Wednesday, May 28, 2008

The Larry Kudlow Pinstripe Indicator

After having watched and listened to Larry Kudlow in amazement for years, a hidden indicator has finally been spotted. It was there in front of us all the time. This indicator has to do with the width of the pinstripes on his suits. If he is wearing a conservative tight small pinstripe suit with narrow widths, what he is talking about might have some value. Might is the key word. However, if he is wearing one of his wide stripe suits, beware because the "BS" indicator is going to be flashing in the red for sure.

About six weeks ago when oil was under $120, Larry was saying that if oil could have just a 10-15% correction, the Dow and S&P 500 would be off to the races ready to make new highs. Did anyone really think that if Crude went back to $105 from $120 that would be a reason to put on the rally cap? I guess some people did and still do. It is easy to refuse to view the price of oil as something that is here to stay. With gasoline at $4.30 a gallon, energy is now a burden of ever increasing weight. So if oil has a correction later in the year from $150 to $120, Larry will tell us it is time to load up the canoe for the new bull market, again.

Light Sweet Crude with linear regression channels(click to enlarge)

S&P 500 Index with linear regression channels(click to enlarge)

S&P 500 Index Opening Range Levels(click to enlarge)

Friday, April 25, 2008

Prechter Releases Free Resources on What to Do in a Recession

Our friends at Elliott Wave International have released another exciting resource that we think is well worth your time. We’ll, it’s actually a group of resources – more specifically – 3 FREE videos and 1 FREE report that all speak directly to what to during a recession.

The 3 videos include Elliott Wave International CEO Robert Prechter’s latest appearances on Bloomberg television from March 2008, November 2007 and October 2007. The videos present Prechter’s interesting and unique forecast as well as his outlook for U.S. Stocks, Precious Metals, Currencies and other markets.

Plus, Prechter discusses how Fed Reserve rate cuts merely follow the U.S. Treasury Bill interest rate. And he goes on to ask and answer a fascinating contrarian question: “Why in the world are people rooting for lower interest rates?”

The report included in this group of resources focuses mainly on Prechter’s Gold and Silver forecast, the same forecast his subscribers pay up to $59 every month for. But, right now, it’s yours FREE.

In these resources, you’ll learn why Prechter says the U.S. has been in a bear market since – YES – the year 2000.

I know, I know, a bear market since 2000 is a shocking claim, but when you consider the massive amount of credit inflation, and when you measure how much gold or how many commodities you can buy with your Dow or S&P 500 shares, you’ll learn that, according to Prechter, stocks have been CRASHING since 2000.

In fact, here’s a little secret for you: When you measure the S&P 500 in a basket of commodities rather than the U.S. dollar, you will see it has declined as far as 75%.

But, what does this mean for the “Real Dow” and “Real S&P 500,” as Prechter calls them? Here’s a hint: The nominal Dow has a long history of catching up to the “Real Dow.”

Prechter’s outlook is more than unconventional. And it’s more than contrarian. It’s a crystal clear and downright frightening explanation of where the markets are today, according to a man that’s studied them for more than three decades.

You will not find this outlook from any other source but Robert Prechter.

I encourage you to hear his warning, then decide for yourself what you should do – if anything – to prepare for Prechter’s prediction that the nominal Dow, the one you read about in newspapers, will one day catch up to the “Real Dow,” the one measured in gold.

In these FREE reports, you will hear, watch and read Prechter’s chart-filled advice on how to survive a recession, how to make money in a recession and how to create a safe investment strategy in recession.

Whether you agree with Prechter’s bearish forecast or not, this FREE group of resources is prudent advice for anyone concerned about preserving wealth in a recession.

To learn more about getting your hands and eyes on Prechter’s 3 FREE videos and 1 FREE report, click here.

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Sunday, April 20, 2008

S&P 500 Index 4/20/2008

When looking at a chart of the S&P 500 Index with respect to the opening range targets, the market might have some more room to go before testing the lower boundary of the 2008 opening range. This level is roughly 1411.19. The chart below shows the S&P 500 Index with opening range and extensions. This chart also has the daily pivot(1385.08) and the rolling three day pivot(1374.42) in the middle pane. It is helpful to watch the difference between these two numbers in the coming days. As the difference between the two contracts, it will signal the steam in this rally is fading.

S&P 500 Index (click to enlarge)

The chart below is of the S&P 500 Index and the lower pane compares the percentage of stocks trading above their 40 period moving average(green line) and the percentage trading above their 200 period moving average(red line).

The green line (% > 40ma) is starting to get to an area that could be looked at as overbought. Unless the red line (%>200ma) starts to confirm the move of the green line, a re-trace of the current rally will be in order with time of consolidation.

S&P 500 % Above Moving Average (click to enlarge)

This third chart of the S&P 500 shows index versus the moving average for the advance-decline line. This moving average shows that fewer stocks are carrying the load in this rally. This does not mean in itself that the rally is weak, but it means it is important to watch for these leaders as we approach the 1411 level. Energy stocks along with Google have been the bright spots.

S&P 500 Index AdvDec Moving Average (click to enlarge)

This last chart shows the S&P 500 in relation to its longterm and medium term linear regression lines with standard deviation extensions. The market is at a juncture where the next few days are critical. Currently prices are at the upper edge of the medium term channel. This could prove to be an area to take profits until the market makes a higher move followed with a pull back to establish a new short term channel.

S&P 500 Index Linear Regressions (click to enlarge)

Monday, April 14, 2008

Linear Regression Slopes With Standard Deviation Levels

A simple way to visually determine the trend of the market is to view the slope of the linear regression of data from any index or security. It is also helpful to have linear regressions over multiple time frames to determine the short-term trend versus the medium and longer term trend.

When adding standard deviation levels to these linear regressions, it shows a channel which can help determine when prices are extended with respect to the trend you are studying. These standard deviation levels are key to showing when a change in trend is happening. Once prices extend above or below 2 standard deviations, and prices sustain this move, the probability of a new trend forming is in your favor. This can be seen in the chart below of the Citigroup. The green circle shows when prices breached the 2 standard deviations below a very long term linear regression line. Prices then stabilized or consolidated there for a time, before showing that a true change in trend was occurring.

C - Citigroup (Click to enlarge)

Citigroup was not alone when this change in trend was starting. Below is a chart of the XLF Financial Sector SPDR. The XLF broke through the one standard deviation below and tried to hold the 2 standard deviations, but as time progressed the change in trend developed and the medium term linear regression shows a channel that has held the down trend since October of last year.

XLF - Financial Sector SPDR (Click to enlarge)

Below are charts of the S&P 500 Index and the Nasdaq 100 Index. Both charts show the linear regression lines and their standard deviation extensions. The longer term linear regression line is 377 periods. This is followed by the medium term linear regression line of 55 periods and the short term of 21 periods. It is important to notice that this applies to periods and not days. The charts above of XLF and Citigroup are actually a three day charts, combining the high, low, and close over three days to make a candle. This three day chart smooths data and eliminates one day wonders.

S&P 500 Index Daily (Click to enlarge)

S&P 500 Index 3day Chart (Click to enlarge)

Nasdaq 100 Index Daily (Click to enlarge)

Nasdaq 100 Index 3day Chart (Click to enlarge)

Combining different time frames of linear regressions can help visually establish where a particular index or security is in relation to its long, medium, and short term trends. This is done by looking at the slope of the linear regression and the individual index or security's location with regards to its standard deviations away from this linear regression. The standard deviations for the long term linear regression(377 period) used in the charts above are 1(white line), 1.5(yellow line, and 2(red line). These are both above and below the linear regression line. The medium(55 period) and short(21 period) term linear regressions only have the 2 standard deviation line applied. The slopes of these linear regressions combined with other various indicators can help spot some changes in trend to keep you ahead of the competition. The key is knowing when to have the math on your side and to fight the temptation of "hoping" prices will go back into the channel. Use stops and trust the math.

How can it be that mathematics, being after all a product of human thought which is independent of experience, is so admirably appropriate to the objects of reality? Is human reason, then, without experience, merely by taking thought, able to fathom the properties of real things.
--Albert Einstein

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