Warning Signs 01 (Oct 08 - Feb 15)

[kennynah]

wasn't there a post that Armageddon was to be upon us on this day, 10/10 ? no?

[winston]

TOL:-

1. The European Contagion was well flagged a year ago yet we are still worrying about it now.

2. The muddling-through economies of the US, Europe and Japan were well flagged a year ago yet we are still worrying about it now.

So why did you not run a year ago ? And instead, you decide to hang around until today ?

[winston]

Snapshots into the workings of troubled firms

Olympus Corp, the Japanese firm embroiled in a financial scandal, has admitted covering up massive investment losses for decades.

The company may end up being delisted from the Tokyo bourse.

We should not be surprised to see similar cases of fraud in Hong Kong.

How can we tell when something is brewing at a listed company? Look for a few signs.

The common signals include:
1. the stock price does not go up despite good earnings,
2. change of auditors (some auditors may raise audit fee as an excuse to avoid the job),
3. change of senior management,
4. frequent capital-raising by share placements or bond issuance, despite a solid cash position on the books.

Source: Dr. Check, The Standard HK

[winston]

The Fear Indicators You Should be WatchingBy Chao Deng

NEW YORK (TheStreet) -- Move over VIX. There are plenty of other fear indicators money managers are watching.

1. Yield on 10 Year italian Bonds
2. Copper
3. EUR
4. U.S. Treasuries
5. Gold
6. Oil and
7. Germany's DAX

http://www.thestreet.com/story/11307673 ... L_wal_html

[winston]

TOL:-

When a warning sign appears, what do you do ?

1. Ignore it ?
2. Research it ?
3. Take Action immediately ?
4. Take Action only when there are other supporting signs ?

[winston]

the Illusion of Strength

Here's something I have been keeping an eye on as a possible guide coming out of the next pivot.

It is the retracement blowoff that culminated in the markets in May of 2008.

Most of these charts are of the underlying assets respective hourly 10 period SMA's. Notable similarities in the equity markets structure, volatility, and the equity to bond ratio (SPX:TLT).

Notable divergences in where the SPX peaked relative to higher beta, but this was primarily due to how the financials strongly led the market lower in the first phase of the breakdown.

The Russell eventually caught up and exceeded the SPX's losses during the fall swoon, in just another example of where price gave the illusion of strength under the guise of momentum.

http://www.marketanthropology.com/2012/ ... ength.html

[winston]

Four Signs of a Short-Term Drop in Stocks By Jeff Clark

The stock market is showing multiple signs of a short-term top.

That doesn't mean stocks have to go down right away. Topping is a process – not a one-day event.

We saw great examples of this in 2010 and 2011. In both years, the market rallied through January and hit "overbought" levels on a number of technical indicators that I follow.

Every time the market looked like it was ready to drop, buyers stepped in and pumped stock prices higher. I'm seeing the same thing today…

Back in 2010 and 2011, we didn't get huge rallies – just a chronic "bid" that pushed stocks up a little bit every day. The natural ebb and flow of the market disappeared. Rather than stocks correcting modestly and working off the overbought conditions, stocks had a one-way ticket higher.

Corrections help to relieve overbought conditions and establish "support levels" for stock prices. When the market goes too far without a pullback, it doesn't establish a higher support level.

So when stocks finally start to decline – and they always do at some point – the selloffs can wipe out nearly all the previous rally's gains.

The "flash crash" in 2010 wiped out several months of gains in one day. And all of last January and February's gains disappeared two weeks into March.

Right now, there is no ebb and flow to the market. It's only a one-way move higher. There's no telling for sure when it will end. Just know that it will end. And when it does, stocks could drop fast.

Let me show you what I'm talking about… Here's a chart of the Volatility Index…

The "VIX," as it's called, is the most popular gauge of market volatility and investor fear… Calm periods, when the VIX is low and the stock market is moving steadily higher, are always interrupted by periods of wrenching volatility and falling stock prices… That's just the way the world works.

Last year, the S&P 500 lost 17% in three weeks as the VIX jumped from under 17 to over 47. We could easily see the same thing happen here in 2012.

Here's another indicator flashing a warning sign…

This chart shows the percentage of S&P 500 stocks trading above their 50-day moving averages (DMAs). It's a momentum indicator that helps determine overbought and oversold conditions.

Typically, stocks are overbought when this chart rallies above 70. They're oversold when it drops below 30. As of late this week, more than 86% of the S&P 500 stocks were trading above their 50-DMA. That's about as high as it gets before some sort of selling pressure hits the market.

Add to this the investor sentiment survey (a contrary indicator) showing individual investors are as bullish as they have been in years… and the Commitment of Traders report showing commercial traders (aka the "smart money") are net short the largest number of S&P 500 futures contracts in five years… and you have a market that is poised for at least a short-term correction.

If stocks follow the same script as they did in 2010 and 2011, we should be on alert for a correction that brings the S&P 500 back down to about where it started the year. That would be a decline of about 6%.

For long-term investors, there's no reason to panic and abandon the market. But sophisticated traders should be on the lookout for opportunities to go short.

And once the correction comes and relieves the overbought condition of the market, it'll help set the stage for a late-spring rally. And I'll be looking for new bullish bets.


www.dailywealth.com

[winston]

Should investors “Love/Respect” the message from the New York Comp. Index? by Chris Kimble

As I shared in the chart, it is easy to see that the New York Composite Index and the S&P 500 have traded in lock-step over the past 15 years.

In 1999, the NYSE traded sideways for a few months while the S&P 500 continued to push higher. After this period of underperformance by the NYSE, both declined in value.

Of late the NYSE is lagging the 500's performance at (3).

Humbly, I don't know why the NYSE is lagging the 500 index of late.

I do respect the message it would be sending if this underperformance would continue!

http://blog.kimblechartingsolutions.com ... omp-index/

[winston]

These Three Charts All Scream Caution By Louis Basenese

It’s Friday in the Wall Street Daily Nation. And that means it’s time to go the charts!

Each week, I embrace the adage that a picture is worth a thousand words. And I hand pick a few compelling charts to convey an important investment or economic insight.

This week, I’m dishing out three timely warnings about gas prices, bond investments and the S&P 500 Index.

Take heed!

http://www.yolohub.com/trading/these-th ... am-caution

[winston]

Is The Market Waving a Caution Flag?


History repeats itself in the stock market. The S&P 500 is doing the same thing today that it did in 2011. And that’s a bad sign for the short term.

Stocks have started the year in “rally mode.” The S&P 500 is up 8% so far this year. And despite numerous technical indicators flashing warning signs, the momentum just keeps powering stock prices higher.

We saw the same action last year. You can go look at my Growth Stock Wire essays from last February to see what I’m talking about (here, here, and here). There were caution signs everywhere… But the market just ignored them – for a while, at least…

Everything I wrote back then leaned bearish. A correction was coming. Stocks were set up for a quick, hard decline. Anyone with too much exposure to the stock market was going to feel the pain.

Day after day, stocks would continue to float higher. And day after day, I would pound my forehead on my desk and wonder why all my proven technical indicators that had worked so well before seemed to have lost their magic.

Then… during the first two weeks of March, the S&P 500 lost 8%. Stocks gave up all their gains for the year… and the S&P 500 traded right back down to where it started in January.

I was reminded of this yesterday when I looked in the mirror and noticed a bruise forming on my forehead. A few hours earlier, I had pounded my forehead on my desk as the S&P 500 defied gravity and made another new high for the year… despite multiple warning signs from the Volatility Index, Summation Indexes, sentiment indicators, and many other technical indicators.

Just about every indicator I follow is waving the “caution” flag. Yet price action is undeniably bullish.

For a trader, there really isn’t anything to do here. This is one of those times where the sidelines look like the most comfortable place to be. Stocks are far too extended and there’s just too much risk to be overly exposed to the long side of the stock market. But the momentum and price action are too strong to justify aggressive short positions.

The best strategy is to wait for the market to play out the same script from last year. A 5%-8% decline will be enough to relieve most of the overbought conditions and eliminate the “warning” signs on most of the technical indicators.

And it’ll set the stage for a late spring-time rally to new yearly highs on the major stock indexes… Just like what happened last year.

http://yolotraderalerts.com/?p=3199&utm ... 0Dollar%20