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October 11, 2012 / redman59

Pay Attention to the Chart and Other Factors

Yesterday I was away from the desk for most of the day and had to rely on my phone for quotes and how my positions were doing, have to love technology.  Anyway, I made it back for about the last hour of the trading day.  Checking the social stream intermittently and seeing the index quotes the day wasn’t looking good.  I always like when we have days like that as all the stats come out and the stream is definitely more active.  Coming back and sitting at the desk I looked at the chart of the SPX and posted on that I thought today was a better day to take off shorts if you were in some and hold your longs if they are working.  Below is a chart of the SPX and what I was looking at:

  • Notice the pattern of blue highlighted boxes.  Since this uptrend we have had around 4 days of selling followed by buyers stepping in.  Watch for the lows of that 4th down day to hold.
  • The yellow dashed line is the trendline since the 6/4 bottom, still holding well
  • The 50sma (blue line) still sloping up and price holding above
  • We saw a significant low close in the McClellan Oscillator (purple ovals) and you can see on the chart the price action when we had other significant lower closes on the McClellan Oscillator
  • This so far is a 40 point range after we saw the breakout on 9/6

Something else I found interesting is what happened with the VIX with the SPX selling.  Below is a 15min intraday chart (my intraday preference for VIX) of the last two days.  The VIX is on top and the SPX is on the bottom.  Notice what happened (blue highlighted box) to the VIX when the SPX made a bottom and based around that bottom.  The VIX in turn dropped over-4% from high to low while the SPX only gained 0.30% from low to high.  On a ratio basis volatility took a hit.  This is characteristic of traders not rushing to buy protection, in turn not expecting increased volatility to the downside.

I can’t ignore that we have seen an increase in distribution days and we may see more downside.  But when looking at other underlying factors shown above there is no reason to panic or get caught up in the news or the increased flow of traffic on the stream.  Sometimes you have to step back and analyze other factors and stick with what has been working…until it doesn’t.

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