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Trend table status

Trend

SP-500

R2000

COMPX

Primary

?+ 6/30/20

?- 3/31/20

Up 5/29/20

Intermediate

? 6/5/20

? 6/5/20

Up 6/5/20

Sub-Intermediate

?+ 7/6/20

?- 7/7/20

Up 7/2/20

Short term

Up 7/6/20

? 6/11/20

Up 7/2/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Tuesday, June 23, 2020

Resistance 6/23

The SPY chart shows an unusual pattern over the last few days.


The blue line is at at the 6/11 mini crash day high.  SPY opened above the line four times in the last six days and closed below the open each day.  SPY opened downed below that line twice in the last six days, but buyers showed up immediately.  An upside resolution of this kind of pattern usually happens with a big gap up above the recent highs that causes shorts to cover.  It is not clear that is going to happen here.  The island gap reversal created on 6/11 can be a very powerful pattern.

 
The red count worked off the oversold condition, but has been rising the last two days.  The bulls are buying the same big cap stocks which is holding the indexes up.  However, internally the market is not particularly strong and may succumb to selling pressure.

There is talk of a considerable amount of selling in equities from pension fund rebalancing before month end.  I don't know if they have to wait until month end or not.  I don't know any pension fund managers.  They may be responsible for the selling into the upside gaps.  It may be tough for the bulls to break this out on the upside before that selling is over.  The question is whether that selling will be enough to cause another pullback.  I don't know the answer to that, but I will be watching closely in case another short trade is in order.

Bob


Thursday, June 11, 2020

Not a bull market 6/11

In Bull market or not? 6/5 I wrote:

"One thing that really sticks out in this rally is the buying of mom and pop investors.  Meanwhile the really well known investment stars like David Tepper and Warren Buffet are not.  The last comments I saw from Tepper were talk about a bubble.  Throughout the bull market he was not shy about telling people to buy.  He is not a perma bear.  I actually wondered if he was a perma bull because of his bullishness, but  now that he has switched I know that is not the case.  The little guys are buying stocks like mad while the big guys are not.  That is what we usually see at a bull market top.  I pointed out the retail investor buying back in Jan.  It continued as they bought the dip without fear.  The pros call them bag holders."

I was very skeptical we were in a bull market.  Today wiped out all those that bought the SPX breakout above the 200 DMA.

 
The question is now answered.  We do not get days like today in a bull market.  Breadth was -96% and volume was -98%.  SPX closed slightly below the 200 SMA.  All those people that bought the break out just got crushed.  We closed two of the gaps today.  There are still four more down below, but now we have two above. 



The futures crashed through the 20 and 50 SMAs like a hot knife through butter.  They are still well above the 200 SMA.


The red/green chart went from overbought to oversold in one day.  The short term indicator (which is longer term than the red/green lines) is still overbought.

There is a saying in the market that it don't matter til it matters.  I have been marveling at people bidding up stocks prices like there was no tomorrow when a recession had just started.  The virus numbers were going up globally and in many states that were opening back up.  Then the riots started.  Still, the market just did not care until today.  I always find that amazing.  The market is supposed to be smart, but when it gets carried away with emotion it cannot see what is right in front of it.  Then all of a sudden the market smacks all those playing along in the face.

Normally after a 90/90 down day the market bounces the next morning.  However, we are not in normal times so it is hard to say.  The ticks show the big boys were seriously on the sell side today.  With SPX back to the 200 DMA there is a possibility of dip buyers here.  Will the retail crowd see this as a buying op?  Time will tell.  If we keep going down like this we could start getting into limit down situations again.  I really do not want to see that anymore, once was enough.   I am hoping for a bounce to calm the market down a bit.  The only prediction I can make is that there will be volatility.  Be nimble or be on the sidelines.

Bob

Friday, June 5, 2020

Bull market or not? 6/5

Today's employment report sure brought out the buyers. 


There was very high volume today.  With the market extended and very overbought this could be a short term volume climax top.  A buying capitulation if you will.  The yellow lines represent open gaps.  There is still one above and six below.  I am pretty sure we have never seen this many open gaps in just a little over two months before.  How many will get filled?  Here is a look at the tick accumulation/distribution chart.


This chart clearly shows how the institutional investors think.  At the 50 DMA (purple line) they started selling as noted by the red down arrows around.  When SPX crossed the 50 and stayed there  they started buying as noted by the seven green up arrows since the end of April.  Only one day did some of them sell.  I marked key support around the SPX level they started buying in earnest (2760-90).  Below that area they are likely to turn into sellers.  Also notice they have been even more active in buying since SPX crossed the 200 DMA (green line).  Will some of them turn back to sellers if SPX gets back below that line?

SPX crossing above the 200 DMA after being 20% or more below is usually a bullish event. Here is an interesting table from S&P 500 Facing Off With Key Trendline

Since 1950 there have been 7 prior instances of SPX being 20% or more below the 200 DMA.  Only one time (2002) was SPX negative 6 months later.  On the other hand, there is this piece of information from the article.

Despite the 57 days below its 200-day moving average, sentiment on stocks is bullish, according to a survey conducted by Investors Intelligence (II), an organization that collects over 100 published newsletters and determines the percentage that are bullish, bearish, or expecting a correction. The 35% gain since March 23 might warrant this optimism. The survey showed 50.5% bullish and 23.8% bearish, for a difference of 26.7%. Out of the 22 signals referenced at the beginning of this article, 18 of them occurred after 1963, which is how far back we have data from Investors Intelligence. Of those 18, just three of the moving average crosses happened when the bulls were at least 20% above the bears. Those three occurrences are below. According to our contrarian philosophy, bullish sentiment has bearish implications moving forward, which is what we see in the results below. After each one of these instances, the index was down 3.9% or more a month later, and down double-digits six months later.

All three times II sentiment was this bullish at the 200 DMA cross SPX was negative 6 months later.  This is a small sample size which makes it tough to place probabilities for this instance.  It is what it is.  We will find out in six months if it is 4 for 4.

SPX crossing above the 200 DMA with the VIX above 20 has always been a bullish event throughout the entire history of the VIX.  Up until 2016 every time the VIX was below 20 when SPX crossed the 200 DMA SPX turned back down for a retest of the low.  After the Jan. 2016 and Dec. 2018 lows SPX crossed above the 200 with VIX below 20 and still went on to new highs.  Clearly the VIX is no longer infallible with the below 20 signal.  The question becomes is it still infallible with the VIX above 20 signal.  If so SPX should make a new high.

Here is a look at my bull pressure indicator which may have had a bullish event.


The blue line in the long term indicator in the bottom pane is set above the threshold of all the bear market rallies since 2000.  I have been looking at that line as a signal a new bull market has begun. 
It slightly crossed that line this week.  I added the green line today which marks the minimum threshold reached in the initial rally off the 2009 low.  The long term indicator reached an even higher level in the kick off to the bull market that started in 2003.  So now I am in a quandary.  If this is still a bear market rally it is the strongest bear market rally since 2000.  If this is a bull market and this indicator does not reach the green line it will be the weakest kickoff to a bull market since 2000.  I am very suspicious the bear market has not ended for the reasons explained below, but I will keep an eye on this indicator.

I believe the Investor's Intelligence survey is so bullish because of all the stimulus and the FED's QE program.  Bull markets are supposed to climb the wall of worry.  We certainly have plenty to worry about, but nobody seems to be worried when it comes to stocks.  The three times we have been in this situation (overly bullish sentiment at SPX cross of 200 DMA) before it did not go so well for the market.  If there was ever an uncertain time this is it.  We clearly are not going to get back to where we were economically in Jan. anytime soon.  We have no idea how many businesses that closed down will not reopen.  Rioters are destroying even more businesses that may never reopen.  How many of those many millions of people that are out of work will get hired back?  How much trouble will the commercial real estate market see from defaults?  Will the stimulus really fix everything? 

One thing that really sticks out in this rally is the buying of mom and pop investors.  Meanwhile the really well known investment stars like David Tepper and Warren Buffet are not.  The last comments I saw from Tepper were talk about a bubble.  Throughout the bull market he was not shy about telling people to buy.  He is not a perma bear.  I actually wondered if he was a perma bull because of his bullishness, but  now that he has switched I know that is not the case.  The little guys are buying stocks like mad while the big guys are not.  That is what we usually see at a bull market top.  I pointed out the retail investor buying back in Jan.  It continued as they bought the dip without fear.  The pros call them bag holders.    

The worst case scenario would be if the economy tanks despite all the stimulus and FED liquidity.  I think everybody needs to decide now what they will do with their long term investment portfolio if that scenario becomes reality.  You know the old saying "prepare for the worst and hope for the best".  We will also have to keep a close eye on how the market reacts to the upcoming earnings season.  We know it will be bad, but what is important is what companies say about the future.

The market has totally ignored all the rioting so far.  We can't be sure it will continue to do so.  As overbought as we are now it may become an excuse to take some profits for some traders.  I felt like we were likely to close today's gap early next week so I took a few SPY puts home for the weekend.  I have not attempted to pick a short term top in many, many years because I found out I suck at it.  However, today I just had a feeling it would be a good idea.  History shows violent riots like we are seeing do not end of their own accord.  For some reason I cannot understand the democratic leaders of some major cities have decided to do nothing.  The only proven way to quell this kind of violence in the past has been with overwhelming force.  I know the left is going bonkers over their inability to get Trump out of office.  I wonder if they think this will help them win the election this fall.  I certainly hope that is not why they are throwing their law abiding constituents under the bus.  I believe these actions will backfire on them.  When things get bad enough and the good citizens of those cities have had enough they will cry out to Trump to do something and he will come in and take care of it.  We have the forces to handle this problem and Trump is begging the leaders to let him in.  How much property will be destroyed before that happens?  How many people will be killed or injured first?  How many police officers will stay on the job when their political leaders do not have their backs?  I can easily imagine a walk out by the cops.  To tell you the truth I can't blame them.  Hundreds of cops around the country are getting seriously injured and some have been killed.  It has become a thankless job in these cities.  Why risk your life only to be treated this way.  Where there is no law there is only lawlessness.  In a civilized society people do not have the right to destroy other people's property.  Society cannot function in such a manner.  I pray this mess will wake people up to the dangers of the left's policies.  You cannot take people's guns away and then fail to protect them when they need it.  Americans are not going to stand for that forever.  How long will the good people of this country endure the tyranny of the left's policies before they revolt? 



Have great weekend.  Peace and good health to all.

Bob

Important

The information in this blog is provided for educational purposes only and is not to be construed as investment advice.