By Ryan Redfern, CMT, ChFC
1/ Did I Nail That or What?!?
2/ Recheck the Count
3/ Upside Down – Inverted “Ducks”
4/ Modified “Early Warning” MACD
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1/
Did I Nail That or What?!?
I’m not sure I could have picked a worse index to highlight in yesterday’s update. But the Semiconductor sector got crushed after showing so much promise. The quote “Everybody has a plan until they get punched in the mouth” from Mike Tyson comes to mind on days like this.
But wait, I did have a plan and was able to cut my losses and still make a small gain. Let’s review the SMH chart again and I’ll show you why.
Each time SMH is near a high and has a dramatic sell-off, there tends to be a short-term top happening. And it doesn’t tend to revisit those highs until after further movement downward. In semiconductors, at least seven of these “tops” occurred just this year, so maybe the trade is done for now. But, anything can happen.
Courtesy of Optuma
2/
Recheck the Count
With some dramatic selling happening in parts of the market yesterday, is the financial world now finally coming to an end? To answer that, I’d better revisit the count of the S&P500 sectors using DMI as shown yesterday.
Huh. No changes. Sector DMIs are still showing Positive 9 to Negative 2.
On the positive/buyers side, we have 9: (XLB, XLC, XLF, XLI, XLK, XLP, XLRE, XLU, XLY). These are largely made up of the sectors you would think of as market leaders – Technology, Communication Services, and Consumer Discretionary.
On the negative/sellers side, we have 2: (XLE, XLV). These include an interesting mix of defensive and cyclical names. But this list is slim at the moment, so overall, there’s not much to be concerned about just yet.
Something else that jumped out to me on today’s list is that XLC (Communication) held up well while the rest of the “Tech” and “Semis” fell off a cliff. I’ll be keeping an eye on that as one of the places I could rotate into next.
Courtesy of Optuma
3/
Upside Down – Inverted “Ducks”
As I mentioned on Monday, I think of the data points on Julius de Kempenaer’s RRG charts as “ducks” swimming around a “pond.” And when you watch it long enough, you can start to sense where they might go next.
Another way I like to look at the state of broad market indexes is to look at a basket of Inverse (or “Short”) funds for 10 of the major markets: Russell 2000, S&P500, NASDAQ100, Emerging Markets, Developed Markets, High Yield, 10- and 20-year Treasuries and even Bitcoin for good measure.
What we’re potentially seeing now is this group of indexes starting to swim up into the “Improving” quadrant – with the two inverse Treasury Indexes out into the Leading area (which is no surprise as they’ve been falling steadily since the Federal Reserve lowered interest rates).
What comes next? Maybe there is something more to yesterday’s market volatility than meets the eye. At least, that’s where these “ducks” seem to be heading.
Courtesy of Optuma
4/
Modified “Early Warning” MACD
One thing I can never seem to do is leave well enough alone. I can’t just leave indicators in “standard” settings when any number or number combinations are possible. So this one is fun, and something I’ve found useful in my “early warning” toolkit.
My favorite is a Fibonacci MACD using 8,21,5 (instead of the standard 12,26,9). I’ve always had this tendency to look at charts and indicators with numbers from the Fibonacci series. And in reality (and practice) it isn’t that much different than the traditional MACD settings, except that it does tend to have crossovers one bar earlier – before everyone else is getting their signals.
Other uses for Fib numbers on charts: Using 5 on a daily chart represents one week of trading. Using 21 on a daily chart represents one month. Using a 55ma instead of the 50ma everyone else is using just feels…right. Ooooo so elegant.
Courtesy of Optuma
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Originally posted 16th October 2024
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