Sunday, November 02, 2008

Weekly ETF Pivots Update

All 4 of the ETF basket reached the upper LR30 daily channel this week and all 4 closed the week with the technicals in a bullish mode. We are now at a challenging point: will the market exhibit some of that (truly) irrational exuberance and kiss the channel good-bye to the upside . . or will the LR30 continue to hold as upper resistance and usher in the next cycle down to the lower LR30 channel? That, of course, is the 64 dollar question and whether the election results catalyze a market explosion or an implosion remains to be seen.
One scenario that has been posted widely foresees a surge into election eve and perhaps for a day or 2 thereafter, followed by a virulent decline to previous or lower lows. Given the position of the current technicals, this is a distinct possibility, so extreme caution is advised for those favoring swing positions.
For the week all 4 of the ETF basket closed at the R1 level, reflecting the lockstep bullish behavior of the markets. This should also be an indication to you that these ETFs do indeed move in somewhat predictable ways.
The pivot ranges for the coming week are almost mirror images of last week, so what's interesting here is that the % delta of the ranges has almost reached 100, indicating a leveling off of volatility. Unfortunately, this is happening when the asset value of these ETFs is down about 40% from this time last year. What this suggests, of course, is an impending range expansion . . but as with the LR30s study in the top charts, the question is whether the break will be to the upside or downside.Finally, a quick look at the NDX (Qs) stocks above the 50 day MA. Coming off a zero reading for most of October, this certainty looks encouraging, and based on past behavior of this indicator, we should at least expect a cross of the MA50 line before a retracement. We'll check back next week to see how the A50 played out.


Ian_UK said...

Interesting comment on the ratio of the range to "delta". Is this based on the actual range against the expected computed from the implied volatility (eg Vix) ie it is high so are the ranges. What confused me is the next statement that the range is therefore expected to expand. As I would have thought that if Vix does eventually come down gradually the ranges would contract (compared to the last 2 months). Great blog thanks.Did not see the place for sending an individual email as I would be interested in the spreadsheet you had offered in a previous post a month or two ago.

Best regards


bzbtrader said...

See my Sept 29th post for an explanation of % delta. Back then I was musing over the VIX at 48!!.
The argument for range expansion centers on mean reversion tendencies of the ranges. As the basket %delta is now close to 1 (100), I'm expecting a volatility breakout, one way or the other for the week. You can get the pivot calculator in 3 versions through the link on the side panel of the blog DATA AND CHARTING entitled "Pivot Point Calculator".