Extreme Market Internal Readings

Fibozachi's picture

Well … the
third time certainly proved to be the charm. After yesterday’s
anticipated bounce filled an open gap at 1060.25 on the S&P futures
(ESZ09) in response to an insanely oversold McClellan Oscillator
reading of -381.49, the markets appear to be resuming their impulsively
downward voyage back to reality; today’s internals registered even more
bearish readings than Wednesday’s, which is an extremely negative omen for the
future outlook of the markets. While the TICK did not register a
reading that surpassed -1400 today (intra-day low of -1396), we did
witness the VOLD relentlessly plunge to a new extreme closing low of
-1,408,903, which now marks the lowest closing low since that of
9/02/09.

The importance of the VOLD reaching new intraday as well as closing
lows is very straightforward; significant changes in volume typically
precede significant changes within the underlying character of price
action. And while this concept is debatable when it comes to specific
equities, it is simply cut and dry when referring to the entire NYSE
Exchange. Such a low VOLD reading, which signifies an extreme desire to
sell on the behalf of institutions and investors alike, is a definite
warning sign that effectively poleaxes any remaining bullish intent.


TICK 1-Minute 10/30/09

VOLD Daily 10/30/09

 

From our article entitled “Extreme Market Internal Readings” on 10/28/09 we stated the following:

“While 12 separate TICK readings exceeded -1000 plotted over the course
of today’s impulsive price action, the VOLD also spiraled towards its
lowest value since approximately 10/01/09 and 9/01/09; finding exact
support at the trendline that connects the two. And while that may
sound interesting in and of itself, the most noteworthy item here is
that both 9/01/09 and 10/01/09 marked days that directly preceded
temporary bottoms, each igniting bullish reversals to new Primary wave
2 (circle) double zigzag highs. By connecting a trendline on the $INX
(S&P 500) from the bottoms established on 9/02/09 and 10/02/09, it
is clear that today’s close decisively broke that support and now
approaches the next trendline near 1036, rising approximately 1 point
per day. And while the DJIA remains above its up-sloping trendline from
March, the DJ-20, Russell 2K, Value Line and XBD indices have each
already broken their respective 10/02/09 lows after absorbing
increasingly impulsive bouts of distributive pressure today.

On
the other end of the spectrum, the VIX exhibited full throttle liftoff
today, plotting a White Marubozu candle that carried just over three
points from 24.83 to 27.94. However, the true test surrounds the 30
level where it has repeatedly failed to breakout from, once again, the
very same two days that we highlighted earlier, 9/02/09 and 10/02/09,
which plotted respective double-top highs of 29.57 and 29.56. In
examining the VIX’s most recent assault on 30, will the third time
truly be a charm?

We at Fibozachi believe that it will be
after an initial series of 1’s and 2’s holds firm in the mid 20’s and
anticipate that today’s extremely bearish market internal readings are
but a preview of what lies in store for global equity markets over the
next few months at the very least. Global equities had been notching
continually higher highs and higher lows over the past several weeks
and as key market leading sectors such as the brokers, transports,
REITS and biotech began to register serious negative divergences,
important inter-market metrics such as the TED Spread, VIX and $DXY
have also begun to make noise once again with extremely bullish
technical developments.

By
early next week wave (v) of i (circle) for the SP-500 cash should
likely find itself hugging the critical lateral band of support that
comes into play surrounding 1020. Taking out this low would put an
unmistakable end to the series of higher lows and break important
trendlines in the process. In the process of patiently waiting for a
multiple confluence of high probability signals across various
technical methodologies to confirm the onset of Primary wave 3
(circle), we at Fibozachi would like to observe the VIX not
only penetrate but also close above a 30 handle while the key support
level that surrounds 1020 is successfully broken to confirm our bearish
bias.”

 

Update as of 10/30/09:
Meanwhile, the VIX exhibited a significant follow through day to the
upside as it surged from 25.21 to an intraday high of 31.59 at 3:21 pm,
notching a 23.95% daily gain. More importantly, old
double top resistance at the 29.57/.56 level has been decisively taken
out and should now begin the process of morphing from a formidable
cluster of resistance into a strong pocket of support should the VIX
experience a pullback over the next 2-3 days. The sharp corrective
bounce that the markets enjoyed yesterday now looks feeble in
comparison to today’s price action, which nearly engulfed the entirety
of yesterday’s trading range while establishing a new low since the
upper price extreme of 10/19/09.

In
our previous article Wednesday, we discussed how the lows of 9/02/09
and 10/02/09 each established temporary bottoms that immediately led to
new price highs. Yesterday’s attempt to follow suit was resoundingly
trumped by today’s ferocious selloff; suggesting that the series of
higher highs and higher lows will soon be tested at the 1020 level.
While price may find some support on its first visit to 1020, this
level should soon be taken out as the character inherent within price
action undergoes a marked shift in trend from correctively bullish
Primary wave 2 to impulsively bearish Primary wave 3.

Today’s close
decisively broke a “key” trendline that connects the lows of 9/02/09
and 10/02/09 while just holding above the other “key” trendline
extending from 8/17/09 to 9/02/09. And even though today gave us a
thrust in the VIX above the 30 level and one of the two “key”
trendlines was broken, we at Fibozachi will now be patiently
waiting for a close under the 1020 level to unabashedly confirm the
initial onset of Primary wave 3 (circle) of cycle wave c. Until this
cluster of support surrounding 1020 is decisively broken, the bullish
trend is still “technically” intact. Therefore, when this level does
finally give way so too will almost every remaining argument that “the
market remains in a bullish posture,” which should result in yet
another torrent of selling pressure … and we can already smell those
delicious donuts that surround 1000 fast approaching. Such price action
would coincide with our personal belief that financial markets may have
put in a significant high last week that may not be revisited again for
several years, if not decades to come.


INX Daily (S&P 500)

VIX Daily 10/30/09

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Anonymous's picture

You and your brother need to log about 10-20 years full time trading before posting like veterans. Jump in a TCnet club, steal stuff, call it your own etc. I applaud your desire in your 20's, but let's see if you are still around in your 30's, 40's, 50's etc. lol

Fibozachi's picture

While we certainly respect the validity of your initial slap upon the wrist of our youth, we do take great issue with your claim of "stealing" anything from anyone. 

 

Considering the fact that:

 

1)  we have published detailed explanations into both the unique design development of and the alterations to various technical methodologies within each and every one of the proprietary indicator packages offered through our website;

 

2)  we have submitted the vast majority of our work to formal review by the Market Technicians Association and the Journal of Technical Analysis as well as to several CMT's, traders and portfolio managers (is someone upset that they didn't receive an advance copy?);

 

on precisely what grounds other than a clearly apparent personal basis do you (anonymously) sling such a serious and libelous claim?

 

Again, we respect you taking issue with our youth while not presenting a single critique about our technical market analysis.  And if I could create a strangle position between 42 and 48 years of age on myself then I'd take that high probability trade; but I must draw the line somewhere between an anonymous personal slap upon the wrist of our youth and a very real assertion of intellectual property theft of any kind.

 

If you would simply like to bust our chops for tirelessly devoting ourselves to this craft and being extremely diligent in the process, while still young, then please, by all means continue on with your wrist-slapping.  But should you take actual issue with us, either personally or professionally, we simply ask that you contact us directly and immediately voice your claim.  Fair enough?

Grand Supercycle's picture

 

The VIX has been giving bullish warnings signs for some time !

Try here:

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

Fibozachi's picture

Absolutely right Grand Supercycle! Ya know, there may be something about your handle / id name and our golden spiral pic that leads us to believe we may see eye to eye with each other GSc; just can't put my finger on it though, lol.   The 10/21 daily candle for the VIX, which engulfed the entirety of the previous 3 real bodies, served as the proverbial shot over the bow.  And when combined with the next two days of price action, should have led technicians of all stripes to anticipate a bullish impulsive move higher on Monday the 26th.

 

To digress for a moment, we wrote in our market notes posted the morning of 10/22/2009:

 

“Be careful about overlooking the character inherent within the recent price action of the VIX et al.  It just exploded upwards out of a fifth-of-a-fifth ending diagonal and dynamite triangle with an extremely clean impulsive subdivision that broke a previous wave (iv) at 22.46 from 10/19.  ADX, DMI, ATR, short-term volatility and various measures of both trend and momentum have flashed unambiguous signals of re-expansion …. Based on price extensions and time symmetries, a sharp ending diagonal would complete itself over the next few days, ideally with …. a series of unabashedly bullish candlestick patterns and a rapid re-expansion in average true range and short-term volatility that would signify the end of corrective period and the start of a Primary wave 3 (circle) impulse .... By analyzing candlestick, sentiment, volatility and volume patterns as well as market internal readings and various measures of cyclicality, momentum and trend, Elliott Wave practitioners can more effectively diagnose the viability of their counts and anticipate inflection points.  This comprehensive approach to technical analysis is especially valuable during patterns such as a fifth-of-a-fifth ending diagonal where momentum oscillator divergences abound.”

 

Full commentary with additional charts available at

http://fibozachi.com/technicians-corner/95-extreme-market-internal-readings.html

 

Anonymous's picture

With the VIX closing at 30.69 just off its high of 31.59 while the VOLD insistently drops and TRIN closes at 2.98, a fresh volitility has obviously come back into this Vampire Market! What a relief to traders. I notice while looking at a simple day bar chart of the SP-500($INX)that the 20, 50, and 200 bar moving averages all coincided the first week of July at about 875 handles whence it has been increasingly above those averages until this week. Closing at 1036 today, the 50 MA has been breached and nothing much stands in the way of the 200 moving average which today stands at 924. All these intensifying market internals can only exacerbate the anticipated plunge reflecting, as they do, doubt and confusion among investors such that the 200 MA might be violated as soon as next week. Coupled with the Fed's publicly stated schedule of stopping buying, with fiat currency, T bills today, a large factor in this recent rise, the likelyhood of a large pullback surely does loom as the dollar pushes up toward 80 cents.

Anonymous's picture

ZH,

You are consistent with good content. Thanks Fibozachi for the good information

Lionhead's picture

Excellent Fibozachi. This adds to the body of TA on this site. Been gunnin' for longs today, and flamed a lot of Johnny-come-latelys today. ;)

http://tinyurl.com/y99aepw

Keep 'em comin'...............

 

Fibozachi's picture

Thank you Lionhead, Dogfather, Grand Supercycle, George Washington and the entire ZH community for such a warm welcome. Great link to picture there Lionhead!

Dogfather's picture

Thoroughly enjoyed the presentation by Fibozachi, thanks.

Anonymous's picture

I think this site is great too, I learn so much coming here, thanks to you all.

One interesting thing I noticed today, for the first time I can remember in recent months, the dollar was up, equities were down, BUT Gold was up!

I am not a goldbug, just noticed that unlike other commodities, gold is off on it's own it seems.

Gordon_Gekko's picture

Yeah the dollar was up, but compared to the sell-off in equities, not that much. It even took a plunge in the middle of the equities sell off. Something is about to go horribly wrong with the dollar.

Fibozachi's picture

Thank you for the kind words GW; we have long been avid admirers of your conistently insightful and thought provoking pieces.  We at Fibozachi would simply like to say that it is both a great personal and professional honor to have our work featured amongst the brilliant and unparalleled minds that have been compiled together on this groundbreaking forum.  And thank you to not only Tyler and Marla for the opportunity but also to the entire community of ZH readers for their interest in our work.  Have a great weekend everyone and welcome to Primary wave 3 (circle) down !!

George Washington's picture

Thanks, I appreciate your insights. 

Personally, I am agnostic about e-wave, although someone close to me studies it religiously every day...

Fibozachi's picture

With all due respect to Mr. McHugh, with whom we are not familiar, we cannot comment to his approach simply because we do not practice the same methodology of the Elliott Wave Principle.  We at Fibozachi subscribe to Prechter / EWI's version of Elliott Wave Principle, Theory and Socionomics (though we certainly do not always agree with their counts); and while we certainly respect the thoroughly detailed work of Stephen Poser, Gleen Neely and Connie Brown, it would be like attempting to speak French just because ya know a little German.  That said, while our personal opinion is resoundingly bearish our comprehensive approach to technical analysis helps prevent us from becoming Elliott Wave roadkill, like happens so often to analysts, technicians and traders alike who become singularly engrossed in EW to the point of asphyxiation.

mannfm11's picture

I don't know about C wave, 2000-2002  being A, 2003-2007 being B and from then on being C, but the primary wave 3 count, I do buy.  This time it is the big boys that are in the doorway and the elephant is coming through.  There are some of the most crowded fiction trades in history where the heat is on the wrong side, the bull side.  The dollar is about to unwind upward, if for no other reason than it is still the king and there are huge players that have lost respect for it.  Anyone stupid enough to think China produces a recovery without the US has been drinking the Kool-Aid and don't forget that in reality, many of those dollars China has in treasuries are owed back to US multinational investors.  Financial bulbs are about to pop everywhere, as the recovery they talk about in the press only seems that way due to the huge decline in economic activity preceeding it.  Dead cat bounce is more like it.  $1 trillion in this mess of $50 trillion of debt that needs $4 trillion to $5 trillion to merely float along is like a spit in the ocean.  It is going to get ugly and about everyone is going to end up broke. 

mberry8870's picture

"It is going to get ugly and about everyone is going to end up broke. " Not if your short.

mannfm11's picture

You might not let your shorts run too long.  Tye entire financial system could blow and by the time you get your money, the balance could be worth a song of what it was when the system blew.  The SIPC could go broke (probably already is) and the broker you are using could flame out.  I would tend to trade futures, but it really doesn't matter.  You might note how fast the market moved last October.  That was 3 of 3 of 1.  We had a 2000 point rally in roughly 10 market hours on a reaction.  If you think your margin would hold up in such a move, then go ahead.  We are almost assured to have something worse this time. 

Anonymous's picture

Assuming you can get paid when hell breaks lose.

Gordon_Gekko's picture

And if the currency you're paid in has any value.

QuantumCat's picture

Not sure that response makes sense for the context of the proposed scenario...  am I missing something?   I think the discussion centers around counter-party risk, a deflation scenario, which would make dollars quite valuable (at least for that period of time).  When leverage and other money multipliers are removed, there aren't enough dollars in the system to make those trades whole. Please explain... 

Bear's picture

This seems like a right on comment ... who will remain standing?

Anonymous's picture

And what a nice day to be short! TWM up 5.5%, and DTO (double short crude) up 11%.

I think we get one more snap back rally, and then the plunge. Still at 50% cash, so I want to short more. A move above 1080 I think invalidates this, so set stops accordingly.

Any medium term target on the low side? I'm using 960 for now, but will firm up in the days ahead.

George Washington's picture

Robert McHugh is predicting Elliot Wave C down might start next week.

What do you think?