applicable (you can find a link to the intraday charts on the Daily Overview or Intraday Comment pages). They are updated on the site twice daily by 11:15am and 2:45pm EST. When a new trend begins, they will fail (for example, if we break out to the upside, they will suggest that we're overbought, but if it's a new longer-term trend, price will continue to rise) so please be aware of that. Longer-term, we continue to have several positive underpinnings that would support a significant move higher, but we have not seen any indication that we are near that imminent intermediate-term rally. As I've been stressing for weeks now, it almost always takes some kind of dramatic movement to create a good low when we're mired in such a downtrend, so I would continue to look for that before becoming too aggressively long.
Disclosure: no positions
This disclosure is not intended as trading advice in any form. It is meant as a note to subscribers that the author may have a position directly affected by the market outlook reflected in the commentary. Although the author takes great pains to remain objective in any commentaries, it is only fair that readers should know that the author may have taken positions in accordance with his market outlook. Positions can and do change at any time, without notice to the reader.
Monday, February 24, 2003 7:50 PM EST
Many of you have noticed some changes to the Indicator section of the site, and I want to go over what has been done. I've had a note up on the Indicator page for a few weeks stating that the page would soon be changing, and it has as of this past weekend. The chart below highlights the changes that are now apparent.
The above is what you'll see when you click on links for "Indicators". The goal was to present all relevant indicators to you so that you can see with one quick glance what the overall bias is. The type and number of check marks that an indicator receives is determined mostly by how far the indicator is stretched from its mean value, usually using standard deviations as the determinant for extremes. Each check mark receives a "score". Two red check marks - the most bearish the indicator can be - gets 0, while two green check marks - the most bullish reading - gets 4. At the bottom of the "short-term" and "intermediate-term" sections, the scores for the individual indicators are added up and we get a final tally which reflects the current situation as a percentage of the maximum possible score. A reading of 50% would be exactly neutral, while 0% would be the most bearish possible and 100% the most bullish possible.
With these changes, you should be able to see with a quick glance what our current situation is. If you see a bunch of red check marks and a low final score percentage, then the chance for declining prices is high. I am currently working on attaching probabilities to the final tallies, so that we can say something like "if we have a final score of 32%, then the probability of the market declining over the next 5 days is 75%". I have also begun an archive, so you will be able to go back to any previous day and see the table for that particular day. Of course, with today being the second day, there's only one entry, but it will fill out over time.
For those of you who prefer to see the indicators grouped by category (i.e. volatility, breadth, etc.), a page similar to what we had before is still updated daily and there is a link to it from the main Indicator page.
In addition to the cosmetic changes, you now also have access to detailed information about virtually every indicator on the site. By clicking on the indicator name, you will see background information, how the indicator is calculated, an historical example and various relevant statistics.
I hope these changes make your visits to the site more meaningful, relevant, quicker and easier to use. As always, I welcome any and all feedback.
As for the market, I hate to say it but there's really not much to say. As I mentioned in the intraday note, we continue to remain stuck in a range with little but our shortest-term indicators reaching extremes. However, we still do have some positives for the market, mainly on the longer-term time frames.
The Specialist Short Ratio dropped once again, this time to 32%. As you can see from the chart on the site, this is more than 2 standard deviations from its bear-market mean, which is quite notable. I said a few weeks ago that since 2001, this indicator has been exhibiting a general trend of lower highs and lower lows, with each new market low generally bringing about more and more public short selling. At some point, this type of activity will cause a huge snapback rally, but I believe we could see readings similar to what we've seen recently for another six months to a year before such a long-term rally would become a more distinct possibility. In any event, the most recent reading here suggests that lower prices, if we were to get them, should prove to be a buying opportunity. How much lower prices need to go is a function of your risk tolerance and time frame, but I do not believe we are yet at a point where it would make sense for most traders to begin seriously considering a heavy dose of un-hedged long positions.
Other than the Specialist Short Ratio, the sentiment surveys were relatively muted and the Commitments of Traders data didn't shed much more light on the situation. Shorter-term, our breadth ratios are all neutral, the put/call ratios are mixed to slightly bullish, Rydex assets are slowly recovering from the pessimistic extreme they reached a week or so ago, and we are still not seeing anywhere near the volatility or volume we should be seeing if looking for an intermediate-term low.
In all, really nothing much has changed from a week ago. We have a smattering of longer-term positives, but the majority of our models and indicators remain stuck. I said last week that it would be extremely unusual for the market to put in a major low with such lowly relative volume and volatility, and that continues to be my main hesitation against becoming too bullish. If we are able to see a pick-up in volume with some wild intraday gyrations, shaking out "weak" holders of stock, that would be very constructive. In the meantime, I don't see a compelling reason to trade the long side for anything more than an intraday or one-two day trade (barring any major geopolitical developments of course). By default, then, my preference for longer-term trades continues to be to use rallies as selling and/or shorting opportunities, but I would not be particularly aggressive in that strategy either. At the moment, I prefer to wait until this muck clears up and a better risk/reward scenario is presented to us.
- Jason Goepfert
Disclosure: no positions
This disclosure is not intended as trading advice in any form. It is meant as a note to subscribers that the author may have a position directly affected by the market outlook reflected in the commentary. Although the author takes great pains to remain objective in any commentaries, it is only fair that readers should know that the author may have taken positions in accordance with his market outlook. Positions can and do change at any time, without notice to the reader.
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