Weekly DeMark 9s Told the Story: Dave's Daily

We change things up a bit as we look at weekly DeMark counts. When weekly 9 counts are present, this more often than not signals "trend exhaustion." Does this mean a reversal?
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We did get a bounce but conditions still don't seem quite right. There was the obligatory opening gap lower followed by a rally as the algos, and no doubt a few money managers, reached up to reclaim the 50-day moving average on various indices. Success was found on many (DIA, QQQQ, IWM and MDY) but not other notables (SPY, XLB, XLV, XLE and so forth). So I guess you could say it was a victory of sorts.

So what's with these 9s? See charts below. Today, I'm not posting my usual several dozen charts focusing instead on a few.

Economic data released today wasn't inspiring for bulls. ADP Data showed a modest amount of jobs added (mostly government jobs no doubt) while ISM Services data was a little below consensus.

Volume continues to run heavy as distribution dominates. Breadth was decidedly negative.

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The NYMO is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE.  When readings are +60/-60 markets are extended short-term.

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Per Investopedia:  The McClellan Summation Index is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.  I believe readings of +1000/-1000 reveal markets as much extended.

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Per Investopedia: The VIX is a widely used measure of market risk and is often referred to as the "investor fear gauge".  Our own interpretation is highlighted in the chart above.  The VIX measures the level of put option activity over a 30-day period.  Greater buying of put options (protection) causes the index to rise.

Continue to Major U.S. Markets

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Now we'll change things up a bit as we look at weekly DeMark counts that illustrate the 9s referred to in the title. This will only be done occasionally as members have this first. The important thing to know is no indicator is perfect and many don't use Tom DeMark counts as we do. In fact most believe you must wait for the full 13-15 counts before these become meaningful. But most traders use these counts on daily or intraday charts making the shorter sequence views more relevant.

What are these counts and what do they mean? Simply stated they are constructed from a series of closing prices whereby a "sequential 9" count can be formed in a rising or falling trend. I won't go into the details of it here since you can buy DeMark's books or pay for the service via several quote vendors. The important point from our experience is when weekly or even monthly sequential 9 counts are present this more often than not signals "trend exhaustion". Does this mean a reversal? Sometimes; perhaps it just indicates a "pause" in the trend or at least some type of "reaction" will occur.

With this in mind, let's look at just a few charts like this where these views have been present. It's important to remember first: when many 9's are present at the same time on a variety of markets, this is a more powerful indication that something's about to happen. If not, simply it means the existing trends are very strong and will overwhelm DeMark counts and most other indicators.

We will do a

weekly

chart with SPY and moving along with QQQQ and VTI; but, many more markets presented this view.

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The bottom line is DeMark 9 counts showed a

reaction

was coming in each instance. It doesn't necessarily occur immediately and that can be the rub.  If trends are strong then there will be little reaction and the trick will be to find your way back into the trend.

More data on employment is on tap with Jobless Claims on Thursday and the unemployment report Friday.

Let's see what happens. You can follow our pithy comments on

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By Dave Fry, founder and publisher of

ETF Digest

and author of the best-selling book

Create Your Own ETF Hedge Fund.

Disclaimer: Among other issues the ETF Digest maintains positions in: MDY, IWM, QQQQ, TIP, UUP, GLD, DGP, YCS, EVP, BZQ and FXP.

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at

www.etfdigest.com

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Dave Fry is founder and publisher of

ETF Digest

, Dave's Daily blog and the best-selling book author of

Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management

, published by Wiley Finance in 2008. A detailed bio is here:

Dave Fry.