The
SP500 improved gradually through the week in the midst of mixed data and turmoil coming from Europe. US 1Q12 GDP disappointed a bit, but to our purpose, it has a positive reading (also recall that in 1 month we will have a revision) when looking into the medium term. Results progress is adequate with positive comments coming from firms management teams. It is unlikely that this fundamental setup translates into a downward trend market in the near future. It is more likely at this point that the SP500 regains back the levels attained at the beginning of April. It is also likely it breaks through the resistance at the top, although maybe, not for a long time, but we will comment on that when the time comes due.
Long ExtremeStop @ 1372.8:
goes up but remains distant from past week close. It again suggests increased 'appetite' to endure downward
moves in prices in case we decide to go long. Notice the minimum of the week right below the previous long ExtremeStop.
Short ExtremeStop @ 1416.0: moves up by a small amount, remaining close to last week's stop. 'Appetite' for being short diminishes. The short ExtremeStop was triggered the very last day. Although it could be an ill defined stop there is a chance it was touched for a good reason (we will know soon).
The slight narrowing between stops is good news as it points out that ExtremeStops requires less volatility to make a clearcut decision.
DPTA reading changes dramatically (look into the superimposed red square in the chart ; refer to note 1 below). Dark blue appears very strong in the next few weeks with no light blue in the interim. The final interpretation is not simple though. The current narrow sideways market is almost finished but not completely done. Some small ripples are left, but that could happen this very same week. Once past, the SP500 will reach the top formed at the beginning of April with a sharp swift move. According to our models it is likely that the week starts on a weak note with a pullback that attracts the SP500 to the 1375 area. While we don't think it will be breached, it will confirm that the short term support is finally consolidated.
The slight narrowing between stops is good news as it points out that ExtremeStops requires less volatility to make a clearcut decision.
DPTA reading changes dramatically (look into the superimposed red square in the chart ; refer to note 1 below). Dark blue appears very strong in the next few weeks with no light blue in the interim. The final interpretation is not simple though. The current narrow sideways market is almost finished but not completely done. Some small ripples are left, but that could happen this very same week. Once past, the SP500 will reach the top formed at the beginning of April with a sharp swift move. According to our models it is likely that the week starts on a weak note with a pullback that attracts the SP500 to the 1375 area. While we don't think it will be breached, it will confirm that the short term support is finally consolidated.
Conclusion:
1) volatility to abate, 2) lower bound formed already, a test likely at the beginning of the week, 3) the week to start on a weak note, but not obvious this time, its a close call and 4) downside risk limitedWe have been out of this market since we considered it untradable from the point of view of our models. Although the top of the market is pretty close we think it is the time to take a position. We believe that an opportunity is on the make to get long, and that it will materialize during day 1 or day 2 this week. We will issue a quick note the moment we get long (the stop for that long position will be, of course, 1372.8). For those willing to take some risk right now it is advisable to do it with half of the total position (this is the creative use of ExtremeStops, but since we have not tackled it in our Bits for Thought section we won't delve into the logic yet). Hopefully we will have a chance to show that DTPA and ExtremeStops are apt tools to navigate the market, even if we consistently make wrong decisions.
WE ARE CURRENTLY PONDERING WHETHER OR NOT THE WRITE UP OF OUR REPORT IS WORTH THE EFFORT. IF YOU FIND THESE COMMENTS USEFUL, WE WOULD BE GRATEFUL IF YOU DO SOME OR ALL OF THE FOLLOWING:
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Note 1: Reminder on how to interpret DTPA. The chart provides the probability of a strong movement around the trend for the next few weeks. As you can see it always adds up to 100%. The colours represent how much danger we should expect: light and dark blue are good for those who think they should stay long. Orange and red have the opposite meaning. In between, representing low chances of change in the trend in force (whether upwards or downwards) we have green.
Note 2: we will cover more explanations about DTPA (Dynamic Technical Probability Assessment) and ExtremeStops in our Bits for Thought section
Note 3: Always keep in mind our disclaimer issued in our first post (31/03/2012)
I'm not used to quant data and find the above interesting. Maybe I can marry it to TA. Thanks for the comment earlier on my board. It was constructive and appreciated.
ReplyDeleteOH - I see I'm in your blogroll. Thanks! I'll reciprocate.
ReplyDeleteMy long and short TA stops would be 1386 and 1406. 1373 is first (real) support under 86.
Many thanks for your comments. Its funny how different technics return simmilar values (1373 is pretty close to 1372.8)
Deleteregards
I appreciate the way this blog was made. The chart shows the report, and i found it really helpful because of the conclusion.
ReplyDelete