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Friday, June 29, 2012

Trading vehicle poll results

What do you trade?

  38 (82%)
Stock options
  27 (58%)
Financial futures
  4 (8%)
Commodity futures
  5 (10%)
Options on futures
  3 (6%)
  3 (6%)

Votes so far: 46

 I was a little surprised to see more commodity futures traders then financial futures.  There were more stock option traders then I expected also.  Very good.  Thanks to everybody that voted.


Daily update 6/29

Explosion!.  Now what happens.  Here is the daily SPX chart.

We are back to the resistance line and the 100 MA again.  The first time we got up here the odds were very high it would pullback.  This being a second attempt it is not so clear.  Very big volume today and over 300 new highs.  Check out the 195 minute SPY chart.

We broke out of the triangle with a vengeance.  I have placed an up trend line under the higher low formation.   Keep in mind that we are very far away from it, so a pullback to it would be sizable.  It is also very shallow so the uptrend is not very vigorous either.   Some times a pattern like this will turn out to be a bearish rising wedge formation.  If we continue up next week that will not be the case this time.  Check out the weekly SPX chart.

We still have neutral price bars at the 18 SMA.  We did not get above last week's high yet.  Four weeks off the low and we can see quite a difference between now and last Oct.  This many weeks into that rally we had three green bars and had clearly conquered the 18 SMA.  The economic data was starting to improve by then also.  A situation we clearly do not have today.  I am sure this will bring the bulls out in force, but all I can say for sure is they won a battle.  It is not clear they have won the war yet.  Today's news had nothing to do with market fundamentals.  It was essentially an European TARP program.  I am sure people will say that worked out great.  However, that program was announced in Sept. of 2008 and the market did not bottom until March of 2009 at a much lower value.  The problem is going to be the news flow in the short term is not good.  People may choose to over look it or not.  I don't know.  We will have to see if there is any follow through next week.


Initial jobless claims

I thought this was a pretty interesting chart.  Notice the scale on the 4 week MA is inverted so lower numbers are at the top to make it in sync with SPX.

In 2007 we can see the claims MA turned down before the final market high.  In the spring of 2008 the MA did not confirm the bounce in the market.  It also did not confirm the bounce in Aug.  The MA lagged SPX a bit in early 2009, but it did turn up to support the rally within a few weeks.  We can see a dip in 2010 during the big sell off in SPX, but it turned back up in Sept. when the market started to rally again.  The dip in the MA during that time was pretty small in looking at the overall chart.  Last fall there was hardly a blip in the MA as SPX fell 20%.  It clearly broke out to new highs well ahead of the market recovery to new highs.  Lets zoom in to the last year so we can see what is happening now a little more clearly.

This scale is back to normal, so up is bad on this graph.  We can see we have made a higher low and higher high to indicate an uptrend may have started.  This chart seems to be confirming the weakness we have seen in other economic data recently.  This indicator has not done enough to reverse the trend it has been in since 2009, but it is clearly moving the other direction for now.  We will need to keep an eye on this over the next couple of months to see how it progresses.


Thursday, June 28, 2012

Daily update 6/28

What a bizarre day.  Lets start with the daily SPX chart.

We have what looks like a hanging man or hammer candlestick with pretty big volume.  I don't think it is near enough to a recent high or low to determine which it is.  We closed above the 18 SMA again, but still have neutral price bars.  Here is the 195 minute SPY chart.

We still have neutral price bars on this chart also.  The last candle touched both of my trend lines I had on the chart yesterday.  The market sure made me look good on that one, lol.   This looks like we are forming a descending triangle pattern.  On this chart we see the volume was slightly larger on the down price bar then the up one at the end of the day.  Since the trend lines are getting very close together now a break out of this pattern cannot be far away.  Check out this 30 minute SPY chart.

Look at all the volume on the last bar.  That looks news driven to me, and it started right after they announced Merkel said she was canceling a press conference.  I don't have any idea if there is any meaning in that action for tomorrow or not.  In between those two trend lines the price action could be sloppy.  A break out either way should get some follow through.

Both the McClellan oscillator and the 10 DMA breadth charts have been positive almost the entire month.  This indicates there have been plenty of people buying into this market.   This is similar to what happened back in May.  We had a sideways pattern with positive breadth that ended up breaking down with a big move.  We have had a longer positive breadth pattern now then that one was.  That makes me think that if we do break down the odds of the early June low holding may not be all that good.


Chemical activity barometer

Here is an economically sensitive index I never heard of before.  This is from the Bloomberg chart of the day.
You can read the full article here  http://www.bloomberg.com/news/2012-06-26/chemicals-flash-u-s-economic-slump-warning-chart-of-the-day.html

I find this to be a very interesting chart myself.  We can clearly see how strong the economy was throughout the 90s.  We can also see this index does a pretty good job of leading industrial production.  There were dips in the index around 1998 and 2010 that were not met with much of a dip in production.  For the rest of the chart, the index works pretty well.  This index has really diverged from production since early 2011. 

From the article.

The Washington-based group’s barometer has slumped 2.5 percent in three months, falling to a 2012 low of 88 in June from a one-year high of 90.3 in March. Three-month declines of 3 percent or more have preceded all but one recession since the beginning of the index’s data in 1947, according to Swift. 

Here is a little different view using the 3 month MA.

The last recession started before or around the time the barometer YOY change went negative.  It looks like it went considerably more negative then it is now before the 2001 recession started.  I think this is yet another index where the next 2-3 months will tell the story on recession or not.


Wednesday, June 27, 2012

Daily update 6/27

The bounce continued today with a decrease in volume.  Here is the daily SPX chart.

The bulls reclaimed the 18 SMA.  That is about all I can say for the bull camp.  Here is the 60 min SPY chart.

Notice the rally stopped right at the 50 SMA.  We also nicely filled the 6/25 gap down.  I put in a new down trend line on that peak.  This may be a bit premature, but it should be valid if the market turns back down tomorrow.  Here is the 195 min. SPY chart.

We have neutral price bars on this time frame and we are still under the 18 SMA.  Nothing here to indicate the short term trend has turned back up yet.  The last chart is the 30 min. SPY chart.

Since the low, the biggest volume bars are all red.  No real sign the bulls are beating down the door to buy.

In the 6/25 daily update I wrote "I think the best bull/bear line to use for now is the hourly 50 SMA up near 1339.  That is far enough away we could have a significant bounce and not disturb the short term down trend."   That is exactly what happened.  If the bulls show up again tomorrow, then we should get through the 60 min. 50 SMA and resume the rally.  This is the place where the bears need to wake up to keep the down trend in tact.  We will see who shows up in the morning.


Regional economic data

In looking at the regional economic data charts I noticed a difference between now and last fall.  Below are the Richmond FED, Philly FED, Empire manufacturing, and the Chicago PMI.  Check them out.


The Richmond, Philly and the Empire surveys went negative last fall during the recession scare.  Notice how well the Chicago PMI held up.  It was actually higher last fall then it was earlier in the spring.  This survey is heavily influenced by the auto industry.  That industry is such a big part of GDP that it helped keep the U.S. from going into recession, along with the warm weather.  However, this year is a different story.  This survey is the lowest it has been since the recovery started in 2009.  With the Richmond and Philly data already negative, and the Empire barely positive, the drop in the Chicago number may be very important.  Something to watch going forward.


Tuesday, June 26, 2012

Daily update 6/26

It felt like a very tepid bounce today without a lot of conviction.  Here is the daily SPX chart.

We closed just underneath the 18 SMA.  The futures struggled all afternoon with yesterday's intraday high.
It eclipsed it by a couple of points, but never took off.  In the end, it closed heading lower.  We did not a confirm the break of the 18 nor did we retake the average.  Here is a look at the 130 min. SPX chart.

We are still in the congestion area starting around 5/21.  We tested the 100 SMA from the bottom, a line we bounced off of two days ago.  The last bar is a gravestone doji which is somewhat bearish for tomorrow morning.  I think tomorrow is an important day with the daily chart flirting with the 18 SMA.  The bulls need to recapture that MA to get moving to the upside.  A failure to do so will likely embolden the bears.


Eurozone economy

I took a look at the flash PMI data for the U.S. recently which showed weakening, but not contraction yet.  Here is a look at the latest Eurozone data.

Both manufacturing and services are well below the 50 level indicating contraction.  Both are at new lows for the year, but only manufacturing is below last fall's low.  No sign of recovery here yet.  Here is a look at the PMI vs GDP.

We can see that the GDP actually tracks rather well to the PMI.  After going negative late last year the GDP was positive in the first quarter.  I think the odds favor a negative print in the second quarter given the large decline in the PMI.

The latest data shows that Germany is succumbing to the weakness all around it.  Their PMI has dropped below its low from last fall.  France is in even worse shape. 

The employment index is clearly in a downward trend.  Germany is still above 50, but the rest of the Eurozone is contracting.  France has joined that down side part lately in a big way.

The most recent data shows downward economic pressure has increased in both France and Germany.  There clearly is no sign the worst is over yet.  Is Germany really going to be able to get support at home for more bailouts if things continue to deteriorate?  That support is already razor thin.  The situation still looks pretty grim over there.  Continued economic slow down will likely reduce imports from the U.S. and affect corporate profits negatively.


Monday, June 25, 2012

Daily update 6/25

Yet another big gap day.  The news flow is not real kind to bulls these days.  Lets start with the daily SPX chart.

We closed below the 18 SMA with a red price bar.  We need a close below today's low (1309) to confirm a break of that MA.  We are at the bottom of the linear regression channel indicating a short term oversold condition.  Both the McClellan oscillator and the 10 DMA breadth charts are still positive so it is hard to say if the rally from the 6/4 low is over for sure.  However, it is definitely on life support.  Here is the 130 minute SPX chart.

We got a blue bar this morning showing price extended on this time frame.  We can see a lot of congestion in this area since 5/21.   I hesitate to call this a support area because of all the slop in the chart, but it could be. We don't really have any good price action to place a meaningful down trend line yet.  I think the best bull/bear line to use for now is the hourly 50 SMA up near 1339.  That is far enough away we could have a significant bounce and not disturb the short term down trend.  In the absence of bad news in the morning a bounce seems likely.

The inverse head and shoulder bottom pattern that was all the rage has clearly failed.  However, the ABC correction pattern is looking pretty good so far.  If that is to play out all the way, we should see new lows eventually.


Retail sector RTH ETF

Retail has been a very strong sector since last fall.  The retail ETF RTH is getting into an interesting position here.  Check out the weekly chart.

We clearly broke the uptrend line from the low last fall.  The overall trend is neutral as a result.  The 6 SMA has crossed below the 18 SMA, but price is back above the 18 SMA at this time.  I am not sure what is up with the volume on this ETF.  I looked at two completely different data feeds and it is showing the same thing.  There was a huge drop off on the charts.  This makes it rough for you guys to see.  Since the top there are two big red volume bars and one big green bar.  Both the red bars had higher volume then the green bar.  So there has been a little bit of distribution in this sideways formation but nothing conclusive.  There is a possible triple top in the making here.  A close back below the 6 SMA (41.10) would likely target a move down to first key support at 39.74.  If that were to break, it should target a move down to the second key support level around 38.  That was the area of pretty stiff resistance on the way up and should provide solid support now.  Another weekly thrust up could resume a move to the upside to at least test the prior high if not keep going.

In perusing some of the charts that make up this ETF I noticed a couple of interesting things.  Check out the Home Depot and Lowes charts.

These stocks in the same business moved up and down together very well until lately.  What is up with that?
It looks like anybody owning HD might want to keep a close eye on it.

I came across another interesting chart.  Check out the monthly chart of Walmart.

WMT went sideways through the middle part of the last decade then started spiking up in late 2007 as the U.S. was going into recession.  It then proceeded to trade sideways until late last year and spiked up again.  With the data showing the possibility of another recession is this a coincidence or a warning?  When things get tight it is not hard to imagine some people that usually shop in more upscale stores going into Walmart.  I guess time will tell.


Friday, June 22, 2012

Daily update

I changed the Price bar color page to Chart setup and added a description of the other lines on the chart in case you have not figured out what they are.  I should have done that sooner, sorry about that.

Please respond to the new poll at the top of the left sidebar, thanks.

We got the bounce I mentioned last night the high closing trin should lead to.  The question is what happens now.  Lets take a look at the daily SPX chart.

We ended the day right below the neck line of the very marginal inverse head and shoulders pattern that is all the rage.  The futures came within 3 points of testing yesterday's low before rebounding.  This may be close enough to call it a successful test, but is a bit in the gray area.  This chart looks inconclusive to me on whether the rally is going to resume or not.  The strong rejection from the 50 SMA is a bearish event despite the positive breadth data.  If there is follow through on the down side it could be fast and furious.  Lets zoom in to the 195 min. chart.

We still have red price bars and ended up right below the 18 SMA.  Since we did not make a lower close below the bar that broke the 18 SMA we do not have a confirmed break yet.  Although this chart is slightly negative, it is not completely bearish without a lower close.  The last bar ranges from 1329-1338.  Inside that range the direction is undecided.  A break out either way should see some follow through.


Trading experience poll result

How many years have you been trading?

Less then 1
  1 (1%)
  2 (3%)
  8 (12%)
  18 (28%)
  35 (54%)

Votes so far: 64

I have to say the experience level is much higher then I expected.  I guess I won't be able to pull the wool over anybody's eyes, lol.  This could be a tough crowd.   I better stay on my toes.  Thanks to everybody that responded.


Latest economic data

Here are two new pieces of economic data to look at.  Lets start with the Philly Fed index long term chart.

We got down a little further last fall then we are today, but then bounced sharply back into positive territory.  We can see that it does not get down to this level very often.  In looking at how this index reacts around recessions it does provide useful information.  If it does not bounce back above zero in the next 3 months, the odds that we are already in recession would be pretty high.  It is interesting that it was back above 0 in Oct. last year confirming the bottom in the market.  It is not doing that now with our current early June low.

Here is a look at Markit economics flash PMI.  This is a precursor look at the ISM number that will come out the first of next month.
We have had another sharp turn down which would seem to confirm the move down in the market.  This is not enough to indicate trouble yet.

Here is a look at the new orders data.

The new orders data is not really all that revealing.  However, check out the durable goods orders.  This has gone really negative for the first time since 2009.  The last recession was dated to Dec. 2007 and the data then was just about where we are now.  This chart never got anywhere near negative last fall.  I remember seeing a video of the guys on CNBC ribbing the ECRI guy for saying a recession was coming in April of 2008.  As we now know we were already in recession for several months at the time.  It is possible we are in recession already and just do not know it officially yet.  If that turns out to be the case the readers of this blog are pretty astute.  You might recall I had a poll about the economy a couple of weeks back and 70% said we were already in recession.  If that is the case we certainly have not seen the low in the market yet.


Thursday, June 21, 2012

Daily update

The old hanging man pattern played out again.  Here is the daily SPX chart.

I would say that qualifies as a break of the lower trend line.  We also closed below the neck of the inverse head and shoulder pattern everybody was talking about.  We are still above the 18 SMA.  Overall this makes the short term trend neutral now.  Here is a look at the 195 min. SPX chart.

In looking at these price bars I noticed there was some pretty clear resistance that was below the neck line.
We stopped in that area today.  There could be some support in here. 

Here is a look at the current breadth charts.

Both the 10 DMA and McClellan breadth charts are positive.  In fact, they are still quite strongly positive.
Normally the market will retest or at least get pretty close to a high with this strong of breadth readings.  When it does not, it means the news flow has really changed peoples minds and is a significant event.  Until these breadth charts get negative and the daily chart gets red price bars it is not safe to pronounce the rally over.  The bulls can show up with surprising force sometimes.
We had an extreme closing trin reading of 3.5.  This usually leads to a bounce the next morning.


Goldman Sachs Global Leading Indicator (GLI)

There seems to be some merit to the Goldman Sachs' GLI.  Here is a link to the latest report.  http://www.floatingpath.com/wp-content/uploads/2012/06/may-final-gli.pdf

I have not had success in finding a regular link to their monthly report.   It seems to be rather sporadic.  Here is the latest chart plotted against global production.

A glance at this chart shows it does a reasonable job of leading global production.  The last two times the headline number went negative, production followed and we had a major move down in the stock market.  We are now back in the negative zone.  Will it be like 1998 and turn back up, or will it keep on going down?

Here is a look at the momentum of the GLI.

The momentum for the GLI is still clearly heading down, but that can not be said for industrial production.
The U.S. data has a big influence on global production and we all know there was an upsurge in the U.S. data over the winter.  Lately that data is also starting to soften.

From the Goldman report

 "We have found elsewhere (see Global Economics Paper 214) that this stage of the cycle, when momentum is negative and decelerating, is typically accompanied by worsening data and negative returns. This shift echoes the recent weakness in data globally. Risks to the global economy appear weighted to the downside at present, with the reemergence of Euro area stresses and softer Chinese data causing concern."

There are numerous articles on the web that indicate that global production is going into a contraction phase based on what Goldman says about their data.  Here is one example. 

I think the next 3 months are going to tell us a lot more.  Commodity prices seem to be confirming there is still down side risk in the global economy.


Wednesday, June 20, 2012

Daily update

That was a pretty muted reaction to the FED announcement.  After everybody has time to parse the statements and think about the ramifications there may be more of a reaction tomorrow.  Lets look at the daily SPX chart.

We are left with a hanging man candlestick today.  This can be a sign of a short term top after a run up.  I circled three prior hanging man days that occurred right after a new swing high.  As you can see there was at least a little pullback after each occurrence.  We are short term over bought right at major resistance so a pullback does make sense.  Where it goes is a little more complicated.  If we truly have an inverse head and shoulder bottom then the neck like around 1335 should be support.  However, if that fails we still have the 18 SMA way down at 1319 that could also provide support.  Breadth data is strong and most of the time a dip from this position is bought at some point by the bulls. 

Here is a look at the weekly chart.

I circled the big volume bar that showed up last fall when the market made its final low.  I don't see anything here that looks even remotely like that.  Also notice the price bar turned green on the second week off the low.  We are in the third week and still have neutral price bars.  The 6 SMA is below the 18 SMA and the 18 SMA has started to turn down a little bit.  We had a blue bar at the low so price was extended and ripe for a bounce.  The bounce just does not have enough strength to be able to say it is anything more then just a bounce from over sold.  It may turn out that we have made a major low, but I cannot say that from what I have seen so far.  The bulls still need to prove themselves.

Lately they have been buying bad economic news.  I suspect that was in hope the FED was going to announce a new balance sheet expansion program.  Since that did not happen, we will have to see how the market reacts to the data now.  Incoming data is likely to continue to show softness and has been worse then expected most of the time.  If this is an ABC type correction pattern the mood can change pretty quickly.
We will have to watch that closely.



I don't like the look of these charts.  Here is the GLD daily chart.

I have added another red resistance line above the last one.  This one does a better job of capturing the most lows of the Feb. and Apr. price action.  GLD appears to be making a double top below that line.  It has not been able to close above it all month.  We had 3 closes in a narrow range and then it turned down today.  This looks like it is going to roll over here into a pullback.  With all moving averages in a bearish configuration it could head back toward the lows.  It has not done enough on the upside to be able to say with any confidence that the down move is over.  Be careful.

Here is a look at the SLV chart.

This chart is even worse.  SLV has not even attempted to cross its 50 SMA.  This one could end up retesting the low very easily.

Both of these ETFs could be affected by the FED announcement today.  If the FED does nothing they could both turn down.  If there is a surprise QE program they could run up some more.  I think that is a very unlikely scenario.  The rally in the stock market has pretty much made any move to expand the FED balance sheet very low odds.  If you are in either of these I would pay very close attention.


Tuesday, June 19, 2012

Daily update

Buying frenzy.  We closed right on the upper red resistance line I have had on the chart for a long time.  We also have a blue bar so price is extended at resistance.  The weekly 18 SMA and the monthly 6 SMA are also right in this area.  If that is not enough there is the  .618 Fibonacci retracement line back to the 5/1 high.  Needless to say there are plenty of things that could provide resistance.  The question is will they.  We had 180 new highs today so that was a sign of strength.  A lot of people have suddenly become believers in the rally.  I have heard a number of people saying the trend is now up.  I don't have enough information to make that call.  The market internals improved considerably today.  There was a big jump in the stocks above the 40 and 200 day moving averages.  However, there is not enough strength to pronounce the trend is back up yet.  Check out the daily SPX chart.

 It looks a lot like an ABC type corrective move.  Here is an idealized view of the pattern.

This is about as close to a perfect match as you ever get in the markets.   This looks like a better fit to me then the sloppy inverse head and shoulder pattern everybody is talking about.  You can be your own judge on that one.  If this is a corrective move, then it is likely over and the market could fall out of bed again.  We will have to wait and see which pattern plays.

With this big run up and extended price into resistance I would expect a down day very soon.  They may use the FED meeting tomorrow as an excuse to take profits regardless of the result from the FED.  If that happens we will have to see where it shakes out.  We are still above the lower trend line so the bias is up until that line is broken.


Monday, June 18, 2012

Market internals

In looking over the market internals I noticed some things I want to show you.  First up is the number of stocks above the 40 DMA.

We are currently at 37%.  The horizontal trend line is over 60% and represents where we were last Oct. with the same number of days off the low.  Last Oct. we started with a lower value in the indicator and still made a much  higher number.  This number needs to get up to 75-80% to signal the final low might be in.  The market still has work to do.

Here is a look at the number of stocks above the 200 SMA.

This indicator is actually showing a negative divergence to SPX noted by the two trend lines.  A lot of stocks are being left behind on the rally.  This chart suggests we may still get a retest of the low down the road.

Here is a look at the new high chart.

The circled day was when we had the big gap up that folded like a wet blanket.  I commented after that about the big drop in new highs.  The last 2 days SPX has closed above that day, but the number of new highs did not get back to that level.  At least we did get over 100 which is good, but there is not enough strength here to pronounce an all clear.  With only a 10% decline in SPX this would be much better in the 150 area.

How about the bullish percent indicator.

This indicator has barely budged upward at all.  Notice the steep rise out of the Oct. low showing significant buying pressure that is absent now.

I don't have anything that confirms the final low is in yet.  The rally looks pretty tepid based on the internals.  We are in a resistance zone that may be difficult to overcome.



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