Hopefully a couple of you spotted the ‘buy’ signal that was generated on Tuesday. More on that in a minute.
As you know, I was expecting some kind of market top to get put in and the action that began last Friday, March 2nd, and ended on this past Tuesday is not what I had in mind. I was looking for a top and then a pull back lasting several weeks, if not longer. Even though my top call turned out to be a bad call, there was still too much weakness in the market, as far as I was concerned, for me to get back in. However, on February 21st I bought a few shares of TNA at $62.90 figuring that if the market was going to head higher then I might as well take part, even if it was only in a small way. My timing couldn’t have been worse. When the market started to break down last Friday, I was certain that I was in for a long ride into the abyss. That changed on Tuesday when the breadth indicators that I follow, and that you should be following and logging by now, gave ‘climax’ sell signals which indicated to me that most, if not all, of the selling was over. As a result, I added to my TNA position in the AH on Tuesday at 53.46 and now own TNA at an average price of $58.18. It wasn’t easy for me to add to an already losing position, but the System indicated a new ‘buy’ signal and so I just had to go with it. Now for the details.
First and foremost, the RSI’s on the 60min charts of all the majors dropped to or below 30 in early trading on Tuesday. Per the 60min trading strategy, this is the most important event in the generation of a new buy signal and this set the stage for a possible break of the down trend line and a bullish 13/34 EMA cross, both of which happened today for $SPX, among others.
The $TRIN closed at 2.38 indicating that the selling had most likely gotten out of hand.
96% of volume went into declining issues indicating panicked selling, which you normally don’t see after just a couple of down days.
$NYUPV dropped to 33 when 80 is usually all it takes to signal a climax selling event.
$NYADV dropped to 262 when the line in the sand is 500 so this was showing an extremely oversold market.
The daily $NYAD dropped to -2510, when -2000 is all it takes.
$NYUD:$NYUPV dropped to -24.41 when -12 is good enough.
$NYSI dropped by 87 pts and this is right in the range of a previous climax signals from this indicator.
Zweig Breadth Thrust dropped to 40.05. This is actually borderline oversold because it should have dropped below 40 but given everything else that was flashing oversold I figured it was close enough.
4wk New High/Low Ratio dropped to 7.57 when anything below 15 is showing extreme oversoldness.
And that’s that. The market went extreme oversold after just two days of selling generating a fresh ‘buy’ signal based on a climax selling event. I’m still very paranoid about what’s going on with things like $NYSI so I plan to just let my TNA ride for a while and see how things go.
I want to leave you with a chart that was given to me by a friend in Helsinki. I’ve been watching this chart of $VIX:$VXV and especially the MA’s, which have not been lower since the 09′ lows. Please take some time and back test the chart so you can see for yourselves. The only thing that is missing, IMHO, is for the $VIX:$VXV to close at 0.77, which won’t be easy. Back in the middle of February this ratio closed at 0.79, but that just wasn’t low enough. Perhaps this chart, like so many that I’ve put up over the past few weeks, does not have any predictive value but you won’t know that looking out the front windshield. You’ll only know for sure when you see the action in the rear view mirror.
I won’t be back for a while. Too much work to do.