To honor Dr. Bontchev and keep his old thread alive, I thought I would use some of his old trading styles and post a chart of the NDX (QQQQ) weekly.

I learned a lot from Dr. B.

Wish he was still part of this board......


Heres what I use to help me decide on which side of the fence to be on.

I came up with this basically to use as a quick glance type of thing. Either be it long or short.

I'll show it on the weekly NDX here, but I use it for individual issues also.

It all relies on the half year (26 week) moving average (blue line moving average). When it points up, trade from the long side only. When it points down, trade from the short side only.

For long trades, when the MACD is positive (thick black line above thin gray line) then all systems are go with little consideration about entries. When the MACD line crosses over and is opposite but the 26 week ma is still pointing up (such is the case now) then I use daily oscillators at low points for my entries and high points for exits, but still trading from the slope of the 26 week ma.

I use the opposite for short positions.

The Force Index and the slope of the MACD histogram aids in confirmation. When both are positive (or negative for shorts) then I can pyramid my positions and increase the trade size.

So whats it saying now: The 26 week ma is still pointing up so its: trade from the long side. The MACD is saying trade with caution and use the dailies for over sold entry points.

I'll be the first to admit the market looks prime for some consolidation or a nice decline, but until it shows its hand I'm playing it from the long side.

I like the word "aids".....used in that fashion. The angle of the slope gives a higher probability that the other indicators will be correct or something along those aligns..

Well, you get the drift...thanks.


Heres an update for the weekly NDX. (Q's)

Whats it saying now?

Basically the same as above, except more bullish. The 26 week (thin blue line) is clearly pointed up. The 4 week (green line) made a new high. The short term MACD (lower of the two) had a crossover. MACD histograms turned up. Force Index moved up.

If your not long already, the only way to play it is to look for weakness on the daily charts and then enter a long position. We should get some kind of a pullback as many indicators on the dailies are hitting extremes. I'll post a daily chart below to look for entry points.

I'm not saying we can't get a decline from here (at some point we will) but until we see signs that the market truly wants to turn, I would stay away from trying to pick a top.

Heres a simple daily chart from Doc's chart link on the left column top of page. You can use any indicators you like to help find entry points. To make the example simple, here I used only one indicator, the CMO (Chande momentum oscillator). Blue circles show decent entry points (weakness on the daily charts) when the trend is up ( weekly charts above). When I can find the time, I'll talk about money management, the most important part of a trade, because at some point the "buy the dips" part wont be the right trade. Now class is dismissed.

I had to change that avatar of Abby.

The "new" one is Abby from 1969 before she turned into the Ape Woman.

This is OT but is that really the way she looked in high school, or is that photo stretched a bit. If that is really the proportions of her brainbox, then possibly the APEllation APE-woman is well deserved.

Ya, its kinda hard to believe, but that was 38 years ago. Aging does strange things to people. I can't verify the photo, but I did lift it from the Business Week Archives so I think its the real deal.....link is here: http://www.businessweek.com/1998/22/b3580007.htm
[attachmentid=75430] X 38 years =

Thanks for starting this up again.

OK, lets look at what we have now.
This is once again the NDX (Q's)
The 26-week ma is still pointing up. The ST MACD has crossed over again. Notice as the ma's have moved higher, the MACD signal line, histogram and Force index have traced a more shallow high. These kind of divergences often precede price movements in the opposite way.
Right now we are in one of those tough places in the markets. Earning season has begun and many companies have less than rosy numbers. On the other hand many charts in other sectors look poised to break out (biotech, transports, etc.)
Bottom line: we are still going to give the uptrend the benefit of doubt, but will enter only smaller positions on over sold daily chart conditions. I'll post a simple daily chart below.

Heres a simple daily chart of the NDX.
The pullback on Wednesday and Thursday relieved some of the overbought condition on the CMO-3day. Notice the 11/34 ma crossover got close recently but did not occur yet. Still, going by the weekly, we are going to trade from the long side only. An entry here with a tight stop and sound money management will be the ticket.

I use my 2/2 rule for money management. Quite simply, the first 2 represents days and the second a percentage.

If I put on a trade and it closes against me for two closing prices, then I close it out and evaluate from the sidelines. I can always re-enter, but if it is going against me from the start, I need to look further into it. No wish full thinking here, either it performs or I run. Sure, you will run into a whipsaw now and then, but I would rather play it safe than sorry. That rule applies only for the first two daily closes, not a week or two later if I still own it.

The second 2 involves 2% of account equity. If a trade goes against me by 2% of my entire account equity, I bail. Likewise, if a trade looks good, but a logical stop would be greater than 2% of my account equity, I either trade a smaller quantity or pass on the trade all together. The 2% rule has helped me keep my losses to a minimum. It really works well.

Heres a look at the transports as mentioned above. With oil falling the transports look to benefit. Waiting for the break...could come any day, but a pullback within can't be ruled out.

Pretty much the same situation as last week. Lots of indicators are looking tired. Still, until the 26 week ma turns down and Force Index breaks the zero line we have to play from the long side only- but with caution as noted earlier. Looks like this week could be telling if we get a downdraft to change the indicators. Lots of bearishness out there. Can they all be right? We shall find out soon enough.

Here is the daily NDX. (Q's)
Notice the last time the CMO 3-day bounced. It moved above the zero line, pulled back and then shot up. This past week it started the same pattern, but with a little less gusto and a lot more volume to the down side. It will need to get above the zero line soon with volume behind it for this rally to continue.
This pattern that we see here is similar to last year at this time with a slow grinding sideways up (swup), that is difficult to trade in but can be profitable if you are nimble.
Once again, tight stops and sound money management are the rule here.

Heres a chart that somewhat contradicts the weekly stuff. Its my version of the Rydex Ratio. There has been some talk of another type of Rydex Ratio on the main board lately, but this is the one I've been watching for years.
Actually, its just a simple ratio chart of the Rydex Q's bull and bear funds. Since Stockcharts only uses the closing prices, I've eliminated them and just use moving averages in its place.

Quite simply it signals to go long when the blue line is above the red. Short when the red is above the blue. Usually you can catch one or two decent moves per year (last year had two very large moves ). The only problem with this ratio crossover method is the whipsaws. The period we are in right now is whipsaw time. That is mainly why I follow the weekly trend first, then look for the Rydex Ratio chart to "lock on" to the trend.

So even though the Rydex Ratio says go short now, we shall wait for the weekly to confirm before going short and try to avoid the whipsaws.

I'll try to post this ratio weekly so we can keep an eye on it.

Same old story. Last week the Q's had a decent week and the long side was the right way to play it! Some sectors look good, others are due for a rest. Still, we are not ready to try top picking and short this right now.
Trades should be from the long side only and only on weakness in the daily.

Weekly view:

Heres the daily view....wait for a bounce in weakness for an entry. Its important to wait for a bounce in a pullback "over sold" condition before entry as if you enter too soon you could get caught waiting for the bounce that never comes and the weekly trend could turn against you. I speak of over sold in the context of a momentum play, as in short term over sold.
Once again, sound money management (as pointed out above) is the rule!
[attachmentid=76594]


Heres a close up of the chart above....had to zoom in to make sure the moving average crossover didn't take place...it almost did. We will keep an eye out for that as well.

Rydex Ratio..near another crossover. Whipsaw anyone?

Russell Ratio...nice break and crossover.

Update: NDX (Q's) still in the cautious bull stage. The 26 week ema is still pointing upward to retain the bullish stance. Notice the Force Index is getting ever closer to a cross of the "0" line. Also the short term MACD is still in the caution zone ( above the "0" line but with a crossover of the indicator lines )
All in all the Q's are looking a little tired.....although last Fridays action was probably more options related than anything. For the most number of calls and puts to expire worthless on Feb 16, the Q's would need to close at 44.

Overall, not a bad week for the NDX (Q's) Up 2%, if using a leveraged issue such as the QLD or the Rydex Dynamic it is double that amount.

Lets look at the weekly....
The 26 week ema (blue line) still says trade from the long side only.
Notice that the short term ema (green line) hit its peak again. Also note that the MACD histogram and signal line is lower than the last time at these levels indicating that the bulls are buying with less enthusiasm ...a sign of caution.
Force Index ticked up and is still above the zero line.
The MACD signal line has yet to crossover from below (just touching) so we will only buy on bounces of daily over sold conditions. If it crosses we can buy more aggressively on lighter pullbacks.

Until it does cross, it is important to buy on upticks from pullbacks to avoid whipsaw trades.

This should be an interesting shortened week as many indicies have broke out lately (transports, Mid caps...)
Good Luck...

Weekly looking better...tack on another 1%....2% for leveraged.

Sox looking up. Will the breakout stick? As they say...semi's gotta lead so we shall see.

Well, that was a fun week to say the least!

After many weeks of struggling, the bear finally came out of his cave. In hindsight the writing was on the wall but many traders, including myself, were in awe of the magnitude of the sell off.

The shear volume that accompanied the sell off suggests that the decline may have some more punch to it, IMO.

Anyway, lets look at the weekly...

Most indicators I follow on the weekly charts are now pointing down. The 26 week EMA says to start trading from the short side only. Although the EMA's have yet to have a crossover, the Force Index has gone negative. Until the 26 week turns back up, I will stay with the sell bias.

Heres where it can get interesting....The long term trend lines have yet to be broken (weekly, monthly), so we won't call this a full bear market until they do.

After last week, many of the daily charts are now over sold so shorting right here can be dangerous as traders with short positions look to take quick profits and put a bounce in play. We may see a few more days of selling, but at some point shorts will cover and bargain hunters will step in and put on a 2-3 day rally within this decline. What to look for is the reverse of the long play....sell short the rallies on the daily charts, while keeping an eye on the weekly to make sure its still on the negative side.



Heres a 1 year daily chart....I had to go back 1 year just to show a decline.

Notice the moving averages crossover. Now notice the green spike rallies in the 3-day CMO during last years' decline. A decent entry is a downtick from a spike above the 50 line.

After several whipsaws, the Rydex Ratio may have locked on a trend.

Sox update....not officially busted, but looks like just a matter of time...they may keep them guessing early in the week.

Pretty much as expected as smart bears took quick profits and the bargain hunters snapped up "would be" bargains.

The weekly view still looks pretty bleak right here. The 26 week ema flattened out with a slight downside bias. Although the Force Index bounced, its still well below the zero line. I added a longer time frame MACD that shows the decline intact...the shorter time MACD shows the slight uptick of last week, but still on the negative side.

Playing from the short side only.

Heres the daily with the 3-day CMO. Got the bounce as expected to take us above the 50 line on the CMO. Although this move may produce a few more days of sideways up "grinding" to test the intense volume of 2/27, a decent entry on the downtick from the 50 is in play.

Sox update...The Naz isn't going anywhere without its Sox. This is one to keep an eye on. If the Sox decides to fall from here then we are in the drivers seat. If it breaks out, then all bets are off as the Naz is sure to follow.

No change....seems like a lot of big swings last week for a measly -.14% move. Then again it was OPEX week.

The 26 week ema still can't make up its mind.... ever so slight down bias.
A touch of the 4 to the 20 week ema this past week. A cross of the 26 week would confirm the down move. Last crossover of the 4 week was early last Sept.

The weekly sets the tone and right now it says down.

The daily (Q's, NDX) shows the bounces to the +50 mark on the CMO 3-day. Usually in down markets the CMO 3-day has a tough time of staying above the +50 for extended periods of time.
Notice the divergence in price and the CMO? As the Q's closed in on the recent lows of March 5th, the CMO traced a more shallow low. Most indicators are showing this divergence as the volume and magnitude of the drop on Feb 27th made many indicators plunge deep .

A word of caution: If this is truly a turning point in the market one must be on guard for a possible "testing of a top", or at least a possible revisit to the trading day prices of Feb. 27th.
This may play out with more "grinding" upside.
Something to keep an eye on.
Selling short but with tight stops in this area for the time being.

Sox update...close-up view of our beloved Sox. As mentioned before, the Sox should give us a clue to the trend of the Naz. Keep an eye on them.

Well, that was fun. Once again a huge reversal day eats up any profits. Tough trading in this market.

Lets look at the weekly.
The 26 week MA has turned up slightly. Although the short and long time frame MACD histo have turned up, they are still below zero with no signal line cross yet. Force Index is at a neutral stance.
Leaves us in a tough spot. Just about half of the indicators are pointing up while the other half are pointing down or are still negative. A case could be made for going long or short from the weekly view.
When in doubt....don't. So until this market shows its hand a little more, a good strategy is to observe from the sidelines. If you do take a stand from one side or another one thing rules in this market....and that is sticking with your sound money management (2% rule) to avoid large losses.

Heres the daily view.
The divergence played out to the upside as it should. The long term CMO is still in negative territory. The 11-day ma has touched but not crossed the 34-day. Volume has shrunk from that monster volume of 2/27. Prices have re-tested the prices of 2/27 as discussed last week. The 3-day CMO tagged the extreme and pulled back.
Lets see if prices can penetrate the gap from 2/27. Volume is a key here. Volume needs to expand on the way up to confirm the trend.
Caution: End of month and end of quarter on tap this coming week. We may see some more wild swings as the funds position themselves for their quarterly updates.

Not much new here, but none the less we gotta watch it.

Another reason to let the market show its hand: The Nasi "pivot line". We are once again right at the pivot line...lets see which way it plays out.

The short term MACD started to turn down this past week...ever so slightly. The longer term MACD has pretty much stalled out. The 26 week ma looks to want to flatten out again. Force Index made a small move lower and is still below the zero "sell/buy line".

All in all not a bad week for the bear plays, but still no real direction in this market.

Daily Q's (NDX)
The CMO 3-day took a decent slide down. The 11/34 ma's are at a crossroads so to speak. The last green peak on the CMO will be a tough act to follow and should prices gain strength here a nice divergence should develop.

Sox update: I still believe that the Sox will lead the way...just which way we don't know yet.

Nasi Pivot line. That turn back at the 50 on the RSI could prove to be the key here.

Nice breakout in the General Mining Index...

Delivery Services Index...Hmmm....oil have something to say about it???

Markets closed for Good Friday. 4 day trading week.

Lets look at the weekly. Decent up move this week changed some indicators a little.

Long term (26 week) moving average turned up this week. Also the short term MACD crossed above the zero line and poked above its signal line. Longer term MACD has turned back up, but still has not crossed its signal line and the histo is still below the zero line. Force Index has just peeked its head above the zero line.

All in all the weekly is looking much better here. As long as the weekly points up, we will be trading from the long (buy) side only- but with caution- and looking for over sold buy points from the daily charts.

Heres the daily...got the 11/34 moving average cross, but of concern here is the lack of volume....

Looking for upticks from Dover Sole conditions in the CMO 3-day. During a bull market, any touch of -50 or below is considered Dover Sole. Since the weekly is not yet in 100% firm bull territory...its a good idea to let the market come to you in the form of -50 or greater CMO 3-day...this is not a good time to chase anything.

Sox update...watch that triangle...look for resistance in the 484ish area.

Nasi pivot line....looks ok for now..

Looking better. Still waiting for the LT MACD to confirm this bullish move with a crossover of the signal line. Other than that, the weekly looks poised to continue upward.
The only major concern here is how the indicators respond when the 4-week moving average (circled in red) touches the previous high of mid-February. Right now it appears we may see some divergences building. (When the price makes a new high, but the indicators we follow don't make the same new high). Something to keep an eye on..

Never quite got there (-50) on the 3-day CMO. It's still better to let this market come to you...so we sit and wait. The weekly move of .09 was not worth the chase.

This is a good view of a divergence that was mentioned above.
Notice the highs set on March 21-22. Then note the position of CMO 12-day on those days. Now note the position of the CMO at todays price levels. The CMO continues to trace a more shallow high than the price. The 3-day CMO shows a more magnified view of the last few days.
Bottom line is something has got to give. Either the CMO will catch up to the price or the price will catch up with the CMO...as in downward price action.

One more reason to let this market come to you. Problem is sometimes divergences take time to play out.

Still watching the Sox...