Thursday, April 23, 2015

Sell the Close...04.23.15

I'm old so it sometimes takes me extra time to comprehend the obvious.  Thus it was today when a light bulb went off in my head about 15 minutes pre-close. I've been trying to figure the recent open/close dynamics and I finally realized that its really very simple...and understandable.
Traders are simply selling the close in anticipation of after hours and pre-open earnings announcements.  Better safe than sorry as we climb further into overbought territory on extremely tenuous fundamentals.  It's become clear that the big multi-nationals have been hit hard by the dollar's swoon although the dollar now sits on the 50 day moving average and is now on a make or break point.  Nevertheless, with over 25% of the S&P companies having reported earnings less than half have exceeded consensus estimates (five year average is 58%).  The growth rate for revenue for 2015 Q1 was actually a minus number (3.3%).  So how can we be hitting new highs?
Let's blame the HFT algos.....there's considerable evidence to support this thesis.
Below are the 3 minute and daily bar charts for SPY using my favorite Ergodic indicators and the ADX, which I posted about yesterday.  The reason I posted 2 different time frame charts below is to advance the argument that momentum/ADX are both common, periodic, mean reverting and fractal (pattern occurring in multiple time frames).   This is pretty interesting and may be the stepping stone to another way of evaluating the "true" trend of both the short and longer term price moves. Tomorrow I'll continue this line of thinking and examine how we might construct a more holistic trading model using these indicators.