Saturday, April 04, 2009 2:37:05 PM
It works, doesn't it? Just watch. That is a monster warning sign. When the EMA is moving down below the SMA - undertanding what the EMA is screams out at you that something is up. The beauty of that as an indicator is that it's nearly impossible to see in the charts unless you really look closely at each candle and how they each close compared to the previous ones. The EMA/SMA crossover does it for you automatically.
Personally, I think the reason for the gaps is obvious. Too many short with obvious double risk of both losing your short profits and seeing each resistance level break forcing all the quant funds which trade technically to come in.
But don't be fooled!
I know it's 1999 all over again with Cramer (who at SPX under 700 re-affirmed his 'get all your money out of the market if you need it in the next 5 years' call). This rally is indeed different in breadth than the previous ones. The last one was from Dec to early Jan which took the SPX up 200 points in 4 weeks or so. We're now up 170ish in the same time with absolutley every indicator overbought.
Like I said, I don't really put too much into most indicators because they are mostly lagging and stay overbought. The key to timing larger reversals is mean reversion and looking at these charts using both the 20 day SMA as one indicator to give you a '20 day mean average over the last 3 months' as a guide to overbought/sold and specifically the linear regression channel which not only gives you a more scientific mean average (center) but also the 1 full standard deviations from that based on my 3 month chart, you can clearly see how overbought or extended the Russell 2000 is and the specific stocks like PPG, BRCM, etc....
(remember, you get an 'average' price via a moving average or regression by trading around an up AND down price - that's why these things will pullback)
Those regression levels (the actual numbers, not the upper and lower lines) are you reversal targets.
Personally, I think the reason for the gaps is obvious. Too many short with obvious double risk of both losing your short profits and seeing each resistance level break forcing all the quant funds which trade technically to come in.
But don't be fooled!
I know it's 1999 all over again with Cramer (who at SPX under 700 re-affirmed his 'get all your money out of the market if you need it in the next 5 years' call). This rally is indeed different in breadth than the previous ones. The last one was from Dec to early Jan which took the SPX up 200 points in 4 weeks or so. We're now up 170ish in the same time with absolutley every indicator overbought.
Like I said, I don't really put too much into most indicators because they are mostly lagging and stay overbought. The key to timing larger reversals is mean reversion and looking at these charts using both the 20 day SMA as one indicator to give you a '20 day mean average over the last 3 months' as a guide to overbought/sold and specifically the linear regression channel which not only gives you a more scientific mean average (center) but also the 1 full standard deviations from that based on my 3 month chart, you can clearly see how overbought or extended the Russell 2000 is and the specific stocks like PPG, BRCM, etc....
(remember, you get an 'average' price via a moving average or regression by trading around an up AND down price - that's why these things will pullback)
Those regression levels (the actual numbers, not the upper and lower lines) are you reversal targets.
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