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Trend table status

Trend

SP-500

R2000

COMPX

Primary

Up 7/31/20

Up 1/29/21

Up 5/29/20

Intermediate

Up 10/2/20

Up 8/21/20

Up 10/9/20

Sub-Intermediate

? 2/22/21

? 2/18/21

? 2/22/21

Short term

Dn 2/22/21

? 2/18/21

Dn 2/22/21


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 (-)

Wednesday, January 27, 2021

Bizarre market 1/27

First of all I have to apologize to those who are supposed to get an email.  After my last update I had an issue with my email program which I did not get fixed until today.  So there are two updates to look at.

This was the strangest sell off day I have ever seen. 


Notice the high volume for today.  SPX was down 2.5%, but the NYSE up volume was 60% of the total.  That put the trin at an unbelievably low level for a sell off day of .17.  I think this next chart will explain the volume.

One single stock traded over 1.2 billion (approximately 4 times the number of shares outstanding) shares today.  You read that correctly.  This one stocks completely skewed the statistics.  Day traders are going crazy.  Take a look at GME for example.  One would think it is the year 2000.  This is crazy.  A bear market is probably right around the corner. 

 

Since the late Oct. low the futures have held above the 100 SMA (white line).  They closed slightly below that line today.  We will have to see if it can provide support again (futures must bottom right around here).  Notice the -DI line (bottom panel) crossed above the 35 threshold today.  Crossing this line opens the door to a bigger pullback like 10% or more.  We will have to see if the bears step into that open door.


The red line is close to giving us an oversold condition (middle panel).  However, oversold can aleays get more oversold.  The short term indicator (lower panel) dropped under 50% which is a warning sign if the market does not bottom quickly.  The last two times this indicator dropped below 50 SPX made it down to the 100 EMA.  That is still a good ways from where we are now.

Today could be a one day wonder, but the door is open for a larger pullback.  The lack of selling at year end last year suggested many people were waiting to take profits until this year to push out the tax bill.  Therefore, I have been expecting a sizable pullback to clear out the profit takers.  Today could be the start of the expected pullback. 

The market is wildly speculative.  We are seeing the kind of activity which only happens after a very long bull market.  I believe the only comparable times are 1929 and 2000.  I think the bull market which started in 2009 will end this year.  It seems unlikely this kind of foolishness can last all the way into next year.  Anything is possible in the market, but that seems unlikely.  A look at the margin debt data shows the downside risk is very high.  The Dec. debt number was a record high of 778 billion.  This is 216 billion (38%) above the Jan. 2020 number 561 billion.  The crash last year unwound only about 90 billion dollars.  Prior to Dec. 2020, the peak was in May 2018 at 668 billion.  The mini crash in late 2018 unwound about 94 billion dollars (648 billion down to 554).  I must point out there are still somewhere around 10 million people out of work that were working in Jan. 2020.  A crash now will certainly do considerable economic damage.  I don't think it is likely the market will bounce back the way it did last year.

I am sure we will see a higher level of volatility for the foreseeable future.  It is impossible to say if the final high in the indexes have been hit, but it is a possibility.  Be ready for more turbulence.

Bob   


Friday, January 22, 2021

Nothing can go wrong, or can it? 1/22/21

To listen to the market pundits nothing can go wrong this year.  I am not sure I have ever seen such a unanimous consensus.  Retail investors are loading up as fast as they can.  SPX is almost 20% above where it was in Jan. 2020.  Margin debt is up an astounding 38% from Jan. 2020.  It is not a good thing when margin debt climbs faster than the market itself.  Bullish sentiment is setting new records.  Penny stocks are flying up.  The virus is expected to go away and we will return to business as usual.  This is what major bull market tops look like.  The story has to be great to justify the valuations.  I just can't buy into that rosy scenario.

We all saw what the margin debt unwind did to the markets last spring.  With the margin debt 38% higher an unwind could be even worse.  There is significant downside risk.  The trouble with margin debt risk is there is no way to know when that risk will become a reality.  I think the risk will become reality if the rosy scenario the Wall Street folks have laid out does not play out.  The market is wildly overvalued to go along with the margin debt.  I think the key thing to watch is the moratorium on evictions.  Currently there is a lot of rent and mortgage debt not being paid, but nobody can do anything about it.  You might recall how the foreclosure mess in 2008 crushed stocks.  I am worried we are going to see a similar problem once the moratorium is lifted.  The market is currently bullish until proven otherwise.  However, this is not a time to become complacent.  Be vigilant in case the world is not all roses.

May God bless you all with peace, good health, and happiness.

Bob



Friday, October 30, 2020

Time to watch for a short term bottom 10/30

Some say election jitters hit the market the last couple of weeks.  Maybe that is true, but I believe the sell off this week was largely virus related lock down  fears.

If you have been a long time reader you might recall how SPX started a multi year series of making bottoms every time it hit the 100 DMA starting in 2013.  Notice in this chart the last short term bottom was at the 100 (white line).  SPX closed below that line on Wed., but it still has not confirmed a break of that MA.  When it fails to confirm a break after two days, the probability of a rebound back above the MA increases considerably.  I don't have specific stats, but watching this kind of price action around MAs over the years is what caused me to look for confirmation of a break in the first place.  Way more often than not this pattern leads to a rebound back above the MA.   Breadth was -59%.  That was considerably less bad than the -89% on Wed.   The price bars are blue which indicate SPX closed below the lower Bollinger band indicating price is extended on the downside.

 

The futures show a bullish engulfing bar followed by a retest of the low.  This has some potential to make a short term bottom.  Also  notice the -DI (red line bottom panel) has turned down below the ADX line (blue line) from a very high level.  This technical condition often leads to a short term oversold bounce.


The red line is way up into oversold territory.  This is definitely a bounce worthy condition if not a true bottom.

We have a good setup for an oversold bounce.  SPX is in a good place to turn a bounce into a true tradeable bottom.  The door is open for the bulls to do something here, but they need to step through that door early next week.  Should we fail here the next target down is the Sept. low at 3209.  If that fails to hold a trip to the 200 DMA (3129) is likely.

Peace and good health to all.  Have a great weekend.

Bob


Important

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