The weekly charts of SPY and QQQ reveal the mechanism via which since the low of 2009 bears have been crashed all the way to recent highs and trend-followers have been unable to make good returns. The only winners here are the true believers in the ability of the market to shake out weak hands and to punish naive speculators.
See how fast the declines in SPY have been in relation to the trend duration, triggering technical sell signals and then the rebounds erasing any gains, while not violating the uptrend. Also, take a look at the RSI(13). Since 2009, levels below 50 have signaled that the market is preparing to rebound and maintain the long term upward channel. The thick small trendlines show levels that have reinforced the up-channel from inside and the more recent one is along the 40-week moving average providing strong support.
Similar price action in QQQ with rapid declines triggering technical sell signals and with plenty of choppy action that in both cases have rendered technical trend-following a difficult exercise for the most part. Levels of RSI(13) below 50 also signaled preparation for a short squeeze and moves to higher levels. The thick smaller trendline inside the long-term channel since 2009 is also along the 40-week moving average providing strong support.
This is not a market for technical methods of the past century. This is a market for true believers in the ability of strong hands to squeeze out weak hands and speculators. Whether this pattern will continue largely depends on fundamental developments. It is possible that bears will get crashed once again because based on the charts above there are not yet conditions in place to support a trend reversal. In the meantime, fast short-term traders and strong hands are profiting at the expense of those who use old methods to spot a trend reversal. You have more chances if you are a true believer in the market’s ability to move higher than a reader of 100 technical analysis books. At least, that has been the story until recently.
Disclosure: no relevant position at the time of this post and no plans to initiate any positions within the next 72 hours..
Charting program: Amibroker (Charts created with AmiBroker – advanced charting and technical analysis software. http://www.amibroker.com/”)