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Trend table status

Trend

SP-500

R2000

COMPX

Primary

? 3/31/20

?- 3/31/20

Up 5/29/20

Intermediate

?- 5/29/20

?- 5/29/20

?+ 5/29/20

Sub-Intermediate

Up 4/20/20

Up 4/22/20

Up 4/17/20

Short term

Up 5/20/20

Up 5/20/20

Up 5/20/20


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 (-)

Friday, October 31, 2014

Daily udpate 10/31

New closing highs on SPX, DJ30, and the COMPX.  Here is the daily SPX chart.


This is an unprecedented pattern.  We have a very sharp V from below the 200 SMA to a new high without ever trading below a prior day's low.  It was nearly a 11% gain in 13 days.  I searched the entire history of DJ30 back to 1916 and there is nothing that looks even close to this.  According to TradeStation NYSE volume was 44% above yesterday.  Obviously there is a reasonable risk this will turn out to be an exhaustion gap.   If that is the case then a close by SPY below today's low would likely bring on some selling pressure.  Breadth was 74% positive.  There were 358 new highs and 59 new lows.  That is the most new highs since July 3rd.  It was right after that when the market internals started falling apart.  The new lows were quite elevated for a new high.  A caution flag to say the least.  There are two obvious patterns on this chart.  One is the possibility of a double top.  There is also a possible megaphone/expanded volatility/broadening top pattern forming.  Lets take a look at the monthly chart for a change.


We have a hanging man bar with a big volume surge.  Those bars need confirmation with a close below the low.  Given the fractured market internals that is certainly a possibility.  We have new highs on key indexes while there are only 57% NYSE and 47% NASDAQ stocks above their 200 SMAs.  The bullish percent indicator is 51% for both the NYSE and the NASDAQ.   Here is a look at the NYSE common stock advance-decline line.  Since this one is only common stocks a lot of the other things we don't care about are eliminated.


There is a triple divergence at the moment.  Obviously if the indexes keep going up this will clear up.  However, this is one of the best warning indicators of trouble along with the new high/low data there is.  This rally certainly has the look of a final blow off move.  While I am sure many of you think I am absolutely crazy we actually have right now every classic sign of a bull market top that I know about.  They always happen when things are as good as they are going to get.  That is why they are hard to recognize.  However, in this case the global economy is falling apart all around us so it is not really hard to see how this could be as good as it is going to get for now.

Next week is the election which normally has a positive bias into election day.  Unless there is some news event I would not expect any major selling until after Tues.  After that I think things will change dramatically.  There is an old saying that the bears get Thanksgiving and the bulls get Christmas.  This is caused by the wash sale tax rule.  A lot of people sell losers in Nov. to take the loss against any gains for the year.  They then buy them back more then 30 days later.  Some years when most stocks are up there is not much of an effect.  However, this year there are many stocks below their 200 SMAs and down 15% or more even with the current rally.  There could be more selling pressure then there was last year.  We saw that in both 2012 and 2011.

In How Long Can The Shale Revolution Last? I found these interesting comments.

The U.S. produced 8.5 million barrels of oil per day in July of this year -- 60 percent more than just three years earlier. That is also the highest rate of production in three decades.
Put another way, since 2011, the U.S. has added 3 million barrels per day in additional capacity to global supplies. Had that volume not come online, oil prices would surely be much higher than they currently are.

That has “revolutionized” the energy industry and geopolitics, as scores of energy analysts have claimed. The Energy Information Administration (EIA) forecasts that U.S. oil production will hit 9.6 million barrels per day (bpd) in 2019, and gradually decline to 7.5 million bpd by 2040.

This would allow the U.S. to be one of the world’s top oil producers for an extended period of time. With such an achievement now at hand, many analysts are predicting an era of American dominance in geopolitics. For example, in an op-ed on Oct. 20, columnist Joe Nocera considered a “world without OPEC,” in which U.S. oil production soon kills off the oil cartel.

Is the EIA forecast scaring Saudi Arabia and maybe other OPEC countries?  From what I have heard they seem to be intent on keeping U.S. oil off the world market.  Despite the price drop nobody is blinking when it comes to production cuts so far.  I believe they have the capacity to put a world of hurt on the U.S. fracking industry if they really wanted to.  I don't know if that is their intention or not since they would not publicly announce that.  I can see why they might want to though.  Its possible the battle is just beginning.  Since the oil boom appears to be largely driving the increase in jobs and is keeping the economy going it is important to watch what happens. 

I see somebody did a screen capture on the CNBC caption I noted last night.


Bob

Thursday, October 30, 2014

Daily update 10/30

Odd day.  Most of the move up in the Dow was caused by a single stock Visa (V).  The utilities were the strongest index today up over 2%.  The transports and the SOX were down big.  Here is a look at the daily SPX chart.


The ultra sharp V continues.  SPX hit the underside of the 2012 trend line and stopped.   Was this a kiss good bye or is there more upside to come?  That was a stupid question.  We all know the market only goes up.  Lets have a look at the futures chart.


Not much price action up above here.  Once again white price bars were met with buying.  That is one amazing pattern.  It looks like a down move only upside down. Sure looks like panic buying.  Panic selling rarely works out well.  I wonder how well panic buying will work.

The market has obviously been in runaway mode.  It will stop at some point.  Maybe here at the 2012 trend line.  Maybe not.  I liked this description from Dave Landry. 

"Speaking of breather, as I have been preaching, metaphorically, it is hard to run a new race after you have just ran a race–“V” shape recoveries at high levels are hard to sustain."

I think this is the sharpest V I have ever seen.  Now that we made it this far without ever trading below a prior day's low what happens when we do?  I don't think people are going to chase the move much past the old high.  This is really an unsustainable price pattern.  It looks a lot like a final blow off top though.

I found this chart rather interesting.


It would appear that the the dollar is rallying and oil is dropping because of global growth worries.  Notice the estimate for 2014 growth is down to 2.46%.  Growth below 2.5% is considered a global recession.  That could explain why many global stock markets are in much worse shape then the U.S.
Will that weakness pull the U.S. down or not?

Here is an interesting graphic from Bespoke.


Defensive sectors have been leading this rally.  The most economically sensitive sectors are lagging badly.  The big money has moved into defensive stocks.  Here is a look at the number of stocks above their 200 MAs.


During the sell off this indicator dipped down under 30%.  That is the lowest since the mini crash of 2011.  It remains to be seen if this is just a viscous correction or something worse.  It has rebounded now to 53, but that is still really low.  One more chart to look at is the bullish percent indicator.


That sell off was very damaging to this indicator also.  It has only rebounded to 49%.  Yet another indicator that looks toppy.

I happened to glance at the TV today and saw somebody talking about why the market was going to go up.  They had a big caption on the screen with the guy's name that said I am so bullish it hurts.  I kid you not.  CNBC really did that.  While this is not quite as euphoric as 2000 this environment is way more euphoric then I ever thought I would see again for decades.  This reminds me of the quote from the late Wall Street money manager Barton Biggs:

"A bull market is like sex. It feels best just before it ends.'

We have a market positioned defensively in very poor technical shape with raging bulls in the media.  Warning bells are going off. This is as obvious as a bull market top can get.  Keep in mind this is happening while we might be starting a global recession.  It could be argued the fundamentals might not be as good as the pundits would have us believe.   If this retest of the high fails, look out below.

Bob

Wednesday, October 29, 2014

Daily update 10/29

Hmm, I wonder what that minus sign means in front of the change in SPX today.  Here is the chart.


SPX got .01 points above the July high and turned down.  For the moment it looks like 1991 is resistance.  Breadth was 57% negative.  Not especially heavy.  There were 189 new highs and 35 new lows.  The number of lows remains elevated so far.  Volume increased today so the net result was a slight bit of distribution.  Yesterday the transports made a new all time high and the NASDAQ 100 was just a smidge off of its bull market high.  Today those indexes were the weakest of the majors.  Will those leading indexes hold near the highs or will profit taking overrun rally chasers?  Lets have a look at the futures chart.


The futures ended the day with a white price bar.  On this rally so far there has been no follow through on the down side to white bars.  The bulls bought the dip and pushed prices higher.  I don't know if that will happen this time or not.  The market is extremely overbought short term.  Will people show up and chase it even higher?  There could be enough resistance in this area to at least cause a pause.  Very often what happens on FED day is reversed the next day.  However, we really didn't do anything to reverse.  It may take a day or two for people to digest the end of QE.  They may decide they love it or hate it.  Maybe nobody ends up caring.  I don't see anyway to predict what happens the rest of the week.  We are overbought in possible resistance.  Could be a battle here.

Bob 

Tuesday, October 28, 2014

Daily update 10/28

The pre-FED day gap up played out again.  There was quite a bit of panic buying at the end of the day.  The sharp V recovery continues.  Here is a look at the SPX daily chart.


SPX cleared the 50 SMA today.  Its not far up to the 2012 trend line now.  This 1985 level is where SPX ran into resistance over the summer.  Will the bulls be able to power through it?  The breadth was 78% positive.  Quite strong and unusually high this long off the low.  There were 187 new highs and 30 new lows.  The oil stocks were mostly positive today.  The new lows dropped off considerably so the elevated number yesterday was likely from the oil patch as I speculated.  The number of new highs made a significant improvement.  Will the bulls keep at it?  Lets see what the futures chart looks like.


The futures made it up to the top resistance line.  There was quite a bit of congestion from last summer between here and the high.  Will that provide resistance?  There is no single level that I can pinpoint up above.  It is the entire area from here to the high.  Here is a look at the current breadth chart.


The breadth has been super strong on this rally.  The McClellan oscillator in the bottom panel has been over 200 (yellow line).  The 10 DMA breadth line is actually the highest it has been since 2009.  Is the market launching off to new highs and beyond?  There sure are plenty of believers out there.  They had a round table going on this afternoon on CNBC.  Everybody was in agreement that the market would do well the rest of the year.  The FED will officially end QE tomorrow and the market won't care.  There is nothing to worry about until the FED actually raises rates next year.  That was the consensus view.  I guess we will see if they are right. I mentioned last night about how tricky this situation might be.  Here is a look at the 2007 top.  I think it will help explain the dilemma.


There were two sell offs below the 200 SMA in the second half of 2007.  Each of those sell offs was met with strong buying which pushed the McClellan oscillator over 200.  There was also another rally in early 2008 that did the same thing.  As you can see none of those buying waves were a launch to new highs and beyond.  We can't tell if this breadth thrust is the start of a new leg up in the market or not.  I have already outlined how the technical picture at the highs looked just like other conditions that preceded bear markets.  The big surge in bullish sentiment on this bounce is pretty suspicious.  In Dec. 2007 SPX got above the 50 SMA for several days, but failed to stay there.  So getting above that line a few days in this case is not an all clear.  What really needs to happen is that all the major indexes need to make new highs and that includes IWM.

Am I the only one wondering who was committing a bunch of new money the day before the FED ends QE.  The biggest corrections in this bull market came after QE1 and QE2 ended.  Now maybe that does not happen again, but don't you think it warrants just a tad bit of caution.  The market has now come quite a ways since the low without looking back.  A sell the news reaction tomorrow would not be surprising.  I think a close below the 50 DMA now might be trouble for the market.  This move up looks like it might be too good to be true.  We need to watch carefully what happens here.

Bob

Monday, October 27, 2014

Daily update 10/27

Consolidation day.  Transports were strong and oil stocks were weak.  Here is the daily SPX chart.


The bears attempted to send price lower on overnight news, but the bulls bought the dip.  We now have two closes in between the 50 and 100 SMAs.  There were 114  new highs (up from late last week) and 59 new lows.  That is quite an elevated number of lows.  We were in the 20s late last week.  Most likely due to more downside in the oil patch.  This is in no mans land here.  Add long and SPX fails at the 50 just above.  Short it and it blasts through.  I suspect it may take some time to decide here.  It seems likely we will get a close above that 50 SMA at some point before truly rolling over.  That would get the bulls excited and give the bears more strength to sell into.  Lets see what the futures chart looks like.


At the moment the futures are up a bit from the 4 PM close.  I mentioned last night the market has been gapping up the day before the FED meeting for quite some time now.  It appears to be following that pattern again.  Unless we get some bad news overnight we should open up.  What happens after that I have no idea.  Do people chase this rally further or not? 

There was enough strength in this rally that it might not dissipate immediately.  We could easily pullback for a few days and still push higher again.  However, there are instances where strong rallies like this roll over and really tank.  I am not familiar with any instances of this much technical damage rocketing off to new highs and beyond.  There has always been some backing and filling work to do.  Sometimes that backing and filling ends up making new lows or even crashing.  I think this is going to be tricky.   The FED meeting on Wed. will end QE, but what does the market do.  Almost everybody believes that will happen.  One would think that would mean not so much reaction.  However, I have witnessed the FED doing exactly what everybody expected and the market still reacted in a big way.  That is a wild card.

Oil is consolidating after a mini crash. Does it make a bottom or is this a pause to go lower.  If it goes lower oil stocks will probably head further south also.  I have seen some data lately that suggests Saudi Arabia has plenty of money set aside to weather $80 oil for years.  They seem to be behind this move down.  Nobody else in the world appears to be cutting production.  Doesn't this seem like a recipe for lower prices in the short term?  Over the longer term it depends on how much the lower prices stimulate global demand.  Art Cashin has been saying that oil below $80 is bearish for stocks.  We are in that area.  I guess we will see what happens.

Bob

Friday, October 24, 2014

Daily update 10/24

A late day push moved SPX up through the 100 DMA and just below the 50.  Here is the SPX daily chart.


SPX closed back above the 2011 trend line.  Even in this bull market of V bottoms I don't think we have seen one as sharp as this one.  Volume dropped off considerably today.  Breadth was 59% positive so it has started to wane a bit.  There were 92 new highs and 26 new lows.  The new highs dropped a good bit from yesterday.  They need to be getting stronger so that needs to be watched.  Lets see how the futures chart looks.


Futures popped a little bit more after the 4 PM close so people were anxious to be long over the weekend.  They have cleared both the 100 and 200 SMAs, but are approaching a potential resistance zone.  Take a look at the futures 60 minute chart I showed last night.


The up move lost some momentum and the futures slipped below the trend line but never confirmed a reversal.  This afternoon they went crawling up the bottom side.  Its not so easy now to tell if it is reversing with this line.

SPX's 50 DMA should be the stiff resistance.  As short term over bought as we are combined with the magnitude of the move up it should mean we pause here.  A pullback would be normal and would not necessarily kill the rally.  It could end up setting the stage to test the highs.  IWM spent much of the day in the red before the afternoon push higher took it positive.  It closed only .01 above the high from two days ago.  It appears to be stalling out and has underperformed SPX for three days now.  Remember it was outperforming a few days before SPX made the low.  This is something to keep an eye on.  Maybe it gets a burst of energy and maybe it doesn't.

Monday seems likely to touch the 50 DMA at 1966.  There may be some resting sell orders there that kick the market back some.  We saw that at the 100 yesterday.  There may be more of them at the 50 though.  Wed. is the next FED announcement where QE will be terminated.  The last buying operation is scheduled for Monday.  No more on the docket after that.  Of late the market has often gapped up the day before the meeting which would be Tues.  I don't know how all this will affect SPX with its interaction around the 50.  I guess we will have to watch and see.

They really paraded the bulls out on CNBC today.  Retail investors were chastised for selling.  We should not be selling we should be buying.  The market is headed higher for the next 2 decades.  Don't be stupid.  The full court press is on to get the retail crowd to hold on if the market goes down.  It seems to be working as the sentiment surveys indicate the retail investors are pretty bullish here.  Look at the latest AAII bulls chart.

The bulls zoomed up to 49% this week.  That is almost as high as it was just before this collapse started.  It is also near the high end of the range since 2011.  Who is going to be right?  The institutional investors that sold or the retail investors that are holding on and probably buying more.

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

Bob

Thursday, October 23, 2014

Daily update 10/23

Now we are getting into the true resistance area.  Here is the daily SPX chart.


SPX touched the 100 SMA today.  However, it found resting sell orders there and turned back down quickly.  It also kissed that 2011 trend line.  It remains to be seen if it is a goodbye kiss or not.  Breadth was strong again at 74% positive.  There were 113 new highs and 33 new lows.  The number of new lows has increased the last two days.  That is likely from some earnings reports not going very well.  Lets take a look at the futures chart.


The futures got up to the 200 SMA before turning back and closing back below the 100.  Price has reverted to the mean and the extreme over sold condition has been cleared.  What happens now?  Does resistance hold or do the bulls fight through it? 

They were parading professional investors on CNBC the last couple of days telling us to come on in the water is fine.  Along with Cramer they have had several other people proclaiming the low is in.  One thing I know with absolute certainty.  Nobody can possibly know if the bottom is in and we are going to new highs.  The things that have happened on this sell off have nearly always meant the market was volatile for weeks or months.  I have never seen a sell off when the institutional players panicked while the retail crowd was calm cool and collected that made a V bottom and off to new highs.  Whether that ever happened before my time I cannot say, but is seems very unlikely.  Even if the ultimate low is in there is likely to be quite a few ups and downs to come. 

We are now over bought in both short term price and breadth.  This condition is occurring below the 100 DMA.  We have had a big fast move up because of the volatility there is likely to be a desire to take some profits just in case.  I think it will be very difficult to get through the 50 DMA on this pass and the 100 may stop the rally.  Here is a look at the 60 minute futures chart of intraday data.


We have a clean looking uptrend line with 3 points of contact.  I will be watching for a confirmed break of that line as a sign the rally is at least temporarily over.  If that happens while SPX is below the 100 DMA it would likely be a good time to short.

This is a very interesting and well written article.  Quarterly Review and Outlook  Here is a particularly interesting tid bit, but I suggest reading the full article.  It is mostly about economics, but unlike many articles this one actually is well written and explains a few important concepts about the world today.

Historically, in our judgment, the most important authority on the subject of asset bubbles was the late MIT professor Charles Kindleberger, author of 20 books including the one of the greatest books on capital markets Manias, Panics and Crashes (1978). He found that asset price bubbles depend on the growth of credit. Atif Mian (Princeton) and Amir Sufi (University of Chicago) provided confirmation for Kindleberger’s pioneering work and expanded on it in their 2014 book House of Debt. Chapter 8, entitled “Debt and Bubbles,” contains the heart of their insights. Mian and Sufi demonstrate that increasing the flow of credit is extremely counterproductive when the fundamental problem is too much debt, and excessive debt can fuel asset bubbles.

Based on our reading of these two books we would define an asset bubble as a rise in prices that is caused by excess central bank liquidity rather than economic fundamentals. As Kindleberger clearly stated, the process of excess liquidity fueling higher prices in the face of faltering fundamentals can run for a long time, a phase Kindleberger called “overtrading”. But eventually, this gives way to “discredit”, when the discerning few see the discrepancy between prices and fundamentals. Eventually, discredit yields to “revulsion”, when the crowd understands the imbalance, and markets correct.

Economists have commented on the high correlation between the S&P 500 and the Fed’s balance sheet since 2009. From 2009 to the latest available month, the monetary base (MB) surged from $1.7 trillion to $4.1 trillion. We ran the MB increase against the S&P 500 and found a very high correlation of 0.69. While correlation does not prove causality, the high correlation is certainly not inconsistent with the idea that the Fed liquidity played a major role in boosting stock prices. However, even as the MB has exploded since 2009 and stock prices have soared, the U.S. economy has experienced the worst economic expansion on record. In spite of a further large rise in the base this year, the GDP growth has subsided noticeably and corporate profits after taxes and adjusted for inventory gains/losses (IVA) and over/under depreciation (CCA) has declined 10% in the latest four quarters. Such discrepancy between the liquidity implied by the base and measures of economic performance could indicate the process of bubble formation. Kindleberger’s axiom that asset price bubbles depend on excess liquidity may yet face another test.

The article discusses the velocity of money and covers things about Europe and Japan also.  A very good read. 

Bob

Wednesday, October 22, 2014

The oil price conundrum

I think everybody accepts the idea that falling energy prices are good for the general economy.  We have recently had a 20% drop in oil prices which should be a very good thing.  However, sometimes big drops like that are associated with recessions.  In those cases it can take quite a few months before the lower price benefits are noticeable in the economy.  While we do not yet know if this drop is associated with a recession there is clear evidence it is associated with a bout of global economic weakness.  In the U.S. there is more to the problem of deciding if the price drop is good or bad.  We have seen a massive amount of drilling since the great recession and that has provided a good part of the economic strength we have seen.  I believe this is the major reason we are looking so much better then Europe.  Many credit the FED, but I believe that is incorrect.  Texas is booming and accounts for all of the increase in jobs above where we were in 2007.  All that oil money and drilling is feeding throughout the entire U.S. economy.  So what is the point?  Take a look at this chart of cost curves.

The shale oil line has a pretty high cost associated with it.  Below $85 and a lot of production gets shaky.  Below 80 and a things get really, really hairy.  Shale oil wells deplete rapidly and after 5 years produce about 20% of initial amounts.  That means many new wells need to be drilled all the time just to keep production at the same level.  Like all other new oil fields the drillers go after the easiest stuff first.  That means those later wells get less and less productive which keeps raising the break even price point.  Oil wells are usually drilled with borrowed money.  This is the exact same scenario as the oil boom and bust in Texas in the 80s.  The oil price dropped below the break even point of many of the later wells which caused massive defaults on the loans.  The current price is probably already low enough to curtail drilling of new wells.  It will be more difficult to get financing now.  That in itself will likely slow U.S. economic growth some.  Whether the low oil price is enough to offset in the rest of the economy I don't really know.  The price drop is a one time benefit.  Once price stabilizes future growth from it will stagnate.  However, the longer the price stays low the more damage will be done to those highly leveraged drillers.  Saudi Arabia appears to be quite intent on keeping price low to hurt Russia and keep U.S. oil off the world market.  This seems like a bit of a dangerous game to me.  Massive loan defaults seem to have a way of infecting the economy in unforeseen ways.  Lets look at the oil chart.


I expect right now there are lots of oil people sitting on the edge of their seats worrying and wondering about their future.  The longer the price stays in this area the worse that is going to get.   Oil is clearly oversold here at the $80 mark as it is well stretched from its 200 SMA.  However, I learned in 2008 that oil can get very, very oversold and keep on going down.  I have heard some calls for a drop down to $60.  I am positive that much of a drop would put a lot of drillers out of work.  This may end up being much ado about nothing or a major catastrophe.  It is probably too early to tell yet.  However, it clearly has bothered enough investors that many shares of oil companies were dumped in a panic.  I think this situation is worth being aware of.

Here is an interesting article about shale oil.  We're Sitting on 10 Billion Barrels of Oil! OK, Two  We have been told we have huge amounts of oil reserves.  It turns out what these companies tell investors is much different then what they tell the SEC.  I am sure the real truth is somewhere in the middle, but the discrepancy is so wide it is important exactly where in the middle it is.  Sometimes things sound too good to be true.  I don't know if this is a case of that or not, but it could be.

Bob

Daily update 10/22

After the rocket of the last four days there was actually brave (stupid) souls willing to chase prices higher this morning.  They ran out of steam mid day and we sold off into the close putting all those fresh buyers underwater.  Been there done that.  Didn't like it.  Here is the daily SPX chart.


SPX closed just slightly above the 18 SMA.  However, that is not the most bullish looking bar there.  Volume was almost as heavy as yesterday.  Was that a pause day or the start of a reversal?  Breadth was 67% negative which is a bit high for a pause day.  There were 100 new highs and 26 new lows.  We are going to need to see a lot more new highs to keep the market headed higher.  Here is a look at the futures chart.


We got a white price bar at the close today.  That means the upside momentum has waned.  The DI lines barely have a positive crossover.  This is not the strongest of looking charts.  We got to the upper Keltner channel today, but did not make it to the 100 SMA.  After being below the channel for a while like we were on the way down that upper channel line can be pretty stiff resistance.  IWM had a bad day.  Here is the chart.


It closed below yesterday's low on an increase in volume.  This is still the key thing to watch in my mind.  This bounce started from the 500 SMA.  It has gotten above the very important green line, but will it be able to stay there.  If this bounce fails it is likely to break down below that 500 DMA.  A lot of people watch that for longer term trades.

I don't think today did enough to say the rally is over.  However, if we follow through on the downside tomorrow it very well could be.  This bounce looks a little precarious to me.  I think the 1925 level is key to hold tomorrow.  A close back below that could be trouble. 

Bob

Tuesday, October 21, 2014

Sentiment

I have not looked at sentiment in a long time since everything was bullish and the market just kept on rising.  However, there was an odd development in sentiment last week.  Lets start with the NAAIM survey.

Last week's survey came in at 9.97.  That is the first time under 10 since the mini crash in 2011.  Now take a look at the AAII survey.


As the market tumbled down over the last two weeks retail investors got more bullish.  We have a situation where institutional investors are in down right panic mode while retail investors are feeling strongly bullish.  The AAII bears came in at 33.7%.  Back in 2011 when the NAAIM survey was last below 10 the AAII bulls dropped to 27% and the AAII bears rose to 49%.  Here is a look at the Bespoke weekly poll.


The Bespoke blog readers are extremely bullish.  They have been extremely bullish and correct at times in the past.  However, the bulls have not really flinched much at all on this sell off.  One more to look at is the II survey.


While the II bulls have come down quite a bit to 37 the bears are still in the cellar at 17.  The last time SPX hit the 200 DMA the II bears were up around 28.

I can't recall ever seeing a disparity quite this big.  We have the most technical damage since 2011.  Institutional investors represented by the NAAIM survey are showing outright panic.  Meanwhile the market newsletter writers and retail investors are showing no fear at all.  This certainly is not the normal way to make a low.  I guess we will see if the worst is over or not.

Bob

Daily update 10/21

We now have the definitive answer on the market.  This afternoon they were playing a clip from Jim Cramer saying an investable bottom is in and it is safe to buy stocks.  I guess there will be no retest.  It is onward and upward from here.  Lets look at the daily SPX chart.


They gapped it up and over the 200 this morning causing a massive short covering rally.  That sure is one funky looking chart isn't it.  SPX closed above the 18 SMA.  Just keep in mind that it is sloping downward pretty sharply.  In that condition crossovers are not as reliable.  It also needs confirmation of a close above today's high.  Breadth was a whopping 79% positive.  There were 75 new highs and 20 new lows.  That is the most new highs we have had since back in Sept.   Lets take a look at the futures chart.


We have blue price bars so price is above the upper Bollinger band and is extended.  The futures crossed above the 50 SMA today.  The 100 and 200 lie just a bit further up.  There are also a couple of old support lines that might be resistance just ahead.  Does any of that matter?

I have no idea what happens now.  This rally seemed to start the other day when some FED talk about not stopping QE came out.  The futures were actually in the red early this morning when news came out about the ECB buying corporate bonds.  That sent Europe soaring and the futures roaring.  Here is my problem.  The FED is going to end QE this month.  Did everybody forget Yellen explicitly said QE will end at the next meeting?  She can't possibly change now and still keep any credibility.  Here is a snippet about the ECB from CNBC.

U.S. and European stock markets moved higher Tuesday morning on a Reuters report, quoting anonymous sources, suggesting the European Central Bank may buy corporate bonds in the secondary market in an effort to fight deflation. The ECB has subsequently confirmed to CNBC that "the ECB has taken no such decision." 

Today's entire rally was based on an untrue rumor.  Shoot first and ask questions later.  Isn't that the trouble.  SPX has regained quite a bit of the down draft now, but based on false/misleading news.  How do we know that people won't start asking questions about how we got here?  How many news induced moves have we seen completely retraced?  I am sure today seriously flushed out all weak hand shorts (most likely with lots of F bombs).  That might not be a good thing if the market rolls over again. 

Today's move makes the charts a bit hard to pick something that suggests this bounce is over.  I guess as long as we stay above the 200 DMA we should be buying dips.  As the price pattern develops we might get something better.

The NYSE bullish percent and the number of stocks above their 200 SMA indicators show the most damage since 2011.  Here is a look at the new highs/lows chart.


I added a 50 SMA to both the highs and lows in the bottom panel.  This sell off caused a negative crossover.  The only other time we got such a cross in this bull market was in 2011.  That cross happened in Aug. just one day before a short term low.  The market chopped around before eventually testing the Aug. low in Oct.  It then resumed the uptrend.  The technical picture strongly suggests we should see that last swing low again.  I guess now that Cramer says everything is ok that won't happen though.

Bob

Monday, October 20, 2014

Daily update 10/20

SPX has arrived at potential resistance.  Here is the daily chart.


SPX ran into the Aug. low and the 200 DMA today.  There was a rather large drop in volume.  That looks more like a lack of sellers then aggressive buying.  That may change now that we are into a resistance area.  Even if we are going to go higher I would expect a pause here tomorrow.  While the Russell2000 was up nicely today it still closed below yesterday's high.  Its pattern remains suspect at the moment. 

This kind of pattern is a bit tricky.  With the technical damage we have seen a retest of the low has very high odds.  However, the timing of that event is a bit tough.  The current bounce could certainly carry higher.  It could also roll over right here.  All people that were buying since the end of May above the 1900 level are all under water now.  There is likely to be significant overhead resistance here.  However, the market sometimes pushes up into resistance somewhat before it rolls over.  If the news flow causes some selling pressure in the morning the sellers may come out of the woodwork.  If the news is positive they might sit back and wait for higher prices.  A close below today's low of 1882 is likely a sign the rally has ended and the retest is on.  If we get through the 1912 area mentioned last night then a test of the 18 SMA (1929) could be in the works.

Bob

Friday, October 17, 2014

Daily update 10/17

Hmm, what is up with IWM.  Most indexes were up over 1% and IWM ends in the red.  The last few days it had been showing some relative strength.  To reverse that today might not be good.  Here is the daily SPX chart.


SPX almost touched 1900 before turning back.  Today it gave a technical exit to the buy signal marked with the green arrow.  Notice price is still below the high of the signal bar.  Most of the time that happens it means we are going lower.  Usually when it closes over that bar's high it will keep going.  The McClellan oscillator closed positive today.  This means SPX has cleared the short term oversold condition in both price and breadth.  If we turn down again we could easily drop below the recent low.  Maybe we need to test that April low.  Lets take a look at the futures chart.

 
We got a green price bar this morning.  Since the Sept. peak green bars have brought on the sellers again.  Will it be different this time?  With IWM red today on a strong up day for most indexes I think the bulls still need to prove themselves.  The current price pattern does not look very bottom like to me. 

For next week we are in the tough call zone.  We could run up to test the 200 SMA or we could roll over right away and head south again.  SPY hit the hourly 50 SMA today and stopped dead in its tracks.  Be nimble and be quick.  If you can't be nimble you might want to sit on your hands.  If we head down again it is likely to get really wild.  We have not had a 2% down day yet, but that might be coming.  This afternoon's low (1877) might be a good sign we are rolling over again if broken.   The key support is 1814-1820.  If we continue up watch that 200 SMA at 1906.  If we get above that we have the 1912 level mentioned below. 

Here is an interesting article CBOE Total Put/Call Ratio Highest In Four Years. What Happens Next?
He researched put/call readings over 1.5 and here is the table summarizing the results.


First of all there are not many instances with only 6 samples.  However, the returns going out in the future are not good.  The 3 month time frame is the only one with a positive average return and more then 50% of the time SPX was up.  The dates are in the article if you care to look them up.  I took a look at SPX and I found the shortest time the market recovered and started moving up was about a month.  In most instances the high of the day of the signal provided stiff resistance.  Sometimes it took a third test to break through it.  In this case the signal was on 10/13 and the SPX high that day was 1912.  I would expect that to be pretty stiff resistance on the first test.  Lets take a look at the NYSE bullish percent chart.

This sell off absolutely hammered this market internal.  This is the lowest it has been since the sell off in 2011.  With this much damage the market will need some repair time before it could establish an uptrend.  The odds of yet another V bottom run to new highs from this condition are probably near zero.  Any bottom that forms will need some time.

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

Bob

Thursday, October 16, 2014

Is the bull market over?

Back in the June article Signs of a bull market top I wrote about how there were so many things that were consistent with the end of a bull market.  The only ingredient that was missing was topping patterns on the indexes.  Since then the topping patterns formed and are now as clear as can be.  At the Sept. high in SPX many key indexes like the mid caps and the NYSE composite joined IWM in making a lower high.  While COMPX made a new high along with SPX almost 50% of its stocks were down 20% or more.  That was clear technical evidence of a market weaker then it appeared.  The market pundits proclaim there is no recession in sight.  That must mean no end of the bull market is in sight.  However, we know from history that is not true.  The market almost always tops before the recession starts.  Sometimes many months.  We have topping patterns in all indexes now.  We don't have the margin debt figure for Sept. yet, but given the divergence in the indexes I suspect it won't be at a new high.  At the 2000 top the margin debt peak came in March and the final high came in early Sept.  That was a lead time of about 6 months.  In 2007 margin debt peaked in July with the final high in Oct.  That gave us a lead time of about 4 months.  This year the margin debt peak so far happened back in Feb.  That was 8 months ago.  If that peak holds it would be the longest lead time.  Unfortunately we won't know if Sept. was higher until late this month.  With the selling so far this month even if Sept. is  higher it will likely be the peak.

Starting in July the market internals started really falling apart.  I wrote about this many times.  As SPX kept making new highs the internals kept getting weaker.  At that same time oil started a 20% move down and the dollar started flying up.  The only time oil has dropped that much that fast has been coincident with severe economic weakness and usually recession.  Interest rates have been falling all year calling into question the true strength of the economy.  Globally there is clear evidence of a slowdown.  While it has not hit the U.S. data yet it certainly could.  If we have learned anything over the last 20 years is that we truly have a global economy.  It is going to be extremely difficult if not impossible for the U.S. to keep plugging along ignoring the global economy.

We have all the things that have preceded past bear markets.  More and more stocks are breaking down and now the major indexes are starting to reflect that.  I think the best case scenario for bulls now would be a retest of the high then down into the bear.  With all the economic weakness already apparent that might not happen.  I suspect we will rally to a lower high at some point and then the bear starts in earnest.

There is no easy way to tell if a bear market has actually started.  The initial sell off form the final looks much like any other severe bull market correction.   Generally speaking most bull market corrections make their final low within 6 months.  If the market makes new lows after that the odds start shifting to a bear market.  Breaking the monthly 18 SMA is a pretty good indication also.  While the 87 crash saw SPX drop more then 30% the final low was made in only 3 months.  There was no recession and it was not really like a true bear market where new lows are made long past 3 months.  At any rate it will take quite some time before we know for sure. 

Bob

Daily update 10/16

Rotation into small caps today.  The internals were much stronger then one would expect with SPX only marginally up.  Here is the daily chart.


Another strong volume day.  Once again there were enough buyers to absorb all the selling.  SPX tested yesterday's high, but failed to stay above it.  However, it did not collapse after that.  This is a real funky two bar pattern to make a short term low.  However, it is kind of similar to the July 2010 low.  I looked back to 2003 and did not find any other similar pattern at a low.  Statistically speaking that probably means the odds are not all that great this makes a low, but it looks like it could happen.  SPX is certainly stretched enough on the downside to bounce.  Breadth was 68% positive.  There were only 179 new lows which is a big drop from yesterday.  Selling may be exhausted down at these levels.  There could be plenty of shorts to squeeze also if we get going up.  Lets have a look at the futures chart.


Overnight the futures got pretty close to yesterday's low.  They rallied from the opening gap down right away.  I suspect people are buying the oversold market for a trade.  So if we do rally from here the selling is likely to return when these buyers go to take profits.  Lets have a look at the breadth chart tonight.


The McClellan oscillator is barely negative.  This is in sharp contrast to the usually deep oversold condition at most lows.  There are two consequences of this.  If the market keeps going down this indicator has quite a bit of room to fall before becoming deeply oversold again.  If the market rallies it will get overbought quickly and before price has a chance to really establish an uptrend again.  I think we are in buy the dip and sell the rip mode.  Once this indicator gets overbought some people may take profits.

Whether or not we have a major outbreak of Ebola in this country I think it will be very disruptive this winter if we have more sporadic cases.  Here is an interesting article about the virus itself.  Ebola! How Worried Should We Be?  Here is a snippet that explains why flu season could be a problem.

Early symptoms of Ebola include the sudden onset of fever, intense weakness, muscle pain, headache and sore throat. Unfortunately, that pretty much describes any reasonably intense flu, which complicates screening procedures and causes unnecessary worry among those who merely have the flu but worry about the possibility of Ebola.

Nonetheless, authorities have no choice but to take every traveling passenger with these very ordinary flu symptoms as a possible Ebola case. It's a safe bet we’ll hear plenty in the coming days and weeks about Hazmat-suited response teams escorting sickly passengers off of planes.

When flu season gets going in earnest the entire health care system might be strained.  What else can happen.  Some travelers with flu that ordinarily probably would not go to the hospital will now go to make sure they don't have Ebola.  This could definitely get messy.

Bob

Wednesday, October 15, 2014

Daily update 10/15

Odd day.  There was enough up and down action to make one dizzy.  Here is the daily SPX chart.


SPX did not quite get down to the next support line before bouncing into the close.  There was plenty of volume today.  Some people are calling it capitulation.  Maybe it was, maybe it wasn't.  The selling suddenly stopped mid day and dip buyers drove the car in the afternoon.  You can find similar days that mark important bottoms and others that don't.  The jury is still out on that.  There were 626 new lows which is the most we have had since 2011.  The price pattern kind of looks similar to then also.  Lets see what the futures are doing.


There are a couple of long tails there on the downside as the dip buyers stepped in to buy.  Right after the close the futures tanked about 10 points probably on some earnings news.  We are still in a runaway down move at the moment.  It might not be the best idea to be a hero on the long side just yet.  This could just keep right on tumbling down.  If the market does manage to put a bounce together there likely would be resistance at the 200 DMA.

I heard them saying on TV today the last 15 days might have been the worst for hedge funds since 1987.  Why hedge funds get in trouble whenever the market tanks is an interesting question.  Might it be too much leverage.  What good are they as a group?  Hedge funds getting in trouble was one of the first real big warning signs after the 2007 top.  This may be a similar sign of trouble.  They have many billions of dollars under their control.  While they have under performed SPX pretty much this entire bull market this is the first time I have heard of real trouble amongst them.  If I had to guess I would say it is the crash in oil and oil stocks causing the problem.  Massive unwinding of leverage is totally unpredictable.  How much stock do they need to sell to get out of trouble?  Unknowable.  I think it is safe to say the market is going to be unstable for a while with big moves in both directions.  Downside risk is unknowable.  There is a lot of leverage across many markets thanks to the central banks liquidity fixes.  The market has been straight up since late 2012.  It could go straight back down only in a much shorter time frame.  We have never had three bubbles in such close proximity in time in our history.  It looks like the bubble is bursting to me.  Since there is no comparable time in history to look at nobody knows how this will play out. 

Bob

Tuesday, October 14, 2014

Daily update 10/14

The bulls are trying to make a stand here.  Lets see what the daily SPX chart looks like.


The futures started out on the upside and rallied even further early on.  However, the afternoon sellers returned once again and drove SPX down below yesterday's low before rebounding.  With a double bottom in place between today and yesterday the bulls might find it easier to rally the market tomorrow.  Volume was heavy once again showing it was not a lack of selling that kept the market from going down more.  There must have been some buying interest.  Lets see what the futures chart has to say.


We now have three bars inside of yesterday's crash bar.  The futures are up slightly as I write this and have the current bar white if they close here or above.  We have stabilization at least.  There is quite a bit of room for a bounce if the bulls show some force.  We should be oversold enough to tempt some dip buyers.

I don't know if this is a pause to go lower or a pause to reverse.  It looks like the bulls are trying to make a stand here, but too early to tell if they will overrun the sellers.  For the moment there seem to be plenty of  people looking to sell strength.  There has been considerable technical damage.  Check out the number of stocks above their 200 SMA chart.


We are now down to around 30% of stocks above their 200.  That is the fewest since the mini crash in 2011.  This is likely to take some time to repair even if we bottom around this area.  There are many market internals that look similar.  This sell off is definitely more harsh then we have seen the last couple of years.

Tough to tell what happens here.  We are clearly oversold enough to bounce, but the sellers keep showing up on strength.  While there were enough buyers to hold the market up today the bulls have not won the battle yet.  SPX's 200 DMA is at 1905 and is a key line the bulls must overtake to get a bounce going.  The April low is the next support level if we keep heading south.

I have heard a couple of people (one being Art Cashin) talking about hearing about forced selling.  They were not clear on the who or the why.  I have heard some talk about some hedge funds that might be in distress.  The markets are highly leveraged with the so called reach for yield trade.  It sounds like that leverage might be starting to unwind.  In that condition oversold can become a lot more oversold.  The proverbial falling knife scenario.  You can't predict what will happen in a leverage unwind situation.  I think it might be a good idea to be a little cautious until we know more about what is going on.

Bob

Important

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