Daily update 3/28

The pattern maintains with an up day today.  Here is the SPX daily chart.

SPX made a new all time high close today.  It is still about 7 points below its intraday high from 2007.  It also closed just about right on the upper red trend line.  Volume increased today for the first time in a while on an up day.  The big question now is will the alternating pattern keep repeating.  Every Monday but one this year has been down.  Historically the day after Easter is often down.  That is three good reasons for a down Monday.  Will the market be able to fight all that off and extend today's gains?  Now that the quarter is over, will there be a temptation by some people to take some profits?  SPX is still in the confines of a potential double top pattern so what happens here in the next few days is important.  The 1538 level is still the key on the down side.  Lets zoom in to the SSO 195 minute chart.

SSO stopped right about the lower price channel trend line.  If price is going to creep up the underside of those trend lines we are in for a snooze fest rally, LOL. 

Of the indexes I watch during the day the utilities ended the day with the biggest gain and the Russell 2000 had the smallest gain.  That is not exactly a wildly risk on kind of day.  TLT pulled back a bit today into yesterday's big gap up, but it is still above its 50 SMA.  Will the market push higher or turn back down?  I am pretty suspicious that the bulls are not fully in control yet, but we will see. 

Bob

Low bear count in the II survey

The number of bears in the II survey has been below 20 for three weeks straight.  I have watched this survey for many years and this is a very low reading.  Here is an interesting longer term chart.

Short Side Of Long: Chart Of The Day: Bearish Sentiment

I have marked the last four times the number of bears got this low.  There were some big moves down from this condition.  There were two instances in 2010.  The first one saw the market continue higher for a while and then had only a modest pullback.  The second instance that year was just before the flash crash.  The 2011 instance came just before the near 20% pullback started that year.  It is interesting that in the very bullish year we had in 2012 it never happened.  Even though the market kept going up, people did not get as complacent as in 2010 or 2011.

Many years ago I saw a very long term chart of this survey covering the 80s and 90s.  It was extremely rare that the number of bulls ever got over 50% before 2000.  Since the secular bear started in 2000 it has not been rare at all.  There was constant skepticism during the biggest bull market of them all that is not present now.  I guess when things are good, people worry the good times are going to end.  When things are bad like now, people hope the good times are coming back again soon.  This is clearly evident with the pundits on TV constantly telling me the economy is set to take off any day now.  I think they will be greatly disappointed in how the economy performs.  Here are some statistics that make this clear.

Source

If the since 1988 stats did not include the data since 2000 I think that 44% bulls would be slightly lower.  At any rate we can see that since 2000 there were consistently more bulls and less bears then before 2000.  I suspect this is post bubble syndrome.  People still think the economy and the market is going to return to the form it had in the 80s and 90s.  Past history has shown secular bear markets don't end until a lot of people swear off stocks forever.  Although there are a few people that have, I don't think there is nearly enough.  That is what causes stocks to get truly cheap in the end.  Something that clearly has not happened yet.

We have high margin debt and complacent sentiment that usually only happens near important tops.  The divergences going on now would seem to indicate a pullback is imminent.  I think it is likely to be bigger then most expect. 

Bob

Daily update 3/27

The string continues if only a marginal down close today.  I suspect quarter end window dressing had a lot to do with the rebound from the gap down this morning.  Here is the daily SPX chart.

If the day to day pattern continues tomorrow we are due for an up day.  Being the end of quarter and it is now frowned upon for money managers to do window dressing it could be a slow day.  However, with Europe now a wild card again we could have more excitement.  I don't think they will be out buying a gap down tomorrow with the same enthusiasm if we get one.  The price of SPX is hanging in there, but there are other things slipping.  Lets look at a few important sectors.

TLT was up .88% today.  There are quite a few sectors diverging now from the major indexes.  Around the world Japan is the only major market index still at the highs.  The rest of the globe appears to be in a risk off phase.  Some markets are well off their highs.  This makes sense given the signs I have shown on the blog that indicate the global economy is slowing down again.  Since 3/14 SPX has been losing the support of some important sectors.  How much longer can it hold up?  I suspect we will find out in April.


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

Bob

TLT and index divergences

TLT continues to look like a bottom.  Here is the daily chart.

TLT had a bounce in late Feb. that failed at the 50 SMA.  That led to new lows.  However, it bounced right back and is again testing its 50 SMA.  The futures are down big this morning and TLT is up over $1 premarket so it will be well above its 50 SMA today.  That should confirm a bottom is in place.

I also noticed a lot of indexes did not participate in yesterday's retest of the 3/14 high by SPX.  European indexes were also beginning to diverge.  In yesterday's daily update I noted the volume pattern still looked like distribution to me.  A close below 1538 on SPX would confirm the short term double top pattern.  With the futures down big this morning and all the divergences I see, I believe yesterday was likely the high.  I think we are going to end up below 1538 soon.

Bob

Daily update 3/26

The market pattern of every other day in a different direction repeated today.  Will the pattern repeat tomorrow or will the bulls come out to play again?  SPX made a slight new high close.  Here is the daily chart.

SPX stopped right at the under side of the upper red trend line.  Volume dropped today.  In fact it has dropped on the last three up days.  The pattern is still showing distribution.  Lets zoom in to the SSO 195 minute chart.

SSO ended the day right at the lower price channel trend line.  It closed above the red resistance line though.  The big rally into the close was on very light volume.  I looked at SPY and it had the same very light volume on the last bar.  That would seem to indicate that sellers were absent in the afternoon and let the market drift up into the close.

Did today signal that the bulls are winning the consolidation battle?  Will they show up again tomorrow or will the bears return?  Despite the big up day in stocks TLT ended the day positive as well.  We are still in the confines of a double top. Despite the higher close today, the number of new highs dropped from 305 yesterday to 245 today.  That combined with the light volume and the action in TLT makes it pretty hard to say the bulls are fully in control here.  They need to prove they are willing to push price into new high ground and keep it there.   SPX has spent almost two weeks consolidating just below its all time high.  I think we should be getting very close to a resolution now. 

After three weeks of almost no movement in the markets I am having trouble finding anything interesting to write about.  Articles may be a bit sporadic until things get more interesting.

Bob

Daily update 3/25

Another day in the opposite direction of the day before.  Was that some kind of reversal day?  Here is the SPX daily chart.

SPX touched the upper red trend line again, but failed to get above it.  Volume increased today.  There is obvious distribution in the volume pattern now.  However, price is still holding above the 18 SMA.  Lets zoom in to the SSO 195 minute chart.

SSO gapped up above the red resistance line, but sold off fairly hard.  Then it found support at the green support line and rallied fairly strongly.  It ended the day pretty near the middle of the range between the lines.  It is looking like my support and resistance lines are in good places.  Watch for the break out.  It should be significant whichever way she goes.  Check out the breadth chart.

Both the 10 DMA and McClellan oscillator are negative tonight.  On a day when SPX hits a new bull market high that is extremely odd.  This would make a very pretty double top if it heads down from here. 

Will the market continue its every day in the opposite direction pattern or is it time to follow through on the down side?  I don't know, but I will be watching my resistance and support lines on the 195 minute chart.  It is bound to break out of the box at some point soon.


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


Bob

More signs of global slowdown

The HSBC Emerging markets index saw the Feb. print at the lowest level since last Aug.  Here is the latest chart.

 Source

From the article.

Data broken down by broad sector showed that the slowdown in the pace of expansion was broad-based across service providers and manufacturers. Goods production rose at the slowest rate since November, while services activity growth eased to a six-month low.

Here is the Markit flash PMI for the Eurozone.

Source

From the article.

TheMarkit Eurozone PMI® Composite Output Index fell from 47.9 in February to 46.5 in March,

according to the flash estimate. The decline signalled an acceleration in the rate of contraction

of business activity for the second consecutive month to the steepest experienced for four months. 

With the exception of a marginal increase in January of last year, business activity has fallen

continually since September 2011.  

Manufacturing output fell in March at the fastest rate since December, while business activity in the service sector suffered the steepest decline since October.

Check out this chart that separates out France and Germany.

You might recall that France implemented a lot of tax hikes after President Hollande was elected.  That is pretty similar to the policy the Democrats in this country want to employ.  It seems to be totally destroying the French economy at the moment.  Are we going to end up trying the same experiment?

To add insult to injury check out this chart.

Source

The latest Goldman Sachs global leading indicator is now clearly in slowdown mode.  Last month it was just on the edge. 

The latest data seems to confirm the weakness seen in the industrial metals charts.  Indeed the global economy appears to be slowing again.  Remember there are enough OECD countries reporting negative GDP to indicate we are likely in a global recession.  If the recession is starting to get worse it would increase the risk of more companies lowering future earnings expectations.

Bob

Daily update 3/22

Instability creeping in.  Up one day, down the next.  Here is the daily SPX chart.

Volume was lighter then the last up day and breadth was considerably weaker (71% positive to 59% today).  The weekly chart has a hanging man on it again.  We have had some before on this rally that did not see downside follow through.  However, this one comes with TLT looking like it has bottomed.  I think that increases the odds for more downside considerably.  Lets zoom in to the SSO 195 minute chart.

SSO ended the day just below the lower channel trend line.  I have added a red resistance line as it appears
there is some resistance forming just a little higher from here.  Will Monday continue the recent pattern and be down? 

Unless TLT breaks down again I think it is just a matter of time before stocks turn down in a meaningful way.
Today's bounce had less energy then the last bounce.  Are the dip buyers running out?

Since the market has not sold off on Cyprus fears, a positive resolution will not likely provide much upside.  Should some kind of market unfriendly resolution come out, there could be some real down side though.  I don't know how much risk there is in that happening, but it should all be resolved soon.


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

Bob

Interesting tidbits 3/21

I ran across a few interesting things lately.  This is an interesting article with a number of interesting charts and commentary.  Fund Managers Are Alarmingly Bullish!

 Check out this chart of CAT sales.

 Source

The last time CAT retail sales dropped this much the global economy was crashing along with stock markets.  This would seem to confirm the evidence in the industrial metals that the global economy is slowing again and may be slowing dramatically.

This next chart involves Americans spending on eating out.

Source

Restaurant sales took a noticeable downturn in the second quarter last year.  Overall sales went negative in Q4.  Apparently the weakness has continued in Jan. and Feb.  Here is a quote from the article.

Restaurants are reeling from their worst three months since 2010, as American diners spooked by higher payroll taxes cut back on eating out.
Sales at casual-dining establishments fell 5.4 percent last month, after declining 0.6 percent in January and 1.6 percent in December, according to the Knapp-Track Index of monthly restaurant sales. This was the first three months of consecutive declines in almost three years, with consumers caught in a “very emotional moment,” said Malcolm Knapp, a New York-based consultant who created the index and has monitored the industry since 1970.

Some of this drop could be weather related.  The unusually warm winter last year left people with more spending money because of lower heating bills and better weather to go out in. However, there is persistent weakness in the sales data that started in Q2 2012.  There may be more to it then just weather.  Eating out is one of the first things people cut back on when money gets tight.  Although this data does not tell us we are in a recession, it clearly tells us that people are cutting back in a serious fashion for the first time since the last recession ended.

Here is a very long term chart of corporate profits vs GDP.

Source

The last two peaks in the market came quite a while after profits had turned down.  They have turned down some now, but have not dropped by any large amount yet.  History shows the drop can be pretty fast though.  This secular bear market has played out very different then the one in the 1970s.  In that case profits stayed well below where they were in the mid 60s when that bear started.  Profits made new highs twice since this secular bear started.  I would guess that was caused by the increase in global trade.  Profits as a percent of GDP are at a level only seen in the early 1950s.  That was early in a new secular bull market.  Many people think that is the case today.  I don't think so.  Lets look at the P/E chart again.

Source

The red line marks the P/E from the early 1950s.  We are clearly not anywhere near the same valuation level.
When looking at these two charts it is clear that long term buying ops happen when profit margins are very low or stocks are very cheap.  Neither is the case today.

Bob

Daily update 3/21

Today was kind of a mirror image of yesterday.  The bears sold the gap up yesterday, and the bulls bought the gap down today.  Here is the daily SPX chart.

We ended up with a new low close for the current pullback.  SPX is still above its 18 SMA.  The bulls are putting up a fight.  That is good for bulls if they win, otherwise it is food for bears.  Lets zoom in to the SSO 195 minute chart.

The dip buyers have formed a support line the last few days.  It looks like that level was resistance briefly in the circled price area.  I don't believe that is going to hold for long.  Here is the TLT daily chart.

This chart is looking more and more like a bottom.  If that is the case it would make it more likely stocks are starting a more serious move down rather then a short lived pullback.  Investors have been dreaming of a world that does not exist.  Reality may be taking hold here.  Earnings can easily put a big damper on things.

Bob

Industrial metals

It is not just copper headed south lately.  Check out these other charts.

Steel

Lead

Nickel

Aluminum

Tin

All these industrial metals bottomed mid year in 2012.  There was a slight upturn in the global economy and world stock markets rallied on that.  Every single one of these charts has seen some serious down side over the last few weeks.  I don't see how anybody can make the argument today that the global economy is getting stronger.  I thought this was interesting about CAT (Source). 

Global retail sales for Caterpillar declined 13% on a 3-month rolling basis, partially from shrinking inventories, but also due to a dramatic slowdown in Asian and North American purchases.

I think the global economy is slowing again and earnings will be affected.  Will it just be a first half slow down like last year or will it last longer?  How much longer will it be before stocks are affected by the slow down?  That will likely depend on what happens with earnings coming up.  If FDX and ORCL are any indication it might not be long.

Bob

Daily update 3/20

ZZZZZZZZZZZZZZZZZZZ.  That is what I thought of today.  The futures ended the day 1 point above the 9:30 open.  Here is the daily SPX chart.

SPX rallied enough intraday to briefly cross the upper red trend line.  However, it failed to close there.  Was that a kiss the trend line good bye?  Today had the feel of a pump and dump.  The futures ramped up over night, but there was no upside follow through until after the FED announcement.  They ramped price up twice in the afternoon, but each time the market sold off.  If the market rolls back over then today was just a retest of the 3/14 high.  That would likely open the door for a bigger pullback.  Here is the 195 minute SSO chart.

SSO gapped back up into the price channel and closed there.  I will be watching that lower channel trend line tomorrow and will be looking to short if it drops back below it again.  My little voice is telling me that is likely to happen.  I guess we will see.

In case you missed it this what happened to FDX today after earnings.

 
Apparently they had over capacity.  Is there at least some small chance that the fact we are likely in a global recession might have something to do with that?  ORCL missed earnings after the close and is down over 7% as I write this.  Be aware that holding global company stocks through earnings is likely to have considerable risk.  While the U.S. economy is experiencing positive affects from the rebuild after Sandy, the world is not doing near as well as stock markets suggest.  Be careful.

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

Bob

GLD and GDX 3/19

In GLD and GDX 3/5 I wrote "It looks like GLD is trying to make a low here at the lower channel trend line.  It would seem to be due for a bounce."  It did indeed find a low and has bounced.  Here is the daily chart.

GLD has a blue bar indicating it is above the upper Bollinger band and is short term extended.  It is also about in the middle of the down trend price channel.  In this down trend every rally has stopped at the 50 SMA.  It still has a little ways to go to get there.  Since it is a bit extended in the short term it may need to consolidate or pull back a little before resuming the upward march.  At this point I don't see anyway to tell if this is just an over sold bounce or if it is forming an important bottom.  I am a little suspicious this is eventually going lower because of how the mining stocks tanked.  In the mean time, a pullback towards the 18 SMA could provide a long swing trade entry.

Lets shift focus to GDX.  Here is the daily chart.

GDX is also about in the middle of its price channel.   GDX has some potential resistance (red line at 39) between it and its 50 SMA.  The bounce also seems to be off to a rather weak start.  It needs a shot of upside momentum to get going or it is in danger of rolling over.

Bob  

Daily update 3/19

I remember vividly seeing Maria Bartiromo on the floor of the NYSE on the last trading day in Aug. of 2000 imploring people to buy stocks.  She said when the big boys get back in Sept. they will be buying everything in sight.  That was the final high before the 2000-02 bear market got started.  That turned out to be a great sell signal.  Has the Maria Bartiromo sell signal fired again?  In the March 18 USA Today money section there is an article where Maria interviews Ralph Acampora about why now is a great time to buy stocks.  Four years into the bull market and this is the first time I have seen an article by her.  Why now?  Like I said before, a major top does not get any more obvious then this. 

A third day down in a row, amazing.  Here is the daily SPX chart.

Dip buyers showed up late in the day and SPX closed off its lows.  It is still above its 18 SMA.  Volume picked up today.  Lets zoom in to the SSO 195 minute chart.

SSO closed below the lower channel trend line.  The last two times it did that it continued lower.  Will it make it three for three?  There was a lot of volume on the last bar.  There is a FED meeting tomorrow and the market has a tendency to gap up on those days.  Was all that volume people piling in for such an event?  Breaking today's low would put all those buyers under water and should generate more selling pressure.  On the upside, price needs to get back inside the price channel and stay there.  I am not sure that is going to happen.  Check out the TLT chart.

TLT continues to look like it has put in an important bottom.  This could be a warning that the rally in stocks that started last June is coming to an end.  This is no time to be complacent about the market.  We could be at a very important inflection point.

Bob

Dr. Copper

Old Dr. Copper might have a serious break down going on.  Here is the weekly chart of JJC the copper ETF.

It looks like JJC formed a triangle pattern after the big crash in 2011.  It has now broken the lower trend line of that triangle.  That is a 1.5 year pattern it may be breaking down from.  It is pretty hard to say the global economy is picking up.

Here is an ETF based on copper stocks (COPX).

This ETF may be forming a triangle pattern of its own.  It has not broken the lower trend line like JJC, but it is showing a pattern of lower highs.  Are these stocks heading lower with JJC breaking down?

Here is the latest weekly chart of the emerging market ETF EEM.

This ETF appears to be breaking its up trend line from the low last June.  Not exactly showing great strength in what is supposed to be the engine of growth for the global economy.  Is there enough weakness to affect corporate profits?  Is the global recession getting worse?  Will western markets get worried about global growth at some point?  Will the global economy somehow turn around?

Bob

Daily update 3/18

I must be looking at the chart wrong.  It appears that SPX was down two days in a row, but I know that cannot be possible.  Here is the daily chart.

SPX closed below the upper red trend line today.  Is this the start of a pullback?  Lets zoom in to the SSO 195 minute chart.

SSO broke down from the rising wedge pattern.  It held the 18 SMA and the lower channel trend line today. Will that continue tomorrow?  The big gap down this morning was caused by more news out of Europe.  The big boys did not sell the gap down this morning, but will they in the future. 

We closed below some key trend lines, but we have not done enough damage to say we are starting a serious pullback yet.  Who will show up tomorrow, the bulls or the bears?


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

Bob

Euphoria

I suspect most people have heard the saying that bull markets are born in pessimism and die in euphoria.  What is so interesting that despite so many people knowing this market reality, hardly anybody recognizes either state in real time.  I saw this article the other day and found it interesting.


Sentiment Indicators Hitting Euphoric Levels as Dow Hits All-Time Highs?

This chart is in the article.

The author says this chart shows we do not have euphoria and so the market has more room to go up.  This chart does not cover the major top of 2007.  I wonder what it looked like then.


I believe margin debt is probably the best true measure to determine if there really is any kind of euphoria.  When people really, really feel strongly about the market going up they load up on margin.  The last reading we got for margin debt was for Jan. and it was the second highest reading on record.  Surpassed only by the summer of 2007.  It is likely higher by now, and may even eclipse the record set in 2007.  That my friends is euphoria.  Here is the SPX chart from 2007 showing the pullback that occurred from that historic peak in margin debt.

That is SPX going from 1556 to 1370 in five weeks.  So we have the same price in SPX with probably very similar margin debt numbers.  It could easily work out different this time, but is it guaranteed that the outcome is a smaller pullback?  Margin debt changes the risk profile considerably.  An unwind is hard to see before it happens.  It just starts and snowballs.  To my knowledge there has never been a gentle margin debt unwind.  People do not seem to sell and take off the debt while the market is rising.  They always wait until they have to.  Euphoria can turn into panic amazingly fast sometimes.

Bob

Daily update 3/15

And so the Dow winning streak ends.  What now?  Here is the SPX daily chart.

SPX is still above the upper red trend line.  How much longer can it stay there?  Lets zoom in to the 195 minute SSO chart.

I think I got all the lines added I had on SPY.  The price over the last couple of weeks looks like it is tracing out a rising wedge pattern marked by the purple trend lines.  Price went all the way to the apex of the pattern not wanting to drop out the bottom prematurely, LOL.  The way this market struggles to go up it seems unlikely to break out the top and accelerate.  I think next week it will end up breaking that lower trend line and initiate a pullback.  Part of my thinking is the TLT chart.

I posted about TLT and a possible bottom the other day.  It has been doing some testing around the 2/1 low. Every time the bears knocked it down intraday it fought back and did not break down.  Today it again closed above the 2/1 low on good volume.  This looks pretty positive to me. 

We have SPX looking like a top and TLT looking like a bottom at the same time.  I know it is heresy to say the market might go down, but I think that is what is going to happen starting next week.  The Nov. option expiration week was an important turning point.  In looking at these charts I think this week has the potential to also be one.  March historically is full of major turning points.  I keep hearing people saying there is nothing to worry about until May.  I actually heard a trader on Bloomberg TV today berate another trader for saying there could be a pullback.   It seems to me that when the majority is most sure of what is going to happen next in the market, something else usually does.  This could be one of those times.

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

Bob