Sharing my view on Dow Jones, after my friend mentioned the importance of OI (Open Interest), I went to search for OI for the biggest stock market Dow Jones. This is what I discovered.
Based on the price trend, volume, and open interest, global stock market is still far away from a big crash. OK, so the drop in 2011 what you see? OI did not go down, price did peaked since now we backhand, Trendline indeed is broken since we backhand analysis, panic selling is sentiment nothing to do with chart. So, back to OI... same OI roughly but drop more than 1000 points.
If you see back in late 2007 until late 2008, Dow Jones kept dropping 1000 points consecutively, that, my friend, is the real stock market crash ! So it is not 1000 points. It is prolonged 1000 points drop, then this method would work. Nowadays people keep talking about Syria War and how market would crash with this war, but chart language shows us they are all wrong. Again, what is crash? Some have been waiting for this pullback to enter more positions in the market and have not liquidated their positions at all. Some plays short term like FKLI, if did not liquidate longs, then seriously hurt. In fact, some have shorted and made. My conclusion that they are all wrong now is based on this chart, on the OI. So if whatever reasons, DJI drop 2K points, still consider normal and not crash.
Some folk remains unconvinced that market is resuming its uptrend. As posted previously here, there has to be a meaningful consolidation. Thus far, it only have a big drop followed by a sharp rebound. Is this rebound a dead cat bounce? I do not know yet but it is still leaving the gap in FKLI continuous daily chart. Hence the danger of island reversal in FKLI remains. U.S. market hasn't even dropped a lot. And high OI and volume show that money is still flowing into this hot market. They have QE to flow in the money.
Well, the 2000 points drop in 2011 was not considered a crash, it was purposely engineered by the big hands behind, because in November 2010, the Fed announced a second round of quantitative easing (QE2), but only buying $600 billion of Treasury securities by the end of the second quarter of 2011.
They pressed down the price so they could buy low sell high and continue to ride the bullish trend. Open interest and volume in futures will only get bigger and bigger from time to time because the market is ever growing . The problem with open interest is that open interest tends to shrink a few days before the rollover period. Volume will spike too. Next month contract will have lots of volume too. That is why in Khalid Embong's futures chart , he never shows volume n open interest. But .... If one can break the code of volume n open interest in the futures market, he will have an edge that most traders do not have. Open interest measures the flow of money into the futures market. That chart i shown above is the monthly chart of DJI, and on larger time frame we can see it very clear than OI was dropping before the big crash, it merely said the 'flow of money' was gone out from the market in late 2011.
In this year , especially 2012 until now we do not see any money outflow from US market yet. The OI explanation sounds nice, but when put into chart, does not seem to be true. using this chart, you still cannot explain why when prices keep dropping a few thousand point and OI goes up.
Actually, OI method still work, but the way it is explained now is horribly wrong and will cause more harm than good. In year 2011, prices went down, and OI was still high because OI did not show a weakening sign before the 2000 points drop, that means money flow is still into US market and the funds did not exit the market yet, so a better explanation is the 2000 points drop was only a small profit taking, and did not affect the uptrend of a larger time frame. The chart is there, your guide to read is there. Go plot the trend change. Post a new chart showing the OI method as you say now. See if it works then tell me if I am judgmental or not.
Monday, September 2, 2013
