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Stocks: 'Mean Time to Failure' Statistics Indicate a Grind Higher


Projection charts show more grind with the short-term transitioning back to bullish again.

Traders depend on set-ups. The better set-ups occur when the charts reset. What that means is that you have to get retraces (trades in the opposite direction of the existing trend) on the short-term time frame at a minimum but also occasionally on the intermediate-term time frames to create better opportunities. Unfortunately for traders, this market simply won't give such a retrace. Investors, of course, love that.

One measure of the market's unwillingness to retrace is seen in the mean time to failure (MTTF) statistics that my firm keeps on all stocks, indices, and sectors.

If we take the S&P 500 (INDEXSP:.INX) and look at all three time frames, we can see that on the longer-term time frames there simply haven't been any retraces of size. Here's the intermediate-term time frame.

This statistic tells you that it has been almost a year (50 weekly bars) since the trend transitioned to bullish and has held that trend. The cumulative mean time to failure associated with such a move is 82% right now. In other words, there is an 82% probability that trend will change this week. That's pretty stretched.

Although cumulative MTTF is not a great timing tool on the longer-term time frames, it is a pretty good timing tool short-term telling you when you should pull in your horns a bit (in a bullish trend) or find your horns (in a bearish trend). What does the short-term cumulative MTTF say? Well, that's the interesting part. It says we are nearing another trend transition point again.

With the trend currently sideways on the S&P 500 (INDEXSP:.INX) -- which is a transitory state -- and with price sitting just below the swing point highs, the indication is that trend will attempt to transition back to bullish. Realize that a breakout higher, unfortunately, does nothing to create the sort of set-up needed to shake up the charts. A break higher here is the same as it has been -- it will just stretch things more. No shake-up translates into fewer opportunities and fewer opportunities looks to be what is in store for this market. Can you say grind higher? That's the likely setup just looking at MTTF indicators - more grind with the short term transitioning back to bullish again.

Twitter: @tatoday
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