pebblewriter

Tag: moving average

  • Investing for Dummies

    I use scores of chart patterns, Fibonacci grids, technical indicators and proprietary models in my daily attempts to forecast various markets.  Some are fairly complex, multivariate models that involve a half-dozen inputs.  Others are quite simple.

    One of my favorite simple indicators is the well-known 10-day/20-day moving average cross. It maintains that when the SMA10 crosses below the SMA20, it’s generally bearish. When it crosses back above, it’s bullish.

    Of course, in a heavily “managed” market such as the one I’ve been posting about for the past 7 1/2 years, the crosses are occasionally head fakes.  The cross is well-known and a component of many algorithms.  So, it’s not unusual for markets to reverse rather soon after such a cross.  Sometimes, markets even reverse just before a likely cross in order to avoid one.

    The yellow arrows below mark the various bearish crosses so far in 2018.  The thin red line is the SMA10 and the white line is the SMA20.  Other moving averages are the 50 (purple), 100 (yellow) and 200 (thick red.)

    Only a couple 10/20 crosses were followed by significant sell-offs: Feb 6 and Mar 22.  The others produced either moderate or modest declines (i.e. head fakes — the purple arrows) or near misses (the white arrows.)  I mention it this morning because we’re experiencing another 10/20 cross in the pre-market.

    There is much bearish commentary out there.  VIX just broke out of a 8-month trend, tagging our next upside target yesterday.  SPX and ES have both tested the critical support we identified last week [see: The 10Y Breaks Out.]  And, the usual suspects involved in a rescue operation are, so far at least, MIA.

    Will this be another head fake/near miss — or the real thing?

    continued for members…

    My best guess continues to be that if 2878.50 (SPX 2872.87) doesn’t hold, we’ll see the white channel get fleshed out.  If the white channel doesn’t hold, it opens up the SMA200 and, ultimately, the 2.24 at ES 2728.79 (SPX 2702.78.)

    SPX wouldn’t flesh out its white channel until reaching 2800 – the white .786 Fib.  Again, if the white channel fails, we’re looking at the SMA200 at 2765 and the 2.24 at 2703.62.

    CL and RB are getting a little bump from Hurricane Michael and the usual MENA-based speculation.

    Note that RB, in particular, has clung to a smaller rising channel.  It won’t last.

    USDJPY still looks likely to backtest its SMA100 at 111.19 or .500 at 111.78 — which lends credence to the downside case – at least on an intra-day basis.VIX continues to be the big question mark.  It has clearly broken out of the falling white channel.  If given free rein, it still has plenty of upside potential with 24.20 looking very reachable. I’ll be out all day today.  More later this evening or in the morning.

    GLTA.

    (more…)

  • It’s a Wonderful Market

    SPX and ES had no trouble reaching our initial downside targets — a backtest of their January highs.  We wondered, however, whether the SMA20s, loitering just below, might come into play.

    Sure enough, ES tagged its SMA20 with ease.  But, emini traders strongly resisted a drop through the SMA20 – bad mojo, don’t you know.

    So, SPX only reached 2867.29, just shy of the SMA20 at 2866.27. And, faster than you can shout “help me Clarence!” SPX bounced the 16 points we anticipated, just like it did on Wednesday.

    It was a near miss..or, was it?  As we discussed on Tuesday…

    One little trick we often see on days when it’s difficult to convince the machines to sell/short down to an obvious bounce point such as the SMA10 is to drive the price merely to where the SMA10 will be tomorrow.  The SMA10 will likely increase by another 5 points tomorrow, so getting within 2-3 points is potentially “good enough.”

    As luck the algos would have it, today’s SMA20 came in at…wait for it…2866.27.  January highs and SMA20 were both tagged.  So, all is well, right?  Not so fast.  Futures are currently off 10 points, banks are tanking, oil and gas are slipping, FB is scurrying toward the basement and TSLA has tumbled 15% since Tuesday’s short call.

    In the distance, sirens.  A mob of nervous investors crowds the door.  Might the Building & Loan actually be in trouble?

    Thanks to overeager algos, the S&P 500 has thus far ignored the threats of tariffs, political turmoil, emerging market meltdowns, rising interest rates and historically high multiples. None of that matters as long as corporations can borrow cheap and repurchase their own shares, VIX can be hammered when necessary, the dollar continues rising and oil/gas prices don’t crash.

    If any of those support mechanisms falters, however…  Well, we’ve seen what can happen.  Keep an eye on 2867.29.

    continued for members… (more…)

  • Currency Complications

    USDJPY reached our target at the SMA100/SMA200 overnight, at least temporarily bringing the pair back below the top of the falling white channel from which it broke out on July 10.  Readers will recall that breakout was instrumental in helping SPX break above its faux IH&S neckline 66 points ago.

    A USDJPY rebound here is all stocks might need to make new highs.  EURUSD, which is backtesting after a major channel breakdown, would certainly support a strengthening of the USD……as would DXY — which is the latest victim of “unpresidented” tweets.

    As central bankers have recently discovered, however, there are complications from continued dollar strength which would suggest that it will take a break here.  Will they heed those warnings, or are new all-time highs in equity markets more important?

    continued for members… (more…)

  • Facebook’s Faceplant

    $20 billion here, $20 billion there.  Pretty soon you’re talking real money.

    Maybe Zuck should have accelerated his sales a bit more.

    Facebook’s disastrous conference call and outlook has seen the stock plummet 25% from its earlier highs.Note that this brings FB back below:

    (1) the trend line which has buoyed it since April 4;
    (2) the neckline of the H&S Pattern it completed in March; and,
    (3) its 200-day moving average

    If this all sounds familiar, it should.  In March [see: Facebook Flops] FB fell below its SMA200, completed a H&S Pattern targeting 140, and experienced a death cross — all within the span of 3 weeks.We noted at the time that the outcome was important, as previous stumbles of this sort were strongly correlated with market corrections (shaded areas below.)  Three months ago, on April 25 [see: More Than One Way to Skin a Cat], Facebook’s Q1 earnings came out, but barely moved the stock.  A few minutes later, however, after a $9 billion stock buyback plan was announced, the stock bottomed, recovered back above all that overhead resistance, and went on to new all-time highs.

    This was a repeat, of course, of the Nov 2016 episode where FB plunged below its SMA200, completed a H&S Pattern, and experienced a death cross.

    Of course, the H&S Pattern never played out, and the Trump Dump was snatched from the cradle and rebranded the Trump Rally [see: Why the Trump Rally is a Fraud.] But, that’s another story.

    That particular near-disaster was averted with a $6 billion stock buyback plan [are we seeing a pattern here?] $4 billion of which was still unused at the time the $9 billion plan was announced 17 months later.The neckline is currently around 175 — right on top of the .618 retracement at 175.61.  The SMA200 is at 181.53.  With the stock lingering below each of those in the after-hours, one can only wonder how many “undervalued” shares will be reacquired by tomorrow’s open.  Odds are it’ll be however many it takes to get the stock back to 182.

    Or…maybe it’s time to announce a whole new buyback.

  • Netflix: Watch It

    A quick glance at NFLX’s daily chart shows it has significant additional downside potential.

    The most obvious downside target is the 100-DMA at 338.73.  But, the 200-DMA is approaching the white channel midline and should cross it at around 298-300 on or about August 6.  It makes for a nice downside target if the SMA100 doesn’t hold.

    Should the SMA200 and channel midline fail, the bottom of the white channel is currently around 200 and (obviously) rising.

    As an aside… I’ve been mystified as to the value ascribed to the company based on its ability to produce original content.  What about the risk?  Anyone who has worked in film or television can tell you that most productions don’t turn a profit.

    I don’t want to get into production. There are passionate, talented filmmakers out there and I would pollute the craft.

    Reed Hastings, Inc Magazine: Dec 1, 2005

    Netflix has clearly hit some home runs with House of Cards, Stranger Things, etc.  And, theoretically, producing content in-house can lower acquisition cost and diversify revenues.

    But, extrapolating an unending string of popular and profitable productions is just plain silly.  Some would say borrowing $1.8 billion to fund said productions is downright reckless.

    Think New Line, which followed up the hugely successful Lord of the Rings trilogy with the expensive flop The Golden Compass.  Investors would do well to remember that beta works in both directions.

    UPDATE:  July 17

    We’re off to a good start.

  • A Walk on the Arithmetic Side

    I normally construct charts in log scale.  In general, I regard it as a more legitimate way of viewing time and price relationships.  But, I try to remember to check in on the arithmetic picture from time to time.

    Here are a few arithmetic charts to consider…

    (more…)