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Expert technical analysis of financial markets by JC Parets
by JC
by JC
Here’s something that I’ve been noticing lately: After 3 o’clock rolls around over here on the east coast, US Stocks have been losing steam into the close. Sometimes we see a market rally throughout the day that fizzles into the close. And other times, an already weak session finishes up even worse. I’ve picked up on this new trend but hadn’t seen it plotted on a chart like this until this weekend.
The good folks over at Bespoke Investment Group absolutely nailed it with this one. Well done. The chart represents the rolling 30-day average of the last hour’s performance for the S&P500. Look what’s been happening most recently:
“A positive last hour of the trading day for the market is a sign that traders are comfortable holding stocks overnight and into the next day, while a negative last hour means they aren’t. Last-hour performance is also a good gauge of how traders feel about foreign markets and geo-politics in general since Asian and European markets open for trading while we’re all sleeping here in the U.S….
….Over the last month (22 trading days), the market has declined in the last hour of trading 18 times (82%) for an average change of -0.14%. More recently, the index has now declined in the last hour 8 of the last 9 trading days, and even this week when the market rose, it sold off in the final hour 3 out of 4 times! Traders are just doing whatever they can to get stocks off their hands by the time the 4 o’clock close rolls around”
I thought this was really interesting. I had noticed this new theme developing, but this chart is right on the money and tells the story well.
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Last Hour Selloffs Becoming The Norm (Bespoke)
Tags: $SPY $SPX $ES_F
by JC
We did a quick one this week. Just a few charts, but some really interesting ones I think. We went back and followed up on the Emerging Markets vs S&P500 relationship. We also updated our Herbalife chart after a really bullish week. And finally the relative strength in Energy I believe is worth watching.
Enjoy!
Tags: $HLF $SPY $EEM $XLE $OIH
by JC
I had the opportunity to hang out on the CNBC Fast Money desk for the full hour on Thursday. Here are some of the clips from the show:
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Tags: $AAPL $SPY $TLT $TNX $NEM $GDX
by JC
A technician has many many tools. But what a lot of people fail to realize is that all of these are just a supplement to the most important thing we have, which is price. Over the past few months I’ve received a bunch of emails and comments questioning the significance of Fibonacci numbers and people asking me to explain how I use it as a tool.
So let’s start with how the Fibonacci Sequence was first discovered. Liber Abacci, first published in the year 1202, was a book on arithmetic written by Leonardo of Pisa. We know him today as Leonardo Fibonacci. In the book, a problem is posed that first gave rise to this sequence of numbers: 1,1, 2,3,5,8,13,21,34,55,89,144, and so on to infinity. The problem was this:
How many pairs of rabbits placed in an enclosed area can be produced in a single year from one pair of rabbits if each pair gives birth to a new pair each month starting with the second month.
From Elliott Wave Principle:
“In arriving at the solution, we find that each pair, including the first pair, needs a month’s time to mature. But one in production, begets a new pair each month. The number of pairs is the same at the beginning of each of the first two months, so the sequence is 1, 1. This first pair finally doubles its number during the second month, so that there are two pairs at the beginning of the third month. Of these, the older pair begets a third pair the following month so that at the beginning of the fourth month, the sequence expands 1,1,2,3. Of these three, the two older pairs reproduce, but not the youngest pair, so the number of rabbit pairs expands to five. The next month, three pairs reproduce so the sequence expands to five. The next month, three pairs reproduce so the sequence expands to 1,1,2,3,5,8 and so forth.”
So basically the sum of any two adjacent numbers in the sequence forms the next higher number in the sequence: 1 plus 1 equals 2, 1 plus 2 equals 3, 2 plus 3 equals 5, 3 plus 5 equals 8, and so on to infinity.
Why is this important? Well after the first several numbers in the sequence, the ratio of any number to the next one higher is approximately .618 to 1 and to the next lower number approximately 1.1618 to 1. The further along the sequence, the closer the ratio approaches 0.618 (or 61.8%). Between alternate numbers in the sequence, the ratio is approximately .382, whose inverse is 2.618.
How do we use these numbers to our advantage? Well, we find them all around us everyday in nature. From the sizes of our arms relative to our torso, to the construction of Hurricanes, to Rams horns and even in our DNA. The more you dig into it, the more amazing this phenomenon becomes. But regardless of all that, the market cares. So we care. Go back to the market lows after the crash of 1987 and see where the 2009 bottom was after correcting from the 2007 top. Amazing stuff.
When markets are trending and a correction comes, and I mean any market: stocks, bonds, commodities and currencies, they tend to stop at certain levels before resuming the underlying trend. These levels are 38.2% and 61.8% of the previous move higher (or lower in a downtrend). We see this time and time again. But we’re not just buying because we’re at a Fibonacci level, it’s when these levels coincide with former support and resistance areas that it really becomes valuable. As I mentioned in paragraph 1, sentence 2 of this post, Fibonacci is just a supplement to price like everything else. If price says you have a good risk/reward AND you’re at a key Fibonacci level, I pay more attention, and will probably put on bigger size. Throw in a momentum divergence and maybe some sentiment extremes and you could have a home run trade.
Here is a good example of the Nasdaq100 finding support in April near 38.2% of the rally that started in November, before resuming its uptrend:
Fibonacci also comes into play when we’re at levels never seen before by a market. We’ve had this dilemma throughout the year as S&Ps were breaking out to all-time highs and we’ve had nothing to refer to in the past because we had never been up there. What I like to do then is take the most recent correction in the market, and once we breakout to new highs, figure out what the 1.618% and 2.618% extensions of that prior move would be to come up with an area of potential supply. You can use that level to take profits or even put on a short, if that’s what you’re into.
Here’s a good example:
And these are the 2 biggest ways that I use Fibonacci. But that’s just me personally. I also get asked a lot whether I prefer to use absolute highs and lows or closing prices. The answer is I use both. You can see in the example above that Regional Banks ($KRE) could barely hang on to the 161.8% level and was barely able to exceed it to run into the 2.618% extension of closing prices. I thought that cluster of extensions was interesting.
Time is a big factor as well. I know some smart guys that use the Fibonacci sequence in their cycle work and has helped them spot key turning points in the market. Like anything else in life, I can’t use every tool and indicator that we have at our disposal. But feel free to dig deep and see how Fibonacci can help you. Everyone is different. But I thought I would share how it helps me.
Here’s to our boy Leo Fibonacci, one of the great mathematicians in history.
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by JC
Here is the video in full:
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Business Day: Technical Tuesdays (BNN)
Tags: $CRB $DX_F $SPY $SPX $UUP $GC_F $GLD $TLT $TNX $ZB_F
by JC
The worst performing month of 2013 is now in the books. Funny enough, the S&P500 only lost 3%. But the internals and breadth in this market have been deteriorating for some time. We’ve pointed to several examples of this over the past 4-5 weeks, so today we reviewed some of that. Also bonds this week confirmed everything we discussed in last week’s video. They look great and everyone still hates them. And finally since it’s the end of the month, we took a look at the Dow Jones Industrial Average going back 20 years. And it looks like we’re up in the nosebleed section.
I hope you enjoy the video:
Tags: $DJI $DJIA $DIA $SPX $SPY $ES_F $TLT $TNX $ZB_F $CRB $DJP
by JC
Sometimes we allow our preconceived notions get in the way of objective analysis. I see this time and time again. A trader might be bearish on the stock market so that prevents him from buying a non-correlated stock in a beautiful uptrend. I’m guilty of this myself. We’re human right? Sometimes, when I rip through a series of charts, I don’t even look at the symbols. I just keep going until I find one that I love (or hate), and then see what it is. The best part about this process is when you like a particular chart, and look up at the symbol only to realize that you already own it. That’s when you smile, and move on.
So I’ve been posting charts on occasion without any labels or detailed time frames. Just a bar chart and our imagination. This week’s mystery chart sparked some nice conversations over the social interwebs. As usual, there were some great ideas and risk management procedures shared by readers and twitter followers.
The mysterious bar chart this week was Coffee Futures using 30-minute time frames. Here is the actual chart with dates and prices:
I agree with a lot of the feedback that this could be an excellent long above this overhead resistance. Momentum has turned up while prices have consolidated the last couple of weeks. With the downtrend line now broken, we’re just waiting for the overhead supply to dry up. And I have a feeling this should come soon. We’ll see….A breakdown below this consolidation could lead to another big leg lower. So we’re waiting for a breakout.
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Tags: $KC_F $JO