Phil's Stock Market Blog

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Strong

noreply@blogger.com (gigascanner) — Sun, 07 Mar 2010 17:47:00 +0000

As mentioned previously, in a strong bullish swing the Climax High sell signals might go down for just a day or two, or sometimes just for an hour or two.

We see this especially in a constructive basing pattern, as a stock or market index forms a "handle". Sell signals tend to occur as the price reverses downward off previous highs or pivot points. But there's no follow-through to the downside. An upward break is imminent.

This appears to be what's going on now. We can take a breakout above the high of the Climax High signal as a contrarian buy signal.

And now come the sell signals

noreply@blogger.com (gigascanner) — Thu, 04 Mar 2010 05:10:00 +0000

There was another pulse of Climax High sell signals today. The chart below of RRY (Rydex 2X Russell 2000 ETF) is illustrative.

The daily numbers of Climax Highs and Lows are shown as indicators in the top 2 windows, in red and blue. They shift back and forth in waves, anticipating the price. Note for example the wave of Climax Highs in late December and January that proceeded the price decline. Then, about halfway down, a wave of Climax Low buy signals started kicking in.

The Climax Highs have been kicking in again recently, especially today with many of the broad-market ETFs showing signals (the chart below of RRY for example). The market will probably go down for a few days. But keep in mind that these signals can be extremely short-term in a bull market, as there will be numerous bouts of distribution (large-scale selling) on the way up. Climax Highs signals also tend to occur in a handle formation as it consolidates to a near-breakout. As noted in the previous post, RSU is currently forming an apparent handle in a cup-and-handle pattern (which is a bullish setup). For that matter, the chart of RRY shows a similar cup and handle except it's acting a bit stronger, having moved up out of the handle a couple days ago.

Buy signals in a Handle (nice)

noreply@blogger.com (gigascanner) — Sun, 28 Feb 2010 04:05:00 +0000

What's all this about the magic cup-and-handle pattern? People insist it's totally subjective, but I don't think so. I drew it in on the chart below. The trick is not to talk yourself into something that isn't really there. It has to have all the right features, particularly in the handle and along the lows of the cup. For example, we like to see a flat section along the bottom of the cup with the volume drying out and "triangling" down, and also the handle should be relatively flat and shallow, drifting downward as opposed to wedging upward. The quiet and triangling-down volume is important here too.

A good cup-and-handle pattern will be self-replicating. The chart below of the Rydex 2x SP-500 ETF is a perfect example; you can a miniature cup-and-handle which forms the bottom of the main cup.

A good pattern also tends to generate some killer buy signals along the lows of the cup, or in this case along the lows of the handle. It was a Climax Low buy signal (shown in blue).

Buy signal again

noreply@blogger.com (gigascanner) — Fri, 26 Feb 2010 15:00:00 +0000

The number of Climax Lows spiked up yesterday to 486, which is enough to stem the tide. Position-wise, a number of stocks and the market averages themselves are now apparently forming a shallow handle structure, following the cup formed by the recent sell-off.

I noticed there was a Climax Low buy signal in LLTC. This is one of my favorite chip stocks. It's the best-managed and most profitable semiconductor company of them all, by far. It has some very playable swings. Someday I think it will develop a significant uptrend.

Asleep at the switch

noreply@blogger.com (gigascanner) — Wed, 24 Feb 2010 04:03:00 +0000

I might have been a bit overoptimistic yesterday when I figured the correction would be a mild one. Problem was, I neglected to notice the Climax High sell signal in the Nasdaq. The volume stream was working at the time, so it's a valid signal.

Here's the chart, the sell signals are shown in red:

How bad?

noreply@blogger.com (gigascanner) — Tue, 23 Feb 2010 12:57:00 +0000

Not too bad. Yesterday the markets pulled back mildly, on contracting volume. So far, it looks like it will be a benign, shallow correction, if not a mere pause. Also, as far as I know, "DM" is still bearish. He was the guy bragging about how much money he made on the short side. (This would be a contrary indicator).

A bit extended

noreply@blogger.com (gigascanner) — Mon, 22 Feb 2010 04:26:00 +0000

Stocks have moved up for several days in a row on contracting volume, indicating a lack of demand. Then on Friday the indexes were up higher in the day but sold off toward the close to finish almost unchanged, on an increase in volume. This kind of action is reminiscent of a Climax High signal.

The chart below shows the daily numbers of Climax High and Climax Low signals plotted in red and blue in the top two windows. You can see how they come and go in waves. Starting in the 3rd week of December we saw a wave of Climax Highs kick in. It lasted over a month. Then came the wave of Climax Lows, leading to the eventual reversal upward with the Climax Low signal in the DJIA itself. But now this wave appears to be finished, and the Climax Highs are kicking in again.

I think we can expect a pullback next week, probably starting on Monday. Here's the chart:

Always right

noreply@blogger.com (gigascanner) — Wed, 17 Feb 2010 02:52:00 +0000

There's a certain guy I work with, let's call him "DM". No matter what I say, he always knows better. You know the type. Back on Feb. 5th I told him that we'd had a buy signal on the market. And of course (predictably) he scoffed, said something about how much money he was making on the short side. Proclaimed it "was" heading down, as if only a fool would think otherwise. This was supposed to be a result of something in the news. I think it was the financial crisis in Greece.

So DM, how are those shorts are working out lately? In retrospect we see that the buy signal caught the exact low, on the exact day. It was a perfect signal, based purely on technical action. It had nothing to do with events in the news. Here's the chart, the signal is marked in blue:

Amazingly similar charts

noreply@blogger.com (gigascanner) — Thu, 11 Feb 2010 03:49:00 +0000

Here are a couple more charts to ponder. The resemblance is amazing. But will history repeat itself?

The first chart shows the setup 3 days after a Climax Low signal in the Nasdaq back a few years ago, as it was well on it's way down. The signal is shown in blue. It's supposed to mark a low, and it usually works, but not this time. The market plunged the next day, and the day after that the Nasdaq took out the low of the signal, officially rendering it a Failed Signal.

The second chart shows the setup right now, 3 days after a similar Climax Low signal. This time it's in the Dow Jones Industrials. The similarity between the two charts is surprising, especially over the past several days, although there are some subtle differences. For example, this time around the price is above the 200-day Exponential Moving Average (shown in red), and the average is pointing up, not down. Also, the short-term pattern appears to be more of an ascending triangle, rather than a sideways one. One more thing, the index has closed the past two consecutive days above the high of the signal, which it couldn't manage to do in the other chart.

Irrespective (or notwithstanding) all this, my gut is telling me that the signal has marked a the low for the intermediate term, as it's designed to do. But that's why we developed the signals! Going on your gut usually is a bad policy in the stock market, unless your gut tells you not to trade from the gut.

Buy signals - update

noreply@blogger.com (gigascanner) — Wed, 10 Feb 2010 05:04:00 +0000

Well, here it is Tuesday night, and so far Friday's low (the low of the climax low signal in the Dow) has not been breached.

Monday the markets sold off, but on greatly reduced volume. Then today they were up, on an increase in volume from the previous session.

This behavior shows a net accumulation. I could see it backing and filling for a while, possibly re-testing Fridays low, possibly even breaching it intraday, but that should be about the worst of it.

For the time being we're sticking with our pronouncement in the last post, i.e., Friday's low will mark the low of the correction.

Buy signals

noreply@blogger.com (gigascanner) — Mon, 08 Feb 2010 01:20:00 +0000

But do we trust them?

Here are some pictures of Climax High and Climax Low signals, in red and blue. The daily numbers of the two signals are plotted in the top two indicator windows, again in red and blue.

In each picture you can see a wave of Climax Highs for a few weeks, then a wave of Climax Lows, leading to a signal in one or more of the indexes.

This picture shows the market top in October, 2007. The signal at the left edge failed outright, and the market went down hundreds of points. It's noteworthy however that it was undercutting a previous low at this point (can't see it on the chart, that would take a zoomed-out view).

The next chart shows the bottom in March, 2009. The wave of climax lows lead to a signal in the Nasdaq, but the real bottom occurred a few weeks later. There was a signal the the Dow, but just a minor wave of signals across the overall market. The third picture shows the current situation.

The third chart shows the current situation. I think in this case the climax low signal will mark the lows. Leading stocks like AAPL (which had a climax low signal) are apparently basing around after a big run-up, but without breaking down. AAPL right now is sitting on a long-term support line, comprising a series of recent lows, and also the highs from back in May and June of 2008. Basically it gave us a climax low signal bouncing off a long-term support line.

I think it's an inflection point, and Friday's trading will mark the low. But I could be wrong! If it fails, it fails. Watch carefully for a breach of the lows. If so, all bets are off.

Trying too hard

noreply@blogger.com (gigascanner) — Sat, 30 Jan 2010 01:00:00 +0000

Regarding that last post, you have to wonder why I'd go looking for buy signals at a time like this. Here's a repeat of our post from Monday, January 18th (the chart was current as of that date):

A number of stocks sold off on high volume Friday. A more serious correction may be in order, considering that the market has made a spectacular run since the lows last March.

This is not incompatible with a possible bounce tomorrow.

Here's a chart of the Nasdaq with the latest signals. The Climax High a few days ago lead to a quick drop, then a retest of the high, and then Friday it got hammered. Monday's data is a repeat of Friday's, since the markets were closed. Unfortunately the volume data has dropped out again for the Nasdaq. It does that from time to time. Still no good explanation from our data vendor. But trading volume was up sharply across the market.

Another look

noreply@blogger.com (gigascanner) — Fri, 29 Jan 2010 14:31:00 +0000

Well, I looked at a bunch of stocks again and now I'm thinking the market will bounce, and it will happen today. There was a pulse of buy signals on Wednesday, most of which failed, but some of yesterday's signals are just too compelling. These stocks I figure will foreshadow a broader bounce.

Stocks like COHR, PEZ, and AIR for example.

Flushing needed

noreply@blogger.com (gigascanner) — Fri, 29 Jan 2010 02:18:00 +0000

There was somewhat of a pulse in the number of Climax Lows yesterday but I didn't want to mention it. Sure enough, the bounce off the support line in the Nasdaq lasted exactly one day.

So... somebody should leave me a comment! How am I ever going to get on CNBC, much less get the web site to pay for itself. Let me know you're out there!

Nasdaq sitting on support

noreply@blogger.com (gigascanner) — Wed, 27 Jan 2010 15:29:00 +0000

The Nasdaq has pulled back just to the former breakout point and is going up this morning. But how will it close? Where's the wave of buy signals?

Here's a fresh chart. I drew in the support line:

Oversold bounce?

noreply@blogger.com (gigascanner) — Wed, 27 Jan 2010 03:39:00 +0000

Here's another look at Flowserve (symbol FSV). Last time we noticed was run up, and that a correction was due. At that point the market still looked good, but within a few days it became clear FLS was indicative of the bigger picture. First there was the Climax High in the Nasdaq, and then a down day on a sharp increase in volume. And very shortly after that we had the mini-crash. Sad but true.

The chart also shows the daily numbers of Stocks Down >= 3 Consecutive Days plotted as a breadth indicator. It's in the second indicator window, plotted in magenta. When it spikes up above the baseline, as it has yesterday and today, an oversold bounce is usually imminent - although not always. Sometimes it will remain elevated for a few days, and subside more slowly, as happened during the recent bear market.

Notwithstanding Flowserve a number of stocks have been relatively unafected, either pulling back to breakout points without breaking down, or otherwise forming constructive basing patterns (accumulation / distribution remaining over 50%). So a bounce is within range on this basis too.

Crash!

noreply@blogger.com (gigascanner) — Sun, 24 Jan 2010 02:53:00 +0000

The possible bounce on Monday came true, and then the market sold off for the rest of the week. They should interview me on CNBC. Every one of the analystis they had last week was bullish, which only served to strengthen my contrary opinion.

A bounce will happen eventually, possibly even on Monday (again), but for the moment it's going straight down. At some point we'll get another wave of buy signals. Meanwhile, here's a chart of the Dow Jones Industial Average. The Climax High sell signals are shown in red:

Possibly something more serious

noreply@blogger.com (gigascanner) — Tue, 19 Jan 2010 02:01:00 +0000

A number of stocks sold off on high volume Friday. A more serious correction may be in order, considering that the market has made a spectacular run since the lows last March.

This is not incompatible with a possible bounce tomorrow.

Here's a chart of the Nasdaq with the latest signals. The Climax High a few days ago lead to a quick drop, then a retest of the high, and then Friday it got hammered. Monday's data is a repeat of Friday's, since the markets were closed. Unfortunately the volume data has dropped out again for the Nasdaq. It does that from time to time. Still no good explanation from our data vendor. But trading volume was up sharply across the market.

Latest

noreply@blogger.com (gigascanner) — Tue, 12 Jan 2010 14:38:00 +0000

Well, by now a number of stocks are getting a bit run-up. The chart of Flowserve is a great example. There was a Climax Low signal a few days ago, and a sharp run-up on good volume. But by now it's run up to a previous high. A correction is due.

The red and blue indicators at the top of the chart show the daily numbers of Climax High and Climax Low signals. There is a certain rhythm to it. We've seen a pickup in the number of Climax Highs recently as the market has consolidated, although so far it's refused to go down. With any luck we should have another wave of Climax Low signals soon. Or at least a little pulse. Things are so strong that this may be all we get.

Broke out

noreply@blogger.com (gigascanner) — Tue, 22 Dec 2009 20:14:00 +0000

Here's another chart of the nasdaq. I realized I could put it right in the body of the text, rather than do a link:

Sure enough, it broke out from the cup-and-handle base and went on a tear. The volume was missing a few days ago, apparently because it exceeded 2^31st power, i.e., a little over 2 billion. I think it's the result of using a variable somewhere declared as a signed 32-bit integer, which will overflow at a little over +/- 2 billion. The data vendor says they will investigate it asap, however it may be happening upstream of them.

New highs (based on available data) are marked in green. The blue price bar bouncing off the 50-day XMA is our famous Climax Low signal (how's that for a perfect buy signal???), and Some Climax High signals are indicated in red. Note that in a bull market, there will be numerous bouts of selling (Climax High signals) on the way up, but a resultant downturn could be very short-lived. Shorting stocks in a rising market is not recommended!

Breaking out

noreply@blogger.com (gigascanner) — Tue, 15 Dec 2009 14:34:00 +0000

The market is obeying my predictions perfectly. Here's a chart of the nasdaq composite index showing the cup and handle. It's annotated to show the Climax High and Climax Low signals in red and blue, and also new high signals in green.

Notice how the pattern tightened up, and now the price is breaking into new high ground on increasing volume.

More about yesterday's signals

noreply@blogger.com (gigascanner) — Tue, 01 Dec 2009 13:01:00 +0000

I forgot to mention - there was a big pulse upward in the Number of Climax Low indicator yesterday, with a total of 619 signals.

It's similar to what we saw on July 13th, when there was a Climax Low signal in the Nasdaq and a wave of 649 signals across the database . It proved to be the exact low.

Climax Low signal in the Nasdaq

noreply@blogger.com (gigascanner) — Tue, 01 Dec 2009 05:14:00 +0000

There was a Climax Low buy signal today in the Nasdaq, right off the 50-day XMA (eXponential Moving Average). This will likely be the low of the handle in the "cup and handle" chart pattern.

Here's a chart.

Our stock pick from yesterday went down today - although it will probably go up tomorrow. Just goes to show importance of being in sync with the overall market. Assuming today's signal in the Nasdaq market works out we'd expect most stocks to go up from here, especially ones putting out buy signals today.

Here are a couple nice ones from from the Stocks in Motion table:

ACN is broke out from a classic cup-and-handle pattern today. It's 6% or so off it's all-time high (based on database data).

FDS is pushing up from the low of a shallow base-on-top of a base, following a breakout to an all-time high several weeks earlier. It formed as the market consolidated over the past couple weeks. The Accumulation / Distribution and RS Rank numbers are higher for FDS than for ACN. Also the pattern is tighter, with less intraday volatility. I think I'm talking myself into this one. ;-)>

Shakeout and a Bone-Head signal

noreply@blogger.com (gigascanner) — Sat, 28 Nov 2009 17:20:00 +0000

The Nasdaq gapped down at the open on Friday, just to the 50-day exponential moving average. From there it spent the rest of the day going up, except it sold off a bit on the close. For now we're sticking with the Cup-and-Handle theory. The Nasdaq is currently forming a Handle, as detailed below, and Friday's action was a shakeout. As of the close, the accumulation / distribution reading is exactly 50%.

We ran a screen for All stocks, up >= 0.5, close >= 20, A/D <= 60%, RS rank >= 60, no sort, limit 20 results... and only one stock came up. The symbol is FAZ. It looks pretty good, putting out a so-called Bone Head signal. The fact that it did so on a day like Friday indicate there must be something really unusual going on.