Stock-Market-Observations

My next posting at this site is scheduled for Thursday March 23 2006.

For this report I am posting my daily chart image directly in PDF format within the text to save space. I hope it doesn’t cause problems. Drag the image to your desktop for a copy.

Turning to the equity market as measured by the S&P, we are now passing out of the right side of the “Old Expiring T” with its center-post low in October 2005. Remember this last Fall key oversold condition was a Rate T induced low and we will be seeing other such Rate induced lows this coming Fall as well. Currently the market is caught up in the normal overbought correction phase. There is little to do but await the next important low that will become the center-post low of the “New Upcoming T”.

One interesting point of this T, to note before we say goodbye to it, is that its projected peak date is today, March 9. For reasons that have to do with market liquidity, the projected peak date for many short range Ts is often not precise, so I have added the envelopes to the trend of the S&P to help identify highs or lows based on S&P level rather than time alone. To summarize its theory and the T construction as I have noted in the chart, it can be seen that the T’s Cash Build Up phase, defined by the descending tops in the blue volume oscillator, lasted 101 daily data points from the May 19 peak to the October 12 low. According to the time symmetry property I discovered in the early 1970’s, this period of time can be taken to represent a period of Cash Build Up as investors slowly began to build up buying power. This buying power would be maximum at the October low which ends the cash build up phase. Once this buying power returns to equities, the theory expects it to fuel a market rally represented here by the S&P upper plot, and that rally will last the same number of trading days that originally generated the new buying power. We represent this by the time symmetrical graphic T and history shows this is the way that market fluctuations are regenerated as trends unfold.

In my last report I showed you a wonderful sequence of Ts in the high liquidity 1990’s situation which demonstrated the time symmetry can be nearly exact, and the sequence of Ts can refine an up-trend. Unfortunately, after the 2000 speculative peak, investors had good reason to be suspicious of equities and turned to real estate as their preferred investment. This left equities in a somewhat neglected state. So when I sketch a T, as I have done here, it is a good guess that as the equity trend moves out from the October low to the projected right end date of this T, their are reasons to believe that the amount of buying power needed to fill out the time symmetry on an exact basis might not be present. My solution to this problem was to devise an envelope theory which basically states that as one approaches a projected peak date, one should do any selling as the trend rises up to the red dashed line because the trend is becoming exhausted and an S&P overbought level might be the better signal to sell.

The other observation I wanted to make is that it is fairly obvious that one really wants to know the approximate location of a T’s center-post low since that point in time will find the maximum buying power available and equity prices should be at an attractive short term low. Since the early 1970’s and up to 1998 I had sought to find, without success, a rational way to estimate the low point from which each new T begins its advance. Looking at long history it is easy to see the T’s location in time is fairly random from one T to the next, but at any low the time symmetry of and one Ts is pretty accurate. For the current situation this means their is no way to estimate the next T’s center-post since it is presumed that fundamental factors (rising rates, Iran etc) are currently influencing investor decisions. However under the best liquidity conditions, a few weeks of market correction after the projected peak date (March 9) would be expected, based on the 1990’s history shown in my last report. Since their is no good reason to believe we are in a fundamentally better set of circumstances it is my judgement that any new center post for the next T must lied a few weeks later than the March 9th date. Late March might be typical, but I am just guessing, as the actual location will be dictated by market events as yet unknown.

Relative to the recent comment that the current modest oversold oversold condition in the blue volume oscillator might be taken as a buying opportunity, my response is that Ts don’t usually work that way. It is true the volume oscillator is relatively oversold and a small rally could result. However the normal, best case, is that the S&P will have to get oversold enough to attract buyers and that probably means under the 55 day MA that has thus far acted as a floor within the T’s right side. Note the volume oscillator is more likely to drop to an extreme low, nearer the bottom of the chart, as per much longer term history.

I would guess that the 55 day MA (S&P 1270-ish) is going to fail based on was I see so far, and that if it does, the eventual low will be near the 200 day MA around S&P 1230. This is roughly at the green dashed line in the envelopes (1238) and it is a reasonable downside objective.

Another way to approach this sort of “guessing game” is to look for a very short spanning Rate T market low time projection. Just before the October 2005 low it was noted in a September posting that a small rate T seemed to be pointing to an end of October market low and that observation proved correct. So perhaps we should take a look at the 30 year treasury bond yield chart to see if a small rate T might be pointing to a near term date that could be the low of the next T. If you are inclined to do the research and post your finding, please do so. I will attempt to make a projection in my next report but it would be nice to see some independent calculations.

Otherwise please read my major Rate T Study now posted at http://www.ttheoryfoundation, if you haven’t already done so.

Terry Laundry

Volume Oscillator at Critical Stage