End Of Year

I don’t like the looks of the weekly charts. Everywhere I look I see brutally oversold indices (as represented by their ETF’s). For example here is the SPY one-year weekly chart with its 8, 21 and 90 period EMA.



Notice that in June it dropped below the 21 EMA and then fell all the way to the 90 EMA where it made a stand and then recovered. The problem right now is that the closing prices are too far away from the 8 EMA, the 8 EMA is too far away from the 21 EMA, and the 21 EMA is too far away from the 90 EMA. I think of this as being like pressure being put on a pot and eventually it has to release.

You can see on the left side of the chart where the MACD and its signal line are just sliding along together. That required a correction and you will very seldom see a correction up from that configuration – almost always the correction is down – which is good. It takes the pressure off the pot and the pot doesn’t explode. The point is we could possibly see that same effect over the next several months as the EMAs slowly converge and that might have a similar effect in mid-year as it did last year. The other possibility is that we have a couple of months of severe down turn to the 90 EMA.

I think that there is so much pressure that what we should see is a quick down turn to the 21 EMA, a bit of a fight there and then either a completion of the plunge to the 90 or a resumption of the “relentless plodding up turn.”

On the 2-year chart you can see the flattening I was talking about more clearly and in context. For almost six months this past year the market “meandered” and I think I heard that word to describe it over and over and … you get the point.



The Q’s are in much the same configuration except they have already begun flattening off at the top as a prelude to either a sideways slide or a bit of “kiss the 21” action.



Of course all of this is truly meaningless to those of us who trade on a short-term basis except maybe as a warning that there might be a few rocky weeks ahead. For the shortists it is probably going to be a feast time.

Just some thoughts – not advice – and certainly not a prediction – only the magic coin is predicting and it is smart enough not to tackle anything further out than tomorrow.