• 288 days Will The ECB Continue To Hike Rates?
  • 288 days Forbes: Aramco Remains Largest Company In The Middle East
  • 290 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 690 days Could Crypto Overtake Traditional Investment?
  • 695 days Americans Still Quitting Jobs At Record Pace
  • 697 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 700 days Is The Dollar Too Strong?
  • 700 days Big Tech Disappoints Investors on Earnings Calls
  • 701 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 702 days China Is Quietly Trying To Distance Itself From Russia
  • 703 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 707 days Crypto Investors Won Big In 2021
  • 707 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 708 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 710 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 711 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 714 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 715 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 715 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 717 days Are NFTs About To Take Over Gaming?
Market Sentiment At Its Lowest In 10 Months

Market Sentiment At Its Lowest In 10 Months

Stocks sold off last week…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

The Problem With Modern Monetary Theory

The Problem With Modern Monetary Theory

Modern monetary theory has been…

readtheticker

readtheticker

readtheticker

We are financial market enthusiasts using methods expressed by the Gann, Hurst and Wyckoff with a few of our own proprietary tools. Readtheticker.com provides online…

Contact Author

  1. Home
  2. Markets
  3. Other

Beware When Markets Enter Irrational Exuberance

Thank god markets are emotional, how else would we get fantastic over bought and under bought prices. The only trick for the investor is to know when prices are considered to be within a period 'irrational exuberance'. Some use RSI and Stochastic, others use sentiment readings of confidence, option call put ratios and standard deviations from a long term moving average. Many of these tools have false readings and hence a combination is preferred when forming an opinion and unfortunately that normally end in a confused state of mind for the investor.

It is amazing what you can calculate when you keep it simple stupid. The best tool we could find was simply taking a fast moving average away from a slow moving in percentage terms. The indicator you see below requires explanation of the color coding.

vExUp (Dark Blue): Very Extended upwards trend
ExUp (Blue): Extend upwards trend.
Up (Green): Up trend.
Test (Gray): Trend in test mode.
Dwn (Red): Down trend.
ExDwn (Purple): Extended downwards trend.
vExDwn (Dark Purple): Very extended downwards trend.

Changes in color give adequate warning to you when price action requires your close attention. The dotted blue lines highlight when price will begin to test the trend, or as we call it entering the 'trend testing zone'.

Interpretation Points:

1) If the immediate presentation of indicator shows NO RED then the trend is bullish. This is inclusive of the indicator pulling back as far to the lower dotted blue line.
2) If the immediate presentation of indicator shows NO GREEN then the trend is bearish. This is inclusive of the indicator pulling back as far to the upper dotted blue line.
3) Changes in color require your attention to price action.
4) The more infrequent the appearance of an extended color the more likely that the reading is significant.

On this chart I have circled on the indicator were it has changed color, I have also circled on price where they match up. As you can see taking a position in the market at wrong time proves to be unwise.

I should make you aware that you best financial decisions will be born while the indicator is in a test mode or gray.

Currently, the SP500 is in a 'extended up' period of price action (blue), price are so high you need an oxygen mask. The most recent five times before price fell anywhere between 3% to 16%. But as we all know many of those was before the Jackson Hole speech by USA Fed Chairman Ben Bernanke. So we will have to see what Mr Market has in store for us. Going short may not be the solution, buying puts (just like everyone else has on the SPY) maybe the best course of action.

Of course we cant wait until we see gray again, our holiday plans rely on it(ha).

S&P500 Index

 

Back to homepage

Leave a comment

Leave a comment