7-19-12 Comment

[Mike]

IBD has the market "Under Pressure" the Market School Model has the market in correction waiting for a follow-through day. We have seen two days of accumulation (up on higher volume) in the NASDAQ and a small gap up this morning. So far NASDAQ volume is running at a slower rate than yesterday but the NYSE volume is running higher. If we positive today without a sell off below the 21-day ema we will see a B3 buy signal on the NASDAQ. With the buy switch off this means we put the buy signal in our back pocket to be acted on later in the case of a FTD. Large Caps are doing better than small right now evidenced by the S&P500 out performing the NASDAQ or the S&P600. Pascal has been watching the potential double top in the S&P500 which I am watching also. I consider the S&P500 to be the leading index right now and what it does the rest will likely follow.

Some stocks are confounding investors such as MLNX. MLNX breaks out on 6/11 and then proceeds to drop more than 8% of the buy price forcing disciplined investors to sell. It did this just before an earnings report. Then it gaps up on a good earnings report last night after hours. Some stocks just get away from you like this. If one got shaken out on 7/17, yesterday's move back up above the 50-day on higher volume than the shakeout should have gotten your attention. When Bill O'Neil gets shaken out of a position that he has conviction in and the stock recovers on substantial volume his principle is to buy it back plus a little bit more (like 10%). MLNX also showed a pocket pivot buy point yesterday.

I was not faced with that decision as I did not enter MLNX. Had I owned it I would have sold it in advance of the earnings report at a loss and because of the EV pattern I probably would not have followed the O'Neil procedure. Below is the EV chart and it just did not look inviting.

I love this quote from an O'Neil seminar in response to a vexing situation like MLNX:
"If this were easy, everybody would be doing it!"

15197

[brrim]

Mike; Thank you for your comments which are always thoughtful. I am trying to learn the Market School approach and don't understand why the buy switch is off.
We had 2 FTD 6/15 and 6/29.
B3 6/29
S5 on 7/11.
S1 7/12
I'm getting the total count from these as +1.
Distribution on 6/21, 6/28, 7/10
Does the S1 reset the count? Where am I wrong?
Thank you in advance.
Robert

[Mike]

Robert,
Here is the sequence of events:

6/15/2012 Buy switch on with a FTD (B1 buy signal) Exposure Count +1
6/18/2012 Lows above a rising 21-day ema (B3 buy signal) EC count +2
6/21/2012 Close more than 0.2% below the 21-day (S5 sell signal) EC count +1 and a distribution day D count +1
6/25/2012 Close below the FTD lows (S1 sell signal) count 0
6/28/2012 Distribution day, D count +2
6/29/2012 Additional FTD and lows above the 21-day ema (Buy signals B2 and B3) EC +2
7/3/2012 lows above a rising 50-day moving average (Buy signal B6) count +3
7/6/2012 Distribution Day, D count +3
7/10/2012 Distribution Day, D count +4
7/11/2012 Break below the 21-day ema (Sell signal S5) Exposure count +2
7/12/2012 Distribution Day, Full distribution count minus one (5 distribution days) S3 sell signal, EC +1
7/16/2012 Distribution Day, Full distribution count (6 days) S4 signal EC +0 with full distribution count the buy switch turns off and now waiting for a FTD
7/19/12 Lows above the 21-day: put a B3 buy signal in the pocket wating for a FTD

In the mean time the S&P500 is really the current leading index. It never went into correction. Normally CANSLIMERs look at the NASDAQ but what if it isn't leading? This is why IBD placed the market back into confirmed rally status today. My model has not been ported to the S&P500 yet, it is a major task. In the mean time IBD is about to announce a new S13 distribution cluster sell rule. If we see 4 out of 8 days with distribution or stalling it will create an S13 sell rule. It will also turn the power trend off.

[brrim]

Mike; Thank you for your very detailed response which I will study closely. Greatly appreciated.
Best regards,
Robert

[Riskslayer]

Hi Mike,

For practice and usefulness in my trading, I manually run the MEM system on SPY, IWM, $NYA & $COMPQ each morning and *try* to keep count.

I am not perfect, but I try my best and have folks like you and others help me stay on track - most certainly with $COMPQ. So, to the best of my ability what follows is my count.

As of Jul 20, before the open:

1. SPY: EC +4 (90%) and 3 DD (Jul 5, 6 & 10) - FTD was Jun 29. Spy is and has been out of synch with the others, e.g. FTD was on Jun 29 whilest others had their FTD on Jun 15.

2. IWM: EC +3 (75%) and 5 DD (Jun 21, 25 & Jul 10, 12 & 19)

3. NYSE: EC +1 (30%) and 5 DD (Jun 21, Jul 5, 9, 10 & 12)

4. $COMPQ: Buy Switch OFF

I totally agree and see SPY as the leading index based on the exposure counts and DD's above. I also see the real-time 20D MF plodding higher each day and mostly keeping a low ATR .. (the last couple/few days)... I also see divergences in the indexes/ETFs. I am somewhat confused by this, so I am inclined to see the market as being on the *edge* of something.. hopefully, a big move higher, but TBD and let's see.

Any suggestions or thoughts welcome: e.g. I sometimes wonder whether IWM is more volatile than $COMPQ and $NYSE, such that MEM levels (on FTD, etc.) may be too low for that index (but, I looked at ATR averages and IWM is not that different than the QQQ's/$COMPQ over the last couple of years).

Take care,

Shawn

[Mike]

Hi Mike,

For practice and usefulness in my trading, I manually run the MEM system on SPY, IWM, $NYA & $COMPQ each morning and *try* to keep count.

I am not perfect, but I try my best and have folks like you and others help me stay on track - most certainly with $COMPQ. So, to the best of my ability what follows is my count.

As of Jul 20, before the open:

1. SPY: EC +4 (90%) and 3 DD (Jul 5, 6 & 10) - FTD was Jun 29. Spy is and has been out of synch with the others, e.g. FTD was on Jun 29 whilest others had their FTD on Jun 15.

2. IWM: EC +3 (75%) and 5 DD (Jun 21, 25 & Jul 10, 12 & 19)

3. NYSE: EC +1 (30%) and 5 DD (Jun 21, Jul 5, 9, 10 & 12)

4. $COMPQ: Buy Switch OFF

I totally agree and see SPY as the leading index based on the exposure counts and DD's above. I also see the real-time 20D MF plodding higher each day and mostly keeping a low ATR .. (the last couple/few days)... I also see divergences in the indexes/ETFs. I am somewhat confused by this, so I am inclined to see the market as being on the *edge* of something.. hopefully, a big move higher, but TBD and let's see.

Any suggestions or thoughts welcome: e.g. I sometimes wonder whether IWM is more volatile than $COMPQ and $NYSE, such that MEM levels (on FTD, etc.) may be too low for that index (but, I looked at ATR averages and IWM is not that different than the QQQ's/$COMPQ over the last couple of years).

Take care,

Shawn

Thanks Shawn,

I had a conversation last night with Justin Nielsen (he is the programmer of the IBD model) and he mentioned an exposure count of +4 on the S&P500. The computer model in excel is so difficult to get right that I haven't ported it yet to the other indices. We were about to port it this week but Justin mentioned some changes that will require some cogitation. They will unveil the S13 distribution cluster rule at the next Market School meeting. The S13 is four out of eight trading days of distribution events that includes real distribution and stalling. It will also turn the power trend off. The power trend will undergo a change. Currently the power trend comes on if the 21-day ema is above the 50-day moving average for 40 trading days. New rule changes this to 5 days with the added requirement that the index lows have to remain above the 21-day ema for 10 straight days and the 50-day moving average must be uptrending. If the power trend is turned off by the S13 distribution cluster sell rule it can not be turned on again until reset by an S9 close below the 50-day signal and then meeting all of the other requirements.