Daily update 12/31 What was that all about?

With no negative overnight headlines the bulls bid up the futures a bit in the night session.  However, they were already drifting lower before the open.  The bulls never really got going.  Here is the daily SPX chart.

I added the ADX indicator for tonight.  There was a cross of the DI lines today.  With the pattern of bounces off the 100 SMA this is the earliest the cross has happened by far.  Is the bounce over already?  SPX ended Dec. down for the month.  That is pretty rare.  The famed Santa rally is in the red.  There is still two trading days to go in that pattern.  We will see what happens, but so far it is not looking like the bulls are all that ambitious.  The breadth was 62% negative so the selling was broader then yesterday.  Lets see what the futures chart looks like.

The futures almost made it down to the 100 SMA today.  The DI lines have a sharp crossover.  The -DI line is 31 so it is not far from the key 35 level.  The ADX was unusually high for a rally.  A high ADX usually means the high or low will be retested.  However, when a true reversal happens from a high ADX it can be very sharp.  That is a sign the market is catching everybody on the wrong side.  If the bulls don't show up to buy this dip on Friday things could get nasty in a hurry.  IWM was interesting today.  Lets take a look at the chart.

IWM had a key reversal day.  That happened on a retest of the highs from March and July.  As I mentioned previously just about everybody is expecting this to go up.  If it follows through on that reversal it could be quite significant.  The oddest thing today was the VIX.

There was a rather large VIX divergence at the highs.  That is why I have been saying the VIX may be telling us the market is about to get more volatile.  The VIX has not been spiking up this high in such close proximity for the last two years.  It was up 20% today alone.  That has to be an extremely odd occurrence for the last trading day of the year.  It is back up above the weekly 200 SMA once again.  If it is still there on Friday we could be in for another spike higher to start off Jan. with.

I want to look at a couple of market internals tonight.  The first is the common stock advance/decline line.

Interestingly this indicator made a new high on this rally.  Some would say that cleared up the divergence.  In a way it did, but SPX was about 5% higher then it was in July when the divergence started.  While this indicator made a new high it probably was not commensurate with the size of the move in the index.  The other market internal indicators did not even come close to new highs.  Lets look at the number of stocks above their 200 DMA.

This clearly has not repaired its divergence.  The bullish percent indicator has the exact same shape.  Those two super strong breadth days around the FED meeting helped the breadth indicator tremendously.  However, they were not buying stocks strongly enough in general to push many of them back through their 200s.  Market internals continue to suggest we are making a bull market top.

The last day of the month is not a particularly good indication of what is going to happen on the first day of the next month.  Quite often the market does a 180.  However, the first few trading days of a year after an up year can experience tax selling as people book profits they did not want to take at year end.  That happened this year.  If the selling continues on Friday it will turn the short term trend of SPX and the COMPX down.  I would be pretty leery of buying into a gap up.  Especially if it was only a few points like it was today.

I want to wish everybody a very happy, healthy and prosperous new year.  I think the motto for next year is "be nimble".  These V bottoms off the 100 DMA have been easy money for over 18 months.  The market just never makes it that easy for long.  I think that is about to change.

Bob

Daily update 12/30 Domestic fund flows

Investors woke up on the wrong side of the bed this morning.  Don't they know it is illegal to sell stocks at the end of Dec.  Here is the SPX chart.

SPX ended the day slightly below where it was on Dec. 24.  That means the Santa rally so far has not delivered the goods.  Breadth was 58% negative and volume was slightly lower then yesterday.  The selling was particularly broad based.  There were 146 new highs and 48 new lows.  After several days over 200 that was quite a drop in new highs.  New lows were elevated once again.  One day off of an all time high close that is not what you want to see.  The Dow lost the 18,000 mark after several days above it.  Lets look at the futures chart.

The loss of momentum I noted in this chart yesterday played out today.  The futures ended up below the 18 SMA with red price bars.  They have been aggressively buying that first dip below the 18 after the 100 DMA bounce for 18 months.  Will the bulls show up again?  Unless it is different this time they should.  Lets see what happened to IWM.

I guess it picked a bad time to break out as it fell back below the line today.  Even if the bulls show up and get IWM above the line again tomorrow we will still need to see some follow through.  This one is still up in the air.  The key thing to remember is that a clear majority are expecting this to continue up.  If it does not do that then it is likely to fail in a big way.

Greece seems to be back in the headlines again.  Trouble in Europe has caused some sizable corrections in the U.S. in this bull market.  I guess this is one of those things we need to be aware of once again.  In the absence of bad news the bulls are likely to show up again tomorrow.  Unfortunately I still have not quite figured out how to predict the news flow

I have debunked the "this is the most hated bull market" many times in this blog with hard data that says otherwise.  Here is yet another chart.

I have long thought that a lot of money was moving from mutual funds to ETFs.  I guess this chart makes it pretty clear that was the case.  They called this bull market hated because of the mutual fund outflows.  However, that was mostly just moving of money to ETFs.  The missing $50 billion was most likely money moved from equities to bonds as early boomers got into their 60s.  Check out the chart of the Rydex bull/bear assets.

The last bull market (in the circled area) was clearly the least loved bull market in the last 20 years.  This ratio has been well above where it was in then for years.  It is spiking up like crazy now.  That almost looks euphoric.  Money is clearly piling in.  This looks more like it might be one of the most loved bull markets in history.

Bob

Daily update 12/29 Odd ECRI data

It was a lazy and mixed day.  There was a little bit of selling into the close, but not nearly as dramatic as the last several days.  Maybe portfolio rebalancing is coming to an end.  Here is the SPX chart.

There was a bit of buying again on the open.  SPX got fractionally above Friday's high, but found no buyers up there.  The afternoon was a chop fest.  Typical holiday week action.  Lets take a look at the futures chart.

Those are some really tiny bars.  The ADX line has turned down along with the MACD.  We clearly have lost a lot of momentum.  I would say we are likely in consolidation mode.  We may need a news induced thrust to get much more upside over the next couple of days.  IWM found some buying though.  Check out its chart.

IWM popped out to a new high.  Can it extend?  Will it be able to stay up there?  Everybody seems to expect this to continue up.  Sometimes the market doesn't do what everybody expects.  We have to keep watch in case this turns into a break out failure.

USO sold off yet again to new lows.  While everybody and their brother is calling for a low in oil it just keeps falling.  The lower it goes the more stress there will be in the high yield debt market.  So far that has not spilled into anything but oil related stocks.  This will certainly impact earnings estimates going forward as energy is a pretty big component of SPX.  Between that and the rising dollar causing revenue declines there could be considerable adjustments to the earnings picture.  So far the market hasn't cared.  But then again there is no incentive to sell at year end when you can wait a few days and not have to pay the taxes until the next year.  Come Jan. things may change. Something to watch out for.  In the mean time relax and enjoy that is what the market seems to be doing.

I find this ECRI data very odd. 

The growth rate continued to get more negative the last week.  We can see that it does not get this negative very often.  The two other times it happened in this bull market we saw 15% and 19% corrections.  In fact every dip to this line has seen a similar sell off in stocks.  The 1998 sell off was almost 20% as well.  I am not sure it has ever been this negative while SPX was at all time highs.  Stocks are a component of the index and usually it is a sell off in stocks that drives the growth rate negative.  Something else is going on this time.  Is this going to be the only time in history we don't see a big sell off?  Until this turns up for a few weeks there could be some downside risk to stocks.

Bob

Daily update 12/26 Doji day

The futures gapped up yet again this morning.  There was a flurry of buying after the open then chop around in the afternoon before selling off into the close again.  At days end the futures were only 1 tick above the open.  That made it a doji day even though SPX does not show that.  Here is the chart.

It was the lightest volume for a full trading day all year.  I heard Jon Najarian on TV today saying the market was going up because of a lack of sellers rather then a buying frenzy.  That confirms what I have been thinking.  Lets look at the most important chart IWM.

IWM got above the line early this morning.  However, the afternoon sell off took it back slightly below it.  Volume was actually lighter then on the half day Wed.  Confidence booster there.

This is the third day in a row we have sold off going into the close.  That could be a sign of some mutual fund redemptions going on.  That could just be a matter of portfolio adjustments.  Both stocks and bonds were up for the year.  Somebody with a mixed bonds, stocks and cash portfolio would have seen cash levels go down.  There could be some selling just to rebalance. 

I think the only important thing in the next several days is what IWM does with the resistance line.  This is an important decision at an odd time of year to make such a decision.  With only three trading days left in the year we might not get the actual decision.  That reminds me.  You have just witnessed history being made.  This is the first year in the history of SPX it did not experience four down days in a row.  Will miracles never cease.  Pretty rough year for shorts.

I hope most of you got to enjoy some good family time yesterday.  The market and sector status pages have been updated.  Have a great weekend. 

Bob

Daily update 12/24 Selling into the close again

The futures gapped up yet again and proceeded to do nothing for hours.  They sold off a bit going into the close just like yesterday.  Here is the daily chart.

It was another very narrow range bar at the high.  That chart still looks funny to me.  In another time period it would look a lot like a double top forming.  With Art Cashin on TV every day telling me how the seasonal pattern and presidential cycle are all bullish for next year there is no way the market can do anything but go up.  Lets look at the futures chart.

The futures ended the day with a white bar.  This is the first sign of a loss of momentum since the bounce started.  The last several bars look like we are already in consolidation mode.  We are only a little bit above the prior peak so we still have that to think about if sellers show up.  The key chart in my book is still IWM.

The red line is the high from back in the spring.  IWM bumped its head on it yesterday, but so far has not penetrated it.  If it falls back into the recent trading range before breaking out above it could be a significant negative sign.  I have seen a lot of people expecting an upside break out here.  I can't recall seeing anybody thinking otherwise.  There is a bit of expanded volatility in this chart now.  It is considerably different then the expanded volatility on the SPX daily chart.  The VIX is still showing a sizable divergence.  Are these all signs that volatility in general is going to pick up next year?  In the late 90s the market went up along with volatility.  An increase in volatility next year does not necessarily mean the market is headed down.  However, the big divergences in the market internals suggest that may be the case.  I am curious to see how things work out.

The liquidity is likely to be pretty thin the rest of the month.  Buying interest at the highs appears to be muted.  The gains have all come in the overnight hours.  In the absence of bad news it is possible next to nothing happens until Jan.  The only caveat to that is the selling into the close lately.  If profit taking overruns what few buyers there seem to be at these levels we could get a bit of a pullback.

Merry Christmas to those that celebrate that holiday.  Happy Holidays to everybody that celebrates anything this time of year.  To all others, have a great Dec. 25.

Bob

Daily update 12/23 Dow 18,000 plus dark side of oil price slide

The Dow closes above 18,000 for the first time.  Art Cashin had his hat on to celebrate the event.  With that out of the way we can get on to the normal business of the market.  That would be moving straight up of course.  Here is the daily SPX chart.

The market gapped up on better then expected GDP.  Apparently 2/3 of the increase in GDP from the last estimate was spending on Obamacare.  Did that raise everybody's standard of living?  Don't forget that spending was originally in the Q1 data, but was later removed and now added to the 3rd quarter.  It sure makes you feel really confident in the GDP data doesn't it.  It is subject to such huge revisions even years later that it really is pretty nearly useless in real time.  But I digress. There were 304 new highs and 24 new lows.  Much better on the new highs.  The question is will they be able to stay there.  The volume continues to be low on this holiday week.  The intraday price range also continues to contract.  The breadth was 62% positive which was rather strong for the small move in the indexes.  Lets take a look at the futures chart.

After gapping up at the open the futures found their high right away and chopped around all day.  There was a bit of selling into the close.  So far they have held completely above the 6 SMA.  Zero selling pressure.

This is an interesting article The buzz: Bartiromo on plunging oil's fallout  I found these two snippets particularly unsettling.

This is a major issue because since December of 2007, shale oil states have added 1.36 million jobs while non-shale states have lost 424,000 jobs.

The oil and gas boom has added $300 billion to $400 billion annually to the economy. Some argue that without that boom, GDP would have been negative and the country in recession.

I don't know if the GDP would have been negative without the oil boom.  However, the numbers make it clear that it is the reason we are the so called cleanest dirty shirt.  The slow down in the drilling will have a considerable negative impact next year.  Therein lies the trouble.  While the cut in energy prices is good for consumers that benefit is spread out over the long run.  The trouble with the over leveraged energy companies will be felt very quickly. 

Another issue that has been ignored by the market is the rise in the dollar.  The DXY is now at levels not seen since 2005.  Some international companies have been warning of drops in revenue and earnings for the 4th quarter.  Lots of things going on while the market floats blissfully up for the holidays.  Enjoy.

Bob

Daily update 12/22 - Rally extends (a little)

Are we in for another slow creep?  Here is the daily chart.

SPX closed fractionally above Friday's intraday high and at a new high close.  Oddly it never got above the intraday high from 12/5.  Well, maybe tomorrow.  Breadth was 56% positive.  That is slow creep kind of numbers.  There were 206 new highs and 23 new lows.  New highs are still marginal.  Lets take peek at the futures chart.

The futures look like they are running into a little bit of resistance here.  The range is narrowing up and there are a few upper tails.  They are still a long ways from the 18 SMA.  Some consolidation is in order.  It could be pretty sleepy here the next couple of days.

Personally I still don't like the daily chart.  This is a very aggressive retest of the high and I have seen a lot of those fail.  While the VIX has dropped on this bounce it is 15 while it was 11 when we were here before.  That is a considerable divergence and may be a sign that volatility in general is on the rise.  The bulls are in control until we have some sign they are not.  At this point about the only bull/bear pivot I can see is probably a close below the 18 DMA.  Lets see if the bulls can overcome resistance or not over the holiday period.

Bob

Daily update 12/19 Odd ECRI data

The chase continued today.  SPX got within 1.5 points of its all time intraday high, but could not hold on for a new high close.  Here is the chart.

That is some snap back rally.  Does this chart look stable to you?  While bullishness is running rampant the market internals are weak and the price action is very flaky.  It has caught the attention of the BIS.  They had this to say.

The downturns were triggered by uncertainty over the global economic outlook and monetary policy, as well as geopolitical tensions, and the Bank for International Settlements (BIS) said the sharp and sudden dips pointed to frailty in the markets.

"These abrupt market movements (in October) were even more pronounced than similar developments in August, when a sudden correction in global financial markets was quickly succeeded by renewed buoyant market conditions," the BIS said in its quarterly review.

"This suggests that more than a quantum of fragility underlies the current elevated mood in financial markets," it said, adding that recent developments suggest markets are becoming "increasingly fragile".
  
"Global equity markets plummeted in early August and mid-October. Mid-October's extreme intra-day price movements underscore how sensitive markets have become to even small surprises," it said in the report.


The BIS also warned of possible problems in the summer of 2007 before things fell apart.  They were certainly right then.  They have issued several warning reports over the last few months.  This is not a fly by night operation or perma bear group.  This is the central bank of central banks. 

Lets take a look at the futures chart.

The futures made a slight new all time high even though SPX did not quite make it there.  They sold off a few more points after the close.  They area really, really stretched from the 18 SMA.  I think it will be hard to find chasers next week.  Some consolidation seems likely.  Lets have a look at the IWM chart.

IWM closed above its recent trading range.  Not exactly the prettiest of break out bars is it.  Will they push it higher next week or not?

I found this chart rather interesting especially in the context of the current market environment.

Up until 2011 the ECRI had a fabulous track record of calling the starts and ends of recessions.  Their weekly leading index has had a good record of showing future economic growth even when not in recession.  From years of study I know when the bigger corrections occurred in SPX.  In looking at this chart I can see that the bigger negative spikes in the WLI growth rate have corresponded to those corrections.  That was certainly the case in this bull market with negative spikes in 2010 and 2011. There was a smaller one in 2012 that also was associated with a near 10% correction.  While everybody is crowing about how the economy is accelerating this indicator is showing the opposite.  I have been watching this for several weeks wondering if it was going to turn back up.  However, this week it slipped to new lows.  This is the first time it has been negative since 2012.  The stock market is a component of their index and I think some of those bigger negative moves were actually caused by bigger corrections in stocks.  With stocks near highs that is clearly not the case this time.  I would expect this must turn up soon or the economic data is going to weaken.  I am not really sure what exactly is going on here.  Economists are all screaming how good the economy is doing.  The divergence in the market internals might make sense if the economy is actually going to slow down.  That would also make the rapid drop in the price of oil make more sense.  Stay tuned.

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

Bob

Daily update 12/18 Stampede

Back to back 2% up days.  You don't see that very often.  The last time was in March of 2009 as the bull market was kicking off.  Here is the daily chart.

What do you call that?  Its faster then a V bottom.  Not exactly  normal market behavior.  Breadth was 79% positive and the volume ratio was almost 90% on the upside again.  New highs were 190 and new lows were 22.  New lows have not been that low in a while. The new highs were good, but nothing to write home about.  Volume was high once again.  Lets have a look at the futures chart.

Three out of the last four bars were wide range on the upside.  Now if that is not odd, what is?  I don't know what else to call it but pure panic buying.  The futures popped a little more after the close and are just a stones throw away from all time highs now.  Relative to the 18 SMA they are now very stretched on the upside.  How much further will people be willing to chase it?

IWM got within a few cents of its trading range high.  I have seen several articles proclaiming it is getting ready to break out and run to new highs.  That remains to be seen.  Sometimes they do and sometimes they don't.  It also might break out and fail.  Too hard to predict.

Can we all agree the market is acting goofy?  Even some of the bulls on TV were having a hard time understanding what was happening today.  I have seen the market act goofy in the past.  It usually happens when it is on the cusp of doing something big and is trying to throw people off.  This fast move up is making the market internal divergences I have been talking about since July even more pronounced.  We had two days with the upside volume around 90% of total volume.  That is very rare and most often comes from a deep oversold condition like a 15% pullback or something.  There are two possibilities here.  This is either a kick off to a monster upside move or a final buying climax.  With all the things going on in the world and weak market internals it seems a bit hard for me to believe it is a kick off to a big up move.  How the market deals with this test of the highs should tell us what we need to know.

I would guess we won't be up another 2% tomorrow.  It is option expiration, but with all the volatility we just had it probably will be a quiet day.  Today turned the COMPX and SPX short term trends to neutral again.

Bob
 

Daily update 12/7 - Buying panic

That was something. The upside volume was over 90% of the total volume.  That is a very rare thing to happen.  I have only seen that during very deeply oversold conditions and usually when some fundamentally good news happens.  The FED didn't actually do anything today.  In fact Yellen made the point in her press conference that changing the wording of the statement was not a policy change.  Does today's buying panic make any sense given nothing actually changed?  Here is the chart.

That is one funky looking chart.  Despite SPX being up 2% it still did not get above yesterday's high.  Breadth was a strong 86% positive.  There were 61 new highs and 109 new lows.  Notice anything odd with those numbers.  We gapped up this morning and major indexes never traded negative, but we still had more new lows then new highs.  This was clearly about buying the beat down stocks either for short covering or bargain hunting.  Lets see what the futures have to tell us.

We have a green price bar which closed slightly above the 18 SMA.  The market worked off the oversold condition in just one day.  We need a higher close to confirm the break of the 18 which could mean the pullback is over.  Lets take a look at IWM.

IWM broke out the bottom of the recent trading range and thrust back up inside it on an increase in volume.  A lot of the time a rejection like that leads to a break out the other way.  Is IWM going to test its recent highs now?  It did enough to change the short term trend back to neutral.

I am sure glad I did not try to predict what was going to happen today.  I am pretty sure I would not have even come close.  What happens now?  That is a very good question and I have no idea.  Here is what I do know.  I mentioned yesterday the close below the 100 DMA was a buy signal in all the recent pullbacks except the one in Oct.  It is entirely possible that pattern is so well know it contributed to today's buying pressure.  It is very probable that people were anxious to buy for the famed Santa rally that everybody knows is coming up.  That certainly has been publicized enough lately.  So we have historical reasons for the buying today.  Maybe with the FED not giving any hints of raising rates earlier then expected people took that as a green light to buy for the reasons mentioned.  In the 100 DMA buy pattern once SPX closed above the 50 DMA the index went on to new highs without ever looking back.  Since we closed above the 50 DMA today if the pattern is still working SPX should make a new high before closing back below the 50.

There are two things to watch out for.  Often times FED day moves are completely reversed in the next few days.  I don't know if that will be the case this time.  The more important thing is we don't know if selling was exhausted or not.  Yesterday afternoon the market sold off hard.  What stopped the selling was not price, but the fact the market closed.  It may be that the selling is over with, but we can't possibly know that yet.  A close below the 50 DMA would be different then what we have seen with the 100 DMA pattern.  That could be a sign the market is rolling back over.  In the mean time lets see what the bulls have.  One day does not make a trend so follow through is key.

Bob

Daily update 12/16

The dip buyers tried to rally the market today, but were hit over the head in the afternoon yet again.  Here is the daily chart.

SPX closed below the 100 DMA.  That was the signal to buy since May 2013 except for the Oct. sell off.  Breadth was 70% positive at the high today, but ended up 56% negative.  Despite the market being very oversold in the short term people sold that strength without hesitation.  There were 23 new highs and 424 new lows.  Buying enthusiasm continues to wane.  That does not look like a candle that would be part of a low.  Could be more down to come.  Lets look at the futures chart.

The futures tried to rally in the night, but news sent them to new lows.  After the open dip buyers showed up in force though.  They almost touched the 18 SMA before turning back down hard.  I was very surprised how aggressively they sold that rally.  SPX was up 27 points at the high of the day.  It closed down almost 17.  I can't remember the last time I saw a bounce that big end up red the same day.  That is not normal bull market type action.  That is bordering on crash like behavior.  The TRIN closed at .94 so once again it does not look like panic or capitulation. 

When they hammer a market this oversold there is definitely some urgency on the part of the sellers.  Are they about done or just getting started?  With the way the market internals have behaved since July we could easily just be at the beginning.  While it will take a while before we can determine if we are in a bear market or not we definitely have the conditions that have preceded bear markets in the past.  Today had the look of a bear market type day.  If that pattern continues it could be an omen.

Tomorrow is the last FED meeting of the year.  There was a lot of talk about changing the language related to the length of time rates will stay low.  Now with markets going crazy people are wondering if they will back totally off the rate hike idea.  I have absolutely no idea if they will change the language or not or how the market will react if they do or don't.  All I know is that it could be a market moving event one way or the other.

People are out every day telling me of the great value in the energy stocks.  I heard one guy say he had not been investing in energy stocks in years, but he was putting some money into an energy fund.  Everybody is looking for a low in oil soon and a bounce back to the 70s.  It reminds me of the dot com bust.  People that missed the ride up in the late 90s were piling in when the stocks first broke down in 2000.  The internet was changing the world they said and the stocks would come right back.  Many of those stocks no longer exist.  Even the ones that survived went down another 50% or more after the initial crash.  I think there is considerable risk that the oil price goes lower still and stays low for a considerable period.  Everybody involved has budgeted for higher oil prices and cannot afford to cut production.  They are all trying to get as much money as they can.  Every time oil bounces the futures get slammed back down as oil companies come in to hedge their production.  I expect many energy companies will go under.  The leverage is just too high for that not to happen.  Some will be bought by the major players.  While the major companies will certainly survive and probably thrive when they get to buy assets on the cheap it may take some time before their stock prices stabilize.  They can always go lower then one would expect.  Markets often overshoot.  I believe it is way too early to be doing anything other then short term trades in energy stocks.

Bob

Daily update 12/15

They did not waste any time selling into the gap up this morning.  The selling in Europe was much more intense then in the U.S.  Here is daily chart.

SPX dropped briefly below the 100 SMA this morning before dip buyers stepped in to stem the tide.  It closed slightly above that MA.  In the prior bounces of the 100 SMA SPX always closed below it first.  Breadth was 73% neg.  and the TRIN was 1.5.  While the selling was broad based it was not exactly panic.  There were 34 new highs and 359 new lows.  The new highs that low show buying enthusiasm has waned considerably for the moment.  Today's price bar does not look like anything that would be part of a low.  There might be more to go.  Lets see what the futures chart looks like.

The futures are trying to find support around the 200 SMA.  That might be a better place to bounce from then we had at the close on Friday.  The -DI line is still above the ADX line so there is work to do before a lasting bounce is likely.

Wed. is another FED meeting.  As noted a number of times in the blog the market has started to gap up the day before instead of the day of the meeting.  I actually heard them mention that on TV today.  If that becomes widely known that pattern may change as well.  We are currently very oversold in the short term which could add some fuel to a bounce tomorrow.  Tuesdays have been the strongest day of the week all year.  The action this afternoon leaves us better set up for a bounce day.  There could be a few dip buyers show up as we hit the 100 DMA.  I don't think I would read too much into a bounce if it occurs.  With the VIX weekly close above its 200 SMA last week some caution is in order.  We could be in a VIX spike that has further to run yet.  A bounce might be short lived.

It turns out VIX spikes in Dec. have been pretty bullish.  From http://fat-pitch.blogspot.com/2014/12/weekly-market-summary_13.html#more  I found this gem. 

When these spikes in Vix have occurred in December, they have been especially favorable to equities. Even a 34% spike off the low has led to a positive return by month end every time this has occurred; this implies a close over 206.5 in the weeks ahead

There are a few other items in that article trying to make a case for a bounce for the next few weeks.  It makes sense.  That is what the market usually does.  The air waves and printed media have been saturated with all the bullish things going from seasonality to the election cycle to year 5 of the decade.  Its almost like nothing else could possibly happen.  Therein lies the problem.  How often does the market actually do what nearly everybody thinks it is going to.  When it doesn't do what is expected by most is when trouble starts.  I don't know how this is going to play out.  If it does not find a bottom this week it could get ugly as liquidity will be thin over the holidays.

I see a lot of don't worry be happy along with the world is going to end articles on the oil price drop.  I have seen a lot of people expecting the drop to be fairly short lived.  The truth is nobody knows how this is going to play out.  There are way too many variables to deal with.  The only thing I can say for sure is that the lower the price goes and the longer it stays there the higher the stress will be in the credit markets.  There is over $500 billion of risky loans riding on the price.  A large number of defaults will cause problems well beyond the junk bond market.  OPEC is now talking about oil in the $40 dollar range not causing them to cut back production.  I don't know what the odds for major economic disruption are, but there is certainly potential for trouble.  It might be a good idea to keep abreast of your investments and the situation.

Bob

Daily update 12/12

People were more interested in selling the gap down then they were the other day.  Here is the chart.

Yesterday's dip buyers got hit hard over the head overnight.  While there were a few this morning to come out and try again they were overrun with sellers.  The breadth was 78% negative.  Once again the selling wsa broad based.  New highs were 57 and new lows were 363.  First time under 100 new highs in a while.  I guess the buying enthusiasm waned with a second big gap down.  SPX came within 2 points of the 50 SMA.  Over the last two years only twice has it bounced off the 50 and went to new highs.  It has not done it at all this year.  The 100 SMA is a much better bounce target and that is only a bit further down (1987).  Lets take a look at the futures chart.

The futures are getting close to the 200 SMA which is another good bounce target.  That is about another 7 points down.  The -DI line is still above the ADX line so still no sign of a bottom yet.  Today's late day meltdown would probably need to be tested before any significant rally could take hold.  At the moment the bears are clearly in control.

The VIX ended the week well above its 200 SMA.  When it did that in Oct. it kept going higher early the next week before reversing as the market bottomed.  It then went into meltdown mode as the market rocketed up.  That was a straight up move that created no support areas along the way.  It was also an unprecedented streak above the 5 DMA.  All the while huge market internal divergences persisted.  I have no idea how this will play out, but it is not hard to imagine retracing that entire rally really.  I think it was just a matter of a lot of people had been waiting for a correction and when it came they piled in.  There was no real fundamental basis for it with valuations this high.  I am sure some people would beg to differ, but that is my opinion.  You are welcome to your own.

While we are oversold enough a bounce could happen at any time.  I think we need to be careful about extrapolating any bounce into a lasting rally.  With the VIX spiking up we need clear signs a bottom is in.  Today turned the short term trend of R2000 down to join the others.  The TRIN was 1.49 and the volume while elevated was not especially high.  This did not really have the look of a capitulation day.  There could be more down to come.

They paraded a lot of people on CNBC today telling us all not to worry about falling oil prices.  It is absolutely a positive for stocks not related to energy.  I wonder how many of those people were having their traders back at the office selling with both fists.  Oil and SPX over the long history are much more tightly correlated then most people think.  Rapid oil price drops are not unequivocally bullish for stocks.  The opposite is also true they are not unequivocally bearish either.  Each situation is unique and must be analyzed on its own.  The last three years have seen cash flow negative companies borrowing hundreds of billions of dollars to drill.  There is no way in the world there is not a high risk of a lot of defaults if the oil price stays low for a longer period of time.  New financing will be cut off and as mentioned most of these companies were already cash flow negative at higher oil prices.  While not a certainty I have to say there is potential for this situation to be worse then the mortgage mess.  The search for yield caused large amounts of money to be loaned out to energy plays with the idea that oil would be somewhere around $100.  I don't think that is going to happen for a while now.  I think it wise to monitor this situation.

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

Bob

 

Daily update 12/11

The high TRIN brought out the dip buyers this morning as expected.  However, in the afternoon as the price of oil kept dropping sellers showed up in force.  Here is a look at the chart.

That was some rally out of the gate this morning after the gap up.  More often then not fast and furious moves don't hold up and so was the case with this one.  Breadth was 74% during the rally, but ended the day at 53%.  That was serious selling into strength.  There were 113 new highs and 211 new lows.  A lot of new lows for a day that started with a big gap up and still ended positive.  It is an eerie reminder of 2000.  Today ran up and kissed the top trend line good bye and ended slightly back below the 2012 trend line.  Kind of looks like sellers may not be done yet doesn't it.  Lets see what the futures chart looks like.

The futures zoomed back up through the 100 SMA.  They almost touched the 18 SMA before turning and running.  They ended the day just below the 100 and sold off a little more after the close.  They are currently 8 points below the 4 PM close.  I have no idea why.  This is a second failed rally now.  That may give the buy the dip crowd something to think about. 

The VIX crossed above its weekly 200 SMA (17.41).  The last cross in Oct. was the first weekly close above that MA since 2011.  With the close today of 20.08 it would take a monster rally tomorrow to get back below the MA this week.  A second VIX spike this close in time to the last one is pretty rare.  It is likely a signal that volatility in general is on the increase.  I expected that to happen after gold, bonds , FX and emerging market stocks went crazy last year.  Usually that ends up bleeding into developed markets.  Maybe now it finally is.  Something to watch out for.

The rapid drop in oil prices is starting to panic some people.  I have seen lots of people saying the bottom is near.  I just don't think so.  I will stick with the premise that production will have to be shut in first or we get down to $35-40 where it bottomed in 2008.  This chart was in Energy Bond Risk Soars To Fresh Record High As Stocks Slump To 20-Month Lows

That certainly looks like some panic there.  In Norway Central Bank, Slammed By Oil Plunge, Warns Of "Severe Downturn", Unexpectedly Cuts Rates I found this interesting tid bit.

The governor of Norway’s central bank says western Europe’s biggest oil producer is facing a major economic slowdown as crude prices continue to plunge. As Bloomberg reports, Oeystein Olsen said today in an interview after a press conference in Oslo, "our job now is that we need to prevent a severe downturn in the economy... that is presently the major concern of the board."
...
New oil projects are being scrapped in Norway amid falling production and low oil prices.
Long held up as the model for managing oil abundance, Norway has painstakingly sought to prevent the problems that occur with other natural resource-based economies, such as corruption, slow economic growth, currency appreciation, and subsequently, deindustrialization.

If Norway is in trouble the much less well managed oil producing countries have got to be in very bad shape.  I hear the pundits on TV saying not to worry because oil producers are hedged.  In looking at the numbers I don't think that is entirely true.  Since nobody saw this coming it does not seem likely there was a lot of hedging.  Hedging is expensive if you don't need it.  I also suspect that the ones that are hedged are the better financed companies that could afford it.  The higher risk companies probably skipped that extra cost.  The producers are probably the ones slamming the futures every time they bounce a bit.  As I said the other day this really has the potential of a serious black swan event.  Stay tuned.

The short term trend is down.  It might not be wise to fight it at the moment.

Bob

Update 12/10

Splat.  Today was the big down day I mentioned was coming.  They always seem to be the result of the low volatility rise like we had the last few weeks.  Here is the daily chart.

SPX closed back under the trend line from 2012.  The selling was enough to just barely trigger my over sold buy signal.  As you can see on the chart the last two buy signals were not all that close to the low.  The breadth was 81% negative so the selling was broad based.  There were 116 new highs and 262 new lows.  Most of those new highs happened early in the day as yesterday's reversal brought out some buyers this morning.  However, every time the market bounced the sellers pounced.  All day long.  The TRIN closed at 3.3 which is quite high and shows some panic.  A reading that high will often bring out buyers the next morning.  The blue bar indicates SPX closed below its lower Bollinger band so it is a bit extended in the short term.  Its in the middle of nowhere as far as support goes though.  It could easily keep going down to the 100 DMA over the next few days.  This megaphone pattern is inherently unstable.  There is no strong structural support anywhere.  That is why this pattern so often makes an important top.  Lets have a look at the futures chart.

The futures ended the day below the 100 SMA.  Like the daily chart they have a blue bar so they are extended on the down side.  ADX is showing a pretty strong down trend developing here.  The -DI line must cross below the blue ADX line before we can consider any kind of bottom might be in place.  Patience.

While the big boys were not interested in selling into the gap down yesterday they were more then willing to let it go today.  Fear was in the air.  I heard people talking about contagion.  There is good reason for some fear.  Oil price drops of this magnitude and speed are normally associated with global recessions.  OPEC reduced their demand forecast for next year adding to that fear today.  I also heard talk of some of the energy companies talking about selling shale assets to shore up their balance sheets.  Clearly stress in the oil patch is rapidly building.  We went from cap ex cuts to selling assets in just a few weeks.  I can see why.  On top of the $200 billion in energy related junk bonds there is over $300 billion of covenant-lite loans (definition).  Those are probably barely a step above junk bonds in reality.  The numbers make this potentially a bigger problem then the subprime mess that caused the financial crisis.  There is one thing that might make it even worse.  The mortgage mess had assets that could be foreclosed on and resold.  The collateral for these loans is oil in the ground.  You can't repossess that and to sell the rights you have to have a buyer.  Its much easier to find a buyer for a house.  Not everybody is going to drill for oil.  Finding a buyer will be oil price dependent.  I read the other day there was a 40% drop in new well permits in Nov.  Lower prices will only make demand worse.

Today turned the short term trends for SPX and COMPX down.  While we are a bit over sold in the short term it seems unlikely we are at an important low yet.  For more then 18 months when the market sold off this hard it always closed below the 100 SMA before the final low.  The last pullback went below the 200.  While it could always be different this time, it might not be. 

Fear overtakes the stock market periodically.  Some times those fears prove to be unfounded.  Those instances make great buying ops.  However, some times the fear is legitimate.  It can often be difficult to know which is going on during the fear episode.  In this particular case the fear of a global economic slowdown and contagion from the oil patch seems justified.  There is considerable economic evidence from around the world of problems.  The numbers in the energy related bond market data show clear potential for trouble as well.  The lower the oil price goes the more trouble there will be.  In 2008 the price went from over 140 to below 40.  People kept calling for a bottom all the way down.  It didn't stop until OPEC cut production.  I don't see any chance it stops this time until production is reduced.  I have seen a number of articles and people on TV blowing off any problems from the drop in price.  At this point the extent of the possible trouble is unknowable.  Anybody that says not to worry is either ignorant or has an hidden agenda.  Remember Bernanke telling us the subprime crisis was contained shortly before the worst recession since the great depression.  Maybe this all blows over and nothing bad happens.  However, I just keep wondering about how the market internals started falling apart at the same time the oil price slide started.  If something bad happens people will be writing articles about how all the market internals were issuing all these warning signs ahead of time.  Every thing that I know of that has been a warning sign of a big market decline has happened this year.  I don't think it is wise to just ignore that fact.

Bob

Daily update 12/9

Interesting day.  The laggard of the year the small caps were up over 1.7% while one of the leading indexes this year the transports was down .59%.  SPX closed down just fractionally.  Here is the chart. 

The futures had a big gap down on world news, but money managers were not in a mood to sell after the open.  Money started moving into small caps right away.  I guess people got scared the world might go to pieces so they moved some money into U.S. small caps.  There were 111 new highs and 252 new lows.  Despite the big gap down the number of new lows dropped from yesterday.  Another indication people did not want to sell into the weakness.  Breadth ended up 56% positive.  This was the kind of day that frustrates the bears and makes the bulls feel safe.  I have seen it do this before only to drop like a rock.  That really pisses off the weak shorts that covered along with the people that rushed in to buy the dip.  I have also seen it rocket off to new highs and cause the shorts that did not cover today to drop some F bombs.  Lets take a look at the futures chart.

The -DI line crossed above the key 35 threshold this morning.  This opens up the door to a bigger decline.  It does not necessarily mean the bears will step through that door.  It makes today's low very important.  A close below it and the selling is likely to pick up considerably.  Notice today's bounce came from the 100 SMA.  At the moment we are still below the 50.  That is in the indecision area for future direction.  A failure to recapture the 50 could lead to more selling.  What does IWM have to show us.

The world events caused a move of money to the safety of bonds, gold, utilities and good old U.S. high risk small cap stocks.  For today I guess people were thinking the U.S. will continue to outperform others.  That was some bounce from the neckline this morning.  However, IWM is still in the trading range of the last few weeks.  Will the bulls show up and break it out to the upside?

What happens now?  I have seen days like today just be a quick flush and on to higher prices.  I have also seen them be the start of a big decline.  Was this a watershed day or just water under the bridge?  I don't think it is safe to say it was nothing just because we rallied all through the day.  We still have the fact the market has been showing huge negative divergences since July.  I think the power is up for grabs here.  Which side steps up to the plate?

Bob

Daily update 12/8

I guess I won't be able to do a proper update tonight.  Sorry.  For some reason my data feed says that SPX was down .73% today.  It must be an error since we all know the market cannot go down because of all the seasonal and election cycle factors I keep hearing about every day.  Lets look at the chart any way.

SPX ended the day with a red price bar.  That is the first one since the Oct. low.  I read an incredible stat a while back that I forgot to share.  This is the latest in a calendar year we have gone without SPX having four down days in a row.  We were already 60 days past the record when I read that a week or two ago.  Just another indication of what a strange year it has been.  There were 239 new highs and 301 new lows.  One day off a new closing high in SPX we had over 300 new lows.  I had to double check the data with another source.  There was no data error.  That is a staggering number.  At this point I don't think it matters how many new highs we have, there is something seriously wrong here.  This chart has a potential short term double top look to it.  Lets see what the futures chart looks like.

Here we are back at the 50 SMA again.  We made only a marginal new high with the last bounce off that MA.  The -DI line is higher then it has been on this rally, but still has not hit the 35 level.  At 29 it would not take much more selling to get that though.  Lets take a peek at IWM.

Kind of looks like a potential head and shoulders pattern developing there.  I still think it is very important what happens to this index.  If it ends up breaking down that would be a full topping pattern at a lower high in an index a lot of people are watching.  That might increase selling pressure across the market.  Lets see what the breadth chart has to say.

The McClellan oscillator was already negative the last two days.  The 10 DMA lines had a negative crossover today for the first time since the Oct. low.  Breadth is ready for a pullback.  Lets look at the number of stocks above their 200 SMAs.

This indicator took quite a tumble today.  On top of the big divergence that started last July it has been diverging over the last couple of weeks.

I know this seems like an odd time of year for a pullback, but these charts sure look like that could be in the works.  There is enough technical damage that should lead to a pullback.  Some times over the last couple of years just when it looked like the market was going to drop the bulls would come rushing in.  I can't rule that out once again.  I think the bulls need a strong save tomorrow.  A weak bounce would probably get sold the next day.  If the bears show up again tomorrow we still have the key 2040 level.  Below that and the selling could pick up considerably.

I think the announcements of cuts in cap ex from oil companies may have been the driver behind today's drop.  I read the other day that the oil industry is responsible for about $1.2 trillion in GDP.  There will obviously be sizable ripple affects across the economy from these cap ex cuts.

Bob