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Trend table status

Trend

SP-500

R2000

COMPX

Primary

? 3/31/20

?- 3/31/20

? 3/31/20

Intermediate

Dn 4/3/20

Dn 3/20/20

?- 3/20/20

Sub-Intermediate

?- 3/26/20

?- 3/26/20

?- 3/25/20

Short term

? 3/26/20

? 4/1/20

? 3/24/20


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 (-)

Friday, September 28, 2012

Housing market poll results

Do you think the housing market is 

making a meaningful and long lasting recovery
  8 (14%)
 
just making a temporary upturn, there is still substantial down side risk to prices
  15 (26%)
 
making a short lived upturn with more sideways price action to come
  34 (59%)
 

Votes so far: 57

This is pretty close to what I expected.  I believe the pattern will be similar to Japan.  People rushed in after the first decline stopped only to get killed in the next big recession and house price decline.  I think the worst economically is yet to come.  If that is true, house prices will still fall more then they did.

Bob

 

Daily update 9/28

The overnight gap down was bought, but it took quite a bit of time to turn the market up.  When it did turn up, it stopped dead in its tracks at the gap fill.  Here is the daily chart.


SPX closed back below its 18 SMA which should be a bearish event after just one day above.  Will Monday repeat the pattern of being a down day?  Lets zoom in to the 130 minute SSO chart.


SSO ended up closing just below the first support line.  It is clearly below the 50 SMA, but pretty close to the middle of the price channel.  We have had several white price bars now to work off the oversold blue bars.  The next move could start soon.  Lets go in a little closer with the 60 minute chart.


 Price is just hanging around key support.  The way the 6 and 18 SMAs are positioned, this chart looks slightly more bearish then bullish to me.  However, overnight news could easily send the market in either direction on Monday. 

The dip buyers keep coming out to play, but there are enough rally sellers to hold them off so far.  There seems to be little desire to push price.  Until that changes the path of least resistance is down.

Chart practice has been updated with GRMN as today's stock.
http://traderbob58-chart-practice.blogspot.com/

Bob

Durable goods

The durable goods data came in worse then expected.  However, transportation played a big role.  Check out these charts.


This data series started in 1992 and covers the last two recessions.  The only two times we had this big of a drop we were in a recession or on the verge.

Here is the chart of transportation orders.


That looks like a 20% drop year over year.  Like the other chart, the other two times it happened we were in are about to have a recession.

Here are durable goods without transportation.


Even without transportation, durable goods have taken a big hit the last few months.  In 1998, we had similar negative levels without a recession.  That dip happened at the time of a 20% pullback in the market and the Long Term Capital Management debacle that caused quite a bit of fear.  Clearly no fear around this time.


This chart shows the data not seasonally adjusted.

Source

There was one drop of this magnitude back in 1992 that was not associated with a recession.  Just like the seasonally adjusted data, this was a serious drop usually associated with a recession.

Here is the data in dollar form.


We still have not gotten back to 2007 levels.  This is not adjusted for inflation or population which would make it look a lot worse.  We can see the severity of the recession and weakness of the recovery.  The magnitude of the drop is clearly different then any dip since 2009.  Looking back at the chart it sure looks like the onset of a recession to me.

Last month industrial production took a big dump.  This drop in durable goods orders will likely continue that trend.  If you look at the data realistically, it is getting pretty hard to say we are not in a recession already.  The fact that the data is not a reflection of some kind of panic is important.  Prior "soft patches" the last two years were essentially caused by market crashes.  The economic data and markets recovered quickly.  The current economic slowdown is global in scope and not panic driven.  It also seems to be gathering strength. I think you can expect to see continued decline in the economic data going forward.  It remains to be seen how forgiving the market will be.

Bob

Thursday, September 27, 2012

Daily update 9/27

The bulls showed up as the charts indicated they should from last night.  However, the sub intermediate trend is downgraded to neutral.  Here is the daily SPX chart.


SPX closed back above the 18 SMA, but on a significant decline in volume.  A close above today's high would be a big positive for the bulls.  A close back below the 18 SMA would be a big negative.  Lets zoom in to the 130 minute SSO chart.


SSO closed back above its 50 SMA this afternoon, but did not follow through yet.  There is a little more room up to the upper trend line for tomorrow.   We relieved the short term over sold pressure today so it will take people willing to push price higher from here to go up.  Lets zoom in to the 60 minute chart.



The most obvious thing on this chart is the lack of volume today.  The red resistance line is at the circled low.  There was several days of buying above that line and there could be resistance there.  SSO stopped a few pennies below it today.  There are green bars so there is upward pressure in the chart in the very short term, but the 18 SMA is sharply pointed down.  That tempers the bullishness a bit.  I don't know how this will play out, but I see two likely scenarios.  The more bullish scenario would be to retrace this up move back to around the 18 SMA and reverse back to the upside.  That will flush out some of the potential resistance above the red line and correct today's rally.  The more bearish scenario would be to continue up to the upper trend line and roll over.  That seems likely to embolden sellers which could add to the potential overhead resistance.

With the short term trend down and sub intermediate trend neutral it would  now be easier for the bears to take control of this market.  We need to be cognizant of that fact, but realize that the burden of proof is on the bears to indicate they are willing to do so.

Bob

The last bubble?

Lets take a peek at the monthly SPX chart.


The most recent high in SPX was 1474 and we can see that SPX has spent very little time above that level. We all know the first peak was in 2000 at the end of the infamous dot com bubble of the late 90s.  The second peak came with the U.S. housing bubble in 2007.  The bottom panel is the ADX indicator which is a mathematical expression of trend strength.  The blue line in that panel is the value of ADX itself.  Notice the declining values at each peak.  The ADX indicator today is just plain on the floor and has been falling this entire rally.  The rally into the 2007 top at least had a bit of a turn up near the end.  We have not seen that so far.  If this turns out to be another major top like the last two, this will be the weakest rally into the top yet.  

There was another bubble created at the time of the 2007 top that is not commonly talked about.  Here is the chart of the emerging market ETF EEM.


The run up into the 2007 top certainly is parabolic enough to qualify as a bubble.  The popping of both bubbles caused the worst global recession since the 1930s. We can see that EEM is still struggling today.  If the emerging market economies were going to reignite again, I think they would have done so by  now.  I think it is more likely they are now in a post bubble situation.

With SPX back in the area of major resistance, it is important to determine of we are on the verge of an upside break out or another major crash.  The ADX indicator seems to indicate an upside break out is unlikely.  We are in a secular bear market and we have not reached historically cheap valuations yet.  This seems hardly the conditions of a new secular bull market.

The prior two crashes were facilitated by the popping of bubbles.  Is there a bubble going on now that might cause another crash?  Of course there is, its the global debt bubble.  Lets look at some charts.

Source

I think that chart speaks for itself.  At least the U.S. is not the worst of the bunch.

Source

Bank assets is another word for debt of course.  Again the U.S. is not the worst.

Source
At least African governments are not high in debt.  However, all the most populated countries are.

Source

The global debt bubble has caused extraordinary measures from central banks around the world.  That chart looks like a bubble unto itself.  Those actions are causing a reaction in gold.


Source


Source

The long term chart above shows the inflation adjusted price of gold is still below its peak. but historically expensive.  However, the situation is a bit different in China and India.  Those are large markets often talked about as being part of the good fundamentals for gold.  The price may be getting a bit expensive for them now. 

The global debt bubble is causing a central bank balance sheet bubble which is causing a gold bubble.  Please don't send me hate mail for saying gold is in a bubble, LOL.  Bubbles can last a long time and go a lot further then people think.  I am not saying gold is in imminent danger of collapse.  I am saying it will top at some point like it did in 1980 and suffer a prolonged correction.  Nobody knows when that will happen.

The popping of this last bubble is a matter of when not if.  There will be a series of sovereign defaults.  As this next chart shows, that has happened before.

Source

I believe this will be the biggest chain of defaults in history because of the huge number of countries in fiscal trouble.  Unless we want to spend the next several decades like Japan with a terrible economy and still no resolution to the debt problem, it is something we must endure.  If the global economy continues to slow into a global recession then the debt bubble pop is likely sooner rather then later.  The last reflation attempt only saddled everybody with more debt and did not solve the economic problems.  I think there will be much less political will for another global throwing of money at the problem.

The only way to prevent a debt crash is to prevent a debt bubble in the first place.  However, there have been debt bubbles and crashes for hundreds of years.  I am sure there will be many more. 

Bob

Wednesday, September 26, 2012

Daily update 9/26

I want to apologize for not setting the short term trend to down in the market trend section yesterday.  I was late sitting down to do the daily update and quite frankly I forgot about it.  I will try not to let that happen again.

A little follow through selling this morning, but it did stabilize early in the day.  Here is the daily SPX chart.


SPX closed below its 18 SMA today.  This is often a place for a bounce.  Lets zoom in to the 60 minute SSO chart.


SSO is in its first support zone.  The sideways action is showing some support here.  We have the end of quarter coming up.  Will there be some of the often talked about window dressing?  This chart is set up for a bounce.

One more thing to look at is the breadth chart.


The 10 DMA section of the chart got a negative cross today.  The McClellan oscillator has been negative for a while.  It is now in over sold territory.  The circled area shows the oscillator was very strong at the high.  Most of the time the market will retest the high from such a strong condition.  Just be aware that the retest may end up with a lower high.

So the market has retraced all the gains from the big QE FED announcement.  We are in a slight short term  over sold condition within an uptrend.  It would be normal for the bulls to show up here.  If we continue down again tomorrow there should be good support at SPX 1420.   

Chart practice has been updated with MA the stock today.
http://traderbob58-chart-practice.blogspot.com/

Bob

A little more sentiment

I have not seen this one before.  Check out this chart.


Source: Zero Hedge

The 'risk appetite index', an amalgam of the Citigroup Macro Risk Index, Westpac Risk Aversion Index and UBS G10 Carry Risk Index Plus. The herd simply follows prices – click for better resolution.

We are at the highest levels on the chart.  Major sell offs don't necessarily happen right away though.  Definitely not a low risk time to buy.

Here is a variation of the the Nova/Ursa ratio I showed the other day that did not make sense to me.  I think there might be a data error or something with the site I get it from.  This one looks more reasonable to me.



Source: Zero Hedge

This is a nicely done chart showing us the underlying data that makes up the ratio in the bottom part of the chart.  The summer decline shows people pulling money out of the long fund without much addition to the short fund.  That is in contrast to the last two years where there were significant spikes up in the bear fund. I guess everybody isn't bearish are they.  The long fund has the most assets since this bull market began. 

There was an interesting thing in the NAAIM data lately I did not know about.  Check this out.
Source: Zero Hedge

In connection with the NAAIM survey, there was an interesting occurrence in the late July summary. A list of the weekly responses is depicted below. Note the two columns labeled 'bearish' and 'bullish'. These show the extremes recorded at every weekly survey, this is to say the net positioning of the most bearish and the most bullish manager. On July 25, the most bearish manager was flat, while the most bullish manager was 200% long:



At the time this reading was recorded, Jason Goepfert of sentimentrader created a statistic that shows all the previous occurrences of this combination and the subsequent market performance over short to medium term time horizons. Note that the relatively low mean recorded in this particular week may weaken the message of the signal somewhat, but his is still an interesting statistic:




There is an awful lot of red in the table above.  The only positive outcomes 6 months later were from instances in 2009 as the bull market was just beginning.  The NAAIM survey started in 2006 so there is not a lot of data, but this table should give bulls something to think about.  I will be watching for similar instances in the future.  

Despite what the media would have us believe, there is a lot of optimism out there.  In the face of poor fundamentals you have a recipe for a big change of direction.  I guess we will see what happens.

Bob


Tuesday, September 25, 2012

Daily update 9/25

Something a little different to start with.  I thought this was an interesting chart.


Source: Bespoke

Clearly this is the longest tranquil streak since the 2009 low.  Even in the low VIX periods in the middle 90s and 2000s a streak this long was rare.  The streak ended today for SPX, but not the DOW.  I wonder how long before it hits the DOW as well.

On to the daily SPX chart.


That was quite a turn around from this morning.  We closed a couple of points above potential support at the 18 SMA.  Lets look at the 130 minute SSO chart.


The ex dividend gaps in SPY mess up the charts for a while.  Last time I showed the intraday charts for SPX, but there is no volume.  I think it might be better to use SSO (2x SPY ETF), as the volume is usually similar.  I put in some potential support lines.  We stopped right near the first one.  The last bar was blue indicating price was below the lower Bollinger band and extended.  The 50 SMA could also lend some support.  If we continue down tomorrow the next support line is a logical target. 

We finally got a little motion going today.  There is potential support in the area where we closed.  Will the bulls show up to play or not? 

Bob

What happens if it doesn't work?

There are money bazooka's being fired around the globe with the addition of the BOJ joining the fun.  There is a legitimate problem with the global economy.  Check out the global PMI.


The global manufacturing PMI is now clearly contracting and is at the lowest level since the last recession ended.  I believe this is one source of the central bank panic going on around the world.  In Why is the global economy slowing?  I attempted to make the case that the problem is too much debt combined with high food and energy prices.  Lets look at some things that probably are not the problem.

 Lets start with some central bank balance sheets.  Click for larger image.


Looking at those charts it seems hard to argue there is a lack of liquidity around.  QE1 worked because liquidity was a problem during the financial crisis in 2008.

If liquidity is not the problem, what about high interest rates.  Here is a table of some interest rates from around the world.

Source: global-rates.com

There are 8 countries out of 26 listed that have rates 5% or higher.  On the same web site there is a table of inflation rates so we can see the real interest rates of those few countries with higher rates.

Country      Interest Rate  Inflation Rate  Real interest rate
Brazil         7.5%             5.2%               2.3%
Chile          5.0%             2.5%               2.5%
China          6.0%             2.0%               4.0%
Hungary        6.75%            6.0%               0.75%
India          8.0%             9.8%               1.8%
Indonesia      5.75%            4.5%               3.25%
Russia         8.25%            5.6%               2.6%
South Africa   5.0%             5.0%               0.0%

Source for inflation data

The real interest rates in the few countries that have somewhat elevated rates are actually still low.  It is hard to argue that high rates are the problem. 

We have all this money sloshing around in the U.S., but check out the velocity chart.


The velocity of money is still crashing.  I suspect that is going on in many other countries in the world.  This is a case of the often heard expression "pushing on a string/rope".  You can push as hard as you want, but the end result will still be the same.

My question is simply this.  If liquidity and interest rates aren't the problem with the global economy, how is more central bank money printing going to help?  What happens if we end up in a recession with rates already low and the FED already doing QE?  What happens if some global event, like Israel attacking suspected nuclear sites in Iran, causes a spike in oil prices and a global panic sell off in stocks?   I am sure the FED will up the dose of QE, but isn't that like selling a product at a loss hoping to make it up in volume?

Bob

Monday, September 24, 2012

Daily update 9/24

The dip buyers continue to buy the gap downs.  However, they are not making any progress on the upside.  The SPX futures ended up closing below their 60 minute 50 SMA today.  Sellers were waiting at that 50 SMA as the market stopped dead in its tracks right there.  I have downgraded the short term trend to neutral in the market trend section.  Here is the daily SPX chart.


Back in Aug. we spent quite a few days below the 60 minute 50 SMA and never sold off significantly.  Will that be the case again?  Most people are calling the current formation a bull flag and expecting higher prices to come.  That seems to be a majority opinion so we will have to see how it plays out.  Here is SPX from the summer of 2007.


SPX broke out to new highs and even had a test of the break out level during the consolidation at the highs.  It ended up failing though.  We are consolidating at the highs, but it is not a given that we are going higher.  I don't really have any idea what the odds of a failure of this pattern are, but I know they are non zero, LOL.

Earnings surprise announcements are running more then 4 to 1 to the downside.  According to Bloomberg TV that is the highest level since 2001.  As far as I can tell all the good news is out on the central bank actions.  What is left is poor economic and earnings data for the market to deal with.  Will the fundamentals come back to the forefront again?  If we break down here instead of out to the upside I would say that means yes.

Chart practice has been updated.  Stock today is UTX.
http://traderbob58-chart-practice.blogspot.com/

Bob
 

Current sentiment

The everybody is bearish talk has died down lately.  Is everybody bullish now?  Lets start with the put/call ratio.




I have circled the bigger pullbacks in the market and the matching 10 DMA of the put/call ratio values.  In the last three years the 10 DMA has only gotten down to this area four other times.  Three of the four times the market sold off in short order.  Only the late 2010 occurrence had the market continue up for a while.  The put/call ratio is showing a lot of bullish sentiment.  Clearly there is risk going long here.

Next up is the latest NAAIM survey.

Source

The active money manager survey is showing these guys are heavy long.  This is in the area of all the prior peaks on this chart.  There is not much fuel left here for the upside.  There is lots of downside fuel should something happen that causes them to sell.

Here is the II survey.

Source

This one is showing a lot bullishness also.  It is getting up into the area where it has been maxing out.  Probably not much upside fuel left in this one either.

Here is the AAII survey.

Source

Clearly this one is showing more bulls then bears, but not overly bullish.  In fact, it is below the long run average of 39% bulls.  The peak sentiment on this rally is much lower then on all the other big up moves since 2009.  Clearly individual investors are not overly bullish here.  However, at the top last year and this year before the spring sell off, they were showing much less bullishness then other surveys and they were correct.  There is upside fuel here should individual investors pile into the market.  The flip side to that is they could be right again in being less bullish here.

The last one is the Nova/Ursa ratio.

Source

The data in this one is really raggedy.  To tell you the truth I am not real sure this is accurate.  I have never seen it look like this before.  I don't know if there is a data error or if people are really totally and completely confused.  I am confused looking at it.

The bottom line is several sentiment indicators are showing people are overly bullish.  The long side is a crowded trade despite what the media would have you believe.  There certainly has been a lot of bear capitulation the last couple of weeks.  That is pretty common at major turning points.  Some people see that the fundamentals are changing, but loose courage of their conviction in the face of the market going contrary to what they think it should.  This is where the old saying "the market can stay irrational longer then you can stay solvent" came from.  The market always seems to pay attention to fundamentals eventually.  Despite unlimited money printing from the FED, I expect this time to be no different.  It will take a change to the positive for corporate earnings to sustain current prices for the long run.  That change is not evident at the moment.

Bob

Friday, September 21, 2012

Presidential election poll result

I am not asking who you want to win the presidential election, but who do you think is going to win?

Obama
  48 (70%)
 
Romney
  20 (29%)
 

Votes so far: 68

That is pretty lopsided, LOL.   Sometimes I wonder if Romney is actually trying to win.  Maybe we can at least get rid of some of the incumbents in the do nothing Congress.  More people answered this question they any other lately.  Thanks to everybody that participated. 

Bob

 

Daily update 9/21

I said yesterday that an upside break out would probably not carry real far.  Well I guess they could hardly wait to get the market open so they could see the gap up, LOL.  This is a clear indication that profit takers are a larger group then rally chasers at the moment.  That has been evident all week.  Can you blame them.  The market is extended.  How do you put large amounts of money to work here?  Here is the daily SPX chart.


We have multiple shooting star and hanging man candles.  If you take these candles at face value there is a plethora of bearish bars here.  Check out the weekly chart.


The weekly chart has a blue bar indicating it was outside the upper Bollinger band and extended in price followed by a bearish hanging man candle.  Lets zoom in to the 60 minute SPY chart.


With the help of SPY going ex dividend today the upper trend line was never violated.  Of course that gap down causes everything to be screwy for a while.  It broke the 50 SMA, but only because of the gap down. Looking at SSO (2x SPY ETF)  shows it closed right at the 50 SMA.  If we continue down on Monday, we should be in pullback mode. 

With the market very extended and a lot of bearish looking price bars a pullback seems pretty likely.  As I outlined in Daily update 9/19   "We could have a normal pullback to the daily 18 SMA.  We could go down and test the green support line around 1420.  We could go down enough to hit the daily lower trend line or maybe even the 50 SMA."

 If a pullback does materialize we will just have to wait and see where the bulls step in and what they do with it.

Chart practice has been updated.  Today's stock is LMT. 
http://traderbob58-chart-practice.blogspot.com/

Bob

Philly FED data and FedEx

The Philly FED came in negative, but better then expected.  Lets have a look at the main index first.

The main index was still negative, but there was a big surge in the six-month forecast.  Since this is a survey, that could be caused by many things.  Last fall there was a big uptick that was followed by upticks in real orders as the economy picked up.  There have been big upticks before with very little or no follow through.  Just before the last recession there was a significant uptick.  We will have to see if this continues next month.

Here is the new orders index.


The new orders crossed up to +1, the first positive reading since last spring.  The positive cross last fall came from the same negative value, but was much stronger.  I don't think this is strong enough to say much.  I think we will have to wait for next month to see if it gets stronger or goes back negative.

Next up is the employment index.

This one is still in contraction mode (4 of the last 5 months) and scraping along the bottom.  This goes along with the initial jobless claims rising some the last few weeks.  Nothing positive here yet.

Check out these future sub indexes.



There were significant upticks in the future new orders and employment indexes.  Is this based on something real, or hope in the FED?  I don't know how we can know that, but it is an important question.  If it is based on something real it might translate into better data next month.  This might mean something is about to improve in the economy.  If it is simply hope based, then it is probably meaningless.  I think we will have to wait until next month to get a better read.

This is kind of an interesting chart.

Source: Zero Hedge

We have seen a number of leading indicators recently (for example, we were first to note the FedEx implications for GDP) that point to a rapidly rising probability of recession. Today, via Bloomberg Brief, is a look inside the Philly Fed state economic indexes. To be specific, we look at the six-month ahead outlook for each state. Only once in the last 30 years did 20 states possess a negative outlook and the overall economy avoid recession.

The one time we avoided a recession was in 2002 when the stock market crashed to new lows and people were worried about a double dip recession.  This was really a slight relapse in the economy after just coming out of a recession in 2001.  We have a different situation today since we are three years removed from the end of the last recession.  This number is considerably higher then last fall and ticked up a good bit this month.

This is the chart of FedEx referenced in the Zero Hedge article.


In the late 90s FedEx made a major push to expand into international shipping.  The correlation to GDP increased dramatically after that.   I think this chart speaks for itself.  Of course it is not just FedEx with earnings problems.



Source: The Big Picture

So far this month we have seen a significant down turn in industrial production, a slight up turn in initial jobless claims, and continued poor regional manufacturing data.  The economic down turn is gathering steam and corporate earnings are starting to contract.  Not to worry, I am sure the FED will fix all of this.

Bob

Important

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