Seasonal Bullishness Ahead. How long will it last?

Before I get started I would like to inform you that Monday’s post was featured in the Wall Street Journal. I would like to give a special thanks to David Gaffen and especially to all of my loyal readers for the constant support ever since I began this journey at the beginning of the year. The blog is making headway, and best of all, our portfolios, especially, the ETF Extremes, is outperforming the market by a significant margin. With a YTD return of 44.1% it is only a matter of time before we will have to add interested subscribers to the waiting list. Check us out, we think you will find our service one of the most unique and resourceful newsletters online.

The first few trading days of December are historically bullish, but as we all know, seasonal tendencies have been turned upside down over the past several months. While we might get another test of the recent highs over the next day or two I still think a move lower is imminent. There are several reasons why I am leaning toward a move lower over the short-term. The S&P 500 has struggled with overhead resistance the past few trading days and any significant move higher would put SPY in an overbought state which, in most cases, when coupled with strong overhead resistance limits any sustainable upside momentum.Furthermore, the S&P has had problems breaking through this area since the middle of November. Also, the gap that occurred on Wednesday has yet to close and is weighing on the market. Historically, large gaps, up or down, close within the first five to seven days after the gap occurred. Tomorrow will be day three so we should keep a close eye on the price action of the S&P over the next few days.

I do think the strong seasonality could give the bears some problems tomorrow, but after that I think we could see a sharp move to the downside that closes the gap. As for a continuation of that move, well, we will tackle that issue if it comes to fruition.

As always have a wonderful night!

RSI Wilder (5) for November 30, 2006

• SPY - 60.9 (neutral)
• DIA - 52.0 (neutral)
• IWM - 54.1 (neutral)
• QQQQ - 50.3 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Upside Gap Doesn’t Close

There was an upside gap today in the S&P 500 (SPY), Dow (DIA) and Russell 2000 (IWM). As soon as the opening bell sounded, buyers stepped in and never allowed sellers to close the gap in the three aforementioned indices. Historically, this does not bode well for the bulls over the short-term.  

Typically, when a gap occurs (opening price higher than the prior days high) of this magnitude and breadth continued upside momentum is limited over the short-term. Furthermore, in most cases when a gap like this occurs, the gap closes within a few trading days, but given the seasonally bullishness (transition from month to month) we could see a continued move for a few more days. If the market does indeed move higher, forming a double top, I think we could have a decent set-up for another move to the downside that will most likely close the gap that was established today. Gaps tend to weigh once they occur so watch this one closely over the next few days. I hope you have a great night! 

RSi Wilder (5) for November 29, 2006

• SPY - 60.1 (neutral)
• DIA - 53.0 (neutral)
• IWM - 54.5 (neutral)
• QQQQ - 51.6 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Oversold bounce. How long will it last?

The major indices quickly bounced off the oversold levels that were quickly established yesterday. The bounce was somewhat expected given the recent strength and the lack of any notable corrections over the last few months. The question is, how long will the bounce last. Will the market quickly turn over during the next few sessions or will buyers show some conviction and keep the extended rally afloat? Monday’s extreme selling pressure could be a warning sign that the correction could continue over the coming days or weeks. Quite often when the market hits new highs and is met by heavy selling pressure the short-term future typically leans towards the bearish camp.

Today’s bounce, while somewhat encouraging for the bulls, was still unable to move the Dow (DIA) out of an oversold state and the other indices are barely clinging to neutral status. The next few days should be very interesting as we move into the bullish transitional period that surrounds months end. In an uptrending market (defined in this case when the 20-day moving average is sloping upwards) the market has historically displayed a bullish bias the last day of November and carries over into the first few trading days of December.

RSI Wilder (5) for November 28, 2006

• SPY - 38.9 (neutral)
• DIA - 28.4 (oversold)
• QQQQ - 39.1 (neutral)
• IWM - 31.9 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Back into Oversold Territory

 After a much needed breack from the daily grind of my commentary I am finally back. Over the course of the last week I have had a few ideas about how I am going to move forward with the newslettter. With the recent success of our ETF Extremes (up over 44% YTD) and our recent feature in the WSJ we are nearing our capacity for subscribers. If you are interested in our service now is the time to consider joining our service. At $39.95 per month ($19.95 for the semi-monthly newsletter) we are the best bargain around. Compare our performance and prices to other newsletter/ advisory services and I think you will agree. www.crowderinvestments.com  Now on to the good stuff.

The major indices took a beating today. The S&P experienced its largest one day loss since June of this year. The other major indices also experienced one day losses not seen in months. The large decline led to the major indices moving back into an oversold state which is usually a good indicator that a short-term contrarian move is right around the corner. I would prefer to see the Nasdaq 100 move into oversold territory before I even consider buying a few calls. Furthermore, I think that any rally attempts could be short-lived so I will be nimble, not looking to hold a trade for more than a few days if a trade is indeed placed.  

Did you also notice the VIX over the last few days? I mentioned a few weeks ago how the VIX was at historically low levels which, in most cases, signals a top has formed (or forming) and any further upside moves will be limited. Well, the VIX has moved over 20% since reaching its historically low level and the S&P has moved roughly 2% lower as a result.

I will be watching closely how the market reacts to the recent plunge. If the move lower continues or if rally attempts are quickly sold off we should expect to see a nice correction over the coming weeks. If the market can mange to bounce back from these levels without much of a fight then the market might stage an end of the year rally. I admittedly am leaning towards the move lower, but this should not be a surprise considering the bearsih tone of my posts as of late.

RSI Wilder (5) for November 27, 2006

• SPY - 25.1 (oversold)
• DIA - 22.4 (oversold)
• IWM - 25.4 (oversold)
• QQQQ - 34.1 (neutral)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Turkey Day

I will not offer any posts this week. I hope all of you have a wonderful holiday week. After posting every day since April 1st I am due for a much needed break from the blog so I have decided to take this week to rejuvenate. I will resume posting on the 27th.

Have a great T-day!

Andrew Crowder

Options Expiration

Options expiration is finally over and the bulls will most likely take a rest on Monday. Typcailly, the trading day following options expiration is seasonally bearish and when the market is in a very overbought state the probability of a move lower is significantly higher than the norm.

THe VIX lost a little more ground today and is close to closing below 10. We are in historical territory and as I stated yesterday a move lower seems imminent.

As a great man once said: there is a better way for investors to judge the value of investment advice. Instead of looking at what these “experts” promise, look instead at the results they have actually delivered.

In other words, focus on performance, not promises.

I would like to encourage those of you who haven’t had a chance to check out our site to visit us at www.crowderinvestments.com.

RSI Wilder (5) for November 17, 2006

• SPY - 83.7 (very overbought)
• DIA - 80.7 (very overbought)
• IWM - 79.7 (overbought)
• QQQQ - 87.3 (very overbought)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Could the VIX be telling us something?

 Have you been paying attention to the VIX lately? The index, often referred to as the “investor fear gauge” has reached a historical low. In most cases, a low VIX reading often means a decline is imminent. Couple the historically low reading with all of the major indices in a “very overbought” state and I think the bears could rear their ugly heads in the near future. I am starting to see some extremes that I have not seen in years so needless to say  I think a sustained move to the upside will be limited. Seasonal tendencies and historical precedents have been virtually worthless lately so I am interested to see if the trading days surrounding Turkey Day will be kind to the bulls like in the past. Either way, as I said before, any move to the upside should be limited.

Also, just a little more food for thought. Have you forgetten about the upside gap that occurred on 8/16 in the S&P? Over the history of the S&P, almost every gap is eventually closed. I know this sounds like a stretch given how far the market has come, but Mr. Market is full of surpises and loves to catch investors off guard, especially after a nice bull run when emotions and greed are running high. The herd mentality scares me, but I digress.  I am in no way saying the gap will close, but it is certainly something to consider if the market happens to take a turn for the worse. Remember, paper profits are worthless. It never hurts to take a little off the table to lock in some of those hard earned returns.

RSI (5) Wilder for November 16, 2006

• SPY - 83.4 (very overbought)
• DIA - 85.1 (very overbought)
• IWM - 81.3 (very overbought)
• QQQQ - 87.3 (very overbought)

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Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

 

How much longer will this rally continue?

All of the major indices are reaching multi-year highs which is causing a buzz among investors (and why not right?). The bearish indicators have been piling up for weeks now yet the bulls remain in control of the market. Fortunately, I never allow my market views, right or wrong, to interfere with the strategies I follow. My theory is trade using a proven system or use the Warren Buffet method. I prefer to use the latter in my retirement portfolio. Anyway….

All of the major indices are currently in a “very overbought” state which, in most cases, means short-term moves to the upside should be limited. Recently the market has sustained overbought levels for days so I will be paying close attention to how the market reacts around this area. One thing is for certain, if the market sells off and reaches an oversold level I will be tempted to buy some calls. The trend lately is that whenever the market reaches an overosld level buyers move back in immediately. I do think the next move lower could be a decent one, but as you all know I have thought this for the last few weeks.  

RSI Wilder (5) for November 15, 2006

• SPY - 80.5 (very overbought)
• DIA - 80.1 (very overbought)
• IWM - 83.0 (very overbought)
• QQQQ - 85.3 (very overbought)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Strong Overhead Resistance Broken

The S&P 500 (SPY) finally broke through the strong overhead resistance that has been in place for several weeks now. The 139 area in SPY has been rather troublesome for the bulls until today. The indice looked as though it would fall back again today once the area was tested then a massive surge in volume came through which led to a rally into the close. The talking heads said that the rally was triggered by a large insitutional program trade in the S&P futures contracts.

Keep a close eye on the 139 area in the SPY. If buyers move in and are able to hold the index above that pivotal area we could get a continuation of the rally. THe the bulls are unable to hold the 139 area then we could see a move back into oversold territory. With all of the major indices back in overbought to very overbought territory the upside momentum should slow down over the short-term. This could lead a false breakout. However, the bulls are in control of this market so buyers will continue to put up a fight with each attempt to push the market lower.

RSI Wilder (5) for November 14, 2006

• SPY - 77.1 (overbought)
• DIA - 75.9 (overbought)
• QQQQ - 83.3 (very overbought)
• IWM - 79.3 (overbought)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

Strong overhead resistance keeps the market in check

 I am going to keep it short tonight. Overhead resistance remains strong in the SPY. Shortly after the market opened today SPY moved sharply to the upside only to be halted by the 139 area (SPY) once again. This area ahas proved to be meddlesome for the bulls and until I see a breach and hold above this area I am still leaning towards a move lower. Several important inflationary indicators and retail number are out this week and should give the bulls//bears fuel (depending on how the reports are interpreted) to guide this market over the next few weeks. Have a great night!

 RSI Wilder (5) for November 13, 2006

• SPY - 63.4 (neutral)
• DIA - 60.7 (neutral)
• IWM -  63.6 (neutral)
• QQQQ - 76.9 (overbought)

Andrew Crowder, Chief Investment Strategist, www.crowderinvestments.com

 

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