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This is a guest post by recent Charles H. Dow Award winner, Wayne Whaley (CTA) of Witter & Lester:
There was a gap over last weekend between 1107.0 and 1144.50. Market has a tendency to want to fill these gaps. We traded down to 1113.0 on Monday, but didn’t completely fill it. Market will often go back and clean this up before moving onward. If tested, I would look for ~1107 to hold.
My daily work is slightly positive 55.7 at midday and has gotten stronger as we have sold off. The remaining models are:
- Short-term Seasonals - 49.97
- Daily Tape - 60.17
- Intermediate Model - 68.49
The Intermediate Model has five components, one of which is a tape model. The tape model has been firmly entrenched in positive territory since early 2009. The model takes into consideration thrust signals, capitulation signals, measures of market confusion, and market trend analysis. Ratings range from -1 to +1. The green areas in the chart below approximate all times in which the signal has been predominantly above zero. The red areas indicates bearish conditions in which you would want to be out of equities and often short. Today’s rating is a positive 0.59.
The Tape Model’s current strength comes from the three strings of thrust signals that were recorded in the last 12 months. For example, on September 23, 2009, a ten day ADT rating of 68.42 was recorded, meeting the 66.6 threshold and giving this particular signal a 0.5 out of a possible 1.0.
The second signal, that occurred between September 10 and 18, was a strong signal with both Five Day Breadth and Volume signals registering. The third signal occurred on March 9 and March 11, after a broad one month rally triggered signals for the 20 day ADT measurement.
The odds of the market going into an extended bear market after three such thrust measurements in the last 12 months is possible, but unlikely. Especially, as long as the market stays above the 200 day moving average, which is currently at 1101.63. The recent pullback in the market was quick and fast and did not lead to signs that the market was entering a stage of confusion, which I am closely keeping an eye on.
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