Saturday, January 19, 2008

Are we close to a bottom on SPY ?

Let's have a look the current SPY chart, and review our indicators.

On the 60mins chart, we have a clear divergence of the MTFS indicator ("failed recovery"), which combined with the clearly down swing and low MTFS significance level did noto fool us at all. However in case some would have taken a long position on the MTFS line crossover, the downturn of the white line looks like a pseudo 'bell shape pattern' which we always use for a 'return to the main trend' trade.

What about Entropy? Entropy is undoubtedly very low, and one may be tempted to look for a reversal point. When Entropy is indeed close to its historic lows (LEntBin = -5), a bottom provides good reversal signals. Having said that, this is only a support indicator. Swing is still down, bars are red, and we do not have a good looking MTFS.

How can MTFS look better if line crossover occured a few days ago? One must not forget that MTFS is also self-adjusting, so it will redraw itself as new events come along. MTFS is essentially used for the pattern shapes (line crossovers, parallel lines, line gradients) and NOT for the end point value like with most conventional indicators.

End of story: the 60mins chart tells you to wait, hang on short or maybe take profits. That's all for now.

The daily chart is the dominant chart here. We now know that there is no entry point from the 60mins chart, but what is the daily chart telling us?

Entropy looks sad, just like on the 60mins chart, and MTFS has tempted a (bearish) crossover. The good thing is that the indicator will adjust to a better looking crossover in oversold territory. At the moment, the line gradients are far too bearish. Then and only then will we look at a Entropy bottoming out. As usual, the picture gets clearer and clearer and we shall probably see prices stall at a Fib/MM target, and the Swing indicator (the earliest of all) attempting to turn up.

Obviously, each trade is to be considered within the context given by the higher time frame, and at this point in time, the weekly chart is also in correction mode (MTFS, Entropy etc).

That's all for now. We know that we must just be patient and wait at least for MM stall level ~128, or more likely right down to 125 (Fib/MM target).

Bears still have some appetite indeed...

NB: I added the SQ indicator (Swing Quality)