Thursday, November 12, 2009

In contrast, the market leading small cap index...

Posted by pythagoruz at 1:44 PM
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8 comments:

C said...

I went long TWM the other day...why do you use the CCI, what is that indicator? Who popularized it? I find the same negative divergance on slow stochastics.

11/12/2009 8:08 PM
pythagoruz said...

I'm not sure who popularized it but I first heard about it from a trader named Scott (SSHGuru) that I met on the IOTN scene years ago. Its an oscillator with a very simple formulation, I find that it gives the same signals as the MACD in most cases, just a little bit earlier. The signal is a zero crossing but divergences can also be very helpful. It is perhaps my most favorite of derived indicators.

In this chart I note the CCI divergence and the resistance at zero. In other words, in this recent rally up to the 50 dma, the CCI did not reclaim zero. Which is bearish.

11/12/2009 9:12 PM
C said...

Thanks - so do you see the R2K breaking down and what do you think about downside targets?

11/13/2009 7:48 PM
pythagoruz said...

Hey C, the picture is mixed right now because of the divergence in the indexes. The R2K is typically leading and it looks more bearish to me than the others with its double top and 50 dma break. That being said, the S&P and dow are still in uptrends on all time frames and actually look quite strong. I am not compelled to be long or short the indexes here to be honest, just in a wait and see mode.

If you are short I would use the 50 dma as a stop on the R2K. On the downside my intermediate term target would be the 200 dma (51-52 for IWM). But for me to initiate bearish positions on the R2K I'd want to see the s&p take out it's 50 dma again on good volume and make a lower low (currently that means a drop below 1029).

I'll trade individual stocks on an individual basis, but currently I have only one bearish position.

Hope that helps, good luck!

11/14/2009 10:50 AM
C said...

For my money, I'm thinking that the R2K is underperforming due to the US dollar weakening, as large caps do better (so goes the adage) in weaker dollar environment as they are multinational. I haven't pulled up any charts to back this divergance yet though.

11/15/2009 10:06 PM
pythagoruz said...

Hey C, thats some good insight and I think you pretty much explained the divergence. Small caps are generally not global companies as opposed to the dow blue chips. Thus, in a declining dollar environment the muti-national blue chips will show enhanced growth as their non-dollar denominated profits become inflated whereas small caps see higher prices of purchase of foreign goods and services they might need. So if its a dollar thing then I guess the dollar must reverse for the market to top.

11/16/2009 6:42 AM
C said...

"I guess the dollar must reverse for the market to top."

This has been my line of thinking. I see the dollar reversing when (now I should say "IF") the market corrects...

Interest rates should rise also if you ask me, they can't get much lower? Are there honestly buyers of 30 year treasuries at this rate?

Stopped out of TWM at 27.73 today, so you know that means the correction will start tomorrow...but I take it on the chin for my trading acumen - keep your losses small right?

11/16/2009 10:10 PM
pythagoruz said...

Yep, the most important goal of investing is to not lose money, turning a profit comes after...

11/16/2009 11:35 PM

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