Saturday, March 28, 2009 10:07:43 AM
Here's my problem right now with trying to predict the market and getting into all this happy talk: the charts. Specifically the 'mean' averages.
Larry Connors of Trading Markets wrote a book where they scientifically went through millions (I think it was 7) of trades over 12 years and basically came up with really one astounding conclusion -- mean reversion works.
If you look at that lower TNA chart above, the lined channel is the upper and lower 100% linear regression extensions with the center line the average, or 'mean', price point for that time period. In that case, it's the 3 month. Simple moving averages are basically the same thing.
The point is, any stock's price is going to 'average' a specific price point over time. When it gets too far in one direction or the other, eventually it will revert back to the mean. If it goes high, obviously that mean price point will be higher also as that average mean price rises with the stock.
Looking at the TNA chart, you see that it's trading at the upper 100% regression extension - which is rare for any stock and especially an index. The SPX is also in that territory. So, the assumption is that we have a big pullback ahead of us.
The 20 day MA for the SPX is 753. We're 9% higher than the MA. So, the expectation is that the price and MA will converge now before any big upside run happens.
The MA is rising fast now, so that level could be around the high 700s.
Larry Connors of Trading Markets wrote a book where they scientifically went through millions (I think it was 7) of trades over 12 years and basically came up with really one astounding conclusion -- mean reversion works.
If you look at that lower TNA chart above, the lined channel is the upper and lower 100% linear regression extensions with the center line the average, or 'mean', price point for that time period. In that case, it's the 3 month. Simple moving averages are basically the same thing.
The point is, any stock's price is going to 'average' a specific price point over time. When it gets too far in one direction or the other, eventually it will revert back to the mean. If it goes high, obviously that mean price point will be higher also as that average mean price rises with the stock.
Looking at the TNA chart, you see that it's trading at the upper 100% regression extension - which is rare for any stock and especially an index. The SPX is also in that territory. So, the assumption is that we have a big pullback ahead of us.
The 20 day MA for the SPX is 753. We're 9% higher than the MA. So, the expectation is that the price and MA will converge now before any big upside run happens.
The MA is rising fast now, so that level could be around the high 700s.
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