What will 2014 bring?

At the end of every year there are always lots of guesses of what the next year in the markets will bring.  If you guess right in the media you can get lots of accolades while guessing wrong pretty much gets forgotten.  So far I have mostly seen reasons why stocks will go up in 2014.  I thought this quote was interesting from the Calculated Risk blog.

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).

Happily, looking forward, it seems the downside risks have diminished significantly. China remains a key risk with growth slowing and significant uncertainty around the large number of poor performing loans. That might be the #1 downside risk for 2014, although China remains opaque to outside observers - and the downside risks to the U.S. are probably small.

...
When I look around, I see few obvious downside risks for the U.S. economy in 2014.   No need to borrow trouble - diminished downside risks are a reason for cheer. 

I think this is a pretty prevalent feeling that there is now much less to worry about then the last few years.  The wall of worry has been dismantled and there is nothing but blue skies up ahead for the market.

That is one end of the spectrum, but there is still a crowd on the other side as this analyst from Saxo.


The US economy is stabilizing, but it's not truly recovering. That's the view of Saxo Bank's Chief Investment Officer, Steen Jakobsen. Following the Fed's tapering news, Steen says the risk is that we trade on perception and not reality. Clearly, the outgoing Fed Chairman, Ben Bernanke, wanted to send a signal to the markets.
Global equity markets, notably in the States, have been hitting record highs for weeks; but Steen warns "we're coming to the end of that cycle." Actual growth in America is well below the average rate of the past 60 years and job creation too is lagging. People may be starting to feel more confident but that's still not translating into significantly higher employment or wages.  
"We're at the end of asset inflation," he says, and that "will dawn on the market very soon."


There are some valuation measures besides P/E that show the market very over valued.  It is hard to argue that the Russell2000 with a P/E around 80 is not a bubble.   Will 2014 continue to find greater fools to bid up the prices of small cap stocks?

What does history say about what could happen in 2014.  Most 20%+ years in stocks have been followed by more gains the next year.   Sometimes big gains.  A few have been followed by losing years.  Statistics say odds should be for higher prices.  However, there are two possible historical problems.  The second year of the presidential term is statistically the worst for the markets with the party in power not making much difference.  Some very big sell offs (does 1987 ring a bell) have happened in that year with Sept. being the most likely time to bottom.  The other potential historical problem is one I have mentioned on the blog before.  The only other time the market gapped up on the first trading day of the year and never looked back two years in a row was in 1975-76.  Those two years were followed by a down 1977 where the market did not bottom until 1978.

There is a lot of excitement about the U.S. economy these days.  So if the economy is really that strong then why are corporations issuing negative-positive surprises at the highest rate since the data has been tracked.  This quarter surpassed the previous peak in 2001 which was right before a recession started.  The GDP is the most unreliable data the government issues.  It has seen huge revisions sometimes years later.  Another unreliable piece of data is the employment numbers.  Those numbers are also subject to big revisions.  These two items seem to be what has so many so positive on the economy.  They have proved to be unreliable in real time though.  There are other pieces of data that paint a somewhat different picture.  Check out this chart.

Source

When you look at the year over year change of personal consumption expenditures it looks like we are close to a recession.  This chart goes back to the 40s and the data has never been this weak without being in or near a recession.  There are still questions in my mind on the true strength of the economy.

So what will it be in 2014?  Regardless of whether we end the year up or down I believe we will see a bigger pullback then we saw last year.  It seems likely to me that some time in Jan. the market will peak and there will be some significant profit taking as people lock in gains from the last two years.

If there is trouble for stocks next year it is likely to come from outside the U.S.  Global economic growth has been slowing since 2011.  There are signs of stress in many emerging markets including China.  Those signs of stress have been mostly contained in their bond and currency markets.  Historically that is often where trouble starts before eventually affecting stocks.  Whether anything truly bad happens there remains to be seen.  The risk is real, but hard to quantify.

I am lucky if I can predict what is going to happen tomorrow or the next few days in the market.  I am not going to try and predict what is likely to happen over a full year.  However, I think there is a considerable risk of higher interest rates, slower economic growth then expected and not so hot corporate profits.  Any of which could hamper stock prices.   

Bob

Happily, looking forward, it seems the downside risks have diminished significantly. China remains a key risk with growth slowing and significant uncertainty around the large number of poor performing loans. That might be the #1 downside risk for 2014, although China remains opaque to outside observers - and the downside risks to the U.S. are probably small.
Read more at http://www.calculatedriskblog.com/#DuacR3cuZqT7jBP2.99

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).
Read more at http://www.calculatedriskblog.com/#DuacR3cuZqT7jBP2.99

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).
Read more at http://www.calculatedriskblog.com/#DuacR3cuZqT7jBP2.99

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).
Read more at http://www.calculatedriskblog.com/#DuacR3cuZqT7jBP2.99

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).

Read more at http://www.calculatedriskblog.com/#DuacR3cuZqT7jBP2.99

For the last few years, "downside risks" were fairly high on my list of "questions" for the coming year. Europe has been an ongoing risk, and last year my top question was related to fiscal policy and the risks associated with the House of Representatives (with dumb policies like not cutting back on sequestration, and dumb stunts like shutting down the government).

Read more at http://www.calculatedriskblog.com/#DuacR3cuZqT7jBP2.99

Daily update 12/31

Well that was quite a year.  We opened on the low and closed on the high.  You don't see that very often.  Here is the daily SPX chart.

After two consolidation days the bulls were back for more.  Statistically the first two days of the new year have a positive bias.  Does that explain the SPY 60 minute chart?

Look at all that volume on the last bar.  Some people must believe we will start out positive.  The VIX was up some more today, but did fall going into the close.  I guess there was more hedging going on.  If the market continues up on Thurs. the VIX pop could provide some upside fuel if people pull off hedges.  As long as SPY stays above the hourly 50 SMA the bias is up.

TLT broke down to new lows today.  Here is the daily chart.

TLT closed below the lower trend line for the second time in three days.  However, it was well off the low.  It really is trying as hard as it can to hold on here.  I would like to see a close below today's low for confirmation of the break down.  If you own interest rate sensitive assets this is something that should be monitored closely.  This has been a long consolidation and should support a big move.  We shall see.

I want to wish everybody a happy, healthy and prosperous new year,
Bob

Daily update 12/30

Another consolidation day.  Here is the daily SPX chart.

The last two days have had a very narrow price range.  As expected there is virtually no selling pressure here at year end.  Lets zoom in to the SPY 60 minute chart.

This consolidation is happening at the 18 SMA.  SPY spent some time below the 18 SMA today, but did not break down and closed right at it.  It would not take much to get this market going up again from this position.  SPY has a couple more days to go before the affect of the dividend gap down is gone from the 50 SMA.  However, I think it is probably ok to use it as the bull/bear line now.  Until SPY breaks that MA the bias is up.  Lets take another look at the TLT daily chart.

TLT continues to try not to decide what to do from here.  After breaking the lower trend line on Friday it popped back inside the triangle today.  It is pretty rare to break both lines and get rejected this close to the apex.  I had a feeling we might not see the resolution until after the new year.  This is certainly winding up for a big move.  We will just have to see what direction it takes.  TLT is in a bigger picture decline and this formation has higher odds of down then up.  That combination should make the odds for a break down higher, but odds are just odds.  Nothing in the markets is 100%.  Whichever way this goes it will likely have some affect on interest rate sensitive stocks like REITs and home builders.  It may have some affect on the economy and the stock market in general.

The VIX surged up over 8% today.  I would say some people were doing some hedging.  I have been wondering if there was going to be some profit taking after the 1st.  The move up in the VIX may be a result of some people worried about that.  With sentiment this bullish there could be significant money inflows to start the year.  We saw that the last two years.  I don't know if that means we won't see it this time or not.  You know how just about every time a pattern shows up in the market it stops showing up.  I am pretty sure there will be a bout of profit taking sometime early next year, but it might not happen right away.

Bob

2014 SPX poll result

What will SPX do next year?

Be up 10% or more	3 (20%)
Be up less then 10%	8 (53%)
Be down less then 10%	0 (0%)
Be down more then 10%	4 (26%)

So we have 73% bulls for next year.  I find it interesting that nobody expects a small decline.  Either we are positive or we have a big decline according to expectations.  I think this is probably correct.  With the Rusell2000 having a bubble valuation the overall bubble keeps expanding next year or pops.  A pop will very likely lead to a bigger then 10% decline in SPX in 2014.

Bob

 

Daily update 12/27

Another low volume day.  Here is the daily SPX chart.

I have added a couple of new trend lines with at least two points of contact.  We will see if they come in to play at some point.  Today looked like a low volume consolidation day.  Oil going over $100 put some selling pressure on the transports today which may have dampened the buying spirits a bit.  However, when SPX got down 2 points from yesterday's close dip buyers stepped in and held the market up the rest of the day.  Until that stops we should eventually move higher.  The more interesting action today was in the bond market.  TLT closed below the triangle bottom I have been showing.  Lets take a look at the 10 year rate monthly chart.

The 10 year rate rallied above the 50 month SMA, came back to test it and appears to be launching off it again.  This is the first time it has spent any time above the 50 since falling below it in 2007.
Are rates headed higher?  It certainly looks possible.  The question is how fast.  A slow increase in rates generally causes few problems until they get too high.  Too high depends on the strength of the economy which is an open question at the moment.  Fast moves up in rates can cause all kinds of problems.  For the last five years people were putting gobs of money into bond funds.  Way more money then into equities.  The inflows were very similar to what we saw in the late 90s into stocks.
Bond funds are supposed to be the safe part of the portfolio.  What happens if losses continue to mount up?  There is a non zero risk of some panic selling for sure.  People's emotions are hard to quantify though.  I think it is possible that the main driver of what happens next year may be interest rates.  It is still possible this chart is forming a double top and rates are going to fall next year.  It seems like that is the lower odds outcome with the move above the 50 SMA though.  I will be keeping an eye on this early next year to see what develops.  I think it might be very important.

The market and sector status pages have been updated.
Have a great weekend all,
Bob

TTL 12/26

I wrote about TLT in an important decision area a few weeks ago.  It is still in the decision area, but things are getting tense.  Here is the daily TLT chart.

TLT has been forming a descending triangle for months.  Early this week it broke out over the upper trend line.  However, it found nothing but sellers up there.  Today it closed right at the lower support line.  Is it going to break down or will support hold?  It may hold here into year end, but a failed break out of the upper line usually leads to a break of the lower line.  REITs and home builder stocks reacted very negatively to the rise in rates earlier this year.  If TLT breaks down all those stocks may be affected again.  If we see another rapid rise in rates it could cause more widespread problems.  An upside break out for TLT should be a positive for those same stocks.  Obviously the triangle is running out of room.  It will have to decide before too long.

Bob

Daily update 12/26

The famed Santa rally continues.  Here is the daily SPX chart.

I don't see anything better for a bull/bear line then 1808 at the moment.  The move is pretty straight up and breadth and new highs are strong.  There should be little desire to sell at this time of year.  Why sell now when waiting until Jan. prolongs the tax bill for a year.  There seems to be enough rally chasers to push prices higher.  As long as they continue to show up we could do the slow grind higher into year end.

Bob

Daily update 12/14

To all that it applies:

Merry Christmas

Slow grind up in the market continues.  Not much else to say.  Unless we close below 1808 on SPX enjoy the ride.

Bob

GLD 12/23

GLD finally retesting the summer low.  Here is the daily chart.

GLD is at the lower channel trend line and potential support from last summer.  Is there enough support here for a decent bounce?  It seems like there could be, but we need to see more upside first.  I would not make any prognostication about the long term here either.  This could make a long term bottom or GLD could bounce from support and still end up rolling over and going lower.  That is a tough call.  However, in the short term this is a possible decision point.

Bob  

Daily update 12/23

A gap up and go nowhere day.  This may be the SOP for the rest of the year.  When there is little buying interest the easiest way to get the market higher is through overnight gaps.  The lack of selling interest was very evident today.  Intraday dips were tiny as buyers rushed in.  Here is the SPX daily chart.

There is not much to say here.  Unless we close below 1808 the bias is up.  Don't forget the market closes at 1 PM EST tomorrow.

Bob

Polls

I stopped doing polls because Google was losing the results after a few days.  I am going to try another weekly poll and see what happens.  If the results stick I will start them up again.

Bob

Daily update 12/20

Rally chasers showed up on the better then expected GDP I guess.  Here is the daily SPX chart.

SPX broke clearly above the recent congestion area on strong breadth.  The higher close confirms the trend flip back to up from two days ago.  The volume was high, but it was expiration day so that is normal.  I have added another support line at 1808 the area of several  closes in the trading range.  A close below 1808 would be the first sign the break out is failing.  Going into the end of the year I am not sure there will be many big players around to sell.  I would think for tax purposes it would be better to sell in Jan. for most people.  In the absence of bad news a drift up seems likely.  There is the possibility this turns into a fast and furious final blow off top type move.  The market is extended in price in the long term, but not in the short term.  Market internals are not in a short term overbought state either.  As long as we stay above 1808 the bias is up and buying dips should be a good strategy.

If this market continues up it will be interesting to see if it broadens out in a big way or continues to be fairly narrow.  During a blow off type move stocks at all time highs tend to attract traders and can make rather large moves.  If the rally broadens out then beaten up stocks tend to attract longer term players and can play catch up while the leaders slow down.  It needs to broaden out if it is to be sustainable. 

Here is an interesting link about identifying bubbles. 
http://www.ted.com/talks/didier_sornette_how_we_can_predict_the_next_financial_crisis.html

Near the end of this article there a comparison between the current market and an idealized bubble chart.
http://www.hussmanfunds.com/wmc/wmc131209.htm

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

Have a great weekend,
Bob

Daily update 12/19

Snooze fest.  SPX acted just like it did the prior two times we crossed 1800.  Here is the daily chart.

We did not get the higher close to confirm the trend flip today.  There was a small gap down at the open and people rushed in to buy.  However, as price neared yesterday's close the rally just stopped.  Every time it sold off just a bit people rushed in to buy the dip.  The dip buyers are all waiting for somebody else to push price higher.  So far the somebody else has not shown up.  This is the same problem we had before when up here.  We will have to wait and see if rally chasers show up over the next few days.  Lets zoom in to the 60 minute SPY chart.

Notice the 50, 100 and 200 SMAs are all bunching up together.  That is how long this market has been going sideways.  It is coiling up for a sustained move.  There were 168 new highs and 85 new lows.  That was more new lows then yesterday. That really surprised me.  This is way to many new lows when at all time highs.  Regardless of whether we go higher in the short term or not the new low data is a problem for longer term.  This market is still in a topping phase that has been going on since May.  They generally take 5-9 months so we are getting pretty well along. 

I don't know what happens here.  I am inundated with pundits telling me stocks are set to go higher.  However, until they actually do go higher we can't know if they will go higher.  Just look at that 60 minute chart.  We get up here and stop.  Some people have to step up to the plate and be willing to push price higher.  If everybody sits and waits for somebody else to do it we will just sit here until the short term traders loose their patience and sell.

Bob

Daily update 12/18

I got something sort of right.  From Daily update 12/13 I wrote:

"So Bernanke said he would like to end QE completely at 7% unemployment.   Guess what folks we are there and he has not even started.  For supporting data we had GDP over 3%.  Later in the year the struggles in Washington were mentioned as a reason to keep QE going.  Well guess what.  They have come to a budget agreement passed by the House and assuredly will be passed by the Senate.  His conditions to end QE altogether seem to have been met.  His latest excuse not to taper has been removed.   Could someone explain to me how the FED does not do some form of taper at the next meeting and maintain any credibility.  I sure don't see it.

The question is how does this affect the market.  My guess is that smart money is selling now to get ahead of the announcement.  That seems likely to break the key 1775 level next week and cause an increase in selling pressure into the FED meeting.   If the FED does taper there could be more selling that day and maybe the next as dumb money bails out.  We should then get a bottom and rally into year end.  A no taper announcement could actually be very negative.  The majority of people think the economy is getting better and would likely wonder what does the FED see that they need to keep up QE."

The FED did taper as anticipated.  SPX did break 1775 as expected.  However, the selling only lasted for a few seconds then the rally that I was expecting into year end occurred over the next hour, LOL.  What happens now?

Here is the daily SPX chart.

I have not looked back in history, but I would guess that it is a rather rare occurrence for the low to touch the 50 SMA and close at a new all time high.  There was a big surge in volume to go along with the move.  The trend indicator turned back up of course.  Just remember it needs a higher close to confirm the change.  Lets zoom in to the SPY 60 minute chart.

That is the highest volume since the Sept. meeting when the FED did not do the taper that everybody expected.  The big volume continued right into the close.  Lets look at that Sept. chart.

SPY gapped up the next day and started selling off.  SPX ended up pulling back to the 100 DMA.  What is going to happen this time?  There are considerable differences in the current situation.  A look at the SPX chart above shows SPX very extended and at trend line resistance after that Sept. FED meeting.  There were 314 new highs that day while we had 186 today.  The McClellan oscillator was 245 (very over bought) while it is only 32 (very low for new high close) today.  We have recently been trading sideways so price is not extended in the short term like it was in Sept.  We clearly do not have the same over bought conditions that we had then.  If it rolls over again it won't be for that reason. 

SPX has been above 1800 twice and failed to find buyers.  Here we are again, will rally chasers show up now?  If they would not buy because of taper worry that should be settled.  If they would not buy because of budget battles in Washington that should be settled.  What is there to worry about?  If it rolls over again it is likely a sign the market is worried about something nobody is talking about, or price at 1800 is simply too high.  A close back below 1800 again is likely to cause more intense selling pressure then we saw the last two failures.  I think that is valid even if it is weeks from now before it happens.  Keep an eye on that 1800 level.  I am not going to try and predict how far we go on the upside if rally chasers show up.  I will be watching for extreme over bought conditions that could precede a pullback.

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

Bob

Daily update 12/17

Are you guys getting bored yet?  I am.  The song remains the same.  Here is the daily SPX chart.

SPX is still in a short term down trend, but still above the key 1775 level.  Lets zoom in to the SPY 60 minute chart.

There haven't been any more big green volume bars since the big gap up.  SPY found resistance at the upper trend line again.  It looks like another triangle is forming over the last few days.  Price is getting into the apex so a break out tomorrow is likely.  If the break out happens before the FED announcement tomorrow afternoon can it be trusted?

I don't know what the FED is going to do or how the market is going to react to whatever they do.  I How is that for analysis, LOL.  I thought maybe we would have had a bit deeper pullback to set up a post FED meeting rally whether they did a taper or not.  I am not sure that is the case now.  Things look setup for a decent move, but if it is down we could still have a ways to go before the bottom.  Either 1775 is going to break or a real rally will be launched from it.  Maybe the move will start tomorrow.

Bob

Daily update 12/16

Bounce day.  Here is the daily SPX chart.

They were doing a pretty good job of cheer leading on TV today.  However, at the end of the day the trend indicator is still down and SPX failed to even close above the 6 SMA.  SPX has more work to do to get bullish again.  Lets take a peak at the SPY 60 minute chart.

SPY had a big green volume bar this morning signaling accumulation.  However, SPY found its high right after 10:00 when it hit the 50 SMA.  It then went sideways the rest of the day.  SPY broke the descending triangle from late last week, but the rally only lasted 30 minutes.  We now have a pretty well tested down trend line to work with here.  We are above the 18 SMA, but below the trend line and the 50 SMA.  Will it roll over or break out above the trend line?

There were 116 new highs and 83 new lows.  That is not a lot of new highs, but that is a lot of new lows on a gap up day this close to all time highs.  Both breadth indicators remain negative.  Oddly the VIX was positive today.  I can't find anything that indicates we have made an important low yet.  We will have to see if the bulls show up again.  I am a little suspicious since SPY found its high so fast. 

We are technically still in a short term down trend.  SPY needs to get above the hourly 50 SMA and stay there.  SPX needs to get above the 18 DMA and stay there.  If it winds up rolling over and breaking 1775 then all today did was provide downside fuel.  A break down below today's low on SPY could start the ball rolling down hill again.

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

Bob

Daily update 12/13

SPX barely hanging on to key 1775 level.  Here is the daily chart.

The bulls are trying to hold it up, but are not making much headway yet.  SPX closed back inside the Bollinger band.  It was a mixed day with a few indexes up and some down.  Not much new information on this time frame.  Lets look at the SPY 60 minute chart.

SPY has made three attempts to mount a rally.  However, each one was met with significant selling.  The volume pattern is still showing big red bars dominant.   There is a descending triangle forming on this time frame.  That is most often a continuation pattern so odds are for a break to the downside.
Watch that upper trend line for a sign the bulls are getting control back.  As the lines are getting closer together early next week we should get the break one way or the other.

I believe the move down is taper fear.  If that is the case it is unlikely the market will bottom before the FED meeting.  How does a money manager step in and buy just before the FED tapers?  Lets look at why there might be taper fear.  Earlier this year Bernanke said this:

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it will be appropriate to moderate the monthly pace of purchases later this year, and if the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year,” Bernanke said in a press conference following the Fed’s two-day policy-setting meeting.

“In this scenario, when asset purchases ultimately come to an end, the unemployment rate would likely be in the vicinity of 7 percent, with solid economic growth supporting further job gains.”

So Bernanke said he would like to end QE completely at 7% unemployment.   Guess what folks we are there and he has not even started.  For supporting data we had GDP over 3%.  Later in the year the struggles in Washington were mentioned as a reason to keep QE going.  Well guess what.  They have come to a budget agreement passed by the House and assuredly will be passed by the Senate.  His conditions to end QE altogether seem to have been met.  His latest excuse not to taper has been removed.   Could someone explain to me how the FED does not do some form of taper at the next meeting and maintain any credibility.  I sure don't see it.

The question is how does this affect the market.  My guess is that smart money is selling now to get ahead of the announcement.  That seems likely to break the key 1775 level next week and cause an increase in selling pressure into the FED meeting.   If the FED does taper there could be more selling that day and maybe the next as dumb money bails out.  We should then get a bottom and rally into year end.  A no taper announcement could actually be very negative.  The majority of people think the economy is getting better and would likely wonder what does the FED see that they need to keep up QE. 

For Monday we should see the resolution of the 60 minute triangle. If it is down then selling should increase considerably.  The 50 DMA is at 1761 which is the next support level down.  I doubt that would hold for long though.  Below that there is 1746 which is the low of the violent key reversal day that saw no follow through.  The next level down is probably the 100 DMA at 1720.  That has been the line that held all pullbacks since May.  A break of the upper trend line probably gets SPX back above 1800.  Whether there will be any buyers up there is unknown.

Have a great weekend all,
Bob

Daily update 12/12

Downside follow through confirms the trend flip to down from yesterday.  Here is the daily SPX chart.

Well, well, well.  Look where we ended the day.  Right on the key 1775 level.  It sure looks like a totally random market to me, LOL.  SPX has a blue bar indicating it is below the lower Bollinger band and is extended.  Since it is right on key support that may bring out some bargain hunters.  It penetrated 1775 earlier in the day and then bounced back pretty good.  However, going into the close it sold off again.  It is possible that was all the bounce we get there.  Pretty hard to say.  Trading outside the Bollinger band is a double edged sword.  It can signal time for a reversal or that the market is accelerating in that direction.  Here is the SPY 60 minute chart.

More big red volume bars today.  SPY is still in distribution mode.  There were 260 new lows and only 29 new highs.  That seems like an awful lot of new lows just 3 days off the high close for SPX.
This has been a recurring theme since May.  Big spikes up in new lows.  I know the trend is up and all, but the action in new lows is not bullish.  The market is in the topping process.

One possible reason for a market top was in the USA Today money section today.  The title of the article was "Profit warnings reach peak".  The ratio of negative to positive earnings pre-announcements is 10.4 to 1.  That is way higher then the previous record of 6.8 to 1 back in the first quarter of 2001.  You might recall that 2001 was when the 2000-02 bear market really got going.  The recession started in the second quarter of that year.  Lets recap.  We have weak market internals, ultra bullish sentiment and declining fundamentals.  That is exactly what bull market tops look like.  It does not get any clearer then this.

Tomorrow morning is a tough call.  We have a modestly over sold condition that could cause a bounce.  However, we have seen pretty aggressive selling the last two days.  SPX has been above 1800 twice and failed to find buyers.  What besides a new all time high would be an all clear sign for bulls?  So I don't have a price level on the upside at the moment.  It will have to be something in the charts that signal the bulls are back in control.  In the mean time it seems like everybody else is selling rallies.  It might be a good idea to join the crowd for now.  There is pretty good evidence we are in a pullback.  Just a reminder that all pullbacks since May have touched the 100 DMA before they ended.  Is there any reason this time will be any different?  The recent high had weaker internals then the other highs.  If anything is different it seems like it could be that we don't stop at the 100 this time.   If taper fear is driving this move down I doubt we see a big rally until we get to the FED meeting and find out what they do.  The exception to that would be if they signal no taper before then.

Bob

Daily update 12/11

Well, well, well.  In Daily update 12/6 I wrote

"For next week I will be watching 1800 on the down side.  If we close back below that I think it will increase selling pressure and slow down the dip buyers.  The neck line of the potential head and shoulders top is in 1777-79 area.  Breaking down below that activates that pattern and it seems likely that SPX will break the key 1775 level."

I was right about the first part.  We dropped below 1800 early this morning and the dip buyers vanished and selling pressure increased.  I also wrote in that same update

"Since the big gap up was a news induced move it is a bit hard to say if it is lasting or not.  Quite often news induced moves are reversed.   I think there is definitely a chance the market rethinks what that employment number might mean for taper.  The FED said it was a close call in Sept.  With the shutdown in progress at the Oct. meeting there was no way they would taper.  But what about now.  We have had some good data.  I even hear leaks that a budget agreement is close in Washington.  The FED has cover to begin to taper at the Dec. meeting if they truly want to.  I don't know if it is just talk or not.  I guess we will find out."

With the budget agreement firmly in place now the FED really has no reason not to taper if it wants to.  I suspect that is what caused the selling today.  If that is the case it may persist for a while.  Here is the daily SPX chart.

SPX closed above the neck line area of the potential head and shoulder top pattern so we don't know yet if the pattern will be activated.  The intermediate trend indicator flipped to down today.  That needs confirmation with a lower close though.  Volume increased a bit today marking another distribution day.  Lets take a peak at the SPY 60 minute chart.

There were some really big red volume bars today.  Clearly a distribution day.  Will that continue?  There were 165 new lows and only 53 new highs.  That is a lot of new lows just 2 days off a closing high in SPX.  That is the most new lows we have had since back in Aug.  The breadth ended the day at 82% negative.  That is pretty high for a day that started with a flat open.   That is the most negative breadth since 8/15.  That day started with a big gap down.  I have been talking about the weak internals for what seems like forever.  I think today those internals started kicking in.  I expect more weakness to come.

Tops that lead to a bear market have two important points.  The first point is when the smart money starts the distribution process.  The second point is the final high.  When I look at the market internals I believe point one happened in May when Bernanke mentioned taper.  I think it is possible we are at point two.  There was a lot of bear capitulation in Nov.  We have extreme bullish sentiment with extremely weak market internals.  That is what a lot of final highs look like.  With a bubble valuation on the Russell2000 and rather rich valuation on many other indexes I am sure the next bear market will be another big crash.  We want to identify the start of that bear as soon as possible.  For now raising some cash and/or hedging long positions might be a wise move.

We closed near the low today, but still above key support.  I don't know if bargain hunters will be out tomorrow or not.  We had some serious selling, but we have not clearly broken down yet.  This is that in between zone where it can be tricky.  Unless it is an extremely strong bounce tomorrow I think we will be heading lower.  A bounce might be a good time to sell/hedge/short.

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

Bob

TLT 12/10

I recently wrote that TLT was in a major decision area.  Lets have a look at the weekly chart.

TLT has been bouncing off 102 support since last Aug.  It now appears to be coming into the apex of a triangle.  Will it break the upper trend line and rally or break support?  That remains to be seen.  The volume pattern on this weekly chart does not look particularly bullish to me.  However, I think there is quite a lot of bond shorts.  If it breaks the upper trend line there could be a significant short squeeze.  It appears a decision is getting close at hand.

Bob

Daily update 12/10

A wee bit of selling pressure today.  However, SPX held 1800 again.  Here is the daily chart.

Volume increased slightly today so technically it was a distribution day.  There were 103 new highs and 78 new lows.  I wrote this 10/4/2007 "With the Dow in new high ground and SPX just a few points away, we only had 76 new highs today.  There were 64 new lows today."  As the market was making the final highs in Oct. of 2007 the new lows were elevated just like today.  So the market is at the highs, the trend is up, but the internals are really weak.  Big down moves have happened from these conditions.  Will it happen this time?  Nobody knows for sure, but I think it is important to be aware of the risk.  Lets look at the SPY 60 minute chart.

There were a couple of big red volume bars so there was a bit of distribution evident today.  It closed below the 18 SMA, but there is no confirmation of the break.  The fact that it closed several bars under the 18 and did not break down indicates there was dip buying support.  This is nothing new though.  For the last several weeks we have seen plenty of dip buyers.  What has been missing is rally chasers.  SPX closed at 1798 on 11/15.  Here we are three weeks later at 1802.  At some point the market must move higher or the dip buyers will dry up.  The pattern on this chart is still within the possibility of a bullish cup and handle.  If we get a confirmed break of the 18 SMA (hourly close below this afternoons low) then I think the odds shift to this being a double top instead. 

The market becomes very lethargic when SPX gets above 1800.  Price just meanders at the highs until if eventually pulls back some.  Then the dip buyers rush in again.  The price action looks like a lack of buying interest more then selling resistance.  If there is strong selling resistance price usually gets rebuffed pretty sharply and fairly quickly.  That isn't happening.  The key levels are 1800-1813.  We have to break out of that range to determine the next directional move.

Bob

Daily update 12/9

A very narrow range doji day on SPY.   Here is the daily SPX chart.

SPX still has a white price bar indicating the very short term trend is neutral.  SPY closed a little below the open so there was not exactly a mad rush in to buy during the day.  The intra day range got very small again just like when we got above 1800 before.  Lets look at the 60 minute SPY chart.

Early in the day every other bar was in a different direction.  They sold the opening gap up, then they bought the dip, then they sold the rally, then they ...  You get the picture.  The price acted the same way it did when we got above 1800 before.  People are willing to buy the dip, but people were not willing to push price into new high ground.  Whether that changes some time this week remains to be seen.  This chart could be either a cup and handle pattern or a double top.  The resolution will be determined by whether people become willing to push price higher or not.  Even though SPX closed at a slight new high both breadth indicators remain negative.  There were 156 new lows and 65 new highs.   For a new closing high the number of highs is low and the number of lows is high.

So here we are.  SPX is sitting above 1800 with weak market internals.  Is it topping or is it going to race higher?  That all depends on rally chasers showing up.  That is something I can't predict.  I don't know how long they have to show up either.  At some point if we stall for too long then short term traders are likely to bail and start the ball rolling down hill again.

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

Bob

Daily update 12/6

That is what I get for making a prediction, LOL.  Last night I wrote "I think it is likely we have a big down day if the number comes in strong."  It is hard to get much more wrong then that.  I want to start out with the weekly SPX chart this time.

This has a really odd look.  There are two hanging man candles on either side of a very narrow range bar.  This is either an important top or a good consolidation to launch higher from.  Now lets look at the daily chart.

SPX ended the day back in the area where it has had a hard time finding buyers.  Will there be rally chasers to push price higher this time?  There is a possible head and shoulders top pattern on the daily chart now.  If it rolls over again and closes back below 1800 I think it will break the neckline and consummate the top.  Despite the big gap up there were 100  new lows with only 139 new highs.  I was quite surprised to see so many lows today.  My watchlist also had a lot of red in it for such a strong day.  Some market leading stocks like NFLX, SINA, TSLA and AAPL for instance.  It is hard to say the day was as strong as it might appear.  Since we gapped above 1800 I don't think closing above that level is as clearly bullish as it would have been had we traded up and through.  With the big gap up after five down days there was probably plenty of weak hand shorts covering to hold the market up today.  I want to see evidence that people are willing to push prices higher.

Since the big gap up was a news induced move it is a bit hard to say if it is lasting or not.  Quite often news induced moves are reversed.   I think there is definitely a chance the market rethinks what that employment number might mean for taper.  The FED said it was a close call in Sept.  With the shutdown in progress at the Oct. meeting there was no way they would taper.  But what about now.  We have had some good data.  I even hear leaks that a budget agreement is close in Washington.  The FED has cover to begin to taper at the Dec. meeting if they truly want to.  I don't know if it is just talk or not.  I guess we will find out.

For next week I will be watching 1800 on the down side.  If we close back below that I think it will increase selling pressure and slow down the dip buyers.  The neck line of the potential head and shoulders top is in 1777-79 area.  Breaking down below that activates that pattern and it seems likely that SPX will break the key 1775 level. 

Bob

Daily update 12/5

Down for the fifth day in a row.  Here is the daily SPX chart.

SPX closed below the 18 SMA today.  It needs to close below yesterday's low to confirm the break. It is still above the key 1775 level.  What really happened today is clearer on the SPY 60 minute chart.

Today's range stayed inside the price range from the last 2 hours yesterday.  There were several drops below 179, but each time the dip buyers rushed in to buy.  However, each bounce was sold and price ended up back at 179 again where it closed.  None of the bounces ever got up to the 18 SMA today.  That appears to be a pretty weak price pattern so far.

There were 123 new lows against 55 new highs.  The last pullback into the Oct. low never saw new lows spike above 100.  The two prior pullbacks saw new lows over 400.  I guess that begs the question are we going to see a big spike up in new lows before the next bottom forms now that we crossed the 100 threshold?  It certainly adds to the probability that we have more down side to come.

The futures were up slightly before the latest GDP estimate came out at 8:30 and sent the futures down.  Good news was bad news today.  That suggests taper fear was in the air.  The employment report tomorrow can add or subtract to that fear.  I think it is likely we have a big down day if the number comes in strong.  If it is extremely weak (seems unlikely based on what data we have had) then a big up day could be in store. 

The market is acting weak, but we have not broken key support yet.  Maybe the jobs number tomorrow will kick the market into gear one way or the other.  I will be watching 1800 on the upside and 1775 on the down side.

Bob

Daily update 12/4

Another mixed day.  SPX is down four days in a row now.  Here is the daily SPX chart.

SPX closed just barely above the 18 SMA.  There were two sizable intra day bounces today.  The first one this morning took SPX up to 1799.8 just below the key 1800 level.  That rally was sold into hard and we ended up at new lows.  The afternoon rally was sold into late in the day.  There was quite a bit of volume today.  The participation rate is increasing.  Lets zoom in to the SPY 60 minute chart.

There was a lot of volume on the bounce this morning.  SPY tested the 18 SMA twice and stopped dead in its tracks.  That can be a sign that a strong move is starting.  We seem to have two pretty clear trend lines now.  It looks like a slight broadening pattern is forming.

The dip buyers were out today, but did not quite win the day.  Will they get over run by rally sellers?
We established 1800 as resistance today.  The bulls need to conquer that level before getting full control back.  Both volume and volatility are picking up. Maybe this is not going to be a sleepy Dec. this time.  Normally that combination favors the bears.  European markets were hit pretty hard the last two days.  Much more so then the U.S.  Emerging markets have been lagging for a long time already.  This could be the start of a global move down in stocks.  If that turns out to be the case it could increase the selling pressure considerably.  The key level to watch on the down side is still 1775.  This does not appear to be a good time to be long and fall asleep.  The market has a very weak technical condition combined with extreme bullish sentiment.  That combination can provide a 7-10% pullback pretty easily. 

When the market started up strongly in Sept. I commented that it may be discounting no taper from the FED at the Sept. meeting.  That turned out to be the case.  It is possible the economic data of late has raised fears of a taper coming soon.  That could be one reason behind the selling.   

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

Bob

Daily update 12/3

Down side follow through.  How odd is that?  Here is the daily SPX chart.

SPX closed below 1800, but a bit above the 18 SMA.  It has a red bar tonight.  The last time that happened the bulls came out in force the next day.  Volume picked up quite a bit today.  It was the heaviest volume since 11/15.  Lets zoom in to the SPY 60 minute chart.

SPY has a confirmed break of the 50 SMA.  That has not meant a lot the last few weeks.  Will it be different this time?  SPY bounced going into the close as the dip buyers stepped in again.  That could continue in the morning.  The 18 and 50 SMAs lie in the 180.60 area which could be resistance if tested.  Lets look at the new high/low chart.

There were more new lows (84) then new highs (49) today.  I marked the chart with red arrows on the other pullbacks the first day lows outnumbered highs.  As you can see the last pullback was different then the prior two.  The new lows did not spike up until the last two days of the sell off.  The prior two peaks saw the lows pick up only a few days off the high.  That is the condition we have now.  I would think that increases the odds we are in pullback mode again.

SPX closed below the recent 1800 support level.  Will the bulls come racing in to buy the dip or will the bears get control of the market this time?  With the drop in new highs and surge in new lows I think caution is warranted unless SPX can close above 1800 again.  On the down side I think 1775 is still the key level to watch.

Bob

Daily update 12/2

Down on the first day of the month.  How odd.  Those days have been starting with big gaps to the upside most of the time the last few years.  Here is the daily SPX chart.

SPX has a five day stall going on.  It again tested the highs of the last several days, but found no buyers willing to push price.  It then sold off in the afternoon.  Lets zoom in to the SPY 60 minute chart.

The horizontal line marks the close of the last bar today.  As you can see it was below all the hourly closes since 11/25 (the start of the stall).  It closed just below the 50 SMA.  An hourly close below that last bar's low would confirm a break of that MA.  Here is a look at the latest breadth chart.

Both breadth indicators had negative crossovers today.  This is the fourth time the 10 DMA chart has crossed negative since 11/1.  The other three times did not really spark a pullback.  Will it be that way again or is the fourth time the charm for bears?  There were 152 new highs and 62 new lows.  The new lows remain elevated for a market at the highs like this.  Very odd.

The sentiment picture is really, really bullish these days.  Check out this chart of the II number of bears.

This is the lowest number of bears in twenty five years of data.  I find that pretty stunning under the circumstances.  Check out the latest NAAIM survey.

The NAAIM survey is back over 100 again for the second time this year.  There were no respondents net short this time.  In fact the most bearish response from the survey was 50% net long.  The only other time we had numbers like that was on 1/30/13.  SPX crept higher from there in early Feb., but had a pullback late in the month that took price below the 1/30 level.  One major difference between now and then is the market internals are much weaker this time.  The McClellan summation index was over 3000 then and is only 20 now.  The number of stocks above their 200 MA was 79% while only 54% now.

We have extremely bullish sentiment with weak market internals.  One would think that would be a recipe for a pullback.  So far that has not happened.  Is it time or will the bulls come in to save the day again?  A close below 1800 would be the first sign we might be headed for a pullback this time.  Below 1775 and I would expect the selling to pick up considerably.

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

Interesting article on how the week after Black Friday can indicate market direction for months.
http://tinyurl.com/k5n2e3h

Bob

Daily update 11/29

Late day sell off.  Everything was positive until the last 30 minutes.  Then we ended up with a mixed market.  Here is the daily SPX chart.

SPX tried to break out of the recent range, but was turned back late in the day.  That leaves us with a bit of a shooting star candle, but the upper tail is not very long.  Here is the SPY 60 minute chart.

That sell off at the end of the day came on very high SPY volume.  The VIX spiked up over 5% today which is a bit odd given the small down day.  This all could just be month end stuff that has no bearing on future direction.  If SPX is down again on Monday that could be a different story though.  AAPL seems to be driving strength in tech, but SPX is still struggling to go higher.  It is now up 8 weeks in a row, but it was a very narrow price range this week.  Does that mean it is time for a rest?  SPY ended the day below the hourly 18 SMA.  Like 11/26 it is an unconfirmed break.  That time the market rallied the next morning back above the MA.  However, it did not make much upside progress.  The song remains the same this time.  If SPY climbs back above the 18 SMA then it should be in position to continue the rally.  An hourly close below today's low would confirm the MA break and open the door on the down side.  The first support on SPX is 1800 then 1775 below that.

The market and sector status pages have been updated.
Have a great weekend all,
Bob