Daily update

SPX broke the lower trend line early in the day.  However, the bulls showed up at 1300 to save the day.  Here is the 130 min. chart.

The afternoon rally went back and got above the trend line for a little while.  However, price could not hold it.  Check out the 60 min. chart.

The trend lines and 50 SMA all came together at the same point this afternoon.  The last bar on the chart got above the entire complex, but was rejected on big volume.  The bulls put up a fight today, but in the end it looks like the bears won.  Unless we get a blow out employment report tomorrow it is likely the market has started another leg down.

Bob

Update on GLD

GLD has been working real hard to hold on to key support.  Here is a view of the weekly chart.

This decline has persisted long enough for the 18 SMA to cross below the 50 SMA.  This is enough technical damage that it could take some time to repair before resuming the up trend.  This kind of pattern can be a consolidation before new highs or a more prolonged top.  It is difficult to tell from the chart at this point.  For the last couple of weeks GLD has been hovering right above the Dec. low.  It is making some hammer candle sticks which are often a sign of a bottom.  The biggest volume bar recently is green showing a little accumulation.  Lets zoom in to the daily chart.

The daily chart shows the three highest volume bars are bullish candle sticks. It would be easy for the 6 MA to turn up from here to help confirm a short term low.  However, the 200, 100, and 50 MAs are in a fully bearish configuration and any or all could provide resistance if reached.  A rally from here is likely to be a bumpy ride for a while.  The dollar index continues to rally which may still be a problem for GLD.  Despite some good signs of a bottom, I don't think it is safe to say it won't break down just yet.

Bob

Daily update

Another rally attempt thwarted.  This bounce has really had trouble every day but one since the low.  Here is the daily SPX chart.

Reversing at the 18 SMA is a strong negative for the market.  We also had an increase in volume over yesterday, another negative.  Since yesterday was the day after a holiday it makes the comparison somewhat tricky though.  This rally attempt is in critical condition and on life support.  Here is the 130 min. chart.

The break out above the upper trend line failed.  Yet another negative sign.  The lower trend line is providing the life support.  A break of today's low should set up a test of the 5/18 low.  We did not get enough strength in the bounce to give me any confidence that low will hold on a retest.  There is still a chance that lower trend line holds if we get some good news tomorrow, but that seems like a lower odds scenario.

Bob

Is breadth telling us something?

Here is a look at the NYSE 10 DMA of advancing stocks and declining stocks.  The declining stocks are in red, advancing in green.  The bottom of the chart is the 10 DMA of advancing and declining volume.

Since the March 2009 low, the declining MA has reached the level it reached on 5/18 on three other occasions.  That would be 1/29/2010, 5/7/2010, and 8/4/2011.  This is a fairly uncommon event and means this was a very broad based sell off.  Check out the bottom of the chart.  I circled the volume in the prior instances mentioned in the dates above.  Notice how low the volume was with this sell off.  My volume data goes back to 2000, and there is no instance of the breadth being this negative and the volume so light.  This suggests we might not have had a volume climax at the low.  This might help to explain why there still seems to be ample people willing to sell.

Looking back at other instances of such negative breadth, it is somewhat difficult to say what happens a month or more out.  Some times a bottom is made within a couple of weeks and it is up and away.  Other times a longer lasting correction is kicked off.  In this instance, I believe the low volume indicates we will likely get another leg down to new lows at some point.  This does not appear to be a market that is sold out yet.

Bob

Daily update

The absence of bad news rally unfolded today.  Lets peek at the daily SPX chart first.

The short term trend turned up today, but we are still below the 18 SMA and the weekly chart is bearish.  We also closed above the highs of the last 7 days.  The volume was pretty anemic, and no panic buying like when shorts are covering.  Lets take a look at the 130 min. SPY chart.

I placed a new trend line below the the price action of the last few days.  We broke above the upper trend line from Friday.  During the day we went back and tested that line from above and rallied into the close.  This keeps the short term bounce alive for now.

I thought with the high volume for several days into the low that we would bounce back to 1340 rather easily.  Six days off the low and we still have not made it.  There seem to be plenty of sellers out there yet.  After four days of narrow range closes, we broke above last week's high this morning.  The rally didn't even last 1.5 hours before the bears took over.  I thought the bulls would have done better then that.  This rally looks pretty fragile.  I will be watching that lower trend line and the 60 minute 50 SMA for clues on the end of the bounce.  We will see if we can at least get to 1340.

Bob

Bond bubble?

I constantly see people talking about bonds being in a bubble.  I have heard people exclaim bonds will be the short of a lifetime.  Most bubbles are characterized by people jumping on board and everybody is convinced it can only go higher.  The pure number of people proclaiming bonds are in a bubble is good evidence this is unlikely.  At some point in time nearly everybody will give up on the bubble idea.  Then it might be time to do something.  By now you know I like to have charts to back up an opinion.  Here is a look at some history of the 30 year bond.  Study these monthly charts for a minute before reading on.

The white line is a 100 SMA, in this case 100 months.  Since crossing below that moving average in the mid 80s, rates have been rejected many times right at this average.  The trend has been down for a very long time.  Here is a look at the much talked about TBT an inverse bond ETF.

Sure this chart has some bounces in it, but the trend is down.  Is this a bubble, are bonds going to sell off and rates sky rocket?  No sign of that yet.  Lets look at some more charts.

Pretty low rates there.  I remember the talk about a bond bubble in Japan as well.  What happened next?

Well, 16 years later and still no short of a lifetime in Japan.  At some point rates are going to go up, but when.  I believe I will wait until the 30 year rate crosses that 100 month SMA before calling the end of the bond bull that has been going on since 1981.

Bob

Entry techniquie poll result

What entry techniques do you primarily use? Price based only, like a new high or low                                                                           4 (8%)   Price crossing a moving average                                                                                      10 (22%) Double moving average crossover                                                                                   4 (8%) Price confirmed by some technical indicator(s) like Stochastics or MACD                       26 (57%) Other                                                                                                                             11 (24%) Votes: 45

Daily update

Today was a big nothing.  Extremely light volume.  I guess neither the bulls nor the bears know what to do here.  Here is the daily SPX chart first.

In the daily update on Monday I wrote "The big volume for several days into the low looks like a possible selling climax.   That should set up some kind of bounce or consolidation pattern in the short term."  We got a little bounce and a lot of consolidation.  On a closing basis the last four days netted very little movement. Bulls are clearly not swooping in to snap up bargains.  Lets take a look at the 130 minute chart.

I removed the old down trend line and added two new lines.  The price looks like a triangle, which are not real reliable patterns as to which way they will break.  We held the 60 minute 50 SMA today, but not by much.  After four days of consolidation we should be set up for a big move on Tuesday.  If nothing bad happens we could get a relief rally.  There is still plenty of room for a bounce higher from here.  If  the market is down on Tuesday the bears may be re-energized with a drop back below that 60 minute 50 SMA

Bob Davis

New 52 week highs and lows

Lets take a look at a chart of new highs.  Here is the link to the site
http://stockcharts.com/h-sc/ui?s=$NYHGH&p=D&yr=3&mn=0&dy=0&id=0
I usually change the graph to dots when I get there.  Last year they started doing strange things with the bars.

I used to only look at the raw numbers and not in chart form.  Through that analysis I noticed 100 being an important threshold.  When the market is coming out of a correction, the majority of days the new highs should be above 100.  When I started looking at this chart I noticed the 50 day MA seems pretty useful.  Notice how it turned down in March and April last year ahead of the market down turn.  It also turned up nicely in Nov. and Dec. before the market started its rocket move up.  It can diverge from price at times, and just because it is sloped down it does not mean the market is going to tank.  If price starts to confirm the downward slope then a correction is likely.  However, generally speaking, when it is sloped up the market rises fairly consistently.  It can turn up very sharply out of a correction as an early warning that conditions are improving.  When it drops below 100 like it did last fall it usually takes some time for the market to recover and mount a rally again.  We have not done that yet, but it will soon unless new highs pick up significantly .

Here is the chart for new lows. Link is
http://stockcharts.com/h-sc/ui?s=$NYLOW&p=D&yr=3&mn=0&dy=0&id=0

The first important threshold for new lows is 200.  Most minor corrections get very few if any days above 200.  Once you start getting above that for numerous days, you know it is getting more serious.  Once the market starts to rally, I want to see the new lows drop below 100 most days.  Last week we crossed above the 100 threshold for several days, but not 200 yet.  The lows for most stocks are at much lower levels from last fall. That probably makes this a bit useless in this situation, at least until after Oct. of this year.  I think the current pullback has caused more technical damage then is apparent in this data.

Bob

Daily update

Today was the fourth day in a row the last 30 minute bar closed higher.  Somebody is putting money to work here.  Lets take a look at the 130 min. chart first.

We stayed above the down trend line today.  The mid day pullback tested the 18 SMA, but it held and the market rallied into the close.  How about a peak at the 60 min. chart.

The purple line is the 50 SMA.  You can see that today was the first day we closed above that since early May.  It would appear a bounce is underway.  There could be quite a few people still short here.  If we keep rallying, a sharp move up at some point is likely as they cover.  The resistances I mentioned in yesterday's update are still in play.

Bob

Auto sector

I saw Tom Lee an analyst from JPMorgan on Bloomberg TV who was somewhat optimistic on the markets.  He has a year end target of 1430.  When asked what was going to drive the market up he talked about a pick up in durable goods and specifically the auto industry.  I thought sales had been pretty good over the winter, I wondered if they had continued.  Here is a chart of auto sales I found.

On a year over year basis, sales look pretty good.  I decided to take a look at the auto manufacturers to see if they had already discounted the sales or if there might be more upside.  Here are the weekly charts for Ford, GM, Toyota and Honda.

Wow, after looking at car sales data I never expected the charts to look like that.  Needless to say with all the weekly charts in down trends it is not a great time to go long.  I  don't know if there is a statement about the economy in these charts or some industry related valuation thing.  Ford certainly does not look over valued.  In comparison to other industries, it would be out right cheap.  Unless the market is expecting a drop in sales, I do not understand these charts.  Autos are a very significant part of GDP.  If sales do drop that could have ramifications for the economic data and for stocks.  Yesterday the USA Today paper had an article claiming that most auto manufacturers were actually raising production, even hiring some people to meet demand.  If sales continue to do well, I would think these stocks would have to rally at some point, especially Ford.  On the other hand, if they are ramping up production (adding to costs) and demand is about to drop the charts might make some sense.  I guess we will see how this works out.

Bob

Daily update - much better now

This was a very interesting day.  The market could have tanked and didn't.  Lets start with the SPY 195 minute chart.

We clearly closed above the down trend line this time.  We also have a green price bar again and the volume was higher on the up bar then it was on the down bar.  This looks pretty good to start a bounce.  Lets take a peek at the SPX daily chart.

We have turned the short term trend to neutral.  That is a nice looking reversal candle and with an increase in volume.  The first confirmation is to take out yesterday's high.  That should cause some short covering.  The next important level is 1340.  You can see that it was support in Feb. and early March.  Since it was broken it could become resistance now.  I am not sure that would be significant enough to stop a rally though from this oversold a condition.  The 100 SMA at 1355 and the red line at 1357 are likely to be much more important.  There is a lot of overhead resistance above that 1357 level.  I don't see how we conquer that on the first try.  I view this as a swing trade type bottom. A sustained rally seems unlikely given the technical damage at this point.  There would have to be some repair work done first.

Bob

Natural gas

I have been hearing quite a bit of talk about natural gas lately.  It has been in a free fall for quite some time.  From what I have read, they have pretty much stopped all drilling and have shut down some production.  This should mean that natural gas prices have bottomed or are in the process of doing so.  Lets take a look at a popular natural gas ETF UNG.  Here is the weekly chart.

The drop was so steep that any longer term MAs on the chart kind of screw with price.  As you can see the weekly chart has turned up a bit and with some big volume.  This is the biggest rally on the chart and is a very good start to making a bottom.  Here is the monthly chart.

That was one extreme move down.  There were even blue bars on the monthly chart.  Obviously the price is
not going to zero and these charts really do look pretty good as far as making a bottom.  Just realize that making a bottom is not the same thing as trending up.  There could be a prolonged period of base building here.  There clearly was excess supply and even with cutting back in production it may take a while for real demand to overtake supply and push prices up significantly.   That is where the problem comes in when trying to invest in this area.  I don't see any of the related ETFs that look like possible long term vehicles.  They all seem to be futures related and have issues with tracking and slippage.  Holding any of these things long term may not give the desired returns.  If you can't do futures, it is pretty tough to do.

So if it is hard to invest in natural gas itself, how about some stocks.  Here are some charts of the bigger players I know about.

CHK has issues beyond natural gas prices with the CEO.  It appears that RRC is the only one of these stocks that did not get killed lately.  Its weekly chart is even trying to turn up with the 6 week MA crossing above the 18 MA.  Lets take a look at the monthly chart.

The 18 month SMA is rising, but the price bars are still neutral and the 6 MA is sloping down somewhat.  There are some monthly bars with lower tails indicating support down below.  The biggest problem with this stock is the lack of any real upside momentum.  It seems to have good support, but that does not mean it is going to appreciate in price anytime soon.  I don't see anything in the volume pattern that is especially bullish either. 

There is no clear sign that there is sustained upside in natural gas prices yet.  The extreme low prices should cause more people to use natural gas over other fuels, but there probably is some significant conversion time needed in many instances.  Any short term price hikes, could be met with some increase in production keeping a lid on price.  Most of the stocks have been crushed and need to repair themselves before they could sustain an uptrend.  It looks like there is the potential that long term investments in this area could be dead money for an unknown amount of time.  However, there could be some good swing trades in some of these beaten down stocks as they try to make a bottom.  If anybody runs across some better looking natural gas stocks, please let me know and I will put out another post with the charts.

Bob

Daily update

The bounce continued this morning, but the day ended with a bit of a thud.  More Greece rumblings I heard.  I want to start with the 195 and 130 minute SPY charts tonight.

There is a bit of confusion in these two charts if you look at them carefully.  The 195 chart makes it look like SPY turned back at the down trend line.  The 130 chart makes it look like it broke through the line and came back and tried to go below it, but ended up closing about on top of it.  So lets break it down just a little more with the 30 min. chart.

We did close right on the trend line.  Notice the big volume bar as SPY bounced going into the close.  That kind of looks a little bullish there for tomorrow.  The bounce may still have a chance, but I think it needs to get going right away in the morning.  If we open below that trend line tomorrow, then the longer we stay there the higher the odds are we head back down.  We could still go either way here and the news flow tomorrow may be the determining factor.

I want to take a quick peak at the CRB commodity index.  Here is the daily chart.

It is really hard to make any kind of bullish case for the global economy with this chart looking like this.  Yesterday's rally in stocks did nothing for it.  Even if the SPY bounce continues it looks like it could be short lived.

Bob

Real estate and housing smack down

I am not sure exactly what happened in the real estate sector last week.  Maybe it was just selling related to the broad market.  Take a look at the weekly charts of XHB (home builders) and IYR (real estate) ETFs.

Both of these ETFs closed below their 18 week SMAs on an increase in volume.  We will have to see if there is follow through on the down side or not.  The XHB ETF has had quite a bit of upside volume on the rally this year.  Unlike most indexes that have broken down and formed tops, these charts have not.  It does look like we are getting close to a moment of truth though.  If they close back above their 18 SMAs before they close below last week's low, they could recover back to the old highs.  Another lower close would confirm a top of some kind is in place.  If you are involved in related stocks, I think it would be a good idea to pay close attention to them.

Bob

SPX daily update

The burning question is whether today was a one day wonder or the start of bigger bounce.  Lets see what the charts say.  Lets start with the SPY daily chart.

The price bar is still red so we did not do enough to upgrade the short term trend to neutral.   It is pretty close though.  Look at that paltry volume, a retest of the low at some point seems likely.  The big volume for several days into the low looks like a possible selling climax.   That should set up some kind of bounce or consolidation pattern in the short term.  Lets zoom in a little and see what the 130 min. chart looks like.

We did manage to get green bars on this time frame, but we are still below the down trend line and the 18 SMA  I don't see that we did enough today to be certain about much of anything.  Tomorrow could easily continue the bounce or roll over and tank.  Because of the possible selling climax, my strategy will be looking to buy a dip tomorrow unless the futures are down big in morning.  I doubt that I would hold a long over night yet.  Even with an up day tomorrow the risk would still be pretty high.

Bob

Why the economy sucks

I think almost everybody understands the U.S. government has a severe debt problem.  However, I think many people do not realize the magnitude of our total debt problem.  There are plenty of articles on the internet talking about this problem, but I have yet to see anything in the major media outlets.  I know Bernanke understands this very well and it is part of why he has committed to keep rates near 0 into 2014.  I would be willing to bet he will extend that to 2015 when we get into 2013.  Lets look at a long term chart of the total (not just government) U.S. debt to GDP ratio.

 

The majority of the time on this chart the ratio was below 160%.  In the 20s there was a bit of a borrowing binge as the ratio moved above 160% and stayed there.  Between 1930 and 1933 the ratio spiked up to 299% because GDP fell by 25%. This was not really a borrowing binge.  It was not until 1949-50 as the ratio came back down under 160% that the economy started to get on a more even upward trajectory.  The current spike up on this chart was caused by a massive pile up of debt, not a big drop in GDP.  This borrowing and spending binge pumped up the economy and the stock market.  This is really what caused the greatest secular bull market in history.   Notice the exponential move up started in the mid 80s when Greenspan took over the FED.  The nickname easy Al was well deserved.  He had a lot to do with getting us into the mess we are in.  There have been many debt bubbles in various parts of the world throughout time.  They always end badly.  The old saying "the bigger the boom, the bigger the bust" has real meaning.   Borrowing and spending has the affect of pulling in future demand (the boom). Once the borrowing binge stops, the demand drops dramatically (the bust).  That chart stopped in 2009, now lets see what has happened since then.

The big spike has started to roll over.  It is likely the great recession has caused people to be more cautious
and cut back on borrowing.  What we have seen the last few years is bursts of spending followed by periods where people cut back and save.  This is very similar to what Japan has been experiencing for the last 20 years.  Every time the economy went through a spending binge, people were proclaiming it was a self sustaining recovery.  Each time it fizzled.  The U.S. economy just went through a spending binge over the winter and just like Japan, the pundits are all out proclaiming the worst is over and the economy will keep improving.  The current economic data is clearly going soft again and is likely to continue.  The pundits will be disappointed yet again. 

Here is the data for the entire world.

The global debt to GDP ratio is over 300%.  This means the entire world has been living well beyond its means.  This is a lot of future demand that has been brought forward.  We will be experiencing a sluggish global economy for quite some time.  It is bound to take a many years to work off the biggest debt bubble in the history of the world.

Bob

Trade style poll result

What trade styles do you use?

Position (weeks to months)	15 (23%)
Swing (days to weeks)	30 (46%)
Day (1-2 days, occasional hold over night)	30 (46%)
Day (flat at night)	19 (29%)

Votes so far: 65



This was very helpful to see what people are doing that visit this site.  I will try to have a little something for everyone over time.  The hardest will be for position traders as we are likely entering a period that will not be all that friendly for that style.



Bob

Daily update

There is not much new in SPX today.  It is still going down, still oversold, and still no sign of a bounce.  There may be a big one day short squeeze at some point, but I do not know where that will start from.  Possibly the daily 200 SMA in the 1278 area.  I want to show the Financial Conditions index again because it has deteriorated considerably this week.

It took a considerable dive this week indicating financial stress is picking up.  Here is a chart of HYG a high yield bond ETF.  Notice the similarity to last years sell off in this chart.

It was clearly a risk off week.  The technical damage continues to get worse.  It certainly looks like we are in for a prolonged period of higher volatility.

Bob

Sentiment surveys

There are several sentiment surveys I follow.  Based on the size of the decline so far, sentiment seems to be way too bullish.  The first one is the II survey.  This is a survey derived from market news letters.  So this comes from somewhat well informed sources.  It is purely an opinion survey though, not based on actual money.  However, it is a great contrarian signal at times.  Normal bull market corrections end very soon after the bears become more numerous then the bulls.  Once the bulls cross back above the bears the market is generally on its way higher again.  You can follow it yourself here
http://www.schaeffersresearch.com/streetools/market_tools/investors_intelligence.aspx

Here is the current chart.

Despite a 7% pullback in SPX the bears are still trending down.  In fact last weeks survey was the lowest number of bears all year.  This is showing considerable complacency.  It does not look like we are anywhere near the final low yet. 


The second survey is the Rydex Nova/Ursa Ratio.  This data is based on actual money as it is the ratio of assets in the bullish Nova fund vs the bearish Ursa fund.  The Rydex family of funds are often used by traders as Rydex is one of the few fund families that does not frown on frequent switching of assets.  This indicator is really a good indication of what active traders are doing with their money.  You can follow it here
http://www.schaeffersresearch.com/streetools/market_tools/rydex_nu.aspx

Here is the current chart.

The higher the number the more bullishly positioned traders are.  That also means there is greater potential for decline.  The upper range at tops is usually in the .40-.60 area.  As you can see on the chart above we got to the top of the normal range.  Major lows usually come with the indicator in the teens.  As you can see we were down to .15 last fall.  Currently at .46, traders are still heavily long despite the size of the decline.  There is still considerable down side potential if these traders pull out.  I would also rate this indicator extremely complacent.

The next survey is NAAIM which I wrote about recently.  Here is the link and the latest chart.
http://www.naaim.org/news/naaim-survey-of-manager-sentiment/

The actual number is 58.71.  As you can see on the chart that is still well higher then it was on 4/25 even though SPX is considerably lower.  More complacency and more down side fuel if these guys start to panic.
Look at the difference between now and June of last year.  SPX made a similar swoon down, but the survey number was much, much lower.  That decline was caused by real selling.  This decline appears to be happening because of a lack of buyers more then heavy selling.  People unwilling to buy is really what causes true long lasting bear markets.  We will have to see if this continues or not.

The NAAIM and Nova/Ursa data show that people are still heavily long with real dollars.  The II survey indicates a serious lack of worry on the part of market news letter writers.  SPX closed below its daily 200 EMA so this is a serous pullback.  The lack of fear is pretty startling in the face of serious technical damage.  Especially after the crashes the last two years.  I have heard things like it is not going to happen three times in a row or this is an election year the president will do everything to get elected.  The FED will do QE3 and save the market.  I believe there is considerable down side risk because the global economy is still slowing.
I don't believe the FED can stop that.

Bob