It seems you have JavaScript disabled.

Ummm.. Yeah... I'm going to have to ask you to turn Javascript back on... Yeah... Thanks.

S&P 500 Trend Lines: Between A Rock & A Hard Place at Trader’s Narrative





Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

While I was focused more on the shorter term technical wedge formation, I paid less attention the the more important downtrend line that is barreling down on price. Watch this video from INO.tv to follow along with this important analysis:

S&P 500 trend line analysis May 2009

After today’s decline, we’ve broken to the downside, out of the lower trend line. Of course this could be a head fake but I don’t think so. Pretty every single measure of breadth, sentiment and technical indicator out there has been flashing a sell for a few weeks as the market ignored it and kept going up. It seems gravity finally caught up with price.

I don’t want to go over the many indicators we’ve already covered in the past few weeks so I’ll just briefly cover two. The first, the percentage of S&P 500 components that closed above their 50 day moving average has been not only extremely high, it has uncharacteristically stayed there for the past 30 days of trading. Today’s declines pushed it down from almost 90%.

Another specific indicator, the ISEE Sentiment index has been elevated sporadically since May 5th when it reached 225. Then on Friday (May 8th) it was 191 and on Monday 197. And more alarming, on a down day like today, when the S&P 500 and the Nasdaq ~3%, the ISEE was 179. That means even when we have a clear down trending day, retail option traders are still bullish enough to buy 179 calls for every 100 puts.

What we’ve been asking ourselves is whether this is a bear market rally or a nascent bull market. This is far more than a technical question to be answered for bragging rights. Fact is that distinguishing between the two allows us to calibrate the indicators that we look at. As I’ve mentioned before, breadth measures and sentiment act very differently during a bear market than during a new bull market.

For obvious reasons, there are precious few tools that this kind of guidance. The Coppock Curve, although not perfect, is one of them and by the end of the month we’ll have a better idea. For more information on this indicator, check out the previous link. The “line in the sand” is the 874 level for the S&P 500 index. If we can hold that by month’s end, even if we head lower, the Coppock Guide will have provided a signal.

To receive FREE future updates from INO like the video above, sign up (top right hand corner)

Enjoyed this? Don't miss the next one, grab the feed  or 

                               subscribe through email:  

5 Responses to “S&P 500 Trend Lines: Between A Rock & A Hard Place”  

  1. 1 Jack

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    I commented on this Coppock Curve idea when you first mentioned it and it has my interest again.

    Depending on the way you measure your 10-wma determines the line in the sand.

    I have 863 as that line. And though we can argue about the math, if it doesn’t trigger this month it will likely trigger next month barring another extreme sell-off in the market.

    Cheers.

  2. 2 Babak

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Jack, it is an interesting indicator and it has the cache of being lesser known. Although since I first mentioned it, it has been picked up by others like alphaville (FT’s blog) and Hulbert who wrote a critical study of it here.

    This article was first featured at news.tradersnarrative.com - for more like it check the link.

  3. 3 Dave

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    “For obvious reasons, there are precious few tools that this kind of guidance.”

    Babak, don’t mean to nitpick, but did you mean to say “that (give) this kind of guidance” ??

    “This is far more than a technical question to be answered for bragging rights. Fact is that distinguishing between the two allows us to calibrate the indicators that we look at. As I’ve mentioned before, breadth measures and sentiment act very differently during a bear market than during a new bull market.”

    EXACTLY, couldn’t agree more.

    Regards,
    dave

  4. 4 Jack

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    I was very disappointed in Hulbert’s piece on the subject. He made sure to reference the fact that the Coppock Indicator is a very long-term signal, yet he mentioned something about the following three months after a buy signal not holding up well against any other three-month period. Weak.

  5. 5 Babak

    Deprecated: preg_replace(): The /e modifier is deprecated, use preg_replace_callback instead in /home/traders/public_html/wp-includes/functions-formatting.php on line 76

    Dave, I meant indicators which can reliably guide the long term direction of the market like the Coppock Guide. Dow Theory would be another. They are few in number.

    Jack, although Hulbert didn’t provide much detail, he did say that he look at the indicator through different lengths of time and there was no definitive edge. I’ll contact him to see if I can get the raw data to see if there’s anything salvagable.

Leave a Reply