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Friday, November 30, 2012

Daily update 11/30

Somebody wake me up please.  That was a snoozer day.  Here is the daily SPX chart.

I have removed the down trend channel lines since recent price action invalidated them.  I have placed a trend line below the current rally.  That is one steep move and at a lower high.  It is a bit hard to imagine it does not have a pretty big pullback when it ends.  Today was an inside day and a doji bar.  Doji bars after a long move can be a sign of an impending reversal.  It needs confirmation like a close below today's low.  Lets zoom in to the 195 minute SPY chart.

I really screwed up on Wed.  I did not look at this time frame before the close I looked at the 130 and thought 50/50 odds on a gap up.  Therefore, I did not hold long overnight.  This time frame was clearly bullish going into the close.  The biggest problem for me is that I can't think of a good excuse.  I usually look at this time frame along with the 130.  So why did I skip it this time.  Had I held long, which is clearly within my rules, my bad day on Thursday about being wrong on the gap fill would not have been so bad at all, LOL.  SPY tested my resistance line today, but failed to stay above it.  This is the first time on this rally this chart is in a position where it could roll over fairly easily.  I think I got a little sloppy in my analysis this week. Sorry about that.  How about we blame it on all the turkey I have been eating!  Lets peek in on the 60 minute chart.

SPY is now sitting just above the 18 SMA.  I kind of think I want to be short if we break that while we are below the daily 50 SMA.  With the 18 SMA almost up to my resistance line, one of them has to give soon.  If the rhetoric coming out of Washington next week is still we are miles apart on a deal, the market could initiate a pullback.  Remember this price action is happening inside the post election big gap down.  This could be really big resistance here. 

The sub intermediate trend changed to neutral today, losing the downward bias.  Based on how this trend indicator works, the market should roll over right around here if this up move was just a corrective type move.  If we go much further up it will start to look more like a kick off of a possible test of the Sept. high.

Chart practice has been updated with DE the stock for today.

Have a great weekend all,


Over the last few months I have posted a number of articles showing recession like economic data. Just about all of the manufacturing related data has been clearly worse then it was last year in the recession scare.  Here is an article from the ECRI claiming that we are in a recession.  I recommend reading it. Here is the key chart.


These are the four indicators the NBER uses to define when recessions start and end.  Three of the four turned down simultaneously starting in July.  It is not uncommon for employment to be the last one.  The article states that in the severe 73-75 recession employment continued to grow for 8 months into that recession.

Here is a clip of a discussion between Lakshman Achuthan from the ECRI and Tom Keene from Bloomberg.  http://www.businesscycle.com/ecri-news-events/news-details/economic-cycle-research-recession-underway/6

This clip actually made me laugh.  If you watch the clip you will see Tom pretty much makes fun of the guy for saying we are in a recession.  The reason it made me laugh is that I saw a clip from April 2008 that was almost identical.  The recession had been on for several months and Tom was picking on the guy for saying we were in one.  Is history repeating?  Maybe Tom never heard of learning from your mistakes.

Here is an interesting chart of capital expenditures from the durable goods report plotted with SPX.

The last few months have seen a considerable negative change in the year over year data.  Unfortunately this is a limited data series starting in 1992.  That means it only covers the last two recessions.  In the twenty years covered by this data, the only readings this negative occurred within recessions.   Notice how the durable goods index went negative in 2007 while SPX was right near its bull market highs.  It did not get this negative until well into the last recession.  In the recession scare last fall, it never went negative at all.  That turned out to be a pretty good clue we were not going into recession at that time.

What I find so fascinating is all the happy talk about the economy on the TV.  Check this out from a Bloomberg poll.

Two-thirds of the 862 surveyed described the global economy as either stable or improving. That’s up from just over half who said that in September and is the most since May 2011. 


The last line cracks me up.  This is the most since May of 2011.  You might remember that SPX hit its 2011 high on May first before eventually plunging 20%.  This poll is for people that have Bloomberg terminals.  Most of the respondents are likely money managers or work at some kind of financial related firm.  I have absolutely no idea what they are looking at that makes them think the global economy is improving.  This is the fourth quarter and things should be humming along showing a big improvement and that is not happening.  What happens when the usual first half of the year slow down comes along next year?

In recent weeks I have been told rather emphatically by two local merchants that we are definitely in a recession.  A Chinese restaurant I go to periodically has been completely empty twice two months.  Nobody eating in or getting take out.  I have been going there since 2005 and the only other times I ever saw it completely empty were in late 2008 and early 2009 during the great recession.  There is simply too much data that indicates we are likely in a recession to ignore.  There is no combination of spending cuts or tax hikes that will not make the economy worse.  The only thing going on in Washington is a discussion of the type and doses of poison about to be administered to the economy.  The stock market will likely rally when the deal is announced.  I expect that bounce to be short lived and a major crash will happen next year.


Thursday, November 29, 2012

Daily update 11/29

There is nothing I hate worse then being wrong.  Fortunately it does not happen all that often.  I kind of thought that the 11/8 gap down on high volume was a break away gap to the downside from the fall consolidation at the highs.  I thought it would likely go unfilled for quite a while.  I guess the market just had to prove me wrong as it mostly filled that gap today.  There are no more gaps up above left to fill.  Here is the daily SPX chart.

At the high today we touched my red resistance line.  SPY actually touched its daily 50 SMA.  SPX came up three points short.  Maybe tomorrow.  We clearly broke the upper down trend channel line.  However, I think we are just beginning to make a new wider channel, but we will have to see how it develops.  Had the market gone back and tested the Nov. low successfully we could have had a bullish pattern.  We would have been oversold and stretched making odds of a successful test pretty good.  However, going up to test the daily 50 SMA from below on a spike up move like this probably leaves very little chance of a successful test of the Nov. low.  I am confident we will test that low down the road.  Lets zoom in to the SPY 130 minute chart.

Curiously SPY stopped at the last red resistance line I have on this chart.  Funny how a totally random market keeps hitting and stopping at lines I put on charts months in advance, LOL.  It must be dumb luck over and over again.  It can't be possible that the market is not totally random!  I have another SPY chart in another work space that I use during the day that somehow did not have this line on it.  Therefore, I was oblivious for a good part of the day that we had resistance here, LOL.  I bought some SPY calls twice thinking the market might make a little run higher and it got slapped back both times and I had to scratch the trades.  I loaded the workspace that has this chart in the afternoon to look at something else and I happened to see the resistance line.  I must have accidentally deleted it or never put it on my other chart to begin with.  So basically I had a bad day.  I was wrong about the post election day gap being filled and I had not noticed we were at important resistance.  Lets take a peek at the 60 minute chart.

SPY could not get an hourly close above the resistance line. Notice the big red volume bar on yet another sound bite out of Washington.  I don't know how analyze a market that makes 200 point DOW moves up and down based on something somebody says.  The daily chart still looks very bearish to me, but over what time frame does that play out.  Check out the chart of the initial move down from the 2007 high.

The circled price action looks kind of similar to the current move up to me.  I expect something similar to play out.  There should be a pullback at some point followed by another rally attempt.  In 2007, the market made a lower high, but in other instances the market makes a double top or slightly higher high.  This market is acting very much like a bear market.  Do not be the bag holder.

The sub intermediate trend has been updated to neutral with a downward bias.  The short term trend should have been upgraded to up last night, but I was asleep at the wheel.  Sorry about that.



What exactly is going on in China?  Check out these charts of the Shanghai exchange.

Lets start back at the beginning of the current bull market in the spring of 2009.  We can see this index made a higher low while western markets were still going down.  However, this index peaked way back in late 2009.  It just made new lows since that peak today.  Lets zoom in to the daily chart.

The circled bar was when the Chinese government announced a new stimulus plan.  The market tested that high, but eventually failed and is now making multi year lows.  I keep hearing people on TV telling me that the Chinese economy is turning the corner and starting to pick up again.  Really.  Does this look like a stock market from a healthy and growing economy.  The stocks on this index have limited participation from foreigners.  The majority of the money is from the Chinese people themselves.  To me that is feet on the ground there voting with their wallets.  I have stated that the current bump in the Chinese economic data may be caused by new Apple products and might not be sustained when production of those new products flattens out.  I think this chart may be indicating that idea could be correct.  The Chinese economy has gotten so big that what happens in China does not stay in China anymore.  Maybe their economy is not done slowing down yet.  I would think this index would bottom and be going up at least some by the time the economic data really showed strength.  This could still form some kind of bottom here if this latest break down turns out to be a fake out.  If not, it could be indicating more slowing of the global economy is coming.


Wednesday, November 28, 2012

Daily update 11/28

There is a little intraday volatility for you.  Here is the daily SPX chart.

Today's candle is a bullish engulfing bar.  The volume was just about the same as yesterday.  SPX closed fractionally higher then Friday's high.  Are we ready to blast off?  Here is the SPY 130 minute chart.

There was a lot of volume on the first bar today which should be bullish.  SPY filled in one of the open gaps. The price bars are white now, not green.  This chart is a bit weaker then when we were at this same price area on Friday.  Will it roll over or break out to the upside?  I think this chart is telling me that it is 50/50 on direction.  What is the next news sound bite coming out of Washington?  Lets zoom in to the 60 minute chart.

SPY bounced right off the 50 SMA this morning on pretty decent volume.  This looks pretty good, but I can't say it is definitive on an upside break out.

We have had some pretty wild intraday moves the last two days.  That kind of price action usually occurs in a down trend or at major turning points.  If we were still near the lows, today would be considered bullish.  However, we just had a multi day rally.  If this sudden volatility is indicative of a turning point, does that mean we are making an important lower high?  The daily SPX chart looks obviously bullish doesn't it?  One problem with the market is that obvious looking moves don't always happen, LOL. 

The only thing I know for sure is that we did not close enough above Friday's high to say we have conquered resistance here.  Will the bears sell a gap up or cover shorts?  Will the bulls buy a gap down, or exit longs?  This looks like a tossup to me on what happens next.  A successful break out to the upside should target the 50 SMA around 1423.  If the market rolls over from here I think it will end up testing the Nov. low again.  We have had enough days testing this area that a rejection should be pretty powerful.  As I write this tonight the futures are down a little bit from the 4:00 close, but where will they be in the morning?  Sometimes the market is just plain ambiguous.  I think this is one of those times.

Chart practice has been updated with CA the stock for today.



It has been a while since I peeked in on GLD and GDX.  Lets start with the daily GLD chart.

The up move over the last few weeks kind of looks like a bear flag or rising wedge type pattern.  The volume has been very low for most of the time.  This looks more like a corrective move to me rather then the start of a real rally.  Price crossed the 50 SMA to the upside, but did not confirm the break above.  Today it closed back below the 50 again.  It never quite hit the 200 SMA or the green uptrend line on the big decline.  I think this might have some more down side testing to do.  I will be watching to see if it breaks the blue lower trend line. In that case, I would like to see a hit of the green uptrend line which is around 164 at the moment.

Here is the daily GDX chart.

GDX broke below my green support line on the big decline.  I put a blue horizontal line at that low so you can see how far down into the summer price action it went.  It clearly has not had as big of a bounce back as GLD had.  That was a little bigger move down then I would have liked to have seen.  I think it is pretty important that GDX holds around that Nov. low on any downside testing.  I don't see anything in this chart that suggests it is ready to take off on the upside yet. 


Tuesday, November 27, 2012

Daily update 11/27

Interesting day.  The wild price swings in the morning are often a sign of a reversal more often then a continuation pattern.  That had me on alert for a short op in the afternoon.  The futures have been above 1402 on four separate occasions since last Friday, but were unable to stay there.  Since we are overbought in a down trend it is logical to have some kind of pullback.  Here is the daily SPX chart.

SPX had a hanging man yesterday and some downside today.  It is still above yesterday's low so there is still a chance for the bulls.  We will have to see if there is follow through on the down side in the morning.  Notice the down move today came on a pickup in volume from yesterday.  Lets zoom in to the 130 minute SPY chart.

The last candle was red and there was an increase in volume.  The volume pattern was never inspiring on the upside.  This chart is ready to roll over.  It just needs some follow through.  How about the 60 minute chart.

SPY closed below its 18 SMA.  The volume pattern does not look as bearish as the 130 minute chart.  I look at different time frames intraday because things can look different depending on when that volume falls.  Lets zoom in to the 30 minute chart.

The biggest volume bar of the day came in the last 30 minutes on that last down candle.  I held some puts overnight because this looks like a good reversal to me.  My sub intermediate trend is still down so I do not want to miss a short setup here.  Will it follow through tomorrow? 

Let me see if I can explain my thought process a bit.  I got an oversold buy signal at the Nov. low, but I did not see anything that made me believe that would be an important low.  The bounce was big and fast, but on puny and declining volume.  Nothing there to convince me I was wrong about the Nov. low.  This is what counter trend moves do.  The are sharp and short and suck a lot of people in the wrong way.  This is exactly what it looks like has happened to me.  I cannot begin to tell you how many bullish articles I have read lately.  None of them had any good technical reasons behind them.  You know how I feel about opinion pieces, LOL.  I showed the big surge in bulls in the Bespoke poll.  To me it looks just like dozens of other sucker rallies I have seen through two bear markets.  I want to have short exposure anytime it looks like the market might go down.  If we get back above that hourly 18 SMA tomorrow I will be out and waiting for the next op. 


Recent economic data

Lets start withe the ADS chart.


In 2003 and 2005, the index got this low without a recession occurring.  It looks like do or die time for this indicator.   Any lower from here and it will get increasingly difficult to argue that we are not in a recession. 

This next chart is the LEI coincident to lagging indicator.


This index has rarely gotten this low since this data series started.  This is truly a weak economy.  It is hard to say we are not already in a recession.  It is even harder to say that even if we are not in one yet, that there is any combination of tax hikes and/or spending cuts that will not throw us into one.

Lastly, lets look at industrial production.


We have been down to this level of year over year growth without being in recession, but it is pretty rare.

There is certainly a lot of data that points to a weakening economy.  It appears to me that new Apple products are helping to hold up the retail sales data.  The only other piece of economic data that is holding up has been the employment data.  There are some employment indicators I have shown on the blog that indicate that may not last much longer.  I hear people on TV telling me the economy is improving, but I can't see it in the data.  I think I have made it pretty clear I don't care much for opinions, I want facts.  The facts do not support a rebounding economy yet.


Monday, November 26, 2012

Daily update 11/26

I want to start with the latest Bespoke SPX poll.  Here is the chart.


We can see two weeks in a row of way more bulls then there has been since the inception of the poll.  Now here is the weekly SPX chart.

Do you see any problems here?   Back in the spring in the midst of a strong uptrend there were more bears then bulls most of the time.  The market even topped out a couple of weeks after more bulls started showing up.  The same thing happened with the summer rally.  Now we are in a clear down trend and we have more bulls then bears almost every week.  The contrarian in me says there is very little chance we have made any kind of important low.  I have heard some absolute bulls*&t on TV with people trying to tell me it is time to buy.  I am sure these guys are all talking their book.  In the last few days I have been told the action in the transports is bullish.  I have also been told that tax hikes are bullish because they can make the economy stronger.  Neither person spouting these statements showed any research to back up their claims.  This is the biggest load of crap I have ever heard.  To me Wall Street is desperate to find bag holders for their inventory.  People fell for it twice, will they fall for it again?

Moving on to the daily SPX chart.

We had a hanging man candle today.  It started with a sizable gap down and the SPY chart looks completely different.  I don't really like it when it forms this way on SPX.  We will have to see if it is a bearish omen or not.  Bulls will say this was a nice consolidation at the highs.  However, after any strong move up or down it is common for the market to take a day or two before reversing.  I don't think it is safe to read this as a bullish day either.  Lets zoom in to the 60 minute SPY chart.

We are still testing into the resistance in the circled price area.  We also have the 200 SMA here.  The 18 SMA continues to rise up to meet price.  Will it kick the market higher or will price break down below it?  If we get another thrust day up it would be pretty hard to make a bearish case going into year end I think.  If we roll back over from here then I think the bears are still in control.  Creeping up a couple of more points here would not really give an all clear though.

I am not sure what to say about tomorrow.  We are at obvious resistance.  We are in a daily down trend.  We have very bullish sentiment.  All those things usually mean a good short setup.  I think we will get a decision soon.

Chart practice has been updated with GS the stock today.


Odd move in MCO

I was looking at the McClellan oscillator (MCO) and I just could not remember seeing it move from one extreme to another so fast and so straight.  Check the chart.

The the extreme negative reading at the low is marked by the blue horizontal line at the bottom.  The current extreme high reading (marked by the blue line at the top) in the MCO came in only 5 days and is straight up.  This is a very rare move.  Lets look at the two closest cases.

The first case was the crash in Aug. of 2011.  Here is the chart.

The MCO was more negative then the current case since it started below the lower blue line.  The first peak came five days later just like the current case.  It was a little lower then the current peak, but it started out quite a bit lower.  There was one down day in that move, unlike the current move.  SPX went back to test the low again, and made a slightly lower low in Oct. 

The next closest match was in the 9/11/2001 crash.  Here is the chart.

This move also had one down day on the way up.  It took nine days to get the MCO up to the upper blue line which marks the current reading.  This was a true V bottom here.  However, this low was eventually broken in 2002. 

Both the 2001 and 2011 down moves were much bigger crashes then the current sell off.  Both of those had big VIX spikes over 40.  Both also had extreme climatic type volume into the low.  The current situation does not really compare in any of these things.  Those instances both looked like they should have made a significant low of some kind to me.  It was obvious at the time.  The recent low, not so much.  It just does not look like a setup for a significant low to me.

The move to decimalization in stocks in the spring of 2001 affected breadth indicators like the MCO.  That makes comparisons to time periods before that invalid.  Very often history can provide some guidelines in possible outcomes or maybe suggest some odds on a certain outcome.  In this case, I don't see that history tells us much of anything about what might happen next.  This looks like a situation unlike any other in the last 11 years of MCO data that is comparable to today.  I am very curious to see how this plays out now.  Does it V bottom out of here and keep going up.  Maybe it retests the low and rallies.  How about a retest of the low that fails and we get another mini crash.  I guess we will have to see how the market handles a down day when it comes.


Friday, November 23, 2012

Daily update 11/23

Interesting day for a holiday shortened trading day.  That looked like a real old fashioned buying panic.  Here is the daily SPX chart.

SPX stuck its head above the downtrend channel today.  The 100 SMA is also in this area.  Everything I read seems to indicate the market is going to keep flying up from here.  What is this chart telling us?  Here is what I know.  At the lows the price penetrated the lower channel line, but ended up reversing.  Price has now penetrated the upper channel line.  Is that an equal and opposite reaction?  Will price be able to hold above that trend line?  The market is now in a very short term overbought condition in a down trend.  Check out the breadth chart.

The McClellan oscillator is above the green line so it is in an overbought position.  The 10 MA breadth chart had a positive crossover today.  That means it has completely worked off its oversold condition, but is still in a fragile state.  At this point it is pretty easy to cross back negative again.  Lets zoom in to the 130 minute SPY chart.

I have circled two areas on this chart that may provide resistance in this area.  The volume pattern does not show any serious accumulation on this move.  Big red volume bars are still dominant.  Spy is well above its 18 SMA on this time frame making it very extended.  Just looking at this chart since the election I see a high volume fast move down followed by a low volume fast move up.  Of those two moves which do you think has more conviction? 

Let me see if I can summarize what I see.  We have a market in a very short term overbought and in an area of possible resistance within the context of a daily down trending channel.  There also seems to be way too many bulls coming out of the woodwork.  Apparently the market can only go up into year end.  This combination generally ends up being a much better short setup then a long one.  If we have a gap up on Monday I will be looking to establish some short positions.  I believe there will be some profit talking from this bounce into the strength.  I don't believe it is technically possible to declare a significant low is in.  Anybody that says that is hoping.  The technical evidence is not there.  This rally has not been tested in the least.  Until we get a down day and see where/if the bulls show up again nobody can proclaim a bottom is in.  Any analyst that does that on a regular basis will be proven wrong a lot, LOL.  I am pretty sure down days have not been eliminated so I suspect we will see one next week.  I want to see a higher low somewhere before claiming an important low is in.  All I see is panic low volume buying so far.  That usually does not end well.  One bullish scenario would be a pullback that is slow enough to keep price on the upper side of the upper channel trend line.  That kind of move down can last quite a while and go down a pretty good ways and still be very bullish.  Bears want to see price get back below that upper channel trend line.  Should that happen we could easily do a full retest of last week's low.  If the market does not gap up on Monday I will be watching the SPY hourly 18 SMA for a short entry.


Sentiment shift

I found this sentiment chart on Bespoke kind of interesting.  Check this out.


The big spike up is on optimism for a possible deal in Washington.  I think people will be disappointed when it comes.  The first thing that sticks out at me is that up until Sept. of this year most weeks had more bears then bulls.  They were right during the spring correction, but look at the summer data.  There were way more weeks where the bears outnumbered the bulls.  That all came to an end in Sept.  Right as the market topped people all of a sudden became believers.  Up until that time there were 8 weeks with more bulls versus 19 weeks with more bears.  Since the Sept. high we have had 2 weeks with bears outnumbering bulls versus 8 weeks with more bulls.  I wrote in Sept. that the high felt like an upside capitulation to me.  I would say it was definitely a bear capitulation event looking at this chart.  They only started doing this poll on a weekly basis back in Feb. so we don't have any more data then this.  Even though the data is much more limited then I would like to see, it does show what usually happens at major tops.  People all of a sudden become convinced the market really will just keep going up.  I assume this is engineered by Wall Street.  When they see a bear market coming they want people to buy their inventory and be the bag holders.  The game remains the same, LOL.  Don't be the bag holder.

I hope they keep doing this poll.  It may prove to be very interesting over time.


Wednesday, November 21, 2012

Daily update 11/21

I found some interesting data on the market around Thanksgiving.


True to past history, today was a positive day.  The statistics for Friday are different based on the time period included.  However, both time periods show a negative bias on Monday. 

Today did not tell us much of anything.  Here is the daily SPX chart.

SPX came within one point of the 18 SMA today.  This is the target area for my oversold buy signal I reported on last Thurs. night.  We are still a little short of the 1395-1400 resistance area so there may be a little more up on Friday.  The volume declined markedly today for the holiday.  I don't think we can tell much by that.  I don't know how to look at this chart any other way then a sharp bounce from a deep oversold condition. Lets look at the 130 minute SPY chart.

SPY stopped at the 50 SMA on this time frame.  Price is really struggling to make any headway here.  I think the odds are we will retest last week's low again in the not too distant future.  I have seen a lot of people proclaiming the low is in and it is up and away from here.  I just don't see anything in the charts to back that up yet.  I will be watching the hourly 18 SMA on SPY for a sign the market is rolling over again.

Happy Thanksgiving everybody,

The global economy through the markets eyes

It has been a while since we peeked at what the markets are saying about the global economy.  Here is the BRIC ETF EEB to start with.

EEB made it up to test the down trend line, but the rally failed.  Maybe I am biased, but this chart looks kind of bearish to me.  What do you think?

Here is a look at the basic materials ETF XLB.

XLB broke its down trend line and is now in the process of testing that line from above.  This chart also has a possible double top lower high.  With possible bullish and bearish patterns I have to classify this chart as  neutral at this time.

Here is the poster child for cyclical stocks the last few years CAT.

CAT has been languishing below the weekly 18 SMA long enough for the 6 SMA to cross below.  This chart is dangerously close to a break down.  It is certainly not showing any strength yet.

The next chart is CLF.  This company supplies steel companies and has been in the news lately for shutting down production.

This chart is breaking down again to new lows.  Clearly steel demand is not picking up.  This is likely a clear negative sign for the global economy.

Next up is the cyclical index.

This index is fighting with its down trend line.  Its been above and below lately.  This seems undecided to me.

What about the semiconductor index.

The SOX is still in the bigger picture triangle pattern. It is testing the lower trend line for the third time.  Will it hold or break?  It is clearly not showing any pickup in the global economy yet.

Last up is the transport index.

The transport index is also testing a lower trend line similar to the SOX.  There certainly are a lot of tests of that upper trend line.  Is a break down coming or will that lower trend line hold again?

Here is the summary from the last look at the global economy

The XLB ETF is showing strength  not confirmed by anything else at this time.  Most of the charts have improved from last summer.  A lot of that move up we know was caused by the talk and actions of the ECB and the FED.  People piled into risk assets based on hope.  If that hope turns to reality these charts should make upside headway and start breaking out.  I don't see enough here to pronounce the worst is over for the global economy yet.  I think it is a bit risky to assume that is the case.  There are some charts at important junctures though.  If we get more break outs, the outlook would become more positive.

None of these charts are above where they were when we last looked at them.  Some are much worse and are threatening to break down below key trend lines.  The usual uptick in the fourth quarter does not appear to be happening.  The first quarter has seen much weaker GDP growth then the fourth quarter the last few years.  Is that going to happen again?  If so, I would expect it to be a problem for the market.  Revenue problems started showing up in the third quarter.  Further slowing in the global economy will only make it worse.  These charts seem to indicate further slowing is likely.


Tuesday, November 20, 2012

Daily update 11/20

It was a bit of a choppy day.  There was a couple of dips and the bulls came in to buy.  Here is the daily SPX chart.

The 18 SMA is now 1393 tonight.  Then we have the 1395-1400 resistance zone above that.  Volume dropped again today.  With the holiday coming up it will likely drop again tomorrow.  Here is the 130 minute SPY chart.

Intraday volume was very light today relative to what we saw on the way down.  SPY closed above the resistance line it stopped at yesterday.  Since it has consolidated there for quite some time it seems likely it will be able to get through it.  The next resistance line is at 140.20.  Tomorrow could be thin and choppy so be careful trading.  The market can levitate around holidays sometimes.  Buying a dip intraday can be profitable if we get one.  I am not sure there are many rally chasers around so keep upside expectations modest.


The fiscal cliff

Talk about the fiscal cliff is all the rage these days.  Market pundits will make a big deal out of a "deal" I am sure.  I believe there are three scenarios here.  Let me see if I can simplify things a bit.

1. Nothing happens.  The combination of tax hikes and spending cuts go on as planned.  The economy has a  deep recession and stock markets crash.

2. Some kind of deal happens and there are no spending cuts or tax hikes.  This seems very unlikely given the rhetoric coming out of Washington.  I believe both parties are now convinced something has to be done.  This could be because the ratings agencies are threatening to downgrade the U.S. again if nothing changes.  If these agencies had been doing their job back in the early 80s when we got spend happy, we might not be in the shape we are in today.  If this scenario should happen, the market should have a big bounce before it realizes we are already in a recession and crashes.

3. Some kind of deal is struck between the parties that involves some kind of tax hikes and or spending cuts.  The market rallies on the news, then rolls over and crashes when it realizes any combination of tax  hikes and or spending cuts will only make the recession that we are already in worse.

The only way out of the debt situation we are in is not to get there in the first place.  There is no way a country can live beyond its means for decades without experiencing some pain when the debt finally gets too big.  There are some similarities to FDR's second term going on today.  He went on a spending binge to spark an economic rebound in his first term.  The economy did indeed pick up and the Dow had a massive rally.  The spending drove the debt level way up and after reelection it was decided to cut back.  The economy being artificially pumped up in the first place, crashed again and so did stocks.  Here is a chart from that time period.

The Dow took a 50% haircut in about one years time.  The economy is on fire and the politicians are sitting around in Washington talking about how much and what kind of fuel to throw on that fire.  I don't know how to be any clearer then this.  The economy and the stock market is going to crash over the next year.  If you think otherwise you will be greatly disappointed. 


Monday, November 19, 2012

Daily update 11/19

From Friday night's daily update: "Most of the time after this buy signal there is a rip the face off the shorts rally day.  If we get above today's high on Monday morning do not fade the rally.  Look to be a buyer.  Most of the time the market will keep creeping up all day.  If there is a dip in the afternoon it should be a buying op."

I believe this qualifies as a rip the face off of shorts rally.  If you look at the intraday price you will see it did include an afternoon dip that was a buying op.  The market rallied into the close.  After the rip roaring up day from this buy signal I have never figured out a clear edge on whether to hold overnight.  It is pretty much 50/50 whether it gaps up or down the next day.  Here is the daily SPX chart.

SPX closed slightly above its 200 SMA with a green price bar.  The market worked off the extreme oversold condition in two days.  Notice the big drop in volume today.  Lets zoom in to the 130 minute SPY chart.

About 10 minutes until the close I was trying to figure out whether to exit or hold the swing long positions.  I was looking at those big red volume bars, and the not so big green bars today and decided to close out completely.  I wrote this Friday night also "A rally here is counter trend to me.  I tend to be much quicker to take swing profits and look to enter again on pullbacks."  I believe the bigger move will be down.  I don't want to be nursing long positions trying to find reasons in the charts why the market might continue up and miss the short entry.  I don't know if my next swing trade will be long or short at this point.  I know I don't want to miss a short if I see a setup.  I am not worried about missing a long here.  I just don't see anything that indicates Friday's low is particularly important.  We did not get a VIX spike, a volume climax, or any other sentiment indication of an important low.  I do have a breadth chart that indicates the odds are high price will retest that low and possibly exceed it.  I want the cake.  I will let others fight over the crumbs here.

Lets take a peek at the 60 minute SPY chart.

That lack of volume into the close is pretty clear on this chart.  We also ended up right near a resistance line.
Today just does not look like the start of any big move to me.  SPX might creep up to the 1395-1400 resistance area.

For tomorrow, I think I might be looking to buy a gap down or sell a gap up if either gap is sizable.  If we open fairly flat I will probably sit on my hands.  This being a holiday week and a big up day today it could be choppy tomorrow.

No charts for the chart practice site this week.  I am taking a vacation from that for the holiday week.  Daily updates will continue.



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