2009 November | The Wall Street Shuffle Blogs

Archive for November, 2009

A Hint of a Correction

Today we actually had a decent down day in the major stock indexes. However, the decline was still minor. If you take a look at the low of the day in the stock indexes and measure these lows from the highs which were made just a few days ago, this decline is between 1 and 2 ATR (average true range). A correction of this size from the highs is the size of a normal correction. In fact, many corrections are much deeper than what we have seen for the past few days. Most corrections are between 2 and 3 ATR.

What is ATR and why use it to measure corrections? If I want to decide if an $8 move in Google is significant, I can’t use a fixed dollar value. Sometimes GOOG moves $5 on an average daily basis and sometimes GOOG may move $10 on an average daily basis. Plus if I am measuring price declines in a bull market, I want the ability to measure Google with the same measurement tool that I use to measure the stock of Apple or the crude oil futures contract. What tool can I use to measure these three very different markets?

That tool can be ATR or average true range. If you want more information on ATR go to www.traderscountryclub.com and go to the Chart of the Day Tab. I placed a free lesson on ATR.

Think of ATR kind of like the average daily range, but price gaps are taken into consideration with the use of ATR. A decline of 1 ATR from market highs is a decline of 1 average daily range. A decline of 2 ATR is a decline of 2 average daily ranges. In this way, when I say the average correction in a bull market is about 2-3 ATR from the highs, this means that in every traded instrument, it is not uncommon for markets to “correct” at least 2 of their average daily trading ranges.

What does this mean for the average investor? The ATR for the SPY is about 1.65 on 11/19/2009. This means that it would not be uncommon for the SP 500 index to decline by almost $5 from the highs in the current bull market. A decline of this size would be normal. AAPL’s ATR is about 2.10. It would not be uncommon for Apple to decline by a litttle more than $6 from its highs and yet still retain the bull market bias. Google stock GOOG ATR is near $8. This means that Google can correct by more than $25 from its highs and yet still be a valid bull market.

Now let’s use this knowledge as we analyze prices. What was the size of the correction in Google in early November? 2.9 ATR. AAPL correction for the same period was a little larger 4.0. Larger than normal, but still deserving of a bullish bias, in spite of the larger size of the correction. The size of the correction in the SPYDR SPY 3.6 ATR.

Keep the ATR calculations in mind as you take a look at future corrections in the stock indexes, stocks and commodity trends. If the reversal from an old high is less than 4 ATR, you have to assume the decline is a correction and not a change in trend. If the correction is larger than 4 ATR, it is time to make a whole new analysis of the trend. There may a change taking place.

We have not had deep corrections in the stock markets for some time, but now you know how to measure them. Not in percent; not in price, but in ATR.

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2009.11.19 / no responses / Category: TCC
Just Give Oil the Slightest Reason

Crude oil sits near $80 for the January delivery future’s contract. Gold is running higher, silver is running higher, and many of the other commodities are moving higher as well. Crude oil only needs the slightest push to get the energy sector to set new high prices for the year.

Consumers better stock up winter supplies and fill up the car on the way home. Energy costs are about to go up. All it takes is a little more improvement in the economic numbers and a continued loss in value of the US dollar. So far the stars are all aligning up for higher prices – and it may not wait until 2012.

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2009.11.18 / no responses / Category: TCC
Half Way Up the Tree

The high of the Dow Jones industrial on the week of October 12, 2007 was 14,198. The low was made during the week of March 6, 2009. The approximate low price was 6,470. This was a fall of 7,728 points from the high. The high of last week in the Dow was about 10,342 or 3,872 points from the low made in March of this year. In other words, as impressive as the rally in the Dow Jones has been for the past 6 months, we have only gained about 1/2 the amount we lost from the highs of 2007.

They say markets climb a wall of worry. This has certainly been the case for the stock market. Unemployment is at 10.2 percent and most economist believe this number will continue to go higher. The US dollar is losing ground against almost all the major currencies and our estimated deficit and debt is continuing to explode. Wall of worry? It is more like a sunami of worry.

Yet americans are heading to the malls. It is the holiday season and the banks have a whole new attitude. Charge it. Don’t worry. Why we have even lowered our overdraft penalties. We are the friendlier bank you have always dreamed of. Well it was either that or face new legislation creations by chairmen Barney Frank and Chris Dodd. But never you mind americans go charge it.

Americans may indeed heed the call. Sales may continue to be brisk and the stock markets may indeed continue the bull market pathway to higher prices. The only shame is that americans are buying their holiday goodies from salespeople who have Phd’s, masters degrees, or other letters of significance. The person across the sales counter lost their job long ago and although they are now counted by the governement as employed, it is at a wage that is about 1/2 or worse of what they use to make. Come to think of it. That is about where the Dow is now. It is also about 1/2 of where prices use to be. Go figure.

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2009.11.16 / no responses / Category: TCC
Higher Energy Costs – The next insult to all Americans

It took a little while before $1,000 gold prices began to become a bargain rather than a potential market top. The same is beginning to occur for $75.00 crude oil and 2.00 gasoline in the commodity markets. Today the US dollar index set a new low. Every correction in the US dollar has been viewed as a selling opportunity in the investment community and this is beginning to have a continued affect on the commodity markets.

Crude oil and other enery products appear ready to set new highs for the year, because the U.S. dollar continues to weaken on a weekly basis. The $75.00 price barrier has become a price of support recently, not a temporary price level set in a stage of short covering. Higher prices appear to be around the corner.

Gold traders have gotten use to $1,100 gold and above. Consumers this winter better get use to higher energy prices as well.

Americans better bundle up, while they wait in line for their unemployment check!

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2009.11.09 / no responses / Category: TCC, The Stock Market, Wall Street