Mike
12-02-2011, 12:04 PM
We are now at rally count of +5 days from the bottom. Volume on the NYSE and NASDAQ are so far running slightly behind yesterday at 11:30 EST so we are not on a trajectory yet for a follow-through day. A late afternoon surge could produce a FTD however. I am looking for a 1.25% move up on a close-to-close basis on volume higher than yesterday on any of the following indices: NASDAQ, S&P500, NYSE Composite.
I have done studies on market conditions on the day of a FTD that lead to producing sustainable rallies. Right now only one of three conditions are inline, market internals have been bullish. The Weekly Coppock curve is in the wrong place for a sustainable rally and the IBD6000 percent of stocks with an E Distribution rating is 4.9%, too low historically to produce a sustained rally. Low percentage of stocks showing heavy distribution (E rating) indicates complacency to me and possibly not enough money on the sidelines to propel the market. In bear markets there have been zero sustained rallies when %E was below 7.4% on the day of the FTD. This analysis goes back to the beginning of the IBD6000 index in 1984. In bull markets 13% of the rally attempts from low %E conditions worked, the rest failed. In bear markets only 5% of rally attempts worked when the Coppock curve was not in position for a buy signal. We are dancing with the 200-day moving average again, a logical failure-prone location. In my opinion this is a set up for a failed rally. This does not mean a short-term rally cannot happen, say one of a few weeks duration. CANSLIM methods produce the most gains on sustained rallies.
Yesterday the Market School Exposure Model showed a B6 buy signal, lows of the NASDAQ above the 50-day moving average. So in the past five days we have seen a B3 (Lows above the 21-day ema) and the B6 just mentioned. This places the exposure count at +2 but this cannot be acted on until the buy switch is turned on by a FTD. If and when this occurs the exposure count will be limited to +2 (55% in) until the restraint switch gets turned off by a close of the market 1.25% above the close of the FTD.
I considered buying a pocket pivot in ISRG this morning until I checked my homework on the fate of the possible rally. I am instead staying in cash and not contemplating a move before the market gives us a real signal and even then I will remain cautious. I am constantly reminded that the market does not care what my opinion is, so I will go with the flow if the market wants to stage a major rally here.
I have done studies on market conditions on the day of a FTD that lead to producing sustainable rallies. Right now only one of three conditions are inline, market internals have been bullish. The Weekly Coppock curve is in the wrong place for a sustainable rally and the IBD6000 percent of stocks with an E Distribution rating is 4.9%, too low historically to produce a sustained rally. Low percentage of stocks showing heavy distribution (E rating) indicates complacency to me and possibly not enough money on the sidelines to propel the market. In bear markets there have been zero sustained rallies when %E was below 7.4% on the day of the FTD. This analysis goes back to the beginning of the IBD6000 index in 1984. In bull markets 13% of the rally attempts from low %E conditions worked, the rest failed. In bear markets only 5% of rally attempts worked when the Coppock curve was not in position for a buy signal. We are dancing with the 200-day moving average again, a logical failure-prone location. In my opinion this is a set up for a failed rally. This does not mean a short-term rally cannot happen, say one of a few weeks duration. CANSLIM methods produce the most gains on sustained rallies.
Yesterday the Market School Exposure Model showed a B6 buy signal, lows of the NASDAQ above the 50-day moving average. So in the past five days we have seen a B3 (Lows above the 21-day ema) and the B6 just mentioned. This places the exposure count at +2 but this cannot be acted on until the buy switch is turned on by a FTD. If and when this occurs the exposure count will be limited to +2 (55% in) until the restraint switch gets turned off by a close of the market 1.25% above the close of the FTD.
I considered buying a pocket pivot in ISRG this morning until I checked my homework on the fate of the possible rally. I am instead staying in cash and not contemplating a move before the market gives us a real signal and even then I will remain cautious. I am constantly reminded that the market does not care what my opinion is, so I will go with the flow if the market wants to stage a major rally here.