Slope of Hope Blog Posts
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It seems that wherever I read, whether here or on twitter, there is no shortage of opinions on where the market is headed next, myself included. But as is usually the case, you have your camp that is eyeing all-time highs and those who are looking for the floor to give out. For myself, I can’t tell where the market will close the week so I’m sure I can’t tell anyone where it will be in months or years though I have my suspicions. It has taken a long time to get a mental handle on staying flexible and trying to “go with the flow” especially when I’m afraid it’s going to reverse every other bar.
As things stand now, using my simple 5-month, 5-week, 5-day trend reader, there is a possibility that the longer-term downtrend is resuming as of Tuesday, April 5th, 2022. The long-term trend for my system is the 20wk moving average. The fact that it is trending down is a significant sign of price failing to challenge the highs over the past 5 months. The 20 DAY moving average is still trending up from the lows meaning that the 20 day trend is in mean reversion to the long-term (20wk/5-mo) trend. The 5-day moving average turned down today.
“Nothing good happens below the 200 day moving average.”
The 200MA is the institutional favourite for judging the worthiness of a stock for buying (or so I’m told). But what happens on an index level when an overwhelming majority of stocks are above or below this moving average?
Well, let me show you.
Below I have one of my recent studies encompassing 2000 through 2021. I used the Percentage above 200MA breadth and divided it into thirds at 33% and 66%. In this way, if the Percentage above 200MA is greater than 66% then there are 2:1 in “strong” condition and likewise, below 33%, there are 2:1 in “weak” condition. Note: the lower line in the charts below is at 40%, but after some thought, I decided an even third would not change the results much (but I’m not going to remake the charts for this small adjustment).
Well, I wasn’t planning to write a post, but I was studying tonight and thought this was good enough for at least a quick post to take some of the posting weight off ‘ole Tim’s shoulders.
I specifically went looking for any portion of the 2000 or 2008 bear markets that formed a daily falling wedge and I found one indeed at the beginning of the 2000 bear market.
I was looking for a case where the weekly band was being repeatedly hit and overthrown (as is typical in an actual bear market rather than a corrective period) with competing trend lines narrowing into a falling wedge over months of trade.
The lower weekly Bollinger bands are a common extreme target in most major corrections. In fact, I note only nine such tests since the 2009 bear market low. I looked and looked for some kind of reliable method to determine ahead of time how a correction would likely unfold (such as in being range bound for a while or breaking out and resuming the uptrend), but I could not find any consistent outcomes by looking at how high the VIX got, whether there was a weekly band low blowthrough or not, or how deep the correction was. There were no commonalities I could find on how high a first bounce would likely go or whether or not it would retest the low.
If I’m anything as a trader, I’m curious. I wonder constantly. What about this? What about that? How do these interact? What has happened historically in this particular situation?
Excel has been my go to fact checker for probably close to a decade now. It’s simple enough for me and does what I need it to do. It has also convinced me that I could never be a computer programmer. My go to condition checking formula is a basic if>then statement:
“IF this condition exists, (and this, or this, occur at the same time), THEN state it as the value of: (the upper bollinger, current price, 10MA + $5, etc.)”
They can get pretty complicated sometimes and anything beyond a few conditions and I’m likely to have a formula error because I missed a parenthesis or a comma, and then my eyes start to cross and my brain gets the blue screen of death. My solution in these cases is to break the formula down in a basic word doc and put it together piece by piece.