Market uptrend: Finally time for a breather?
Despite some short-term weakness in this week’s overall market trend picture, the intermediate- and longer-term trend of most major indices and sectors remains up. There’s plenty of room for the market to correct further here – and it’s certainly due for a breather – but it will probably take a significant sell-off from these levels, or a period of prolonged weakness, to damage the current positive intermediate-term picture.
Key downside support levels remain about 1490-1500 for the S&P 500, 2510 for the Nasdaq, 865 for the Russell 3000, and about 13,250-13,300 for the DJIA. Upside resistance is now at about 1530 for the S&P 500, 2590-2600 for the Nasdaq, 890 for the Russell 3000, and 13,600 for the DJIA.
New positions
MSC Industrial Direct Co. (MSM) – Last Monday I sold some June 50 calls against my long position in MSM (purchased 5/21/07) as the stock rallied back above 50 to test (and later surpass) its recent highs:
MSM remains in a solid uptrend and appears likely to work its way high over the short and intermediate term. If so, it will likely encounter resistance at about 52-53 and at around 55 – its all-time high. Near-term downside support is at 50 and ~48.
New York Community Bancorp (NYB) – Last Thursday my limit order to sell calls against my long position in NYB (purchased 5/21/07) was triggered when the stock opened sharply higher following an analyst upgrade:
The stock sold off during the rest of the day and closed at or near its lows – not a great sign as far as the near-term trend is concerned. While NYB’s intermediate-term picture remains neutral to up, a drop back below 17.5 here would suggest a likely retest of the 16.5 to 17 area. A move below 16.5 would cause me to re-assess my outlook. On the other hand, a move above the 18 resistance level would constitute an upside breakout.
Watchlists
Stocks of interest in this week’s “upside strength” scans include Agilysys (AGYS), American Greeting (AM), Barnes & Noble (BKS), BJ’s Wholesale Club (BJ), Borders Group (BGP), Commercial Metals Co. (CMC), EMC Corp. (EMC), Family Dollar Stores (FDO), Fifth Third Bancorp (FITB), Grey Wolf (GW), Intel (INTC), Korn/Ferry International (KFY), Pentair (PNR), Snap-On Tools (SNA), Sprint (S), Shaw Group (SGR), Vodaphone (VOD), and Williams Companies (WMB).
Stocks of interest in this week’s “oversold” scans include Consolidated Edison (ED) and Hospitality Properties Trust (HPT).
Dear Sir,
Thank you for your rcent post, fully agree with overall market direction. Next few weeks should be interesting.
Have been tracking your “trend watch site” also and find it very interesting, but have a few questions if I may:
If the trend shows same color and shade for several days, what is meant/indicated by the different numbers ? (their was a break in trend) ?
How much each day does the market have to close “up or down” before you consider it a “+” or “-” to the trend (ie: 20 cents or ?)
Trying to “get a feel” for how it can be helpfully along with general chart ?
Also, wondering if you create this manually or via TA software/tool ?
How do you use this in your own trading or with your PutSelling stradegy ?
Thank you for any comments and your continued posts.
F.S.
Hi,
My weekly trend page attempts to identify:
1.) the trend periods (from very short term up to about 500 days in length) that are “in sync” with the market at any given time, and
2.) their direction (indicated by their color – green for “up” and red for “down”).
Trend periods that are “out of sync” with a given market or index are filtered out and not displayed, so a totally trendless market – that is, one that is all “noise” over all time frames being observed – would have no identifiable trend periods and would basically be represented by an empty box on the trend page.
I did this to try to avoid having to rely on any one or two favorite moving averages – such as the 50-day or 200-day moving average, or whatever – to identify the market trend(s). While the fact that so many people do use certain averages makes them important, and maybe even self fulfilling to some extent (although I think this could work both ways), I don’t think any particular moving average(s) is inherently any better than any other at identifying the market trend at any given time – or any less prone to being “whipsawed.”
I happen to use a moving linear regression (or “time series forecast“) function for the trend page calculations instead of a simple or exponential moving average calculation, but I don’t know that it ultimately really matters one way or the other. (The different calculations would give different results at any given time, but would probably prove about equally effective over the long run.) I don’t use the market price itself directly to determine the trend, but the slope of the linear regression line.
To illustrate how I interpret the trend page, I’ll use an example of the trend spectrum page from Friday, May 12, 2006 – which was posted the week the market began to break down leading into last summer’s correction. On this date, for the S&P 500, there were relatively few trend periods identified as being clearly in sync with that index – only periods ranging from about 10 to 90 days and from about 120 to 145 days – and all of them were negative (red).
The bolder colored numbers are trend periods that had been (and currently were) identified as being in a higher degree of “sync” with the index than those trend periods that were not bolded, and which were therefore likely to be more significant. In this case, for the S&P 500, it didn’t make much difference since all the displayed trend periods were negative.
However, that wasn’t the case for the DJIA and Russell 2000 index (and others) on that date. Despite still showing a lot of green (“up”) trend periods in their trend spectrum charts, those indices’ only bolded trend periods were all negative – a sign that while the markets may have appeared “mixed” at that point, the bias (for the short and intermediate term at least) was down.
I generate the trend page weekly using a Perl program I wrote to process end-of-day data files. I use this information as a general guide to the market’s short- and intermediate-term trend, and to help me decide whether to be more or less aggressive in my put- and call-selling activities. However, I don’t use it as a market timing tool or as a way to decide to be “all out” or “all in” the market.
I hope this helps answer your questions. Thanks again for your interest.
Dear Sir,
Thank you for you complete and detailled explanations. Some seriuos thought want into this I can tell.
I’ll have to read your comments a few times to get the full scope.
Your efforts and attention to such detail leave me to think your investing/trading is much bigger then average individual. Please don’t feel obligated to reply to this comment. Its more of a personnel comment, because I hope to reach the level of investing and understanding it takes to do this as a living and for managing 100% of my own financies etc for retirement (with some hope to get out of the corparate world sooner then later!).
Thank you for sharing your comments. Look forward to your next post.
Best Regards,
F.S.