Stock chart patterns and technical analysis (TA) explained simply. Disclaimer: This blog and all its contents are for educational and entertainment purposes only. Do not trade or invest based on any information seen on this blog. Please read Terms of Service. The K E Stone blog sites (Keybot the Quant) are blacklisted by Google, so enjoy the ad-free experience, and only use the Donate button when supporting the sites.
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Friday, March 22, 2013
ITB Dow Jones Home Construction Index Weekly and Daily Charts Overbot Rising Wedges Negative Divergence
The housing and retail sectors continue to support and hold together the bullish thesis on the markets. The Housing Starts were better than expected this week and LEN and KBH earnings blew away estimates. This creates another push higher in the real estate and housing sector. The charts show that the party is way overextended. Universal negative divergence across all indicators for both weekly and daily charts is not something to buy into but rather something to short into. The rally is about 18-months old now so it needs a pull back. Note the rising wedges, which also appear in the broad indexes and individual charts in every sector. The price collapses from rising wedges can be quite dramatic. The dip buyers could not get enough of ITB three and four weeks ago (blue circle), perhaps some of that money is Joe Bagholder showing up at the tail end as this sucka always does. The brown rectangles show higher selling volumes following the up moves which is distribution taking place; the smart money handing shares to Joe Sixpack. Traders remain optimistic on the housing sector especially with this week's push but the charts above say its time to jump ship and 'git outta Dodge'. Keystone is currently in SRS which is an inverse real estate ETF which, as would be expected, is set up with positive divergence, the mirror image of the charts above. When the housing sector rolls over in the days and weeks ahead, this will obviously damage the bull thesis on the broad markets. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.
You must always be diversified and hedged so you always want both long and short exposure as well as trades that are longer term and shorter term. That way, something is typically working no matter what the day holds. Keybot the Quant controls the major portion of the portfolio and the beauty of Keybot is it trades without emotion. And it is long but as seen with the wild volatility, a VIX of 14.95 is all that is needed and Keybot will likely be short again. So the long side may be short-lived. Keybot simply does what the 0's and 1's say to do.
For the shorter term trading and the charts that are typically shown on Keystone's site here, the negative divergences and market topping action is clear that there is a market top occurring now. Sure, price can jump higher, especially perhaps on happy Cyprus news, but the likely move for markets is down. The CPC put/call and low VIX verify the complacency and how traders are solely hooked on the Fed's easing. That says up forever, but markets have a way of figuring things out and the charts say they are figuring it out.
So the answer is lots of diversification, always have a few longs and a few shorts, the trading here is weighted on the short side which is a complementary hedge against Keybot being long. When Keybot turns bearish again perhaps that will be the firm down move for the markets.
We are at an inflection point for markets right now that is why you see mixed signals and erratic behavior. The charts say down any time moving forward. Keybot should kick in as soon as VIX moves above 14.95 and/or SOX under 421.
Hi Keytone
ReplyDeleteHow come you are bearish on housing and long SPX right now
Thank you
You must always be diversified and hedged so you always want both long and short exposure as well as trades that are longer term and shorter term. That way, something is typically working no matter what the day holds. Keybot the Quant controls the major portion of the portfolio and the beauty of Keybot is it trades without emotion. And it is long but as seen with the wild volatility, a VIX of 14.95 is all that is needed and Keybot will likely be short again. So the long side may be short-lived. Keybot simply does what the 0's and 1's say to do.
DeleteFor the shorter term trading and the charts that are typically shown on Keystone's site here, the negative divergences and market topping action is clear that there is a market top occurring now. Sure, price can jump higher, especially perhaps on happy Cyprus news, but the likely move for markets is down. The CPC put/call and low VIX verify the complacency and how traders are solely hooked on the Fed's easing. That says up forever, but markets have a way of figuring things out and the charts say they are figuring it out.
So the answer is lots of diversification, always have a few longs and a few shorts, the trading here is weighted on the short side which is a complementary hedge against Keybot being long. When Keybot turns bearish again perhaps that will be the firm down move for the markets.
We are at an inflection point for markets right now that is why you see mixed signals and erratic behavior. The charts say down any time moving forward. Keybot should kick in as soon as VIX moves above 14.95 and/or SOX under 421.