A Detailed Technical Update of the S&P cash, S&P futures, DJIA cash, Gold futures, the VIX and the US Dollar Index ... as well as a look into the "Crown Jewel" of Dubai

Fibozachi's picture

Fibozachi

A Detailed Technical Update of the S&P cash, S&P futures, DJIA cash, Gold futures, the VIX and the US Dollar Index ... as well as a look into the "Crown Jewel" of Dubai

 

 

The
ES (continuous contact S&P 500 futures, current basis December, ESZ09) has four
resistance levels at previous support on the daily (marked above by
white horizontal lines) and recently gapped from above the upper FIB to below the lower FIB
(click on any chart to see a larger in crystal clear detail).  Until the
11/06/09 closing level of 1066.25 is decisively broken, this weakening
uptrend of narrowing breadth and its multi-week topping process will
continue.  For Fox-like anal-ytic balance for the bulls, short-term
upside targets would be 1121 (the 50% retracement of Primary wave 1
(circle)) and 1127 (where the downward sloping monthly 34 EMA currently
lays).

 

When
charted on the weekly with semi-log scaling, the ES has met ‘key
trendline’ resistance that connects the October 2007 all-time high with
the May 2008 high (Intermediate wave (2) of Primary wave 1 (circle). 
The S&P 500 has reached a multiple confluence of inflection points,
not only in terms of price but also in terms of both time and
sentiment. 

 

 

Since
the March lows (and especially since April) several technicians have
pointed toward DJIA price targets of either 10K (round number) or
10,356, which is the 50% price retracement of the entirety of Primary
wave 1 (circle).  And in terms of a time retracement, many of those
same technicians have steadfastly pointed toward Nov. 17th, 18th
(trading days) & 23rd (calendar days) as possible terminal
inflection points for this strong upward correction, which, in the
parlance of Elliott Wave is termed “Primary wave 2 (circle).” 

Since
the Bullish Marubozu weekly candle that closed 7/17/09, 10470 became
the updated price target, as measured from the 7/10/09 closing low of
8146.52.  As an aside, March 6th itself provided several clues that
the 17-month downtrend was abating (after a Bull Harami candlestick
pattern plotted on the $INDU alongside a High Wave on the $INX).  The
real star of 3/6/09 was the $BKX (KBW Bank Index);
where a Doji candle plotted on the hourly, closed 15:00, while the
next hourly bar (closed 16:00) plotted a wildly bullish wide-range bar
after blatantly failing a new low at 17.80 by just four cents.

 

When
charted on the weekly with linear scaling, the SPY (S&P 500 ETF)
has also come into the same ‘key trendline’ resistance.

 

Continuous
contract Gold futures (@ GC, current basis February, GCG10) registered
a Strong ‘Cycle Top’ sell signal last Thursday (11/26/09) on the
144-minute interval period after failing to eclipse $1200.  The next
session gave attentive traders a very nice present in the form of an
outsized intra-day swoon of approximately 5%; every $1 profit/ loss on
the spot price of GC (gold futures) equals $100 per contract.  Not a
bad day’s work even if ya only caught part of the move.

Over
the past two weeks, innumerable folks with access to a keyboard and an
internet forum have staked their reputations on guarantees that gold
would grab “$1200 within the next day or two.” Apparently, none of
those folks has access to technical indicators that actually work. 
Ours do.

Gold bugs are an interesting crowd.  They tend to be
driven (almost exclusively) by fundamental data points and emotionally
laden personal opinions.  With gold in a secular bull market since
late-September 1999, we at Fibozachi
believe that the shiny, yellow metal will see much, much higher prices
years down the road.  Our long-term personal belief out of the way, the
synthetic-cash asset of gold remains the only commodity (if not the
only non-cash asset) to have escaped the guillotine over the past two
years/ one decade. 

Our intermediate-term personal belief, which is far from the hard right edge (the next bar on a chart, coined by Alan Farley),
is that the spot PoG (price of gold) will be heavily depressed by the
next all-encompassing round of deflationary pressures.  We think that a
monstrous DX/ $USD rally combined with an “all-the-same-markets
deleveraging of assets across the board will depress gold back toward
prior inflection points between 760 and 660 over the next 21 months …
before precious metals (as a collective group, denominated in all G-8
currencies) resume their long-standing date with destiny in Q3 of 2011,
during the next leg of the fiat currency death spiral.  Again, this is
merely off-peak anal-ysis, which, at the end of the day, is nothing
more than semi-educated personal speculation.

Such personal
opinion and off-the-cuff anal-ysis during off-peak hours has absolutely
nothing to do with either the Identification, Isolation, Timing, Execution and Management of actual trading signals during peak-hours or the Probabilistic Nature of Trading
Fundamental data points and fevered speculation (albeit warranted)
about blatant central bank manipulation versus technical indicators and
actual trading signals; we’ll leave the emotionally laden adjectives to
others, recommend that any trader read/ re-read Mark Douglas’ seminal
work, “Trading in the Zone”, and continue to focus on things that will actually make us money (technicals and price action). 

As
Douglas teaches, “anything can happen” … only the fullness of time will
decide who wins this recent battle.  Will our fractal technical
indicators and advanced inter-market analysis prevail over the
emotionally driven fundamental arguments of stalwart gold bugs?  We
think so.  And if a daily buy signal registers then we will be among
the first technicians/ traders to weigh its potency and report our
findings.

Gold futures registered a moderate ‘Cycle top’ sell signal on the daily during Thursday’s session (11/27/09) as per our Elite Oscillator™. 
And by the close the daily plotted two noteworthy candlestick patterns:
a Hanging Man and a Tweezer Top.  Please note that the last time a
daily EO sell signal plotted (6/1/09) that it directly preceded the
only
significant correction within gold’s monstrous rally.  Friday’s
high-low range of 64.90 was the largest daily range since 3/18/09,
which just edged it out with a 67.40 range.  

It is worthy for bulls to note that this recent one-day swoon held the 11/19/09 continuous contract intra-session low of 1,131.60 by a single tick (gold futures have a minimum fluctuation of 0.10 per troy ounce). 
Futures traders would also be wise to note that the front month
contract (current basis February, GCG09) is currently testing the 76.4%
upward price retracement of its 11/27 swoon at $1182.4 (as of 02:33).

 

The DXY/ US Dollar Index remains beneath a critical daily trendline (four distinct touches) and Spectra-Trader™ has yet to plot a long signal since last January-March.   

 
Much
like the extreme DSI readings (daily sentiment index) for gold and the
extreme weekly investment advisor readings for equities (AAII), the short DX/
$USD trade has become exceptionally lopsided by rampant retail
speculation.  And much like how the broader, secondary US equity
indices have blatantly failed to confirm new highs in the DJIA …
silver, copper, oil, the entire CRB (Commodity Index) and even actual
measures of inflation have all blatantly failed to confirm gold’s new
nominal highs (denominated in US Dollar$ alone).  Furthermore, new
highs denominated in only the $USD without any confirmation from other
G-8 currencies amounts to a glaring negative divergence.  

Finally:

without the $USD at decade lows;
without the €EURO at fresh highs;
without inter-market confirmation from either Aussie (AUD) or Swissie (CHF);
without secondary confirmation from new highs in the HUI/ XAU (Amex Gold BUGS Index), DJ-15 (Utility Index), DJ-20 (Transportation Index), TSX (Toronto Stock Exchange), SSEC (China’s Shanghai Composite Index) Bovespa (Brazil’s BM&FBOVESPA), XAO (Australia’s All Ordinaries Index), JSE (S. Africa), OR even the GDX (ETF replication of the GDM, the Amex Gold Miners Index); and
without actual inflation to speak of today or point
toward tomorrow … we can’t help but sit back, scratch our heads and
wonder whether anyone remembers last July, when oil was over $140 ($170
futures) and rice shortages were feared across the globe. 

 

Look
folks: commodity market tops are like equity market bottoms, they each tend
to be sharp affairs surrounded by extreme collective sentiment;
commodity tops of significance almost always plot parabolic
spikes before they pop and tend to be marked by bouts of widespread
public fear.  This is in sharp contrast to significant equity tops, which tend to
be ‘rolling’ affairs that take time to flesh themselves out by
expending the last bits of remaining firepower from latecomers to the
party.  For more detail about this particular nuance of technical
analysis please see Gold vs Silver, the US Dollar vs Gold and the US Dollar Index, Technical Profiles of 8 Key Stocks and 6 Primary US Equity Markets.

 

 

On
the weekly, the $DXY/ US Dollar Index has strong support at a rising
trendline from the Q1 - Q3 lows of 2008 as well as a strong band of
horizontal support that surrounds 74.48.  Spectra-Trader™ remains firmly red and price continues to ride the underside of the lower FIB
as it searches for a significant multi-month low, which will have
serious ramifications for global equity, commodity, credit, currency
and bond markets.  A breakout that plots two consecutive closes above
the upper FIB will provide a strong signal that a significant reversal is underway; any close above 76.89 (a previous wave iv (circle) of Minute degree) will effectively shift the DX/ $USD’s profile toward a decisively bullish posture.  

Drilling
deeper down into the hourly: watch out for any close above 75.88, which
would be unabashedly bullish. As we wrote on 11.18.09, within Gold vs Silver, the US Dollar vs Gold and the US Dollar Index:

“….
until there are two consecutive closes above 76.89 there is NO uptrend
to speak of.  The EURO appears to be initially confirming a possible
USD bottom.  Swissie (CHF) and EuroYen (EURJPY) are the next two
majors/ crosses needed to confirm any possible US Dollar bottom.  For a
more detailed explanation of both the VIX and the $DXY/ US Dollar
Index, please see Comparing the 6 Primary US Equity Markets, VIX Fibonacci Cycles and the US Dollar at a Critical Juncture.

 

The VIX found support at a previous swing low on Wednesday, held above 20.00 and then leapt from well below the lower FIB to well above the upper FIB
on Friday.  A previous close at 20.48 plus a ginormous gap open at
25.75 equals an overnight gain of 25.73% on the open; not bad for those
playing futures and front month options.  Friday’s shortened session
marked one of the strongest daily opening gaps in the relatively short history of the VIX; unfortunately, for complacent longs and sellers of premium, it gapped in the wrong direction. 

Ultimately, after:

1)   
two consecutive hanging man candlestick patterns on the Wilshire 5K
daily (the single most comprehensive measure of US equity market
breadth;
2)    continually narrowing market breadth, most clearly
exhibited by a noteworthy transition of US equity index leadership from
the Russell 2K to the DJIA;
3)    universal cat calls for the demise of the US Dollar Index;
4)    universal cat calls for the spot PoG (price of gold) to reach [insert $ symbol and ridiculous # here]; and
5)    achieving numerous measures of time, price and sentiment, detailed over the past few weeks, here, here, here and here;
… what could be more Socionomically fitting for the US equity markets’ kickoff to Primary wave 3 (circle) than the stench of default from Dubai, the crown jewel of 21st century capitalism. 

Click anywhere in this sentence for a press release, er, article, entitled “Emaar unveils The Palace Residences, the ‘Crown Jewel’ of Old Town Island." 
Click
anywhere in this sentence to examine the floor plans, pricing and
specific amenities within this “Crown Jewel” that opened its doors on
11.25.09
… just hours before the decadent mirage of an opulent
Dubai was irrevocably eviscerated.  At the ‘all inclusive price of
28.35 million AED per villa as of 11.25.09, a simple conversion from United Arab Emirates Dirham to US Dollars equates to approximately $7.7 million.

As the first “news article” above states within its very first sentence, this development's opening was going to be special:

“Further
establishing the appeal of Downtown Burj Dubai as one of the most
sought-after and premier lifestyle destinations in Dubai, Emaar
Properties has unveiled an iconic residential project, The Palace
Residences, to strong investor response.”
Unfortunately, for Emaar Properties, The Palace Residences of Dubai will become infamous in its timing, much like the China South Locomotive IPO of August 2008

 

Here is what one of us said on 8/20/08:

[8/20/2008
11:05:28 PM] <Chopshop> china south locomotive .. remember that
name bc it will be a mkt trivial pursuit question some years from now
... when you are asked what was THE last IPO before [Minor wave 3 of
Intermediate wave (3) of Primary wave 1 (circle) of cycle wave c] took
hold, you will know, lol
[8/20/2008 11:11:23 PM] <Chopshop>
ok, let's just get goldman to buy neuberger from leh already, let's
hear some nonsense about wachovia, let's hear msft for yhoo for the
19,000th time, maybe rimm or aapl can get a licensing deal for angola
or mozambique worthy of an upgrade and lets pick this puppy up for one
last stroke before we paralyze her … and get JP Morgan Chase Mutual -
ovia

 

All joking aside, we at Fibozachi firmly
believe that equity markets have reached another momentous inflection
point with yet another tidal wave fast approaching.  And while it will
take a bare minimum of 2 - 4 days for possible confirmation of a
significant downturn across both domestic (US) and global equities …
in terms of technicals, what could possibly be a more appropriate way to kick off Primary wave
3 (circle) down then the VIX holding above 20 just before entering
full-blown liftoff?  

As always, we hope that this quick overview is helpful and thank you for taking the time to read our thoughts.

 
Disclosure:
we anticipate becoming long the $DXY US Dollar Index via DX futures and
short ESZ09 once a multiple confluence of proper trading signals
confirm themselves; during any given session we may trade either of
these instruments bi-directionally.

For similar technical takes, market calls and insights, please visit our brand new website, www.fibozachi.com
There, you can view both our complete body of analytic work as well as
detailed explanations of the unique design development and technical
methodologies within the proprietary technical indicator packages that
we use daily to perform a comprehensive technical analysis of stocks,
options, ETFs, futures and FOREX across interval periods of time, tick
and volume.

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zhandax's picture

Fibo,

While I agree with you in principle, every single move in pretty much every market since March  has seemed to go into slow motion, extend, and miss obvious turning points.  Already today, spot gold has banged 1199.95.  While I have hung onto the SPY puts I picked up cheap Wednesday, I am increasingly of the belief that Ben and his international cohorts will rest at nothing until they outprint every dollar with any sense behind it.  I got the puts for a quarter and will hang onto them for shits and grins, but now as a hedge for the double eagles I am buying this week.  I have zero confidence in these worthless thieves and liars we have seated in congress and don't for a moment believe that anything currently on the horizon will interfere with Ben's reappointment or the CB's (identical to banksta's) agenda.  The international CB bubble is nowhere near full fruition and has some time yet to pop.

I would love to see it otherwise, but at some point, one has to become realistic.  I have come to the realization that there is no way I will emerge from the next 6 years unscathed, and I am becoming increasingly comfortable with the concept of incurring net worth damage in exchange for seeing genuine public wrath dispatched upon the perps.

Anonymous's picture

"Gold for December delivery rose as high as $1,199.30 an ounce in electronic trading on Globex, marking a record."

Anonymous's picture

Gold hit 1198.80 already this morning....wave goodbye to Elliot.

Grand Supercycle's picture

 

The primary trend for equities remains down and we will make new lows according to my charts.

My USD indicator has been giving BULLISH warnings for some time and I'm still expecting a dollar rally.

The VIX index continues to give bullish warnings as well.

The bear rally in equities has to end at some stage ...

http://www.zerohedge.com/forum/market-outlook-0

Anonymous's picture

I enjoyed this article. Normally I only make it about 1/2 way through your articles because I can't figure out your point. After finishing reading your article I surmised you are looking for a dramatic decline. Is that right? I've been trading for almost 14 years and have done extensive research for 15 years. I have read the works of thousands. The three smartest by far were Prechtor, Dr. Fekete and Dr. Richebacher. None were/are even to those 3, in my opinion. Unfortunately Dr. Richebacher passed away a few years ago. I hang on every word of Prechtor and Fekete. I believe we are nearing another waterfall decline. I believe you EW people call it a Primary Wave 3. What is your Dow target in price and time. I believe this wave will take us to Dow 5000 by next fall. You?

gatopeich's picture

Great briefing, Fibo, I was really looking for something like this since the weekend.

I mean, some reasoned idea about when to call a top for gold this year. After reading this great post, I am mentally positioning for:

  • A top on Gold/USD this very week.
  • A possible decline on Friday, with no come back for a little while.
  • ... that should be caused by the start of USD rally and equities doomed.

Is that too crazy? (Or I just need to cash out and forget about the markets for a little while)

I use Euro markets, and I often need to guess about what will S&P say in the evening. That's how I started observing a 2 low / 3 high days square wave since 16 days ago. If it is to continue, S&P will get to 1109 on its first 30 minutes today (then float about).

Gunther's picture

 

Fibo,
your call that gold is going in half while being in a long-term-bull market seems to me logically inconsistent.
Deflationary pressure strong enough to cut the price of gold bullion in half would make it a lot harder if not impossible to serve the debt that is around. Central bankers know that too and will do everything they can to prevent such deflation from happening. If it happens anyway, bullion will be the perfect hedge for the systemic breakdown.
Marketwise, gold is fighting to break the all-time high in Yen and Euro right now. In Dollar the 1030 took a battle too, so this is regular behaviour. Moreover, if gold reacts here a bit that does not change the uptrend.

 

numbers's picture

Hey Fibo. Your targets for gold and the Dollar are right from Robert Prechter's EWT and EWFF..... right down to the "all the same markets" comment. Prechter documented the correlation and theory of "all the same markets" several months ago. You should be sourcing his publications in your post.

Fibozachi's picture

Thanks for taking the time to both read our thoughts and leave a thoughtful comment as well, numbers.  If you click on the "all-the-same-markets" quote within our article, you will find a direct link … and if you click “Printer-friendly version” at the immediate end of our piece you will see every link in full detail.  And by the way, RrP first wrote about his brilliant ATSM concept years ago. 

We receive a ton of misguided angst from amateur traders on a daily basis for vociferously defending the unparalleled foundational value of EWP/ EWT as well as the all-encompassing nature of both Fibonacci and Socionomics throughout, welp, nature.  We also wade through a considerable amount of hilariously misguided flack from uneducated, inexperienced and unsuccessful amateur traders for being so adamant about the fractal nature of all formological (complex and robust) organisms, most notably exhibited within financial markets of all stripes and their extremely predictable nature.  Unfortunately, since everyone does not practice comprehensive technical analysis or have similar experience practicing advanced technical methodologies, we usually find ourselves talking to the wall about the unbelievably un-random nature of financial markets as we call turn after turn after turn on a daily basis in real-time on the 1 minute if not the tick itself. 

We’re young, aggressive and a bit touchy at times but always remain eager to try to help explain/ teach a little bit of TA to folks who are genuinely interested in becoming more proficient at actual trading.  No offense, but name an (1) instrument, (2) vehicle, (3) interval period of time, tick or volume as well as (4) any other secondary conditionals/ parameters and let’s have a trade-off.   We’re total technical tools who love what we do for a living and are naturally dedicated to both the study of our craft as well as the advancement of TA itself.  I have recently contacted The Socionomics Institute and reached out to Mr. Prechter himself to ask if ‘they’ would be both interested as well as so gracious as to help us with the formulation of secondary background research (much of which has its roots in RrP’s ground-breaking “Pioneering Studies in Socionomics”) for several studies that we are submitting to the 2010 Charles H. Dow Award for Excellence in Technical Analysis.  Anyone interested in either learning more about technical analysis or simply looking for a good place to start/ find a solid introductory reading list should head on over to the MTA’s online Knowledge Base and reading list for the CMT Program.

We always cite our sources and I usually spend as much time trying to throw in a bunch of links to describe technical terms for retail traders/ casual investors as I do actually writing our articles, especially when those concepts/ terms apply to/ originate from EWI/ The Socionomics Institute or Mr. Prechter's work.  I freely admit to drinking the RrP/ EW/ Socionomic kool-aid while my brother/ partner remains a much purer technician at heart; he is very Welles Wilder-ish in his approach/ outlook. 

That said; please realize that while the practice of EWP is wholly objective in nature that the effective employment of EW Theory is extremely nuanced.  For more insight into detailed nuance, please see the respective works of Steven Poser; Glenn Neely; Connie Brown; Linda Raschke; Robert Miner; Carolyn Boroden; Robert Fischer; and EWI’s own Chris Carolan; Wayne Gorman; Dick Diamond; and Jason Farkas, CMT, in no particular order.  While far from being a comprehensive list, it still ought to provide a solid springboard into both the subtle complexities of EW Theory and the profound nuances of its practical application.

While we have the utmost professional respect and personal admiration for Mr. Prechter, to remain objective if not too-publicly forthcoming, our only real knocks on EWI, EWP and the vast majority or EW-based traders is that they: (1) don't actually trade, and; (2) tend to count a lot of squiggly lines on their charts without the aid of competing technical methodologies or truly predictive technical indicators.  To this end, such practitioners are usually able to diagnose what happened yesterday while offering only basic guidance for the weekly/ daily and, at best, the hourly.  I think that this partly explains why/ how the actionable analysis of legendary EW practitioners such as Steven Hochberg and Jeff Kennedy tend to ‘nail it’ during extremely impulsive degrees of trend such as a third-of-a-third, while becoming rather guarded, defensive, reactive and repetitive during prolonged corrective retracements. 

My brother/ partner and I are extremely active systematic traders who live on the TICK and the 2-minute.  So, the rear-view mirror and the all-too-common ‘is this/ that a B wave’ or  ‘might this be extension continue to subdivide further’ amounts to an utter inability of EW to provide predictive, accurate and robust trading signals, in advance of immediate price action.  Moreover, any quant or design developer worth his salt will tell you that it is simply preposterous to construct a professionally automated algorithmic system based upon E dub.  Composite fractal tools such as neural networks and various GA’s are critical to the successful ADDIE of global variables, secondary conditionals and seemingly mundane tertiary parameters ... while the aforementioned points effectively render EW of very little use to us where we actually earn our keep and pay our monthly nut.

And in terms of price/ time/ sentiment targets or actual market calls/ predictions, if you can't tell we're more than happy to play 'scan the time-stamped chat room logs' and have ample material on just about whatever you may like to try and call us out on.  9200/ 7200/ 6500 DJIA cash price targets from above 13K?  Check.  Breaking every single rule in the book and getting WAY too long via front month call options on both March 6th and 9th like total amateurs?  Check.  Presenting highly actionable, detailed fundamental and technical calls on the economy, including which individual issues would likely be taken under, why, when, how and by whom?  Mucho check plusses.  Guessing how many points Obama would win the general election by, well before Super Tuesday when intrade.com calls were trading in the low 20’s and opining why we wanted to see Bayh selected as Veep simply so that Biden could remain in his intended position of Sec. of State while minimizing the Clintons.  Checks all around.  Guessing that the Yankees would win the 2009 World Series based solely upon the structural alternation of Socionomic tendency.  Guessing that A-Rod would hit less than 33 homeruns in the 2009 regular season based solely upon a chart of his yearly homerun totals and a personal obsession with E dub and Socionomics (baseball/ basketball/ UFC Socionomic predictions are pretty cool).  Sí y sí.  Forcibly shifting our clients to 90-100% cash/ cash equivalents and 0-10% leveraged short vehicles throughout Q1 of ‘08, transitioning our friends, family and valued clients whom we made a personal/ professional commitment to with an excellent advisor who personally mentored us in the nature of the retail sell-side, and divesting/ dissolving our entire practice during April of 2008.  Check, check and check!

I’m sure that everyone had read more than enough self-congratulatory bs prior to beginning that rant of a ‘paragraph.’  I’m also pretty sure that everyone will have rightfully rolled their eyes at least three of thirteen times by now and have similarly realized, by both the extent and design of this impassioned response (as well as the dozens of other technical and fundamental comments that we’ve littered across the awesome comment boards of ZH), that we’re not kidding about our interest in either good-natured market-related banter or our desire to try and kick-start an intelligent conversation about actual trading issues from a distinctly technical nature.

As members of the Market Technicians Association who are in the process of completing their CMT designations it is truly a great honor to have tentatively accepted an offer from the MTA itself to pen a weekly blog that examines price action and various technical methodologies across financial markets.  In addition, once we are able to find the time we have agreed to contribute various primers, detailed explanations and practical trading tips across numerous technical methodologies as well as certain functions of proprietary design development for the MTA’s Knowledge Base.

Thanks to the MTA Code of Ethics, we have grown to relish the opportunity to talk a little ish n strut our stuff when either our work is disparagingly prodded without substance or our friends/ fellow ilk suffer unfair personal attacks.  For three recent examples from two of our most recent pieces, please see ZH comments #115608, #135506, and #135584 or simply search for “Fibozachi” and/ or “Chopshop”, respectively, on the mid-upper right hand side of any ZH page to sift through each of our off-the-cuff utterances to try and find a thread or two of substance to tug at.  We always love to hear whatever our readers think/ have to say and always try to find, if not make, the time to answer all legitimate questions/ issues presented to us; especially if they are substantive issues/ questions or constructive criticism of a decidedly technical bent.

With ALL of that said; thanks again for taking the time to read our work and then sift through all of the slop I have strewn about above.  And specifically, to numbers: thank you for standing up for both EWI and RrP et al; glad to know that we’re not the only ones who care so deeply about seeing them receive the credit that they rightfully deserve! Ahem, Benoit Mandelbrot; ahem, damn near every single Alan Greenspan quote since 2005/ ’06.

Have a good afternoon/ evening and a great session tonight/ tomorrow !

 

RockyRacoon's picture

Re your statement: "Much like the extreme DSI readings (daily sentiment index) for gold and the extreme weekly investment advisor readings for equities, the short DX/ $USD trade has become exceptionally lopsided by rampant retail speculation. "  (Emphasis mine.)

And, admittedly way out of my depth here....  Isn't this "lopsided...rampant...speculation" the spice of trading?  Some things are just not chartable!  Sentiment is something that is impossible to enumerate or quantify when found in the general population.  (I realize that your attribution of these qualities is to the trader in this posting, however.)  When the man on the street is persuaded to participate in such speculative markets, will your charts not go wild?  I look forward to the day!

Fibozachi's picture

Thanks for your question RockyRacoon; we strongly believe the exact opposite of your initial thoughts on implied causality.  Below is simple cut n paste job from on Tue, 11/10/2009 - 03:54, comment #125609.

 

Great question:

 

Think of measures of sentiment as being most valuable / useful when their readings become ‘extreme.’  Simply put, measures of cyclic activity and collective sentiment are best utilized as secondary or tertiary confirming factors to other various indicators/oscillators that serve to directly measure, track and/or attempt to lead price (mostly in coincident fashion). 

 

When large, outsized readings print across various measures of collective sentiment, technicians use these values to help weigh the possibilities of either an acceleration of or a reversal within underlying trend; effectively, this is how the vast majority of technicians employ measures of sentiment.  Typically, large stochastic readings and outsized data points across similarly trending momentum oscillators help a technician ascertain the likely direction of an index / issue for at least one larger degree of trend.  This is why they often cite extreme market internal readings within the NYSE TICK, the ADD, the VOLD, the VIX and/or the TRIN as having "kicked-off the next leg of ..." 

 

The pitfall of many well-known measures of sentiment, often not explicitly addressed, is that such lagging or coincident “indicators” simply do not provide much, if any, help toward the actual trading issues of timing, execution and management; but this is not their intent.  Rather, by the very nature of their design, measures of momentum within collective sentiment, which are frequently referred to as “sentiment indicators”, are merely meant to provide technicians with a quantitative filter to help them qualitatively diagnose the comprehensive technical position / posture / profile of an index / issue, via a function of its momentum.  This is what so-called “sentiment indicators” really are.

 

Most folks simply take a gander at an indicator, read a basic Wikipedia or Investopedia description, make a bold, blind assumption or two and then claim to know why XYZ was up / down yesterday; this only further muddies the already collectively murky waters of technical analysis.  Hats off to you reading, for simply asking: ‘hey, what does this sentiment indicator actually mean?’

 

The vast majority of traders who follow such qualitative barometers of collective sentiment still tend to fall victim to what Constance Brown has termed the “Stochastics Default Club.” As George Lane writes within page ix of the foreword to Connie's seminal work, Technical Analysis for the Trading Professional:

"In a theme she returns to frequently, she kids the "Stochastics Default Club" - both the uneducated public that accepts the default values in software and tries to use them to trade without a clue as to why and the educated but lazy trader who knows better but does it anyway."

 

Our latest ZH article, “Four Basic Qualities of Great Technical Indicators & the Stochastics Default Club,” defines this loaded term that points squarely to today’s incessantly repetitive and insultingly comical commercials from discount-brokers-disguised-as-charting-platform-providers;  which, between nearly every other Prime Time network program and professional sporting event, tell us that it is ‘so easy to buy stock’ that even a baby can do it; never mind the fact that it vomits upon itself merely seconds after having clicked ‘buy.’

 

Borrowing from our experience as design developers of proprietary technical indicators, we at Fibozachi detail the “fixed period drop-off effect,” the differences between various moving average methodologies, the true nature of the term “fractal” as applied to the structural composition of trading systems, “the four basic qualities of great technical indicators and a practical nuance within stochastic calculus that can help you anticipate what others are about to think.

 

It won’t enable you to build your own system tomorrow and it won’t help you make money trading the next day either but hopefully it will help you develop a greater understanding of how to evaluate technical trading indicators while also highlighting several nuances of proprietary design development that most folks overlook.  

 

Hope that helps a bit.  If you still have questions after reading our work, please feel free to email us at customersupport@Fibozachi.com or just drop up a quick note on our site by clicking here and we’ll try our best to answer whatever we can for ya.

Sugar Bear's picture

Started buying Gold in 2001  ,,,noone wanted gold , you are nuts ,has no value...

then at 500 600 700 800 dollars   when do we sell?

we sell when everyone loves Gold...that is now(may go higher first)   oil @ 135 went higher...S&P  at 1350  went higher...but

and for something that has no value and noone wants 2009    (THE DOLLAR)

Anonymous's picture

Hey Fibo. Your position on gold and the Dollar are right out of Robert Prechter's EWT and EWFF.... right down to the "all the same market" theory. You should be sourcing Prechter in your work on your gold and Dollar targets.

Fibozachi's picture

Anon: please see comment #146721, just below.

And thank you AR!  Glad that enjoyed our latest and certainly hope that it helped a bit.

AR's picture

BRANDON  /  Another thoughful report and synopsis.  Thank you for sharing your insight.