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Wednesday, 27 July 2011

Limbo Dancing

It's been interesting to watch the relative performance of the equity indices this week. Normally on a strong bull move we'd see NDX and RUT lead SPX, but although NDX has been leading here, RUT has been trailing a long way behind. I've added the comparative trendlines to this SPX chart and you can see than apart from NDX, all the main indices are trailing SPX here, including the equal weighted NDX, confirming the obvious, which is that this move up in NDX has been dominated by the big NDX components such as AAPL and GOOG:
I'm leaning bullish from here on balance and I'm looking at two patterns for short term direction. The first is a falling wedge that has developed on the ES 15min chart. This should break one way or the other today:
The second is on TF, where rising support from the low is now being tested. This is an interesting level as I still have a viable declining channel on TF and until that breaks up it is still very much in play. A break down through rising support would open up the lower channel target on TF, and that's under 800 now:
I saw someone referring to a golden cross on Vix that is taking place at the moment, so I've had a look at this. For anyone not familiar with these a golden cross is where the daily 50 SMA crosses the daily 200 SMA from below, and a death cross is where it crosses from above. These have been fairly impressive the last three years, and I've taken the view back six years to consider a reasonable sample of these. I've added a thick red vertical line for golden crosses (sell equities signal) and a thick blue vertical line for death crosses (buy equities signal). The crosses are hit and miss in my view, and the misses that spring most to the eye are the death cross in May 2008 that almost exactly captured the Vix low there, and the golden cross in May 2010, that almost exactly captured a Vix high then. You could argue that the May 2010 cross marked the flash crash then but by the time the cross was completed the flash crash was history, Vix had peaked, and SPX was in a bottoming process, so I wouldn't see this as a particularly successful signal. If the current cross is telling us anything, it is just a warning that the bears may not be finished quite yet:
I have a friend over to visit this week,so I've been writing my morning posts and then going out for the rest of the day after I post them. I was in a bit of a hurry yesterday and mislabelled Pug's EW count here as 2 of P3, when in fact it is of course 2 of 3 of P5, with P5 being the fifth wave from the March 2009 low. Apologies for any confusion that my slip of the keyboard may have caused. You can always see Pug's overall view at his longer term SP500 page here, and that includes his SP500 weekly chart below:
As I've been writing ES and TF have both been breaking support. That's switching my short term view to bearish for today. Next decent ES support at 1315.50.

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