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PTA Model Update: Weak Market Ahead at Trader’s Narrative

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The following is a guest post by Charles H. Dow Award winner, Wayne Whaley (CTA) of Witter & Lester. If you would like to be privy to his daily market comments and model ratings via daily email, free of charge, email him at wayne[AT] with the subject title “ADD ME TO DAILY EMAIL”.

Below are two charts associated with the Intermediate PTA Model. The PTA Model has three components:

  1. thrust signals indicated by the up arrows on the top S&P 500 index chart
  2. Confusion Index signals indicated by the down arrows on the S&P 500 index chart
  3. and some trend following strategies which are not reflected on the S&P 500 index chart

These three components are weighted chronologically and by quality of signal to give you the bottom composite PTA chart. The PTA model finished today at 38.3 due predominantly to price direction.

Click to see larger charts in new tab:
SP500 compared to PTA signals Jul 2010
PTA Model Jul 2010

As you can see on the top chart, given the thrust signals in the last 12 months, the model has the potential to improve with positive price action, but there is reason for concern on the confusion front. Recall that the model doesn’t like to see a lot of issues going in different directions and our confusion index reached a new 12 month high today of 0.81. However, the confusion index, is itself confused because so many interest rate related funds are making the new high/low list each day.

Today’s daily model was a mildly positive 53, due largely to the fact that the 2nd trading day after a three day weekend has a positive record, especially after a down week. Although they are Wednesdays, they trade like turnaround Tuesdays. The Intermediate Model is a positive 55.9.

Eleven of the last twelve trading sessions after a three day weekend have been up, reversing the trend of the previous three decades.

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2 Responses to “PTA Model Update: Weak Market Ahead”  

  1. 1 Babak

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    Thanks for the update Wayne, the PTA’s current state reminds me of the breadth indicator, % above long term moving averages, which suggests that things will get weaker before they get better.

  2. 2 Wayne

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    Your welcome,

    I didn’t know I would get a post out of today’s market comments or I would have given a bit more of an explanation. The arrows on the top chart are tape action identified by the model that contributes to the PTA rating given in the graph on the bottom. Historically you want to be long in the green zone, short in the red zone. The trend following components of the model are not reflected in the top chart but are near their lowest possible reading, so the model is about as low as it will get right now and has the potential to improve very quickly if price action turns around. I’m not real comfortable appearing to be bearish. My gut is bullish, but my models are right more often than I am.

    As someone will soon point out, the model didn’t call the top prior to the recent correction but it is designed not to miss the move if it turns into a bear mkt. It is not a great model for picking tops and bottoms but will keep you in line with the major trend. Note in the red zone for most of 73-74, 81-82, 87, 01-02 and 08 bear mkts.

    On different subject

    Today, like many days lately, half the issues making new 12 month highs were Interest Rate related funds, not stocks, which is really screwing up a lot of traditional analysis. I am in the throws of evaluating different approaches to sanitizing my existing NYSE data to attempt to deal with this. If anyone has been through that recently and has advice contact me or leave a comment. I’m debating whether to tackle tape analysis of the S&P 500 for a proxy of the sanitized NYSE or whether to attempt to locate sanitized NYSE data.

    Boy, today was a great day for technicians or support/resistance traders. We ran into a brick wall today at old support (1040), which is now resistance, sold off hard, found support at yesterday’s close before bouncing 10 points into the close.

    I’m doing a webcast for MTA, Wednesday July 7, at 12E, feel free to drop in.

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