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Trend table status

Trend

SP-500

R2000

COMPX

Primary

Up 7/31/19

? 2/28/20

Up 6/28/19

Intermediate

?- 3/20/20

Dn 3/20/20

?- 3/20/20

Sub-Intermediate

?- 3/26/20

?- 3/26/20

?- 3/25/20

Short term

? 3/26/20

? 4/1/20

? 3/24/20


Don Worden of Worden Brothers (makers of Telechart software) used to keep a trend table before his health issues got in the way. I always found it useful. Mine is slightly different. Hopefully helpful. Up? or Dn? means loss of momentum. ? by itself means trend is neutral. ?+ or ?- means trend is neutral with bias of up(+) or down (-)

Monday, June 30, 2014

Daily update 6/30

That was a boring end to the quarter.  This day four inside the 6/24 downside reversal day.  Here is the daily SPX chart.


This is really getting boring.  However, it should make identifying the next move easy.  The 6/24 price range is 1948-68.  I am going to go out on a limb and say that some day we will break that range one way or the other.  There should be some follow through in that direction.  In the mean time just relax and take a deep breadth.  Here is a look at the futures chart.


Despite the bars turning green again on Friday we did not get much upside.  As I mentioned in that update that we might sit and spin today.  Tomorrow begins the new quarter and we will see what investors might have up their sleeve.  ADX is getting low so there is no trend to speak of at the moment.

The daily SPX chart shows we have buyers on dips.  However, it is not clear there is much if any interest in buying above 1960.  I heard quite a few people talking about valuation on TV today.  Even Art Cashin was saying that some measures are showing high valuation exceeded only by the tech bubble.  I am sure none of that matters.  We are going to the moon and that is all there is to it.

Bob

Friday, June 27, 2014

Man made climate change

Pres. Obama has been really harping on the climate change lately.  We are constantly being told we must do something or face dire consequences.  What I get a kick out of the most is that the scientific reports almost always have their findings based on computer models.  Do you know why that is?  The reason is because the actual temperature data does not prove their case.  They must have a model they can fudge, LOL.  Lets look at some temperature graphs.  Al Gore made famous the so called hockey stick graph.  It usually looks something like this.


Pretty impressive looking isn't it.  Sometimes it all depends on where you start from.  Lets look at one that is a bit further back in time.


The second chart goes back another 1000 years and is in centigrade instead of Fahrenheit.   This chart doesn't look quite so scary does it.  The little ice age on this chart does not seem to show up right on the first chart.  I am not quite sure why that is.  There was much written about how cold that time period was in the history books.  We can also see quite a few up and down spikes long before man was burning fossil fuels.  Lets take a look at what has happened since the infamous Al Gore chart.



 We haven't actually got any warmer at all in the last 15 years.  Did we stop burning fossil fuels or something?  Now lets look back a little further yet.


Some of the alarmists talk about how melting the ice in Greenland will be catastrophic.  This is Greenland's temperature chart. This looks even less scary doesn't it.  Look at that massive warm up in temperature over 12000 years before we discovered oil.  But wait, there is more.  Lets go way, way back.

Throughout much of the last 400,000 years the earth has been much cooler then it is now.  It is also possible, maybe even probable, the current warm spell is over and we are headed for colder temperatures.  If man really is warming the planet, maybe we need to work harder at it.  If the planet is cooling it could get very difficult to feed the billions of people we have.  I don't know what all causes the bigger picture cycles.  It could be natural variations in the amount of heat the sun puts out and orbital mechanics of the planets.  There are so many things about our world we have very limited knowledge of.  One of those is climate.  The only thing we can say for sure is that it is always changing.  The one thing we cannot say for sure is whether man has any affect or not.  Governments are paying scientists to lie to us.  Why is that?

The reason I digressed on this subject is to make a point.  I question everything.  However, most people don't.  For most people if they hear something over and over they will believe it without ever getting any facts.  I just don't work that way.  I need proof.  Wall Street loves to pull the wool over people's eyes.  They often present data to prove a point that is often misleading.  Choosing starting dates that make their case is very common.  Sometimes they show some data, but not enough to actually make a conclusion because they know most people will just accept it without actually looking at it.  Most of the time they don't even show any data, they just make statements.  Everybody needs to question everything they hear from the market pundits.  Do not just blindly believe what you are told.  Your financial future may depend on it.

Bob



Daily update 6/27

Late day surge got SPX positive.  Here is the daily SPX chart.


SPX closed just 2 points below its all time high close.  There were only 35 new SPX highs today.  That is down from 93 on 6/20.  There was just not a lot of interest either way by people today.  Everybody is standing pat for the end of the quarter.  Lets have a look at the futures chart.


The futures closed back above the 18 SMA and now have a green bar.  They are in position to continue the rally on Monday if the bulls have any buying interest.  Hard to say.  We could easily sit and spin.  Lets take a peek at the weekly SPX chart.


We have a hanging man bar this week at the highs.  That makes this weeks low important.  A weekly close below it next week could portend more weakness to come.

We still have not had a wide range day after the 6/24 outside day.  Is one coming or is this just the sign of the times of very low volatility?  We have now spent 3 days inside that day's price range with the exception of a few minutes below the low.  It is going to take people willing to buy an over bought market at the highs to push us up.  Maybe we will see if they are willing to do that or not next week.

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

Bob

Thursday, June 26, 2014

Signs of a bull market top

History tells us there are some things that commonly occur at bull market tops.  I have put together a list so we can see how the current situation compares.  Not every element of this list occurs at every top.  That is part of the reason tops can be hard to spot.  The other part of the reason is because of item number 1 in the list.

1. Sentiment - The one element that occurs at virtually every top is a very common belief that the market can only keep going up.  This is largely caused by the market ignoring everything that should be causing it to go down.  No sign of that here (he typed with an amazing amount of sarcasm in his thoughts).  In Daily update 6/5 I showed the II sentiment survey with the number of bulls at the same level as the 2007 top.  Here is a survey of professional investors.



This chart shows professional investors are the most bullish they have been in this entire bull market.  It is about the same level as the Oct. 2007 top.  Clearly this survey is unusually high.  Lets look at what people are actually doing with their money.  Here is a chart of the latest margin debt data.


Not only is margin debt at a record high in actual dollars even adjusted for inflation it made a record high.  People do not load up on margin without being very bullish do they?  Here is a look at margin debt vs GDP.


This chart isn't quite up to date, but it has a lot of data.  This chart clearly shows that people got very enamored with the stock market starting in the mid 90s.  Despite two 50% crashes people are still enamored.  Even at the depths of the last two bear markets the debt stayed above previosly high levels.   Here is a more up to date chart.


Back in Jan. we eclipsed 2.5% of GDP.  This is only the third time in the history of margin debt data collection that happened.  It is now about the same level as 2007.  We know what happened the other two times.  Will it be different this time?  Here is a chart I have never seen before.  It is a ratio of money in equities vs money market funds (the much talked about cash on the sidelines).


Like margin debt this ratio is at record highs.  This is what people have done with real money, not what they say.  Doesn't this ratio indicate there is less available sideline money then at the other tops?  While the pundits keep saying this is the most hated bull market in history the data says otherwise.  One could argue it is actually a very much loved bull market.  What people don't like is the economy. 

I think it is clear we can put a check mark in the overly bullish item on the checklist.

2. Over valuation - Another characteristic of bull market tops has been an over valued market.  There are several different ways to look at that.  Lets start with Warren Buffet's favorite method.  I think we can all agree he is a pretty good investor.


This valuation measure has surpassed the valuation at the 2007 top.  It was only surpassed by the 2000 top.  Can we count on people being that crazy again?  Notice where we were in 1994.  That was twelve years after the secular bull market started in 1982 and valuation was still not excessive by historical standards.  What a difference the next six years made.  I have seen many people compare now to the 1995 period and claim there are years of upside ahead.  As you can see we are not really like that time period at all.  We look pretty over valued already don't you think?  Here is a look at Tobin's Q ratio.


We can see that going back to 1900 stocks have only been more over valued one time in history.  This measure is well above the 2007 peak.  Not cheap by any stretch of the imagination with this metric.  Here is a look at a composite indicator of four different valuation metrics.


With this method we currently have the third most over valued market since 1900.  I think everybody knows what happened those other two times (1929 and 2000).

I think we have enough evidence to put a check mark in the over valuation check list item.

3. Investors ignoring fundamentals - This one is obviously going on.  Last year we had 5% growth in profits and 1.9% economic growth (stall speed) while the market was up 30%.  This year we had a huge drop in Q1 profits and a -1% GDP print (now -2.9, but that just came out) and yet SPX made new highs.  Does that really make sense?  The only time in history we had 4 quarters of growth less then 2% without going into a recession was 2011.  Can we be that lucky again?  We also had a big drop in profits that 7 out of 8 times has preceded a recession.  Shouldn't investors be at least a little cautious?  Here is the chart in case you missed it.



Despite the consensus that a recession is not possible this year the data says that it is entirely possible we are already in one or heading that way. With an over valued market people should be at least a little worried.  On top of the possible economic fundamentals we have an unsettled geo political situation.  There is at least a moderate risk of higher oil prices which would be a drag on the economy.  I think we can put a check mark in the ignoring fundamentals check list item.  I am sure some people will disagree on that.  However, I would argue that stocks are priced for perfection and anything less then that could be a problem.

4. Froth (greed) is taking over - This one is a little hard to define exactly.  What is froth?  This year the Russell2000 small cap index had a P/E over 100.  That is about what the NDX100 had in 2000.  That seems a little like froth doesn't it?  This year I have seen a number of very low volume under $10 stocks making huge moves (100% or more in days).  I saw this exact same behavior in 2000.  I did not notice that so much in 2007.  Not sure if I just missed it or it wasn't there.  There was plenty of froth in the housing and commodities markets though.  Here is a look at trading in the junk bulletin board stocks.


These are stocks that don't have fundamentals worthy of trading on the major exchanges.  They are truly junk.  There was froth last year, but not as much as 2011 and this year.  I saw a better chart that was based purely on volume instead of value on TV last month.  It showed a huge jump in volume this year that was way above everything the last several years.  Unfortunately I have been unable to find that chart online.  Here is another chart that shows excess speculation.


This chart is from the middle of last year so it is not up to date.  The 25th lowest price stock today is over $18 marked approximately by red horizontal line.  That puts us slightly above the 2007 high.  The 26th lowest price stock is even over $19.  Notice the range of this chart after the 1974 low.  It never crossed the 16 threshold until the late 90s.  People showed caution after the 73-74 bear market and did not fully embrace market speculation until the 90s.  That backs up the same conclusion mentioned above on the margin debt chart.  This is clearly very high and shows excess speculation.

As further examples of froth in the form of rampant speculation we have bitcoin and athlete stocks.  I saw Vernon Davis of the S.F. 49ers one day being interviewed about a stock based on his personal earnings.  The very idea that we have a buyable stock based on one single athlete just completely boggles my mind.  That is taking froth to an entirely new level never before seen.

I believe we have enough evidence to put a check mark in the froth check list item.

5. Surge in M&A and IPO activity - We have seen a lot of merger activity this year.  The recent announcement of the T and DTV deal is just icing on the cake.  Anybody remember the ridiculously overpriced deal between AOL and Time Warner in 2000.  The T deal is just one of many big acquisitions announced this year.  We are on pace to have the most IPOs since 2000.   There has been a flood of unprofitable IPOs over the last six months.  Check out this chart.


We recently have had about the same percentage of IPOs with negative earnings as we saw at the 2000 top.  Is that smart money trying to cash in while the getting is good?

There is no doubt in my mind that this check list item gets a checkmark.

6. Complacency - This is a category that is hard to quantify.  To me it is not the same as low volatility.  It is kind of like sentiment in some ways.  I define it more as a feeling that the market cannot go down in a big way.  That can be fostered by low volatility, but I have seen low volatility environments where people were still worried about a big move down.  I recently saw some comments that the FED is worried about complacency.

Federal Reserve officials are worried that when it comes to financial markets, this could be the calm before the storm.

The stable market environment has Fed officials concerned that investors will take on too much risk. "Volatility in the markets is unusually low," William Dudley, president of the New York Fed, said after a speech last week, according to The Journal.

"I am a little bit nervous that people are taking too much comfort in this low-volatility period. As a consequence, they'll take more risk than really what's appropriate."


Richard Fisher, president of the Dallas Fed, is also concerned about complacency in the market. "Low volatility I don't think is healthy," he said in an interview Tuesday, The Journal reports. "This indicates to me a little bit too much complacency that [interest] rates are going to stay at abnormally low levels forever."


I can't even count the number of people I have seen get on TV proclaiming they don't see any significant downside risk.  Complacency may be a little like pornography.  I may not know exactly how to define it, but I know it when I see it.  Listening to people talk I believe there is absolutely a high degree of complacency in the markets today.  I think this line item deserves a check mark.


7. Topping chart patterns - This of course is the most important item in the list.  However, you don't actually get it until after the top has happened.  In this case the Dow completed what looks like a three peaks and a domed house well known topping pattern back in Dec.  However, the Dow has climbed above that high.  That has happened before and the Dow went on to make the expected decline.  Other then that it is really too early to tell much.  This is always the trickiest part of the whole thing.  Each bull market top looks somewhat different.  There is no single formula that can be applied.  We can't put a check mark in this item at the moment.  We need to see some actual price decline first.  Of course there is the possibility that taking profits has been outlawed and the market will never ever go down ever again.


It is quite clear to me that despite two major crashes in such a short period of time people are still enamored with stocks.  The pundits can say what they want about this being a hated bull market.  It just is not true based on what people are doing with their money.  We have the second or third most over valued market in history.  No lesson was learned on valuation whatsoever.  We are again at nosebleed levels.  The market has never consolidated over valuation at these extremes.  Will history repeat with another big meltdown?  Will it be different this time?  We have the conditions that normally happen around bull market tops.  This seems like a very poor time to put new money to work.  As they say buyer beware.


I saw this from John Hussman the other day and I think it is totally appropriate.

However uncomfortable it might be in the shorter-term, the historical evidence suggests that once overvalued, overbought, overbullish conditions become as extreme as they are today, it’s advisable to panic before everyone else does. 

 Bob

Daily update 6/26

Got sell em, got to sell em, no wait, got to buy em, got to buy em.  Make up your mind people.  Here is the daily SPX chart.


The market sold off hard right out of the starting gate, but only for 30 minutes.  Then it was up the rest of the day.  The bounce came from the 18 SMA, but that left us with a hanging man bar or is that a hammer.  Price was not at the high for a true hanging man, but we probably have not pulled back enough for a true hammer either.  Lets have a look at the futures chart.


The futures bounced off the 50 SMA this morning, but they found resistance at the 18.  We are essentially right where we were last night.  However, the 6 SMA has turned up a little bit this time.  That should make the upside easier to come by tomorrow if the bulls show up and want to take it higher.  On the flip side we made a slightly lower low and a lower high.  If the bears show up again in the morning I don't think it would be too difficult for them to get some selling going.  So in other words this could go either way, but the bulls path tomorrow would be easier then it was today.  Will they test the all time high again?

This year the biggest pullbacks have happened in Jan. and April.  Those are the first months of the quarter.  Will that pattern repeat or now that I mentioned it is it vanquished forever?  I would not be surprised to see the bulls hold on to quarter end.  Then we get into July and see what happens. 

There is a good video in this article well worth the time to watch.  However, if you are living in la la land and believe that everything in the world is just fine and dandy you might find it disturbing.  If you want to stay in la la land you should skip it.  If you are like many people that feel like something just isn't quite right you might find it quite illuminating.  "Three Es Suggest Massive Change is Upon Us" Chris Martenson's Accelerated Crash Course.  This isn't about the stock market.  The three Es are the economy, energy and environment.  It is about an hour video and very well done.

Bob

Wednesday, June 25, 2014

Daily update 6/25

The bulls showed up like other reversal days.  Here is the daily SPX chart.


I forgot to mark yesterday as an outside day.  Historically this is an odd occurrence for SPX.  However, we have now had 8 of them this year.  The first five were all followed by price weakness within two days.  The last two were just before the ECB meeting and did not have any downside right away.  The last swing low went back to the area of those bars though.  If we are going to see weakness from yesterday's outside day and reversal it should happen tomorrow.  Here is a blurb about yesterday from Bespoke that was interesting.  Negative Reversals from an All-Time High

After what was looking like a pretty good day this morning, US equities sold off in the afternoon. The S&P 500 hit an all-time high early on but finished the day down 0.64%.  While this type of reversal is normally nothing out of the ordinary, it sticks out more in the recent period of steady increases and low volatility.  Since the bull market began in 2009, this was just the third time that the S&P 500 hit an all-time high on an intraday basis and then sold-off to finish the day down a half percent or more.   The most recent occurrence was in April, and the occurrence before that was in May 2013.

We did not get to new all time highs in this bull market until last year.  Obviously it would not have been possible to happen before that.  Last April and in May 2013 the reversal days were followed by more weakness as SPX hit the 100 DMA before the pullback was over.  That is not many occurrences to work with, but I would say it did raise the odds of more weakness in the short term.   SPX needs to close above yesterday's high to fully negate that view.  Lets have a look at the futures chart.


The futures did not confirm the break of the 18 SMA overnight.  They ended the day just above that line.  We are in no mans land here at the moment.  They really could go either way from here.  I don't think it will take much downside to bring out the sellers though.  The upside might be more tough to come by.

Outside days have been followed by wide range days usually within two days.  All but one of those days have been down.  It seems likely tomorrow could be a wide range day one way or the other.  The way the reversals as described by Bespoke have been working along with the way most outside days have worked this year should make the odds favor the downside.

The 3rd estimate of GDP came in at -2.9% and well below expectations.  The quarter was a huge miss from early projections.  Have a look at the chart.


We have never had a GDP print that low that was not associated with a recession.  This was the third estimate which can still be revised in the years ahead, but is as close as we can get to reality in real time.  The first quarter profits dropped like a recession might be starting.  Now GDP looks like a recession.  The pundits were out proclaiming it was meaningless and the market was up on the day.  It reminds of the Mad magazine cover "What me worry" from when I was a kid.  In 1998 when I was first getting into the markets we had a quarter of 2% growth and they were selling stocks like mad on the announcement.  I can remember vividly wondering why everybody was panicking on 2% growth.  SPX ended up pulling back near 20% that fall before it was over.  That turned out to be nothing but a short lived panic as the market recovered quickly.  I sit here today wondering the exact opposite.  We had a GDP print that historically has only been associated with a recession and yet people were out buying up stocks on the announcement.  There is a strong belief that nothing can go wrong.  We are not going to have a recession any time soon.  The FED has our back.  Stocks should have sold off today.  Even if it was only a one day wonder and they started back up tomorrow.  This is truly a market complacency beyond anything I have ever seen.  This is the kind of environment where the dreaded black swan can make an appearance and cause mass panic all at once.

Interesting article on Asia Asia’s Sputtering Growth Engine .

Bob

Tuesday, June 24, 2014

Daily update 6/24

Quite the reversal bar today.  Here is the daily SPX chart.


SPX put in quite the mid day reversal from an all time high.  People were trying to blame it on some headline about Iraq, but I really don't know if that had anything to do with it or not.  USO was down early today and did not bounce until an hour or more after stocks started down.  Maybe people were just looking for an excuse to take some profits.  At any rate we ended the day right at the key 1950 area.  Here is a look at the futures chart.


We ended the day below the 18 SMA.  Both the DMI and MACD lines have negative crossovers.  Last night I wrote "The market is now ripe for a pullback.  Will the bears pounce or stay in their caves?"  We got our answer today.  The bears did indeed come out to play.  Now it is up to the bulls to respond or not.  I want to show the IWM chart tonight.




I marked out a potential head and shoulders top forming.  Price got a bit above the left shoulder for a few days, but reversed sharply back below it today.  To complete the pattern it has to break the May low.  That may or may not happen.  If it does I think it will greatly increase the selling pressure across the broad market.  This index is still key to watch as it is in a bubble.  It will have the power to tank the market just like QQQ did in 2000.  Will it follow through on the downside or rip out to new highs?


SPX wiped out the post FED move and stopped right about where it was when the announcement came out.  It took a few more days then usual this time.  What happens now?  The market looked tired before the reversal bar.  I would think there might be some follow through selling in the days ahead.  Lets see what the bulls do with it tomorrow.  There have been some pretty ugly reversal bars since 2012 and the bulls came right out and bought it up the next day.  I guess we will see if they do it again or not.


Bob

Monday, June 23, 2014

Daily update 6/23

Zzzzzzzzzzzzzzzz.  Somebody wake me up when the market decides to go somewhere.  Here is the daily SPX chart.


Everybody is sitting around waiting for somebody else to buy or sell first.  Another 5 point range day.  We tested yesterday's high several times early this morning, but found no takers.  Are there any buyers left out there?  Lets look at the futures chart.


The futures closed below the 6 SMA for the first time since 6/16.  We have lost some momentum now.  Can the bulls get it back?  We are still a long ways away from the 100 SMA which makes us still quite over bought.  The last pullback did not go very far so it did not get the market in a short term oversold condition.  That can tend to limit the upside fuel.  The futures are down a bit as I write this, but who knows where they will be in the morning.  If we get a confirmed break of the 6 SMA it would change the short term trend to neutral.  After three days of very narrow range at the top a range expansion on the down side could bring out some sellers this time.  Lets take a look at the breadth chart.


This last spurt to the upside did not come with a surge in breadth.  The McClellan oscillator is barely positive and the 10 DMA breadth lines are working towards a negative cross.  This looks like an exhausted market just as the price bars suggest.  Notice the 10 DMA advancing volume never did show the same kind of strength seen on other rallies in this bull market.  I could be wrong, but that seems to suggest the big boys were not piling in on this rally. 

If we should pullback here the first support is the last swing low at 1925.  The next level down is the 1897-1902 area.  The market is now ripe for a pullback.  Will the bears pounce or stay in their caves?

Bob

Friday, June 20, 2014

GLD and GDX

Lets start with a monthly chart of GLD.  It may be showing a change of character here.


The month isn't over yet, but yesterday's big move up has turned the bar green.  Can we hold these levels into month end?  We have had a double bottom in place for a while.  So gaining some upside momentum seems possible.  Here is a look at the GDX monthly chart.


GDX has a potential inverse head and shoulder bottom forming.  It also has turned the monthly bar green.  A very positive change of character if it sticks.

If these ETFs do make a bottom and bounce I have no idea how long it might last.  There is clearly plenty of room above for a significant bounce. However, the 18 SMAs are heading down sharply.  Price needs to get above that MA and stay there long enough to turn it back up before we can feel comfortable they have probably started a new bull market.  That will take some work.  In the mean time it looks like they are worth watching for long trading ops.

Bob

Daily update 6/20

Very narrow range day.  Here is the daily SPX chart.


They used to say that option expiration day was a volatile trading day.  Nothing could have been further from the truth today.  SPX had less then a 5 point range.  That is unbelievably small at this price level.  That would be a tight range at 1200, LOL.  Breadth was 55% positive.  There were 317 new highs (93 in SPX).  Both those number increased from yesterday.  The futures opened on the high of the day and sellers came out immediately.  However, price did not drop much so they were certainly not very ambitious.  Very narrow range days at the high sometimes turn into short term tops.  Lets have a look at the futures chart.


The futures broke out of yesterday's tight range overnight, but never made any progress after the open.  This is ridiculously low volatility.  Is it a case of everybody sitting around waiting for someone else to buy or sell first?  Last year volatility erupted in gold, then spread to currencies and global bonds and emerging market stocks.  Developed market stocks ignored everything and kept on rising.  This year there is a global collapse in volatility in markets world wide.  Some markets are experiencing historically low volatility.  I have never seen anything like this in my 15 years of studying the markets.  Why is it happening? One of the FED officials remarked it felt like the calm before the storm.  It seems very eerie to me.  I guess we will see what happens.

The first week of the month and option expiration week have the strongest upside bias.  Therefore, those two weeks also have the most short term tops.  Did we just make another one?  I don't know, but a little more volatility would certainly be nice for trading.

I have talked numerous times about problems in China.  I found this chart very interesting.

How is it possible for them to lend out that much money without greatly lowering the credit standards?  They have definitely created the biggest credit bubble in the history of the world.  I think it is starting to pop.  A lot of people seem to think they can manage to let the air out slowly.  I am not aware of any major country that has successfully done that.  I think the numbers are just too big in this case.  I guess we will see, but I think China will be in the news a lot sometime down the road.

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

Bob

Thursday, June 19, 2014

Daily update 6/19

Narrow range day.  Here is the daily SPX chart.


Today was a hanging man doji candle.  The lower tail isn't all that long so it probably is  a marginal hanging man.  Not much of a surprise to have a quiet day.  This is a big decision here.  Are people willing to push price higher or not.  The market may pause a little longer while it decides.  Lets have a look at the futures chart.


The futures are in a very tight range here at the highs.  I guess everybody is sitting around waiting for somebody else to make the first move. 

With the hanging man bar today a close below today's low (1952) is supposed to be bearish confirmation.  Whether that might spark a pullback remains to be seen.  Earlier in the year there was considerable bubble talk.  With this latest break out to new highs that talk seems to have turned into the possibility the market might melt up.  Of course that would only make the bubble more bubbly.  I can't read people's minds so I can't predict what happens next.  I can say the volume in advancing stocks on this rally is the lightest volume on any rally in this bull market by far.  The new highs are not particularly strong and neither is breadth.  That is what blow off type moves usually look like.  Very strong sentiment and weak technicals.  It seems to me the market has been melting up for the last 18 months or so.  How much more does it have in it?  I guess we will see.

Bob

Wednesday, June 18, 2014

Daily update 6/18

Retest of high.  Here is the daily SPX chart.


Volume picked up considerably today.  Breadth was 68% positive.  There were only 47 new SPX highs.  You might recall we had 103 when we were up here before.  Lets have a look at the futures chart.


The 10:00 bar confirmed yesterday's break out.  That set up a run to a new all time high after the FED announcement.  Now the tricky part.  Obviously the new high data was not nearly as strong.  Neither is the breadth data.  There are lots of divergences everywhere.  The ADX is not strong like it was before so the odds of coming back here soon if it does turn down are not as high. 

The really big issue though is the tendency for the market to reverse FED day moves in the next day or two.  Turning back from here would leave an obvious double top.  The daily chart is in position to turn down very easily.  It is up to rally chasers to propel the market higher.  We will have to wait and see if they show up or not. 

I think I found the chart to watch for an energy price problem caused by Iraq.  Here is chart of the national gasoline price.

Historical Price Charts

The big sell off in 2011 and the two lesser corrections in 2012 all occurred after the gasoline price got above $3.80.  Price is currently near the high end of last year's range.  It did not cause serious trouble, but then again it did not stay here long either.  It is clearly not far from a problem level.  It may or may not be a problem if it spends a prolonged time period around here.  We just don't have enough data to know.  We will see if Iraq causes further increases or not.

Here are a couple of interesting articles on China.  I still believe China is experiencing very similar financial stress to what the U.S. had in 2007 just before things really blew up.  Just keep in mind their debt problem is way, way bigger.
China's Brewing Subprime Crisis
Chinese companies have racked up $14.2 trillion in debt—more than any other country on the planet

Bob

Tuesday, June 17, 2014

Daily update 6/17

Once upon a time the market used to always gap up and rally on the morning of a FED announcement.  The FED noticed this pattern and put out a paper on it.  I guess they figured if everybody knew the pattern it would stop happening.  They were right.  The pattern is now for the market to rally the day before the meeting.  Interestingly, it doesn't always gap up.  However, at the end of the day it is positive nearly every time.  It also has been showing a tendency to gap down on FED day and trade somewhat lower that morning.  So lets see what happens tomorrow.  It did the pre FED day rally on schedule.  Here is the daily SPX chart.


The bulls came out to play again today.  As the other days there was a bout of selling on volume.
SPX has rallied now for three days, but it is still below the 6/12 last down day high.  It spent quite a bit of time this afternoon in the area of that high, but did not break through.  Since that bar was not all that big the fact it is providing resistance might be important.  Lets have a look at the futures chart.


The futures got above the upper trend line early this morning, but that rally was met with some selling that took them back below.  Another rally attempt pushed them through again.  So we ended the day above the trend line and above the 18 SMA.  However, we need a bar with a higher close to confirm the upside break.  That could happen overnight, or not.  If SPX is above 1944 at 10:00 or at the close then we have upside confirmation. 

FED day can often be a wild card.  Very hard to predict.  The last four days form a possible bearish candle pattern.  Here is a look at it.

As I mentioned above the last three days are all contained inside the 6/12 down day.  If the current pullback has more to go then I would expect they will sell the FED announcement.  If we get to the announcement and SPX is still below 1944 that would be something to watch for.  If we are above 1944 at the announcement time they might make a run for the all time high.  It is not all that far away.

The bulls seem a little lazy here.  Today had the strongest breadth of the three day rally and it was only 59%.  There were only 22 new SPX highs.  I certainly can't blame them.  The market is not cheap and the geo political situation is quite unsettled.  Further increases in the price of oil will be a drag on global growth.  It seems hard to put money to work here to me.  I guess we will see what happens.

Bob

Monday, June 16, 2014

Daily update 6/16

Dip buyers and rally sellers ran into each other today with nobody willing to push price very far.  Here is the daily SPX chart.


SPX is hanging between the upper channel trend line support and the 6 SMA.  Which one breaks first?  Lets have a look at the futures chart.


We have an upper trend line established now with three points of contact.  We also have a lower trend line at the bottom of the range of the last two days.  This leaves us with what looks like a triangle formation.  In theory a break of the upper trend line should lead to a retest of the recent high.  A break of the lower line could send us back down toward the 1897-1902 SPX support area.  Unless tomorrow is a very narrow range bar we should decide which way.  There is a FED meeting on Wed. to announce the next bit of tapering.  If we don't decide tomorrow I would expect we would after that meeting.

Keep an eye on the global political situation.  One never knows if something will happen that causes a market reaction or not.  So far things have been very muted, but that can always change with new information.

Bob

Friday, June 13, 2014

Daily update 6/13

Bounce off the trend line.  Here is the daily SPX chart.


A few dip buyers showed up today at the upper trend line.  Breadth was only 54% positive.  New highs were 102 (SPX were 16).  There did not seem to be a lot of enthusiasm in the bulls.  There was also some selling into intraday pops.  We are now in the middle of the 6 and 18 SMAs.  Which MA gets touched first?  Lets have a look at the futures chart.


We still have red price bars so the bounce has not done anything to change the trend status.  It is still neutral.  Something I forgot to mention the other night is the ADX (blue line) was pretty high at the top.  A lot of times when it is that strong there is a retest.  However, on the instances when there is a true reversal it can reverse sharply.  I think the jury is still out on whether there is a retest or not. 

What happens on Monday?  Good question.  I wish I knew.  We got the bounce off the upper trend line that was expected.  However, what comes next is more difficult.  The Iraq situation is clearly not going to be resolved anytime soon.  What will that do to the price of oil?  Will higher oil prices lower buying enthusiasm?  We bounced enough that sellers might come back to the table on Monday.  If we continue up then I think the odds start to shift to the retest of the high idea.

There has been plenty of unrest in the middle east during this bull market.  So far the market has pretty much ignored all of it.  Maybe it will be no different this time.  Maybe it will be used as an excuse to take some money off the table.  I don't know, but I think everybody needs to pay attention in case the market decides to do that long anticipated correction. 

Here is an interesting article on Japan.  How Japan Blew Its Savings Surplus: What A Keynesian Dystopia Looks Like  What happens in Japan is extremely important.  They followed the advice of those that think you can just print your way out of economic troubles.  They started printing money back in 2001 and they are still in trouble.  They have limped along, but I think things are going to get interesting.  The charts in that article show that the government debt is well over 200% of GDP.  This has not been a problem because the Japanese people have continued to buy the bonds at low rates.  However, the savings rate is getting so low that might make that more difficult.  On top of that, their big trade surplus has been negative for a couple of years.  Recently their current account balance has also gone negative.  As I look at the charts in that article it surely seems things are getting worse not better.  They may soon find themselves relying on foreign money to fund the debt.  Will that money require higher interest rates?  If the grand money printing experiment in Japan fails it will change the world of economics forever.  Stay tuned.

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

Bob

Important

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