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On "Average", Stocks Are Testing The Post-2009 Uptrend
At this moment, an index that tracks the average stock move is testing the uptrend since 2009.
We talk often about the Value Line Geometric Composite (VLG). To refresh, the VLG is an unweighted index of about 1700 stocks that essentially tracks what the median stock in the market is doing. As such, we believe it is the truest measure of the health of the broad market. Most recently (on Monday), we noted that the VLG was testing what we have called a “pass/fail” level on its chart. That is, the response of the VLG at this level may tell us a lot about whether the next big move in the market is up or down. It may even, arguably, dictate the fate of the post-2009 cyclical bull market for the broad market of stocks. The VLG passed the test on September 29. We’ll see if it can pass it again here.
Well, the VLG has a sister index called the Value Line Arithmetic Index (VLA). What the VLA does is track the average move of the same ~1700 stocks. So it is similar to the VLG but can be more heavily influenced by big movers. Like the VLG, the Value Line Arithmetic Index is testing a key price level as well. Specifically, it closed today right at the Up trendline extending from the 2009 low.
Now, like the VLG, we are not aware of any investable instruments tied directly to the VLA (there used to be a VLG futures contract). Thus, you may wonder why we bother looking at the index – and how could we reasonably apply technical analysis to the VLA chart.
To answer the 2nd question, in our extensive experience, it’s because prices tend to adhere closely to basic technical tools even though no one is trading the index directly. Witness the post-2009 Up trendline, extending from 2009 and up through the 2011 lows. At the late September low, the VLA held precisely at the trendline. Is that mere coincidence? We don’t think so.
So why bother looking at the index anyway? Well, precisely because it does tend to follow some of the basic TA and charting tools. Therefore, the behavior of the VLA can be very instructive regarding the health of the broad stock market. For example, when the index was the first to break out to all-time highs in 2010 = healthy. When the VLA failed to make a new high along with the major averages in May = unhealthy. When the VLA failed to get closer than 7% from its April high during the post-September bounce = really unhealthy.
Therefore, although nobody is trading the index, we can still glean valuable information from it. And the information we’ve been getting from the VLA points to an unhealthy state of affairs in the broad market. Importantly, we will watch the present test of the post-2009 Up trendline. If the VLA can hold here, perhaps a year-end rally can still materialize.
If the trendline fails to hold (like it did for the VLG in August), then the market may be in for a further decline. And considering the magnitude of the trendline being broken, it may not be just your “average” decline.
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Makes for a real purty head and shoulders
Text book head and shoulders .
It's going to have dandruff soon
Price target translates to S&P 500 ~1550-1600
Print some more FRN's. Problem solved.
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Goldman has a head and shoulders.
Double bottom long...
"On average, the Keynesisn forces that can push stocks up and PM down, are stronger than the Austrian forces seeking to do the reverse". FIFY.
Allocate accordingly. Now go live life.
I've dropped poops that hold more weight than this chart.
I think the concept is fine, but once a chart is produced, if the technician doesn't now how to use it it's not of much value. I'm not suggesting that is the case here at all. BUT... I could sure make a case that this is what's happening instead... a complete and total breakdown of a trend line, with a successful retest and failure to retake that same trend line. The outcome is 180° the opposite of what the author of this article cllaims is about to happen. If my interpretation is correct a mega-crash is coming. And I'm not saying I'm right. But neither should the author, because you know what? It's 50/50.
https://pbs.twimg.com/media/CWnCbaYUkAACc0d.png
THis is not your father's market indicator.
If you believe that trendlines should be drawn through the trend and not the lowest points, which tend to be headfakes before a reversal (esp with the rise of HFT), then you'll probably come to a different conclusion about whether the trend line has been broken.
I tried to include a plot with my trendline, but the figure didn't go with my comment. Is there something special that must be done to include a figure?
Qe will guarante that elections year means new hights
Think of what you are implying - the evil rich bastards who plot against you and I night and day, who designed the Fed to jerk the market up and down in large outsized swings, to make money long and short by being "in the know", have your back. But keep thinking they are nice folks who want nothing but the best for you.
Ban algo trading and things get normalised
I respectfully alter your comment as "Ban [all] algo trading [that front runs orders] and things get normalised [to most everyone's satisfaction]". We need to sentence the co-locators to prison. If everyone cannot co-locate no one should be allowed to do so.
PS. This concept is difficult for some to constrain in their minds; it is often subsumed under High Frequency Trading criticisims. It is HFT to be sure, but that is not what makes it bad for the markets. It's the incessant front-running of orders which grossly distorts normal price discovery.
When most the market is dictated by HFT trades and those computers are programmed with a linear model, this what you get. Until margin debt is reversed then the opposite.
The point is that their trading system uses special protocol that allows very fast communication to the server. this is where they steal money.
Well, sort of. They locate their production workstations (not really Servers) next to the Islands' workstations and run a length of optic fiber between the routers. You place your order, their algos look at it coming in, place an order to fill yours ahead of yours being executed, and "Bob's their uncle!", they're "in like flint!", etc.. Astronomical sums of money are being made here on teenies. It's a sure thing, guaranteed for them that co-locate.
And, their "special protocol" relies heavily on the use of programming languages like C++ which will execute insructions in mere milliseconds. In use are the latest high performance chips in their workstations with advanced code sets on those chips that optimize floating point math in/by super compilers (offered by Intel to anyone) that result in lightning fast algo execution.
But, in the final analysis, it's the co-location of boxes that matters the utmost.
Indeed, yes. So. I am telecommunications engneer. I do udarestand the principels how they manipulate orders. But the SEC does not? Why the fuck nobody does nothing about this scam? Nobody meaning SEC ant like institutions. If they use C++ they loose time meaning cycles. They use machine code.
Many of the other indexes have already broken this 2009 up trend. What I found is when some already broke such a trend, the rest usually follow.
Retail index XRT has already tested the 2009 uptrend - and failed, and is discounting some large proportion of America's 70% consumer economy having entered a contraction:
http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=xrt&insttype=Fund&freq=2&show=
"the sky is falling!" again and again and again and again.
when will zh readers figure out? THE GAME IS RIGGED!
The trendline will never be broken, because they will just redrew it via the lowest points.
If you draw that trendline as it should be drawn through the trend and not the lowest points, you would see it has been broken long time ago.
Certainly, it won't be broken unti liquidity is actually taken out of the market. Which is why Thursday and Friday of this week are so suspect.
it really is a lot easier than that. falling commodity prices says the market will tank. the aberration is commodity prices look like they are forming a bottom signalling a recovery in sight even though the equity market never reponded to the drop in prices. it may just be that the manipulation of the equity market prevented it from responding normally and the ploy is to keep the equity market even until the economy catches up.
you know, i have been following the market for 45 years. it was exasperating enough to predict the market when the fed and the banks were only fiddling with the economy. it is way more exsasperating to try to predict what the next form of manipulation is by the fed to keep the market afloat.
Why would the market roll over now...
1. All other large markets are way below their alltime highs
2. The US markets have been trading sideways for a year (distribution), internals bad
3. World economic macro stinks
4. Bulk shipping @ record lows
5. Commodoties in the shitter
6. High yeild imploding
7. Peak debt everywhere
8. Hollow company earnings
9. Demographics
10. Yield curve
11. Fed put gone
Amongst many others.
We shall find out if a roll over or a moon shot is in store very shortly.
Very astute, rfbear.