September ended today with a dramatic morning in which the reverse slingshot scenario we had anticipated in yesterday's blog played out. NASDAQ opened up 0.7% and then plunged very quickly to -0.9%. Rest of the day it spent in smaller but "tradable" moves.

In earlier blogs, we have discussed the significance of crossing point between oscillators of adjacent periods. You can find a good example here. 

When oscillators cross each other, it is analogous to the different trading groups represented by those oscillators becoming aware of each other's position. And when these groups are dominant, the crossing point indicates change in the market's direction.

In the End-of-Day chart of NASDAQ Composite today, in the top left panel we can see the crossing point of Pink oscillator in the downward direction with the slower Black oscillator. They have just made contact at this point, but it should be a full fledged crossing point by tomorrow. 

The change of direction happens in the direction of the faster of the colliding oscillators. So this point signals a downward move for the market. 

The End-of-Day charts as their name indicates have only the daily closing prices/index values as their input. So to understand how the impact of the movement of oscillators will be felt in the market, we have to consult the Intraday charts which get updated every 15 minutes during the trading day. 

The chart below shows how the intraday chart oscillators are poised at the close of trading today. In the top left panel, we can see that the Pink and the Black of the intraday chart are at opposite ends of their respective moves.  

In the top right panel, we can see the fast oscillators and intraday residue. NASDAQ performed its intraday moves today almost to the beat with them today as you might have seen from our real-time tweets.

We can also see in the bottom right panel that the Blue oscillator which has the largest magnitude and time period among the intraday oscillators has slowed down in the latter part of today after its crossing with the upward moving Black. 

Oscillators have the lowest momentum at their turning points. Therefore they are very strongly influenced by adjacent oscillators at those times causing them to delay their turns or accelerate the direction reversal. 

Before speculating about how all this is going to play out tomorrow, we should also keep in mind that there are plenty of automated +ve alerts in the ticker table that have stayed open at close. 

These are all alerts of the short term types (mostly 6s) that were issued through out today because of the upward turn of the Pink oscillator of those stocks. Many of the trades they suggested were already profitable by close. And chart study showed plenty of them to be unsafe or needing constant monitoring as I had tweeted. 

The -ve alerts in the ticker table are longer term (3s & 4s).

You can learn all about our automated alerts in this manual chapter. 

With these factors in mind, here are my thoughts:

• The dominant Intraday Black oscillator definitely has to do its downward move.
• That downside could be the intraday channel through which the crossing point in the End-of-Day chart materializes. 
• When the Intraday Black turns down, the Blue will also continue its downward move.
• The above scenario is going to play out sooner or later. It can be delayed if markets open up from the move of Intraday Pink & Fast oscillators tomorrow. 

• The chance of this happening also comes from quite a few stocks have their Pink oscillators in the upward direction as indicated by the positive alerts mentioned earlier. This can then delay the turning of the Black into later in the day tomorrow. 

• Even in the extreme case, if there is some fundamental factor that leads to a spectacular pop upwards which say, has the momentum to push Black a little higher and even turn the Blue upwards for a while, it'll just be an increased delay for an accentuated downward move. That would be akin to the slingshot at open of yesterday.  but in the opposite direction and bigger time frame.

With the oscillators, we don't have to stress about nailing them at the top and bottom of every turn, we can go with their flow once they have determined a direction. That makes the open of tomorrow very interesting.

In yesterday's blog, I mentioned that the fast oscillators for NASDAQ Comp were out of bounds and could bounce back. But from their magnitude at close of yesterday, it didn't look like such a bounce would be able to induce a turn around in the Black or Pink oscillators. 

Those traders were clearly not interested in buying back in at that time.

But come this morning, the fast group did a magnificent quick plunge taking the market down 1%. 

From that level, their bounce back was sufficient to make the slower groups sit up, take notice and follow suit. 

The move was similar to the gravity assist or slingshot maneuver in orbital mechanics. The fast oscillators rapidly moved down at the start and then bounced off armed with greater momentum in the upward move. 

I had tweeted the screenshot of the charts illustrating this move earlier today:

http://twitpic.com/2stsww/full

Now let's look at the Intraday chart at close of today. 

The Fast oscillators are within bounds and poised down in the right panel. In the left top panel we see that the Pink and the Black groups have some more upside. In the bottom right panel, Blue is steadily heading down. 

So it is a battle between the groups in the top left panel and the Blue. 

We have roughly the same number of positive and negative automated alerts in the ticker table today which would signal tomorrow to be another day of good intra day movement. Also keep in mind that the oscillators in the top left panel move much more swiftly compared to the Blue.

In the E-o-D charts we see that the Black oscillator still is optimistic. Today's move has done precious little to the other groups. The downward crossing point of Pink with the Black here will definitely be interesting.

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Looking at the Intraday and End-of-Day charts at the close of today (9/27), I'm reminded of the nursery rhyme http://en.wikipedia.org/wiki/Ring_a_Ring_o'_Roses

The Blue oscillator is out of upper bound and has done a half turn. The Black oscillator has only slowed down and hasn't shown any sign of turning. Any upward move tomorrow morning should come from the fast oscillators. Only if it is a great move, a turn will be induced on the Black. We will have a better idea by looking at the intraday and end-of-day charts after close today. I will post them later.

Good luck with overnight positions!

It is interesting to see how much of an impact the over 2% jump of NASDAQ Composite on Friday had on the End-of-Day oscillators. 

In the chart shown below with zoomed in views of the top panels, we can see that most of the momentum has been captured by the fast oscillators and the daily residue in the right panel. And the fast oscillators represent the group of traders/investors who move rather quickly with their cycles. 

The Pink oscillator had a pause indicating there was a balancing off between the movement of its components. The Black oscillator group of traders are in the upper side of their brief turnaround which was initiated by the September surge that we have discussed in last week's blogs.. So Friday's upside doesn't seem to have carried over momentum to these groups,

Remember from the Intraday charts, that the Blue group is now out of bounds but still hasn't turned. In the September 15 blog, I had mentioned the possible scenario playing out with long term shorts getting a nice entry point during the upsides of the week that ended. We should be seeing the Blue turning down early this coming week and when it heads down, it should have all the support from the End-of-Day oscillators (longer term traders/investors).

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Granted we were expecting an upward open from the way fast oscillators and the Green component of the Pink oscillator was poised at close of yesterday. We had twice as many positive alerts as negative alerts, so today was very profitable in terms of individual trades. But obviously the brilliant 50 points move of NASDAQ definitely demands careful study.

The intraday chart for NASDAQ COMP from 15:00 today shown is shown below. The impact of today's move as captured and distributed over the different oscillators and the daily residue is clear.

With our system of oscillators, we are not caught up with numbers like ceilings and floors which get broken through or pierced. Our philosophy is to profit from the market when it moves. Prices don't form our triggers, the turning of oscillators do. And these oscillators capture the sentiments of different groups of traders.

In the intraday charts:
The fast oscillators represent the higher frequency traders who trade a couple of cycles in the market within a day. The Mid oscillator (Pink) with its main components (Green & Violet) capture the group that trades in a cycle that lasts close to one trading day. The group whose trading cycle lasts a couple of days or so form the Black oscillator. The much slower moving Blue oscillator has a half period close to a week. It makes sense to have standard deviation based symbolic upper and lower bounds for the faster oscillators and the slower oscillators. It is the ones in the middle (Mid) are the ones who get swayed the most psychologically!

The oscillators in the end-of-day charts also capture such distinct group of traders and investors but they trade in cycles that last weeks and months. We can see the upper and lower bounds in these charts.

What the charts offer us is a snapshot of how the different groups are poised so that we can time our moves. It is also important to realize that all these groups are active participants who are watching each other as represented by the market. Thus the influence and transfer of momentum across oscillators of different scale. When new traders/investors enter the market (more money coming in), they are distributed among the oscillators or get accounted in the daily residue (gray).

It'd be most interesting to see how today's move is reflected in the End-of-Day oscillators. I'd expect much of the momentum to be captured by the fast oscillators there with the Violet component of Pink delaying its turning down. Even if slowing down and small upward kinks appear in the downward moving oscillators in that chart, it will take more than just one day's move to change the mind of those longer term traders. It took the whole first week of September surge from the Pink group before the Black group decided to do a rethinking there.

Will post the End-of-Day charts later.

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The great impact of the downward crossing point of the Pink with the Black this afternoon was clear in the rapid drop of NASDAQ COMP. It's doubtful if the upside of fast oscillators and weaker Green can oppose the downward move of Violet and Black. This downward move from Black should also induce the traders of the Blue frequency to continue their downward move.

Good luck with overnight positions!

We have discussed how the various oscillators can be viewed as representing the sentiments (bullish, bearish or neutral) of different groups of traders active in the stock or market. 

For different stocks and the index, from time to time, different groups gain and lose dominance (amplitude).

With this in mind, think about the crossing points between adjacent oscillators. 

By adjacent, I mean, ones with time-periods that are comparable. 

So the fast oscillator is considered adjacent to the Mid oscillator(Pink) and its main components (Violet and Green); the Mid oscillators and its components are adjacent to the Black oscillator and the Black oscillator is adjacent to the Blue oscillator. 

The crossing point of adjacent oscillators can be looked at as a point in time/price when these different groups of traders become aware of each other's position. It is at the crossing point that oscillators influence each other's momentum. Therefore the crossing points herald major change in the price in the direction of the faster of the two colliding oscillators.. 

For a great example of this crossing point theory in action, look at the zoomed in view of the top left panel of NASDAQ COMP end-of-day chart at today's close below. 

We can see a clear crossing point that heralded the September surge. In fact it was a double hit. The traders who had been bearish since August, captured by the Black oscillator, collided with the upward moving groups of both the Violet and the Green. We can see that subsequently not only did the Black group lose their downward momentum, but they even did a shallow turn around.

The choppier light blue line seen here is the End-of-Day fast oscillator not to be confused with the smooth deep Blue oscillator in the intraday charts.

Yesterday we had a nice crossing point of the faster Green with its adjacent Violet. Today we can see that the Violet has begun to flatten out though it is not quite turning yet. 

Unlike the double hit that lead to September surge, now we are heading to three separate crossing points. First we will have the Green with the Black possibly as early as tomorrow. Pretty soon we should see a change of heart of the men and women in Black again as they decide to stick to their original plan from the beginning of August!

In the Intraday chart posted earlier today, we can see that there is some upward movement coming from Intraday Pink and Intraday Black but the dominant Blue oscillator is steadily down. So in the absence of some major uplifting fundamental news, we could have a flat or slightly up move which doesn't look like carrying much steam. Remember, the price/index is always the sum of the oscillators and indicators.

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