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Narrowest S&P 500 Range in 2-3 Years: Fibonacci Time Cycles & Volume Analysis

Fibozachi's picture




 

" The bull market turns one on Tuesday
having surged almost 70 percent from its 12-year closing low on March
9, 2009.  History shows that by simply passing that 12-month threshold,
it will make it that much more rare for the advance to suddenly end. " 
CNBC

Historical performance does not guarantee future success and we at Fibozachi see no value in such crap
analysis that lacks context and quantification ... the S&P
first needs to grab a new high before it can tease investors with the
possibility of reaching the 1,200 - 1,300 levels.

 

Interestingly, one of the most unique
trading sessions in over two years registered today; exactly 1 calendar
year from the March 6/ 9 bottom of 2009. 

Between Sunday evening's open and the
close of today's session, S&P Futures (ES) registered the smallest
High-Low trading range and the smallest range defined as a percentage
in well over two years.  

Today's 5.5 point trading range (0.48%
percent) marks the smallest point-based range since the 4.50 range of
5/7/07 as well as the smallest range defined as a percentage
since 10/4/07 (0.44%).

 

Range-based statistics for both the S&P 500 Futures (ES) and the S&P 500 Cash Index (INX) are presented below.

 


 

S&P 500 Futures Continuous Contract (@ES) ~ Range Statistics

 

*** Note that S&P Futures open
Sunday evening at 6 pm (EST) and trade through the Monday session until
4:15 pm (EST); therefore, the trading range of futures is almost always
greater than that of the S&P 500 Cash Index (INX).  This is why we
at Fibozachi find today's extremely narrow ES range a much more important tell-tale than today's narrow ranged cash session.  

 

3/8/10 Range = 5.5 points

5/7/07 Range = 4.5 points

 

3/8/10 Range as Percentage = 0.48% 

10/4/07 Range as Percentage = 0.44 %

 

INX Range Statistics:

 

3/8/10 Range = 4.28 points

9/29/06 Range = 4.24 points

 

3/8/10 Range as Percentage = 0.38%

5/7/07 Range as Percentage = 0.36 %

 


 

Fibonacci Cycles & Volume Analysis

 

Today (March 8th) marked the 21st trading day from the 1,040.75 swing low on 2/5/10 up to today's intra-day high of 1,140.50. 

 

ES Daily 21 Cycle

 

Today also marked the 34st trading day
from the 1/19/10 closing high of 1,145.75, which registered the highest
close since the Primary wave 1 (circle) lows of March 2009.

 

ES Daily 34 Cycle

 

This confluence of Fibonacci cycles, coupled with the narrowest
trading range in several years (as well as a daily doji candlestick
just below recent swing highs), should raise some concern for those who
remain net long equities.  Bulls never want to see an extremely narrow
range session following a strong rally because such typically
demonstrates a waning of upside momentum that is characteristic of
short-term exhaustion. 

 

Further analysis of today's anemic volume (lowest daily tally for 2010) supports this notion of bullish exhaustion.

 

S&P 500 Futures (Continuous Contract) ~ Daily

 

ES Daily Volume

 

SPY ~ Daily

 

SPY Daily Volume 

 

While S&P 500 futures (ES, E-mini)
sit just 1% away from plotting fresh swing highs, those who aren't
trading on the Tick and the 2-minute ought be much more concerned with
the possibility of equity markets plotting a FNH (failed new high) just
one percent shy of their January peak than with what slight gains might
lay ahead.  And while market bias (like beauty) is in the eye of the
beholder, only the hard right edge (the next bar on any chart) knows
what the future holds.

 

 


 

 

Bottom line: from our
perspective as risk managers (first), tactical allocators (second) and
market timers (third), the risk-reward-ratio of being net long equities
here is simply abysmal.  Easy short-cover money off March lows was
effectively made by November's end and equity markets have now
meandered sideways for almost a full quarter.

 

When it comes to "investing", be very wary of the hackneyed cliche: "better late than never."  We at Fibozachi abide by a different rule: "better never than late."  If a trade setup does not meet all of your requirements then why chase?  At day's end, unless your written trading plan consists of "investing" based upon the utter idiocy of media headlines ... why chase ?, especially when the mere possibility of an epic pivot to the down remains on ice (and just an arm's length away).

 

If you are a prop trader:
continue to play intra-day while employing the low volatility
environment to actively take pre-cautionary "mattress measures" ~ 2nd /
3rd month OTM put-protection, multi-quarter directional VIX spreads
that one's portfolio can 'fall down upon'.

If you are a portfolio manager: you've
already shot free cash, remain forced to play index-linked catch-up and
(if you're lucky) might have a 5% derivative allowance to cover your
93% of longs.  Ugh, good luck with that.  Just continue herding
yourself into nifty-fifty type-issues (hello, CSCO, today's
ring-around-the-NDX-rosie) before it all turns to ash (and when it
does, who cares, cause 'everyone' will be in the same boat, so party on
Garth).

If you are a market maker: continue
laughing at the futility of the aforementioned 'group's' as they continue
to chase performance in the search of ever-ephemeral alpha ... and just
continue amassing ever-increasing scales of put protection, several
quarters out, umpteen strikes OTM, while printing cash from
intra-session trades that hinge primarily upon small spread capture and
capital intensive spider-webs which game gamma.

If you are an individual investor: congratulations,
you are the only major market participant who is not explicitly forced
to chase daily performance; as such, you are able to practice practical
defense by simply refusing to put your hard-earned capital at risk
within such an uncertain environment.

 

Individual investor's: at day's end, if
you are still trying to chase the Jones' performance off March '09
lows, what the hell else is keeping you invested in this Russian
roulette equity crap-shoot?  Investing is a gamble and we're all about
our poker chips.  If your 'portfolio' remains net long equities: what
is your "rationale" for upside expectations?  Can you provide
an elevator pitch explanation in 30 seconds that doesn't rely on the
quotes / opinions of others?

If not: take a long, hard look
at your portfolio and physically write down your explicit 'investment
approach.'  What are its strengths, weaknesses, opportunities and
threats?  If you can't answer each of those questions for each of your
positions, then it is probably a good time to rack your chips, back
away from the felt and find another table at the casino where you can spot the fish.

 

Again: 'better late than never'; never chase

Please, please don't "invest" like
Buffett, but do heed the gist of his approach to selectivity (shared in
1999), which essentially posits that: 

' investing is similar to baseball
without strikes ... you can wait for your pitch all day long without
penalty ... and since there is not a called third strike, there is no
harm in holding the bat on your shoulder and waiting until a pitch enters your sweet spot. '

 


 

For similar technical market calls and insights into the idiosyncratic machinations of financial markets ~ check out fibozachi.com.

There, you can view a body of our analytic work as well as detailed
explanations of the unique design development and technical
methodologies within the proprietary technical indicator packages that
we employ daily to perform a comprehensive technical analysis of
financial instruments (stocks, options, ETFs, bonds, futures, FOREX, etc.) across interval periods of time, tick and volume.

 

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Tue, 03/09/2010 - 09:07 | 259014 AR
AR's picture

Thanks BRANDON for your input.  One of our guys will be calling you in the next few days to discuss a project that you can maybe tweek and test for us regarding one of your ADX applications. Hope these markets are treating you well our friend.

Tue, 03/09/2010 - 08:27 | 258997 Rick64
Rick64's picture

Good analysis, but after the pump up on fri. and the many before that, I am wary of some kind of backdoor QE 2 coming.

Tue, 03/09/2010 - 03:46 | 258921 Privatus
Privatus's picture

And the conclusion is?

Tue, 03/09/2010 - 03:00 | 258889 A Broken Bear
A Broken Bear's picture

Anyone here familiar with Market Oracle...One of the main contributors is picking Dow 12,500 and says we are in a stock stealth bull market, to his credit he has been saying that since March 09. For months I have disagreed with him but then he is the one making the money not me :(

Tue, 03/09/2010 - 02:24 | 258866 Grand Supercycle
Tue, 03/09/2010 - 01:19 | 258837 loup garou
loup garou's picture

Brings to mind a previous 21/34  (1,2,3)  LB in 2002...

http://images.tradingmarkets.com/2008/Haggerty/1010Haggerty1.gif

Tue, 03/09/2010 - 02:30 | 258870 Chopshop
Chopshop's picture

good look loup. haggerty is a true living legend of tactical allocation; we're great admirers of his work with symmetry & volatility.

Tue, 03/09/2010 - 01:05 | 258828 illyia
illyia's picture

Thanks for the update.

Always.

Tue, 03/09/2010 - 00:32 | 258799 moneymutt
moneymutt's picture

on topic, I saw a cliff in Sept...guess equities not up that much since then, but I'm turning blue holding my breath...

Tue, 03/09/2010 - 00:30 | 258795 moneymutt
moneymutt's picture

off topic, but Madoff whistleblower on Daily show was awesome..,

Tue, 03/09/2010 - 00:04 | 258767 macfly
macfly's picture

You echo exactly what I'm reading and hearing everywhere, I feel like we are fast approaching the edge of a cliff, but honestly I'm not sure what to do about it.

Tue, 03/09/2010 - 00:39 | 258807 Anonymous
Anonymous's picture

Approaching the edge of a cliff - we've been hearing that for a while now and each time it was just the crest of a hill and the show rolls on courtesy of massive pump priming. Post 31 March is the real test when the flood turns to a trickle and then who knows how long that will last.

Tue, 03/09/2010 - 02:17 | 258862 Anonymous
Anonymous's picture

Exactly. Post march will determine direction for rest of 2010.

Tue, 03/09/2010 - 00:38 | 258805 Paladin en passant
Paladin en passant's picture

Cash is king...

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