Closing  Mar 13, 2009

Primary Trend=Up

Age of current cycle=2 days

1st target level=78.30

2nd target level=80.76

PM Update Mar 13: The Secondary picked up 51 ticks to close at +207.  Notice the green dot?  That is the indication that the new uptrend is in place as the Slope is greater than +80.

AM Update Mar 13:  The Secondary continues higher at the opening gaining 27 ticks to +184.  To turn down, signal weight of -3080 is needed.  Since the Primary will be changing slope and going through a down cycle shortly, the Secondary will need to stay positively sloped during that period, or be only slightly negative, by the time the Primary's cycle is finished for the low in SPY to be confirmed.  This will play itself out over the early part of next week.

PM Update Mar 12:  The Secondary changed slope and is now spreading (Slope greater than 80), a new uptrend has been established set up by the positive divergence.  Since the Primary is reaching its positive extreme, there will be a downcycle on the Primary very soon.  So early next week it will be important to watch signal weight such that the Secondary can continue to rise.

AM Update Mar 12: (2) Signal weight has risen to +1400 and the Secondary remains up.

AM Update Mar 12:  The Secondary remains up today if signal weight closes above -240.  After the opening, it is slightly down.

Depending on the level of signal weight we get, the next several days will determine whether the Secondary will remain negative or will follow the positive divergence pattern that has set up a possible trend change on the Secondary.  We know that the Primary must now go through a down cycle.  If signal weight during that cycle remains only modestly negative, and then turns up on stronger signal weight, the Secondary at that point will also be in a position to turn up and we will have both Delineators turning up at the same time.  This would create a sustainable up cycle that should be in place for at least several weeks.  By watching signal weight and the movement in the Primary over the next several days we will know if this low being made now will be sustainable.

PM Update Mar 11: The Secondary spent a lot of the day today positively sloped, but at the close was still down.  The Secondary lost 73.7 ticks to close at -12.54.  It can turn up again tomorrow.  

AM Update Mar 11: The Secondary can turn up today with signal weight of +1080.  If it turns up a middle long signal will be issued.

PM Update Mar 10: The Secondary lost 221 ticks to close at -88.  It may be possible for the Secondary to change slope Wednesday.  Before a new uptrend can be established, the Secondary must first change slope and turn green (value >+80).

AM Update Mar 10:  At the opening, the Secondary is losing 147 ticks to -161. A slope change up on the Secondary cannot happen today because signal weight of +4880 is needed (impossible...signal weight max is +-3200).  Notice how clear the positive divergence (discussed below) is this morning on the Secondary?

PM Update Mar 9: (close) The Secondary picked up 19 ticks to -309.

PM Update Mar 9: (2:30pm) Strongly negative signal weight has persisted all day today threatening to reverse the positive divergence mentioned in the post above.  It will be a few days yet before this pattern can play itself out.

AM Update Mar 9:  Even with the negative signal weight, the Change on the Secondary is +9.8 and the positive divergence is still valid.  It will take positive signal weight of +4580 to turn the Secondary up today (impossible).

Secondary Study: Positive Divergence

NOTE:  (posted 03/08/2009)  Shown in the chart above is the positive divergence (A) that we mentioned last week that was developing on the daily chart.  Note that the slope of the orange line (Slope) is generally positively sloped in contrast to the strong downward trend in price, SPY.  Seeing positive divergence develop while SPY made new cycle lows suggests that a strong reversal in the daily trend is possible.  This pattern typically is accurate, both at major tops and bottoms.  The motion of the Primary is the key to whether we are at a turning point on the daily chart.  As the Primary is -10,000 and nearly over extended, unless affected by exogenous events, a move back to 78-80 on SPY over the next few weeks is possible.  Of course, the Secondary would need to change slope up first.

The last time this pattern played out was in late December of last year, also seen above.  During that period, negative divergence was seen.  Notice the pattern (B) that developed then.  It's subtle, but as Price made slightly higher lows and higher highs (chevrons up/down) the orange line was making lower lows and lower highs suggesting a reversal of trend was possible.  Once the final push was made on the Primary during that period, price collapsed and SPY fell 25% over the next two months.

Hence, since a slope change up is expected Monday on the Primary, increased volatility on the upside may well define the character of this coming week's price action.  Signal weight, as always, will be the key.

Mar 13:  Closing Read

Signal weight closed at +1060 and the price did in fact test the highs again after the slope change as suggested in an earlier post today.  Also notice that the Change is now a small positive number at +13.  To keep the Primary rising next week, ever increasing amounts of signal weight will be needed and even then, any gains from here will be unsustainable.  Until the Primary can go through a downcycle that would last a day to a day and a half (minimum), any further gains in price will reverse.

Mar 13:  1pm   SLOPE CHANGE / EXIT LONG CONFIRMED AT SPY 75.41

The slope change / exit long signal has confirmed.  However, the Primary can turn back up today if signal weight again turns strongly positive.  As always, signal weight is the key to understanding the motion of the Delineator and to predict its behavior.  If signal weight is +1800 or more this bar, the Primary will turn back up.  After this half hour period, the Primary will not be able to change slope today.

NOTE: I'm off for the rest of the day.  The email system will be on but I will be on the 1st tee in an hour.

Mar 13:  12:30  Early Slope Change / Early Exit Long signal issued

The Primary's slope change at 1pm will occur if signal weight is greater than +860.  Thus far today, signal weight has been more positive than it has been in negative numbers.  Unless signal weight turns strongly negative later in the day, a retest of the highs is possible.

Mar 13:  12:00

Signal weight is -155 and the Change now exceeds the Slope, so we know a slope change is very near.  From the Stats window on the software, we know that if signal weight moves to -640, a slope change will occur this bar.  Otherwise the change will be next bar at 12:30.

Mar 13:  11:30

Signal weight has turned only mildly positive at +329, the Change is now -64.  From the numbers shown below we can compute the estimated time of the slope change at 1.96 bars (126/64=1.26) or about an hour from now.  If signal weight turns negative, the slope change will happen faster.

Mar 13:  10:30

After rising to +1300, signal weight is again back in the +700 range, the Change -61.  We can expect a slope change down in 3.8 bars (Slope/Change=# of bars. 261/68=3.8)

Mar 13:  10am

Signal weight has remained modestly positive at +757, the Change negative at -68.  With positive signal weight of less than 1000, a slope change down / exit long signal will be issued in approximately 2.5 hours.  Any further rise in SPY is unsustainable during this cycle as the Primary will change slope at some point either today or Monday.  Selling into strength (not taking new short positions) is the indicated strategy for the day.

In the category of learning something new every day, look this one up: Triskaidekaphobia.

Mar 13: Opening Read

At the opening, signal weight is +791 and the Change is -78.  This cycle is just about over and we can expect a slope change later today unless signal weight again turns excessively positive.  But even then any further move in SPY is unsustainable on this cycle.  As the trading model is neutral, having achieved its goals and the Secondary is up, no short signal will be issued after a slope change down on the Primary.

Mar 12:  Closing Read

Excessively strong signal weight of +2909 has the Primary at +9580.  The Change has not yet turned negative but as readers have come to understand, it will take more and more signal weight to keep it rising.  This has been the first upcycle on the Primary that has lasted more than a day in quite awhile.  With the Secondary now up, we can expect a downcycle on the Primary next week.

Mar 12:  2:00  

Both the +.80 cent and plus a buck profit targets have been achieved.  The trading model is now neutral.  Very strong signal weight of +2420 has the Primary extending its rise.  Thus far, this week has unfolded as I suggested it might in my post this past Sunday evening due to the positive divergence shown in the Secondary and described in the Secondary Study: Positive Divergence section above.

I'm off to the golf course, this is the last post until well after the close.

Mar 12:  12:00pm

Very strong positive signal weight of +1640 is keeping the Primary rising at mid-day.  It will take ever increasing amounts of signal weight to keep the Primary rising today evidenced by the small Change of +26.  The darker green color of the Primary indicates signal weight in excess of +1500.

Mar 12:  11:15

FYI:  The Plus a Buck target of 74.47 has been adjusted to +.80 due to the lower price of SPY.  The GTC exit is now set to 74.27.

Signal weight continues to build, now at +1423

Mar 12:  10:50

Signal weight has built back up to +1236 which is strongly positive.  Also notice that the Change is now a smallish positive number.  The bullish influences of the Secondary can be seen in the action today.  The middle signal may yet make its target.

Also notice that SPY reached 74.01 during this bar and has closed the gap at 73.94 identified Monday.

Mar 12:  10:30

Signal weight has turned from -1100 to +635 during the last half hour making a slope change less likely.  Also notice that at +635 the Secondary has remained up as well which is shown by the Primary turning green again.

Mar 12: 10am

If signal weight is -1120 or greater during the current bar, an early exit long / slope change down will be triggered.

Mar 12:  Opening Read

A slope change down / exit long signal is expected this morning and possibly a short signal as well.  Depending on the level of signal weight we get, the next several days will determine whether the Secondary will remain negative or will follow the positive divergence pattern that has set up a possible trend change on the Secondary.  We know that the Primary must now go through a down cycle.  If signal weight during that cycle remains only modestly negative, and then turns up on stronger signal weight, the Secondary at that point will also be in a position to turn up and we will have both Delineators turning up at the same time.  This would create a sustainable up cycle that should be in place for at least several weeks.  By watching signal weight and the movement in the Primary over the next several days we will know if this low being made now will be sustainable.

At the opening, signal weight is -574 and an early slope change down/exit long signal can be issued during the next bar (10am).

Mar 11:  Closing Read

The middle long signal that was generated this morning has not yet made its target and is nonetheless still a valid signal.  As can be seen on the chart below, the middle signal went into and out of confirmation by the Secondary several times today evidenced by the alternating green and gray color of the Primary.  The Primary's value is now +6486 having risen from -10500 a day ago.  

We can now expect that with any negative signal weight a slope change back down will be easily triggered tomorrow and a short signal is also possible tomorrow as well.

Mar 11:  10:30am

As long as signal weight remains strongly positive, any retracements today will resolve back in the direction of the Primary.  However, as the Change is negative, more than half of the rise in the Primary has already been achieved.  This is the main risk behind middle signals compared with pure ones.

NOTE:  I have appointments today so this will be the last post until late this afternoon.

Mar 11:   Early Enter Long/Enter Long

A middle long signal has been issued at 10am at SPY 73.47.  If signal weight falls below +1080 the signal will be still active but out of confirmation by the Secondary.  The Plus a Buck is long at 73.47 with a GTC exit at 74.47.  

Mar 11: Opening Read

A middle long signal will be issued today if signal weight is +1080 or more as that is what is needed to turn the Secondary up.

Just after the opening, weak positive signal weight of +195 has the Change at -138.  Signal weight will again be the key to today's action on the Primary as increasing amounts will be needed to keep the Primary rising.

Mar 10:  Closing Read

Excessively strong signal weight of +3000 maintained all day pushing the Primary from -10500 to -943 (zero on next bar).  With the Change only +14 and signal weight of +3100, to keep the Primary rising it will take ever increasing amounts of signal weight.  The easy part of the move is over.

It may be possible for the Secondary to change slope up tomorrow which will be determined after the opening.  If it does flip up, it will generate a "middle" long signal.  For a new daily uptrend to be established, the Secondary must first change slope and its Slope must be greater than +80.  That will take a few days yet for that to happen in the best case scenario.

Mar 10:  2:45pm

Looking only at the numbers below, we can see that the excessively strong signal weight of +3012 now results in a Change of only +26.  Also notice that the Primary is now advancing at +1021 ticks this last bar.  We can then project that the Primary will be at zero within three or four bars.  Hence, we can project that relatively soon, the Change will approach zero and the move in price will begin to fade.  Thus far the action in the Primary is quite similar to the previous slope change up in the Primary on March 4th.  It was over quick.  Until the Secondary changes slope up and begins to spread, rallies like this are simply bounces in a bear market.

Mar 10:  1:30pm

Excessively strong signal weight of +3020 has the Change at +49 and the Primary at -5053.

Mar 10: 12:05pm

SPY has traded through the first target of 71.72 and has closed the gap on March 5th.  Extremely strong signal weight of +2900 continues.  Thus far there have been no opportunities to trade a pullback.

Mar 10:  11:30

Very strong positive signal weight continues.  The targets for SPY identified in the preceding post represent the gaps on 3/05 and 3/02.  

Mar 10:  10am Slope Change UP confirmed

As expected, the Slope Change up has confirmed.  It is now impossible for the Primary to turn down today and it should rise for the next two days.  For the next several hours, any move back near the opening level (69.45-69.85) is a trading opportunity on the long side back to the highs of the day.  Extremely strong signal weight of +2460 should have the shorts worried and provide more distance on the upside.  Targets: 1st: 71.72, 2nd: 73.94.  

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Mar 10:  Opening Read

Strongly positive signal weight of +1748 has caused the Primary to issue an early slope change up that will confirm at 10am if signal weight is higher than -40.  Yesterday, signal weight started the day very strong only to evaporate shortly after the opening.  Assuming the slope change up confirms, no long signal can be issued today because the Secondary is not currently confirming the direction of the Primary.  However, experienced traders should realize that a move back to the 73 area on SPY is viable.

Mar 9: Closing Read

The Primary had two slope changes today and turned back on itself downward.  The previous three Primary downcycles ended in the -12500 to -18000 range.  At the close, the Primary was -10650 and needs very strongly negative signal weight from here on to keep it going down, else it will want to rise quickly.

3pm Slope Change Down Confirmed

Strongly negative signal weight continues. however notice the Change is only -12.  A short signal would be the next signal when the Slope moves to -80.  Anticipating when that might be, the Slope needs to pick up -59 ticks. At the rate of -12 per bar at the current level of signal weight, means about 2 hours from now.  To trigger a short signal this bar, signal weight would need to move to -2600.

Mar 9:  2:30pm  Early Slope Change Down issued

Strong negative signal weight has turned the Primary down again issuing an early slope change negative that will confirm at 3pm if signal weight is -1235 or more.

Mar 9:  1:45pm

Signal weight has turned strongly negative at -1124, the Change is now -8.5.  The Primary will change slope again back down later today unless signal weight turns positive again.

Mar 9:  12:00  Slope Change /Exit Short confirmed

The slope change /exit short signal on the Primary has confirmed.  The model is now neutral indicated by the gray dots as the direction of the Primary is not confirmed by the slope of the Secondary.  Also notice that the Primary can change slope back negative again in the next several hours if signal weight remains negative.  

Mar 9:  11:30   EARLY SLOPE CHANGE ISSUED

An early slope change / exit short signal has been issued at 11:30 that will confirm at 12pm if signal weight is less than -880.  Typically, slope changes up occur when signal weight needs to be greater than zero.  A slope change with negative signal weight means the Primary is a balloon underwater.  If signal weight can turn positive again, a sharp rise in price will follow.

Mar 9: 11am

Signal weight turned negative again delaying the slope change.  Negative signal weight of -260 or less will trigger a slope change this bar.

Mar 9: 10:30

Signal weight is +216, the Change now +78.  An early slope change up will be issued if signal weight is +580 or more this bar, otherwise the slope change will be issued next bar as the Change is greater than the Slope.

Mar 9: 10:15

Signal weight has turned mildly positive at +203.  An early slope change up is possible now next bar.

Mar 9: 10am

Signal weight has turned less negative, the Change now +55.  If signal weight remains where it is, a slope change can occur in 2.5 bars.  Assuming a slope change does happen today, no trading signal will be issued because the slope of the Secondary is still down, the trading model will be neutral.

Mar 9:  Opening Read

At the opening, negative signal weight of -1085 and a Change of +35 shows that the Primary wants to rise.  A slope change is still expected but positive signal weight is needed to make it change slope today.  The trading model is neutral having achieved its targets last week.

Mar 6:  Closing Read

A slope change up was never generated as negative signal weight continued.  The Primary is back to -10377 and once again we have strongly negative signal weight with a positive Change.  The Primary wants to rise, but negative signal weight keeps pushing it back down.

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