Commentary

Technical Issues

“Chess is a constant struggle between my desire not to lose and my desire not to think” – attributed to GM Jan Gustaffson. 

VTI Week

An issue with technical analysis incorporating statistics is the possibility of making mistakes. I’ve corrected a bug in my candle coloring routine which reversed OneUp and OneDown coloring. OneUp is now “correctly” colored white instead of yellow and vice versa. That isn’t a very important error using a TwoUp state buy signal but it has implications for OneUp or OneDown strategies.

There has been a notable deterioration (negative state change) on the weekly which has gone from Green (TwoUp) to Yellow (OneDown) to Blue (TwoDown) during the month of May. OneDown means the 3 day rate of change is negative but the composite is positive. OneUp is the opposite. A “normal” market will usually transition Green to Yellow (TwoUp to OneDown) to Blue to White (TwoDown to OneUp).

The key question for SPY, VTI, and QQQ is whether the current weakness can be contained above the 52 week / 200 day moving average area. This question has already been answered for IWM, DIA, and IJH.

If VTI breaks below 142 or so there is a possibility of a move down to around 136 (150-8-8) , which is the area where the first green weekly candle appeared for the week of January 25. That’s not really a big deal if the decline doesn’t get worse. Upside potential is probably limited by the appearance of the triple top, however we interpret the December massacre.

My guess is the 52 week average will be probed before the late April highs can be challenged.

VTI Day

The white line at 142.40 is the 200 day moving average. Notice how flat it is. This might give an analyst with short term memory issues the impression that the market was quiet and boring over the last year or so. Boring maybe, but not quiet.

Notice that the last few state changes have lost money. Buying on the close of any state change and selling on the close of the first day of the next state change is profitable in the long run. The least profitable way to play that is to buy the close of the first green bar, although this is has been the most profitable one state strategy over the last 7 years or so. Buying the close of the first blue candle is the most profitable way to play the strategy over the last 6100 or so trading days (on SPY since 1995).

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