Show Me The Trend

Ulli Uncategorized Contact

As was widely expected, there was some follow through buying yesterday as a result of last week’s rebound and the major indexes moved higher. One reader had this to say in regards to my post last Sunday titled “Controlling The Urge:”

The market these days seems like the patient on the table alternating between irregular heartbeat and flat line. Helicopter Ben applies the paddles and revives it for a few days, but then disease takes hold again. No damn way I’m placing bets either way…

That’s actually a good way of putting it, because we’ve had the dance around flat line (trend line) for quite some time now and a directional break-out is not yet apparent. Here’s where the Trend Tracking Indexes (TTIs) stand as of yesterday:

Domestic TTI: -0.22%
International TTI: -7.18%

The international TTI still remains deep in bearish territory, while the domestic TTI is getting closer to crossing back above to the upside. Just a slight crossing above does not constitute a new upward trend. I need to see some staying power as well. In my advisor practice, I use a trading band of 1.5% above and below the trend line, which needs to be pierced first before I commit to either the long or short side.

Remember, just a couple weeks ago, the domestic TTI dropped to -1.64% but did not stay at that level for more than one day before reversing. If you had eagerly initiated a short position at that time, you are not a happy camper at this moment. Again, the use of this trading band will (hopefully) avoid some of those whipsaw signals, which happen during times of uncertainty.

This cautious view is further supported by the momentum figures in my weekly StatSheet. Out of 184 domestic ETFs, only the Dow Jones Transportation (IYT) has crossed its own long-term trend line to the upside, while out of the 615 domestic no load funds I track, only 5 have barely moved into bullish territory.

From my vantage point, more follow through is needed to make sure that this is not just another head fake.

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Comments 1

  1. “If you had eagerly initiated a short position at that time, you are not a happy camper at this moment.”

    Yep, count me in this group.

    My SOPSX has not performed well. In my defense it was a decidedly small position and will not open much of a wound should I have to sell at a loss.

    The reader is right about the war going on between what should be happening in the markets and what the powers that be are manipulating for the benefit of the markets.

    I’m suspecting that we could soon see a buy signal triggered in domestic markets. And why not, just look at some of the about faces that have surfaced in the last few days. Mish has revealed that his advisory practice has “gone net long”!! And I read today in the Orlando Sentinel a column by an ordinarily bearish commentator that Orlando is poised to be in great shape for an economic recovery as everywhere South of Orlando falls into the abyss. Nevermind that Orlando has 24 months of housing inventory on the market. It seems we’re now trying to talk our way out of a recession no one seems to think we ever entered.

    There is no doubt that since I began following the TTI’s and the advice on this forum I’ve gained more and lost less than I would have done on my own. But I must say, given the recent mysteriously uncommon circumstances surrounding Bear Stearns among other things, if in fact a buy signal does occur I’m afraid that I’m just going to sit this one out for awhile. I’ve mis-placed my dancing shoes.

    G.H.

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