This first chart I'm showing is unusual, in that it doesn't take into account any measurement of time. It's called a "3-point break" chart, and it's an offshoot of Japanese candle charts.
This is a daily 3-point break chart of the S&P 500. In order to get a reversal bar on this chart, it's necessary for prices to fully reverse the previous 3 bars on a closing basis. In other words, you only get a reversal of trend on this chart when the previous 3 highs or lows are taken out at the close. Putting a bar up with the trend is much easier -- during an uptrend such as we have now, a new bar is formed on any higher close, even if it's just fractionally higher.
The thing I want to point out here is that the SPX is now working on 14 continuous bars higher. This is an exceedingly rare occurrence for a chart to put up so many higher highs in succession, without a reversal of the previous 3 bars. In fact, you have to go back to the blow-off to the upside at the end of 1999 -- the tail end of the bubble -- to see this many bars in a row on the daily 3- point break chart.
During the entire bear market, there were never this many continuous down bars in a row without a reversal on the daily 3-point break chart, even though prices were traversing much greater distances during those tumultuous slides.
So this is just one more piece of evidence on how this current price action is stretched-too-far, and how such conditions don't spring up often. I've also shown recently how the daily fractal dimension on the SPX has moved down under 30, which is a rare event. This makes it hard for prices to move further (although not impossible, of course).
As I mentioned yesterday, when a trend gets this stretched it makes for a very interesting opportunity to take the other side. With a daily fractal dimension in the 20's, it is highly likely that sideways to lower prices will be seen over the following weeks. That's why I'm interested in loading into some bearish Rydex positions on any further upward movement from here which carries the SPX up over 1140.
Much to my surprise, when I checked the 150 minute chart of the SPX, I found that there is actually some energy stored up here for another 3 to 5 day run to the upside. There has been enough congestion and sideways movement to allow for another 150 trend to get started. We can even see tentative signs that this 150 uptrend is beginning.
This is a good reason to give this monster move up some more room before stepping in front of the "moving train."
Also piquing my interest in a short scenario is parabolic shape of the daily SPX chart. (Please forgive the crudely "mouse-drawn" parabola....)
Parabolic blow-offs usually come at the tail-end of moves, and are accompanied by accelerated price action. They are also harbingers of an equally violent reaction the other way -- even if it is just a temporary neutralizing move. But this rally has gone so far without a breather, that any neutralizing pullback here could carry prices back quite a ways.
Depending on how such a pullback develops in terms of price and sentiment, we may actually get a decent shot to go long, provided enough people turn bearish. But we'll have to see on that. First we need to see if the SPX has enough juice left to make a run at that 50% bear market retracement level, right around 1140 to 1150, giving us the "easy" short.
Sentiment Dashboard
By Adam Oliensis
SENTIMENT TANK: Drained by 7 points to 4% full of negative sentiment.
SHORT-TERM: Continued the Advance phase begun on Monday.
MID-TERM: Progressed on the Decline side by 3 points to 47% with Confidence regressing by a point on the "wrong" side of ZERO to a bullish +1
LONG-TERM: Moved from Neutral by 3 points to 85% on the Advance side with Confidence holding steady at a bullish +3.
BOTTOM LINE: A year-long look at the Sentiment Tank is informative.
The inverse correlation between the Sentiment Tank and the SPX has sustained through the past year at -0.95. The character of the correlation has enjoyed three distinct phases, however.
During period A the Tank trended lower as the SPX trended higher. During period B the Tank chopped around in a prescribed range. Finally, during C, the Tank broke through to a series of new lows, continually "re-normalizing" itself to accommodate a market that has steadily gained faith in the Recovery thesis. All through the autumn and into winter the merest spike up on the level of the Tank has brought buyers into the market, as you can see on the blowup of the Tank above. As long as this pattern sustains it will be a thin bet to get caught in front of the SPX train.
While Death may never take a holiday, except in the movies, Seasonal Strength now takes one until January 13. With the Tank down at 4% there may be one post-coital shudder higher to drain the Tank completely empty, but we're ripe for one of those little Tank Spikes up, or should be within the next day or so. Given the return of some choppy seasonal strength a week from now, the likely scenario is for a Tank Spike to bring in some buyers yet again. (But of course we'll be watching for any action that defies our "likely" script.)
Se não receio o erro é porque estou sempre pronto a corrigi-lo
There's no bull side and no bear side. JUST THE RIGHT SIDE!
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