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12 Charts That Tell Part 3 Of The Horror Story - TTW
May 29, 2007
Megaphone Bottom Classic Pattern Implication A Megaphone Bottom also known as a Broadening Bottom is considered a bullish signal, indicating that the current downtrend may reverse to form a new uptrend. Description This rare formation can be recognized by the successively higher highs and lower lows, which form after a downward move. Usually, two higher highs between three lower lows form the pattern, which is completed when prices break above the second higher high and do not fall below it. The pattern is completed when, usually on the third upswing within the pattern, prices break above the prior high but fail to fall below this level again. $XRB (UNLEADED GAS) The $CPCE--The Chicago Board Options Exchange (CBOE) equity put /call ratio indicates the sentiment of options traders. Put buyers are betting that stocks will fall, while call buyers are betting that stocks will rise. When the number of puts relative to calls is high, that means investors are bearish. When the number of calls is higher, that means investors are more bullish. If you remember this chart I highlighted it the day it hit the exact lows that showed EVERYONE has now gone long and strong but that is NOT the time we want to place bets as “technical analysis traders”. We aren’t contrarian we are actually TREND followers and when this occurs it always leads to a massive trend change. So why would we even think for a second that: “this time it’s different” CARRY TRADE SWISS FRANC OVER THE YEN At its simplest the carry trade involves borrowing money in an overseas currency with a lower interest rate than the currency of the host or originating investment and investing in higher yielding assets such as US or emerging market debt thus benefiting from the differential whilst substituting currency risk. Much has been made of investor preference for borrowing in low yielding yen, however, it is not the only currency to have become subjected to such activity. CARRY TRADE EURO OVER THE YEN The NASDAQ--The problem for the bears and bulls in this type of pattern they both get ripped apart. Why? Because the bears are selling on weakness and then get reversed and stopped out and the bulls are buying on strength which then gets reversed and they get stopped out. Both will be losers until the market resolves itself which is why I always say “NEVER TRADE THE LETTERS”. I have labeled all the turning points with the letters A-B-C-D-E Now the QID chart that you see below the NASDAQ is what we call an INVERSE ETF. It is a double leverage ETF. So what does that mean? The investment seeks daily investment results, before fees and expenses that correspond to twice the inverse of the daily performance of the NASDAQ 100 Index. The fund will normally take positions in financial instruments (including derivatives) have similar daily return characteristics as twice the inverse performance of the NASDAQ 100 index. It will not sell short the individual equity securities of issuers contained in the NASDAQ 100 Index. The fund will employ leveraged investment techniques to achieve the objective. It is nondiversified. So as the QQQQ’s drop the QID rises by twice as much. If the Q’s drop 5% the QID rises 10% and you can apply the same to SDS and MZZ with the SP500 and Mid Caps respectively. We also have a double position in each. Meaning 30% of our allocated portfolio is INVERSE to these index charts (or double short). The next 2 charts are called the $BPCOMQ and the $BPSPX, so what are they and why are they important to unraveling the pieces to the puzzle? Bullish Percent Index The Bullish Percent Index (BPI) is a popular market breadth indicator that is calculated by dividing the number of stocks in a given group (an exchange, an industry, etc.) that are currently trading with Point and Figure buy signals $BPSPX $NASI--The Nasdaq Summation Index basically measures the gap between advancers and decliners in the Nasdaq. As advancers outnumber decliners, these positive numbers are summed to create a rising Summation line, while when decliners start to win out, that negative weight will subtract from the Summation and eventually lead to a declining line. $BKX (BANKING INDEX) The KBW Bank Index (BKX) is a modified-capitalization-weighted index. Founded in 1962, Keefe, Bruyette & Woods Inc. The index was initiated at the time of the firm's founding and is evaluated at least annually by Keefe, Bruyette & Woods to assure that the composition is highly representative of the banking industry. The BKX was set to an initial value of 250 on October 21, 1991. $UTIL (Dow Jones Utility Average Index) The Dow Jones Utilities Average is the most widely cited utilities index in the U.S. Started in January 1929, it is also the third oldest of the Dow Jones Averages. $SOX The Semiconductor Index, or SOX, is an index created by and traded on the Philadelphia Stock Exchange. It was introduced on December 1, 1993 with a split-adjusted value of 100. The SOX is the most widely recognized index that investors use to track the performance of semiconductor makers and equipment manufacturers. Because it tracks the cyclical semiconductor industry, it has been a very volatile over the years. After rising to fresh all-time highs above 1300 in March of 2000, the index subsequently gave up over -80% of its value, plummeting to a low of around 200 in late 2002.