Daily update 10/31

The weather delay pushed the opening of trading to the end of the month.  The last day of the month almost never starts a new move.  However, the first day of the month often does.  Maybe we can get a read on direction tomorrow.  Here is the daily SPX chart.

This is day five with closes in a fairly tight range.  Are we making a low or are we consolidating at the lows for another leg down?  The bears keep selling gap ups almost immediately after the open.  How many more times can we test the lows here and they hold?  Check out the 130 minute SPY chart.

The 50 SMA has crossed below the 100 SMA for the first time since the positive cross in late June.  This is yet another sign of a loss of momentum in this market.  The volume pattern looks pretty bearish as well.  All this downside testing indicates the bulls are not real frisky despite open ended QE.  I guess the earnings guidance has probably sobered up the market. 

What happens now?  It is very unusual after a down move to spend this many days sideways.  Most five day patterns like this happen after up moves.  We are still quite a ways from the 18 SMA on the daily chart.  So far nobody has cared that we are a bit oversold.  Will the bulls be able to get a short squeeze going?  I am surprised the dip buyers are not more ambitious this close to the highs.  That may be a sign the market is very weak overall.

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

Bob

Bear market trading

Many get scared just thinking about trading a bear market.  Yes the volatility is higher, but if you harness that volatility the profit potential is huge.  The price action is driven by traders because most investors are sitting on their hands.  Fibonacci levels (especially .618) work much better along with overbought and oversold indicators.  Bear markets can be traded successfully and profitably.  However, one must keep their emotions in check.  If a trader has a 401k or other investments that are getting killed, it becomes much harder to be objective.  The trader will constantly be looking for lows that aren't there.  Every big up day will looked upon as the beginning of the next bull market.  Only to have that hope dashed a few days later.  Great short ops will be missed because the trader will be thinking the market cannot possibly go any lower.  I honestly cannot see how anybody can successfully trade during a bear market if they are losing money hand over fist in their investments.  The emotions can be overpowering.  If you cannot stay calm cool and collected while the market is crashing down then you need to stop trading completely when we get to that stage. This is why I keep asking people to have a plan for their personal finances in the event of another severe bear market.  If you can keep your emotions in check I think I can help you make money.

The early stages of a bear market can be a bit choppy since most people have no idea they are actually in a bear market.  I am not sure how long that will last in this case.  We are already in a recession which generally is not the case.  The sooner more people start recognizing that fact, the sooner the market is going to start going straight down.  I don't have any statistics on this, but I don't think there are many instances of profits and revenues going negative in the same quarter the market makes a high.  Normally the high is made well in advance.  This may speed up the downside acceleration phase.  Lets look at a few prior bear markets.

Here is the 69-70 bear market.

That bear market took out the last major low in 1966 and then V bottomed out of there.

Here is the 73-74 bear market.

Quite the cascade off the top and into the final lows.  This bear market also took out the prior bear market's low then ripped to the upside.

Those charts make the plunge in 2008 look a little less unique don't they.  Here is the 2008 chart for comparison.

Here is a chart covering the 76-77 and 81-82 bear markets since they happened close together.

These two bear markets had much less dramatic down moves.  They were also in the secular bear market period from 1966-1982, but had milder declines.  This has to do with valuation.  The 73-74 bear market took the P/E ratio under ten and it was still in that area during these two bear markets.

I expect this bear market to be of the dramatic decline type.  Valuations are still high and the economy really does suck.  Once people figure out the market can go down even with the FED doing QE it will crash precipitously.  Will you be like a deer in headlights or a flexible trader willing to take advantage of the opportunities as they come along.

Bob

Financial plan poll result

Have you developed a plan for what you will do if the market tanks 30-50% from here?

Yes, full plan	0 (0%)
Some planning, still working on it	0 (0%)
No	0 (0%)

Votes so far: 0

This really sucks.  It appears Google lost the poll results somehow.  When I sat down to do the daily update last night the results were gone.  They were there the last time I had looked.  I was hoping it was a temporary glitch and they would be there today, but no cigar.  The last time I had looked I believe the first two answers had similar percentages in the high 30s.  I think it was 68-70% of you had done at least some planning.  That was actually better then I expected.  I am glad to see so many take this seriously.  I think you will be glad you did.

Bob

 

Daily update 10/26

I have been talking about a possible bounce for a couple of days now.  I think it will happen on Monday.  Lets start with the SPX daily chart.

SPX made a slight new low today, but failed to go cascading down yet again.  This is now four days in a row.  Clearly the bulls are supporting this market here.  First rule of shorting, when the market stops going down get out.  Do not wait until everybody else starts getting out first.  I think a big short squeeze is coming next week.  Lets zoom in to the 130 minute SPY chart.

I am switching back to SPY now since it should be long enough since the dividend gap.  Those green support lines I put on a long time ago.  So far we have held above even the top one.  Notice the bars at the end of the day.  There was a bullish hammer candle and and an inverted hammer.  After a down trend both candles are bullish.  The last bar was also green.  Lets zoom in to the 60 minute chart.

SPY closed above its 18 SMA after several days below it.  The pullback at the end of the day closed just above it.  This chart is ready to go on the upside.  This is a short squeeze waiting to happen.  The chart has turned up with green bars, but did not go far enough to scare out the shorts.  Usually they gap it up the next day and cause the shorts to cover like mad.  I have been on the wrong end of this setup way too many times.  The red line is at the SPY high since the big gap down.  Above that line and the short squeeze will be on.  They might gap it up over that line to start with, but it is a pretty good ways above so it is hard to say.  I think they will get it above that line on Monday.  One more chart to look at.

Here is the current breadth chart.

The 10 DMA breadth chart has a slight positive cross tonight.  The McClellan oscillator is above the -100 level.  This is a setup for a sizable bounce.  My best guess is that we go up and kiss the underside of the lower channel trend line shown on the SPX chart up above.  It could easily fall short of that though.  We will have to just keep an eye on the move and see how much strength comes in.

For Monday do not fade a gap up.  Look to be a buyer for we should get a swing up here. We crossed the hourly 18 SMA and have a bullish setup now.  If we trade down to new lows again, it will likely have a mini cascade down.  People have been buying in near the lows, but with a failed bullish setup they will probably bail.  If we gap down to new lows it would be tricky.  The bulls may or may  not come out and support it again.  That could depend on what caused the big gap down.

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

Bob

Recent. economic data

There are a few new pieces of economic data to review.  Lets start with durable goods.

Source

Clearly durable goods have not done well for a few months.  This continues to have a recession like look to me.  It is very different then in last year's recession scare or any other time since 2009.  Unless it rebounds very soon, manufacturers might have to start laying people off.

Here is a chart of the CFNAI, kind on an interesting index.

Source

This index has clearly gotten down to levels that have been associated with recessions.  However, there have been a few occurrences that did coincide with recessions.  Much lower then where we are at and it will get pretty tough to argue we are not in or very near a recession.

I thought this was an interesting chart on the housing market.

Source

All the housing starts have not translated into more employment yet.  That may be explained by this next chart.

Starting in Nov. of last year there was a big jump in the seasonal adjustments applied to the data.  The adjustments all year have been higher then they were from 2009-2011.  Is there really a recovery in the building of new homes or not?  Were construction workers getting paid to sit on their hands so they would be around and ready to build more houses when the market recovered?  I guess you can decide for yourself how real the housing recovery is.

Morgan Stanley has a proprietary indicator that has a bit of a scary chart.

 Source

This is the lowest this index has been since the last recession.  This is another indicator that is much worse now then during the recession scare last year.  Is the job market about to start turning down again?

It is interesting to watch the pundits on TV grab on to any positive data they can find and ignore the many pieces of negative data out.  I cannot find any real sign of a turn up in economic activity.  There are several signs that indicate things may be about to get worse faster.

Recently I am starting to hear people get excited again about China.  Yes I am sure there is a pickup in activity and I am pretty sure I know why.  It is simply AAPL.  They have to make millions of their new products ahead of the release date to satisfy their customers.  They are all made in China.  The old products are still being made so there is an overlap of production.  This certainly causes a surge in the data, LOL.  In a short time AAPL had multiple new products released.  Going forward the old products will taper off and production of the new products will settle down to the levels needed to meet demand.  I suspect the surge in China will be short lived.

Bob

Daily update 10/25

Yet another test of the low.  SPX tested slightly lower each day, but failed to break down.  Here is the daily chart.

Today was an outside day with an up close.  That looks like a bullish candle pattern to me.  We are certainly oversold enough to support a bounce.  I usually use the 18 SMA for a target with a setup like this.  It will often overshoot it just a bit.  Lets zoom in to the 60 minute SSO chart.

We ended the day right at the 18 SMA which has flattened out.  The double bottom from yesterday has now morphed into a triple bottom.  Will the bulls gather the troops for a bounce?  This chart is in a very good position now to turn up.  If the bulls show up again tomorrow, go with it.  Remember the sub intermediate trend is down so the odds favor any bounce here will be of the dead cat variety.  That means if you decide to play it, do not overstay your welcome.  We should end up with a lower high that will be a good short op.

If we don't get the bounce, we still have support at the 1395 area.  I think the bounce is the higher odds outcome at the moment.

Bob

Dow Theory

There are plenty of articles on the internet about Dow Theory if you are not familiar with it.  Basically, the idea is the Dow transports should be confirming new highs and lows with the Dow industrials.  Some people claim it has no value and others believe in it very seriously.  There are not very many stock market theories more then 100 years old that anybody talks about.  If the theory had absolutely no value, nobody would be talking about it today.  I think there is significant value to the theory, but it is not a great market timing tool in the short term.  I prefer to compare the indexes on monthly charts just to see what is happening with them.

Lets start with a big historical picture. Here are two very long term charts of the two indexes.
Source

Source

I have put some lines on the charts to mark significant price areas of interest.  After WW2, both indexes eclipsed their late 30s peaks signalling the worst of the great depression was probably over.  Both indexes consolidated in the late 40s before turning up in earnest in the early 50s.  In the late 50s, the industrials made a new high not confirmed by the transports.  Nothing too bad happened to either index, but they traded sideways until after the Cuban missile crisis of 1962.  That run up lasted until 1966.  We can see some slop and chop in the late 60s with neither index clearly breaking out to new highs.  In 1973, the industrials made a slight new all time high while the transports were still significantly below their prior peak.  The worst bear market for the industrials in the 1966-82 secular bear market happened after that clear non confirmation by the transports.  The rally that started in 1982 clearly pushed both indexes to new highs and the grandest secular bull market in history was born.

My historical data starts in 1978 for the transports.  Lets zoom in and look a little closer at the two indexes.

Before the crash of 87, that we just passed the 25th anniversary of, both indexes were at all time highs together.  I have studied the market for that time period and I have to say that is a top that really had little or no warning such a big move down was coming.  I think there are two reasons for it.  One was simply the huge move up over the previous 5 years without any serious sell offs.  This left a lot of people sitting on big profits.  When the market started to correct for real, there were plenty of people that wanted to lock in profits.  The real driver of the crash itself appears to be the idea of portfolio insurance.  Some guy came up with the idea that you could sell S&P 500 futures to hedge your portfolio.  The idea in and of itself was not all that bad.  The problem is that when you have a large group of money managers selling futures to hedge their portfolios it sent the market spiraling down.  That in turn caused the managers to sell even more futures which caused more downside which caused the managers to ...  Both indexes were at new highs together before the crash, and the economy did not go into recession after the crash.

Moving forward in time, we can see the transports took out their 1987 high well in advance of the industrials.
Before the 1990 recession and sell off, the transports and industrials had diverged for many months.  There was a warning there.  The market was in a secular bull stage so the sell off was not all that big.  Both indexes consolidated in 1991.  In late 1991, both indexes broke out to new highs for the year.  Notice the industrials were at new all time highs, but the transports were not.  They were at new yearly highs though, just not all time highs.  In 1992, there was a market pullback and the sell off in the transports was bigger then the industrials which had made a new all time high.  Looking at these indexes over a bigger multi-year time frame there was a divergence, but in the shorter yearly time frame there wasn't.  No recession happened.  By 1993 the transports had made a new all time high and cleared up the multi-year divergence.  The market made a big huge run the rest of the 90s as the next big bubble was forming.

Lets fast forward the chart some.

In 1998, both indexes were at new all time highs in close proximity in time.  There was a big sell off in late 1998, but no recession and the market quickly recovered.  Things changed in 1999.  The transports topped in 1999, eight months ahead of the industrials.  The market had a prolonged bear market that included a recession.  The action in the indexes in 2002 and 2003 is pretty interesting.  The industrials made new lows below the 2001 lows, while the transports did not.  That was a non confirmation, however the next bull market did not get going yet.  I believe this was likely because of the Iraq war.  Without that war, I think the 2002 low would have been the last low.  In 2003, the transports made a new low, while the industrials did not.  This non confirmation as the main Iraq war was ending did launch a new bull market.  Lets fast forward a little more.

In 2005, the transports made a new all time high not matched by the industrials for more then a year.  The industrials did make a multi-year high though.  The market kept on plugging away.  In Oct. of 2007, the industrials made a slight new all time high not matched by the transports which had topped four months earlier.  A recession started in Dec. of 2007.  As a result of the raging emerging market economies the transports made a slight new all time high in 2008 that was not confirmed by the industrials.  This is similar to the action between the indexes in 2002 and 2003 in reverse.  The worst sell off since the great depression followed those two non confirmations. 

Looking at these historical charts it is clear that divergences between the indexes often precede major turning points.  Divergences can exist over long periods of time.  There were clear divergences between the two before every recession since 1990.  That would seem to validate that the theory still works, even if some would try to make an argument against that.  The biggest problem is actually applying it because of the time span between divergences.  This gets very complicated when there are multi-year type divergences.  For instance the industrials broke their 2003 low in the last bear market while the transports did not.  That non confirmation was probably a clue that the world was not ending yet.  The result was another huge rally.  Lets look at where we are now.

There are a bunch of things going on here.  In 2011, the transports made a new all time high not confirmed by the industrials more then a year later.  This year the industrials eclipsed their 2011 high in the spring and this fall they got above that high.  The transports did not get above last years high in the spring.  They also have not gotten above their spring high to this point.  What does all this mean?  I think this qualifies as one of those complicated situations.

Lets look at the shorter term divergence first.  The last two bear markets and recessions had initial index divergences of eight and four months.  We currently have a divergence lasting more then a year.  Is that forecasting a recession again?  There is quite a bit of economic data that is signaling that could be the case.  The cause of this divergence is the global economic slowdown.  It is inhibiting the transports at the same time sending money to the U.S. for a safe haven.  Some of that money is ending up in the industrials.  I think the next few months will clear this up significantly.  If this is signaling troubles for the stock market, we should be headed down for real very shortly if not already started.  If the transports make a new high for the year then the odds of trouble would go down tremendously.  That seems pretty unlikely to me since it has not happened so far with unlimited QE and all.

What about that multi-year divergence between the two indexes.  We have had similar divergences in the past.  Some have had significant meaning, some not so much.  Is this a serious divergence or one that will clear up in time?  This is one problem with Dow theory.  In 1973, a similar multi-year divergence happened before the worst bear market of that secular bear market period.  We also had multi-year divergences in the late 50s and early 90s where nothing bad happened.  Those occurred during a secular bull markets though.  There was a multi-year divergence in 2005 and 2006 as well where nothing bad happened.  That was during a secular bear market.  That was mitigated by the industrials making new bull market highs, just not new all time highs.

Lets put the demographic chart up again and think about it in terms of this long divergence.

Source

We have a multi-year divergence during a big down swing in the demographic chart.  I think it is certainly possible another big crash is coming.  It might even be bigger in down side or last longer then the last two bear markets.  In the worst case scenario, it could last long and be bigger on the downside.   The non confirmation in 1973 that preceded the nasty bear market of 73-74 had a low monthly ADX value very similar to what we have today. 

Maybe all this is a bunch of hog wash and there is no predictive value to Dow Theory.  But, what if there still is?  I believe there is ample evidence in these charts the theory is valid, just difficult to apply.  I also believe the theory may be indicating another very bad crash is about to begin.  For those that have not planned what they might need to do in that event, there is still time.  I highly recommend it, just in case.

Bob

Daily update 10/24

The market attempted to bounce, but that did not last long.  Here is the daily SPX chart.

SPX closed near the lows of the day.  It dropped fractionally below yesterday's low, but did not break down.  We are now 34 points below the 18 SMA which is fairly over sold.  That is combined with the blue bars indicating price is extended.  Lets zoom in to the 60 minute SSO chart.

We can see a possible double bottom forming.  Volume was significantly lower on the retest just as it should be.  This chart could turn up for a bounce pretty easily if the bulls show up to play tomorrow.  I think the bounce would be short lived though.  There is a lot of technical damage going on.

The USA Today Money section had an article on the profits for the third quarter.  They said that companies lowering guidance for the 4th quarter over those raising guidance is running 11 to 1.  The long term average is 2.4 to 1.   That suggests analysts estimates will be coming down for this quarter.  Earnings are expected to be negative for the 3rd quarter, but I found this to be interesting.  The article states that since 1953 fifteen out of the eighteen times that earnings went negative, they were negative for more then one quarter.   The average is 3.4 quarters of negative earnings.  The very last analyst estimates I saw for the current quarter were for 9% earnings growth.  That is down from 14% just a few weeks ago.  The statistics would suggest the odds are low that happens.  What affect will that have on the market?

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

Bob

VIX extremes

The VIX has been below 20 for quite some time now.  I thought it might be interesting to see what happened in other instances since 2009.  Here is the VIX chart.

There have been four other prolonged low VIX periods.  Those periods were 8, 11, 11, and 5 weeks.  We are currently in week 13.  The vertical lines mark when the VIX first crossed appreciably above 20.  The red arrows mark when the weekly VIX chart had its first green bar but that bar did not cross above 20.  The green arrows mark when the VIX closed above 20 on a weekly basis.   The crash in 2010 happened right with the cross back above 20.  In early 2011, there was a much smaller pullback after the cross above 20.  This is the only time the market actually went higher after the first green bar on the VIX..  That is also the only first green bar that closed below the 18 SMA.  Notice that when the pullback came, SPX dropped below the low of the week with the red arrow.  The second low VIX period in 2011 saw a market pullback start with the first green VIX bar.  That bar closed above the 18 SMA, but was below 20.  The first low came when there was a weekly  VIX close above 20.  That rally went to a lower high and was followed by a bigger sell off.  The first low VIX period in 2012 bounced around a bit after the VIX got above 20 before selling off.  There was some follow through on the down side after the VIX closed above 20, but the market quickly rebounded.

Where does that leave us now?  We have had a first VIX green bar and it closed above the 18 SMA.  Based on this limited data set, that suggests a high has been made. That could also mean we would need to see a weekly close on the VIX above 20 before we get a decent bounce.  That bounce could be to a lower high and be followed by a bigger sell off.  The pullbacks from this condition ranged from about 7.5% to 20%.  I think it seems reasonable to expect at least a 7.5% pullback this time before it is all over.  Watch for that weekly close above 20 for a possible bounce.   

Bob

Daily update 10/23

SPX closed below the key support zone today.  Here is the daily chart.

SPX closed below the lower channel line of the uptrend since the June low and below the 50 SMA.  It also closed below the spring high.  That puts us in a failed break out situation.  We have a blue price bar so price is extended below the lower Bollinger band.  We also have a FED meeting tomorrow.  Once upon a time you could count on there to be a gap up on FED day.  However, the FED put out a paper some time ago outlining the affect on the market.  I assume this was to make sure it was widely known so that it would stop happening.  It remains to be seen if it will keep happening now that  most people know about it.  Will we have a bounce tomorrow?  This looks like a market breaking down, not just quick pullback.  The next key support is in the 1396 area.  There should be resistance in the 1425-30 area.  This chart looks like there could be a lot of stops somewhere under that 1396 area.  We could accelerate down if that level is broken. The 200 SMA is at 1375 and the high from last year is 1370.  There should be support in that area.

If we get a bounce tomorrow, I expect it to be short lived.  The sub intermediate trend is firmly down at this point.  We are in sell rally mode.  Be extremely careful on long trades.  Remember cash is a position.

Bob

Earnings scorecard

With about 1/3 of SPX companies reporting we can get some sense of what this earnings season is telling us.  It appears that so far the market is not all that excited.  Here are some charts that might help explain why.

Source

Many of the bigger financial firms have already announced their earnings.  Apparently they did a good job of managing expectations. They actually had good earnings anyway.   INTC had a downright terrible quarter, but did a good job lowering expectations.  Most of the misses are coming in companies that are more affected by the global economic problems then the Financials.

We know that profit margins are at their highest levels ever.  This means future earnings growth has to come through revenue growth as cost cutting just won't do it anymore.  Check out this next chart.

Source

Companies beating revenue estimates is the lowest since back in the dark days of Q1 of 2009.  Apparently the drop in revenue is catching companies by surprise a bit. 


This leads us to our next chart.

Source

All the misses are leading the analysts to project revenue to be negative for the first time since 2009.  This is most likely what the market is unhappy about at the moment.  Will the revenue problems continue?  Check out the next chart.


This chart is pretty telling.

Source

The ratio of negative to positive guidance is skyrocketing this quarter.  It seems a bit unlikely the revenue picture is going to turn around in Q4.  All the more reasons why the market is not real happy at the moment. This is real stock market fundamentals turning down, unlike the last few years.  I know everybody thinks QE was why stock prices went up.  I firmly believe it was fundamentals.  We really did have good revenue and earnings growth.  Why is it so hard to believe that might possibly have had at least a little to do with it.  Prior QE announcements came after crashes.  In the case of QE2, the market had already bottomed anyway.  Is it any wonder stock prices went up after QE?  If the fundamentals continue their current downward path stock prices will follow. 

Bob

Daily update 10/22

Quite the bounce going into the close.  Here is the daily SPX chart.

SPX closed below its 50 SMA for the second day in a row.  However, it is just barely below.  We have a bullish hammer candle today because of a pretty big bounce going into the close.  SPX tested the last swing low and bounced back up out of the support zone.  I believe this will be a short lived bounce, not the start of another swing up.  Notice the big drop in volume today.  After such a big down move yesterday, closing positive is not a surprise.  However, barely closing positive and having to work hard to make that happen would seem to indicate the bulls are not all that ambitious to buy here.  Lets zoom in to the 60 minute SSO chart.

Price is still below the 18 SMA which is sloped down very sharply.  Price got pretty extended from that 18 SMA before the bounce.  That leads me to believe the bounce is just a short term move to correct the over extended price.  There is more room for the bounce to continue tomorrow morning.  It should be pretty short lived though.


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

Bob

Misc. economic stuff

I ran across a few things that are interesting.  Lets start with a long term velocity of money chart.

Source

The velocity of money continues to fall.  The FED is pushing on the proverbial rope/string.  You can make money available, but you can't make them borrow it.  We are getting close to depression levels now and still headed the wrong way. Will it turn up or keep heading south?

Here is an interesting chart.

Source

This chart is based on the LEI data.  The ratio is getting to levels rarely seen without being in a recession.  It is still headed down with the latest data.

Exports have grown to be about 13% of GDP these days.  Here is a look at what they are doing now.

Source

I think that chart speaks for itself.  The growth in exports is coming to a screeching halt almost.

If anybody wonders why so many people feel like things suck, I think this next chart explains that pretty well.

Source

Ouch.

Here is another look at the JOLT (Job Opening Labor Turnover Survey) survey in a different format then I have seen before.

Source

The red and black lines are getting awful close to levels that have been consistent with downturns in employment.  There is probably a little more room to go though.  This is consistent with the Philly FED employment index I showed in Philly FED data where the index showed a turn in employment may be imminent.  

I think there are questions about the housing data.  Here is an interesting take on that situation.  I think the seasonal adjustments on a lot of things are somewhat screwed up because of the economic crash in 2008. Housing Starts and Permits: Euphoria May Be Premature I have read a number of articles from this author and he seems to be pretty unbiased.  He points out both the good and the bad in things he writes.  I also believe banks have been holding back inventory in hopes that reducing the number of houses on the market might increase prices.  That has been working, but I wonder if there will come a day when they will put many more houses back on the market.

Despite what the pundits on TV say about the economy picking up, there really is scant evidence of that.  Retail sales and housing seem to be the biggest source of excitement.  The IPhone5 and odd seasonal adjustments seem to be the source of the retail sales increases.  If you read the article on housing, you might have noticed the housing starts data everybody was raving about had the biggest seasonal adjustment since back in 2008 and well above last months.  There just are too many data items that point to the economy slowing, not accelerating. 

Bob

Bear market proclamation poll

I say we are starting a new bear market, how many others have you read or heard saying that?

0	10 (23%)
1	9 (21%)
2	5 (11%)
3	3 (7%)
4	2 (4%)
5 or more	13 (30%)

Votes so far: 42

This was pretty interesting.  Thanks to everybody that participated.  I expected the 0 and 1 answers to be crowded.  I am surprised so many said 5 or more.  Are you guys all listening to the same 5 people, LOL. Generally speaking the fewer people that see the top, the more likely it is to be true.  They were all over Bloomberg TV this afternoon telling me not to worry one bit.  I guess we will see about that.

Bob

 

 

Daily update 10/19

Interesting that on the 25th anniversary of Black Monday we had the biggest down day in several months.
In Daily update 9/17 I wrote the following.

Thursday there were over 800 and Friday there were over 900 new highs.  I noticed this, but did not mention it until I had a chance to look back at history.  Since 1990 there was nothing even close this event.  It is very rare to get over 500-600.  The majority of times it has gotten over 500 have happened since 2009.  I mentioned the high volume could be a short term volume climax.  The new high data indicates it was a buying stampede.  There is a risk that was some kind of upside capitulation event.  Since 2009, the mildest sell off after getting around 500 new highs was Nov. 2010.  The other times were the bigger sell offs in the spring of 2010 and summer of 2011.  I guess we will find out what happens this time.

It has been over a month and we never did get back to that 9/14 upside capitulation day high.  Now we have a short term triple top within the context of a major top.  Today looks like the kick off of the next bear market.  I hope most of you developed your personal plan I suggested a few weeks ago in case I was right about the market forming a major top.  It is much better to plan your actions before the heat is on.  I think there is going to be considerable heat in the next 12-18 months.

Both the short term and the sub intermediate trends are now down.  Shorts are likely to be more profitable then longs for now.  Repeat after me.  Sell rallies.  Here is the daily SPX chart.

I think that was a herd of elephants stampeding out the door.  Do not get run over.  The first leg down off the final bull market high can be pretty steep sometimes.  I have no idea exactly how this will play out.  Here is what I do know.  This high is weaker then the 2000 or 2007 tops in monthly ADX.  This is the first time in history the FED is all in before the market crashes.  Bulls have been buying dips figuring that if things got too bad the FED would come to the rescue.  What happens if the market starts crashing while interest rates are already low and the FED is already printing money?  The exit may get pretty crowded.  The lower support line at 1420 will surely be tested, but I don't think it will hold for long. 

Chart practice has been updated with WFM the featured stock today.  You might want to analyze it with your own charts before reading my comments.  http://traderbob58-chart-practice.blogspot.com/

Bob

Philly FED data

The Philly FED index surprised to the upside in the main number, but the internals were not so good.  Here is the chart.

Source

The main index crossed back above zero after 5 months of being negative.  That is tempered though by the six-month forecast index doing a big about face from last month.  The sub indexes are also not good.  Here is the table of all the sub indexes for comparison.

Source

New orders, shipments, unfilled orders, number of employees, and average employee workweek were all still in contraction.  Inventories were rising along with prices paid and prices received.  The slight cross into positive territory last month in new orders was not continued this month.  The internals of the current conditions are not good, but look at the six month outlook.  There was a big drop in all the same important sub indexes.

Last fall the future outlook started ramping up and new orders followed suit.  Instead of new orders coming in this month, the future outlook did an about face.  This report is not as terrible as they have been in recent months, but it does not signal a rebounding economy yet either.

Here is an interesting chart of the employment sub index.

Source: YCharts

There has been some correlation between the non-farm payrolls and the Philly FED employment index.   Notice the employment index is in much worse shape then it was last fall in the recession scare.  By the time it got this negative in 2008, we were already well into the last recession.  Is it different this time?  Will the employment index turn up before the payrolls turn down?  Unfortunately we will have to wait for that answer.  It still looks like the economy is rather fragile.

Bob

Daily update 10/18

I made a mistake not upgrading the short term trend to neutral last night.  I have not quite gotten into the habit of looking at that everyday yet.  It would not take much to turn that trend up, but that may not happen.
 
Wild day for GOOG shareholders.  I guess if you were planning to do a trade for earnings near the end of the day you got screwed.  Here is the daily SPX chart.

SPX had an outside day on an increase in volume.  This is a reversal type pattern, but does it count?  The reversal happened on the premature earnings news about GOOG.   If this same pattern had happened with no news, I would say there was pretty good odds we just saw another top and a pullback is likely.  We will have to wait and see what happens tomorrow.  Here is the 60 minute SSO chart.

This chart is on the verge of rolling over.  The 50 SMA already has a death cross on this time frame being clearly below the 200 SMA.  We ended the day below the 18 SMA so this chart can be turned down very easily in the morning.

Both the NASDAQ and the Russell2000 were down much more then SPX today.  The NASDAQ clearly looks like risk off mode.  Will anybody notice?  The market is fragile here if the bears decide to pounce.
A close below today's low should usher in more selling.

Bob

Market internals

Since SPX is testing the highs again I think it might be a good idea to peak at some of the market internals and see how they look.

First up is the Summation index.

This one has diverged from price considerably over the last few weeks.  It never reached the strength on the rally since the June low that it has on other rallies.  Look at the strength back in the spring.

This one is the number of stocks above their 200 SMA.

This one is not really telling us much.  It is weaker then it was back at the Sept. peak, but about the same as the early Oct. peak.

This one is the cumulative new high/low indicator.

This one peaked with the early Oct. high and has rolled over a little bit.  I guess we can say it is slightly divergent, but nothing dramatic.  It is in position to turn down for the first time in this rally though.

This next one is the number of stocks above their 40 day SMA.

There is a little more divergence in this indicator.  Clearly a loss of upside momentum here.

Here is the current put/call ratio chart.

This ratio is considerably higher then back in Sept.  There has been some hedging going on the last few weeks.  It is in position to spike up, if the market rolls over.

Next up is the NYSE bullish percent index.

 
This one is clearly divergent from SPX.  It looks a lot like the Summation index and the COMPX and Rusell2000 indexes.

There are some divergences going on over the last few weeks.  The market has gotten somewhat weaker.  If the market rolls over here we should see a much steeper sell off this time.  With continued upside these divergences will clear up.  Will the bears step up at these price levels for a third time or not?

Bob