What rhymes with "Tool Carpet"?

“History doesn't repeat itself - at best it sometimes rhymes” 

- Mark Twain

If we look at the last time The Fed gave the market a little sugar on November 3rd 2010, you can see that it took a little breather to the 50 day simple moving average a few days later and then continued on an 18% rally into the beginning of May.  During this time frame we had two major events happen.  First in Japan and then in Libya, but the market powered up until the "Sell in May" rule kicked in.

So now we have QE3 and as expected it has relaxed from that euphoria driven news. The question to ask now is if the market will relax to it's 50day or is the 20 day as low as it will go?  If you are entering an new  positions now, perhaps entering with half or a third of a position would be wiser than just piling on in 100%.  It all depends on your personality and level of risk.

What rhymes with Tool Carpet you may ask?  How about Bull Market just like QE1 & QE2.  Even if it is short lived since this version of QE is not seen as being as effective as its previous siblings by the Fed.

Shooting Star Pattern wins a star this time.

The Shooting Star candlestick pattern worked out this time and the market is being caught at the 20 day simple moving average.  Is this the bottom or is it possible the that there may be some more downside?

To look at a pattern that "may" be forming,  let's take a look at the chart down below.  We can make out that a Head and Shoulders could be sketched out in the following week or two.  That of course would have to mean that the general market is going to go sideways and then go down even further.  I doubt that this is going to happen right after the Fed just started QE3.    (imagine a 3 year old after he/she downs a party size bag of M&Ms )

   So unless we have some big Macro News like a shooting war starting up in the Persian Gulf, this market is going higher.  

Let's look at the more likely scenario in a future post

Shooting Star on the $SPX

After watching @cousin_vinny's video on how QE3 may effect the market, I put this chart together for a possible retrace scenario.  Although I agree that the market wants to go higher, it needs to take a breather some place around here.

I used Steve Nison's  "Japanese Candlestick Charting Techniques" to review this chart.  It is a must read.

Bollinger-Keltner Band Squeeze Indicator

I heard about the use of a TTM Squeeze method over the past few months and after finding out that it was only available on a few platforms, I decided to see if I could adapt to the stockcharts.com site.

It's essentially a Bollinger Band (BB) superimposed over a Keltner Band (KB).  This setup fine tunes the Bollinger Band squeeze that normally breaks out to the upside or downside in a big way.

The BB have an opaque red tint, while the BB have a blue tint overlay.  The intersection of both areas is mixed to a nice purple/violet/Barney looking color.

The way you know this has been triggered is by the BB width coming inside the KB.  Looking down below at the SPY in mid May of 2011 you see the first sign that this has occurred by seeing the light red area appearing  both above and below the purple/violet area.

Now that you have been notified by the trigger action, you still need to know if it is going to break to the upside or downside.  You can use whatever momentum oscillator you find works best for you.

At the moment I am using a Slow Stochastic but I have also place a normal RSI and ROC as well to assist with making a better decision.  It may even be a better idea to use a non-price related indicator like Money Flow as well.  More on this later.

So in this example we see that the Slow Stochastic oscillator has turned to a bearish indicator so you could go short on the SPY in mid-May and cover in mid-June when the oscillator changed.

Again in late August the trigger came up but changed direction the following week.  So that was a bit of a whip saw effect but if you follow the following points of getting in on the circles and out on the squares you end up with net-positive results.

The chart below is shown in a weekly time frame, but this can be used in most other time frames as well.  I am still going about testing this for equities as well as ETFs.   If you decide to use this, make sure you test it on the target stock and ensure you have a rewarding outcome first.

More bad is good? Baltic Dry Index $BDI

While getting my weekly dose of CNBC back in 2008, I heard of the Baltic Dry Index.  You know when we were having human sacrifices, dogs and cats living together...you know, mass hysteria!  It essentially keeps track of global shipping and could indicate if global commerce is slowing down when it settles.   Diminishing exports out of China and elsewhere would cause something like this to occur...

The first low in late 2008 came in at 663.0 and then after QE1, QE2, ECB actions, and the TWISTERs we pulled out of the slump and got back to business.  Then something odd happened at the beginning of 2012.  When the clouds seemed to be parting, we got hit with at 647.0 number shown down below (with the blue arrows).  Commentators on the street said that because of a sudden decrease in Iron imports from China, and an increase in new container ships, we where not looking at a brewing storm.  Well we are in September now and we are seeing the 647 again.  A level close to the bottom of the financial crisis in 2008.

So this could show a more severe easing in the global shipping model, or merely an overabundance of newly built ships purchased with low lending rates.  Which statement is correct?

If things are as bad as they look, then you can rely on the FED, ECB, BOJ, and BOC to do the needful.

Chart of the $BDI (Baltic Dry Index)

According to wikipedia The Baltic Dry Index is: "an assessment of the price of moving the major raw materials by sea. Taking in 23 shipping routes measured on a timecharter basis, the index covers Handysize, Supramax, Panamax, and Capesize dry bulk carriers carrying a range of commodities including coal, iron ore and grain."