Daily update 1/30 Troubling coincident/lagging indicator

A lot of stuff of going on.  They came out and bought the gap down this morning like I thought they might.  The bears showed up at higher prices as well.  In the afternoon SPY made a new high of the day (HOD) and was slammed straight down to new lows.  Sellers are getting more aggressive it looks like.  We are either about to make a low or go tumbling down.  Lets see what the charts say.

SPX ended the day at the neckline of the bearish head and shoulders pattern.  There was a lot of volume today as both buyers and sellers were active at different times through the day.  I haven't seen that many changes of direction in a very long time.  Emotions are rising in both camps.  I have no idea what really caused the big gap down in the first place.  Europe was only down a little bit coming into our open.  At any rate we are at a decision point.  If the bulls are going to regain control I think they must do it right now on Monday.  Lets take a peek at the futures chart.

We are still above yesterday's low. There is still a chance we could hold here.  Just the way they sold rallies today makes me think that won't happen.  Maybe another central bank will pull out a stick save.  For now the bears still have the edge.  Lets see what the breadth chart looks like.

On top of the competing patterns noted above in the SPX chart there is also a triangle.  Both the 10 DMA breadth and volume lines have been positive for nearly two weeks.  The McClellan oscillator was positive most of that time as well.  We had large numbers of new highs at the same time.  Normally the market would be higher (often much higher) under those circumstances, but here we sit near the lows.  What gives?  This is a complete change of character from the last few years.  What I think this is telling us is that if we break down there will be quite a few trapped longs.  That could cause a mini cascade.  Here is a look at the SPX monthly chart.

This is the first time SPX has a white monthly bar since mid 2012.  That only lasted one bar.  However, in 2011 there was follow through on the down side that ended with SPX down over 19% from the high.  They were on TV at the close today telling us not to worry.  They made a point to mention the seasonal factors of the third year in the presidential term and year 5 of the decade.  That is all well and good, but 2011 was also a third year as well as 1987 (that should ring a bell).  It is not out of the question to see another big move down this year. 

The VIX.ended the week above its weekly 200 SMA again.  A rejection like that usually sees downside follow through some time in the next several weeks.  It is does not necessarily mean a big move down is coming on its own though.  At the very least it should indicate volatility is likely to stay elevated from where it has been for a while.  It should be noted that a VIX between 20 and 30 is not unusual.  There have been long periods of time where that was the norm.  We can't know if this is a regime change on the VIX or not yet.  However, it is a possibility to be aware of. 

SPX ended the week around support.  As shown on the breadth chart the 10 DMA lines still have a positive cross.  The bulls still have a chance to save the day, but I think they need to act on Monday.  They probably have to get price above the 50 DMA and stay there to truly get things turned around.  If the bears show up again a break of the Dec. low on SPX could set up a test of the Oct. low.  XLF is already below its Dec. low and closed below its 200 DMA today.  That relative weakness in the financials is usually not a good sign for bulls.  It might be leading us down.  Next week could be very interesting indeed.


I have been watching this chart for over two years and it just keeps getting more and more puzzling.

For 40 years the direction of these two pieces of data tracked each other very well.  One or the other might lead turns sometimes, but they always synced back up fairly quickly.  So what exactly changed since 2010-11 time frame?  The two series have gone in opposite directions since then.  This is an unprecedented divergence.  During this recovery the number of people on food assistance has grown nearly the entire time.  That makes sense looking at the red line, but not when looking at the GDP line.  Things just don't add up to the rosey picture the Wall Street pundits and the government would have us believe.  My contention is the U.S. economy is much more fragile then commonly believed.  Time will tell.

Today turned the short term trend of R2000 down to join the other indexes.

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

Bob

Daily update 1/29 Mark Cook

Yet another retrace of a news event.  Here is the SPX chart.

The bulls fought back today with a nice bounce.  The breadth was 64% positive so it was fairly broad based buying.  There were 230 new highs and 151 new lows.  The lows picked up quite a bit.  New highs remain strong.  Yesterday the down volume was nearly 90% of total volume.  Today the up volume was only 59% of the total.  The bears came out a bit ahead over the last two days.  However, the possible inverse head and shoulders bottom is still in play.  Will the bulls capitalize on it?  Lets take a look at the futures chart.

The blue bar last night suggested we could get a bounce today.  That was aided by the high TRIN value mentioned yesterday.  So far all we did was bounce from oversold.  The sellers may come right back out again tomorrow.  The futures are below the 200 SMA which gives the bears the edge.  However, they might want higher prices before they start selling again.  So far they have not been aggressive selling into weakness.  They seem to much prefer strength.  If we keep going down that will change of course.  The 50 SMA could provide resistance.  The 200 SMA would likely to be much tougher to get through.

We got an oversold bounce today, but the bulls need to prove themselves.  If there is one reoccurring theme this year it is selling into strength. Should we gap up in the morning they might hit it again.  We are still in the chop zone and the news flow is affecting things day to day.  Pretty tough to predict that.

Mark Cook is a private trader featured in Jack Schwager's Stock Market Wizards series of books.  He only trades his own money so that should eliminate the usual Wall Street bias.  That is also why many people have never heard of him.  He is not exactly a glory seeker.  He uses his proprietary indicator based on NYSE ticks known as the CCT (Cook Cumulative Tick).  He has made numerous market calls over the years including turning bearish in 2007 and bullish in late 2008.  He tends to be a little early of actual market turns.  He also called for a 22% move down in SPX in 2011 which came in at -19.8%.  Not too far off.  Here is an interesting article on his recent comments.  Too late: We’re already in a bear market  He has a great track record over decades.  Something very few can say.  I don't know how many times he has been wrong on a major market call.  I don't know of any cases, but that does not mean he hasn't missed.  He has definitely been right so many times it is worth paying attention.   


Bob
 

Daily update 1/28 Is all as it seems with employment data?

Thud.  They started selling the gap up from the open only pausing long enough to get the FED meeting out of the way.  Here is the SPX chart.

This is the third time SPX has closed below the 100 SMA this year.  This is not the same market we have seen the last two years.  It looks like we have competing patterns developing here.  The red letters indicate a potential head and shoulders top while the green letters denote a possible inverse head and shoulders bottom.  Like I have been saying for a while now this market is acting goofy.  The breadth was 72% negative.  Unlike yesterday the small caps joined the selling party.  There were 343 new highs and 104 new lows.  The schizo new high and low data continues.  Lets see what the futures chart has to offer.

The futures ended the day at the lower Keltner channel.  I mentioned the other day that could happen if they did not break out the top.  The MACD went negative today.  The -DI line crossed 35 again.  This is the third time since Dec.  We have not seen selling pressure like that.the last two years.  The blue bar indicates price closed below the lower Bollinger band and is extended.  The futures will often bounce from that condition.  That was a rather wide range bar which probably increases the odds of a bounce somewhat.  People have been consistently selling upside gaps this year.  Most of them have closed the very same day.  That is bear market type action.

FED day moves are often reversed in the next day or two.  The TRIN closed at 3.49 which often will bring out the bargain hunters.  The VIX recrossed above its weekly 200 SMA.  If we are still there at the end of the week the market is likely to take a tumble.  This is on goofy market.  The VIX signal, large number of new highs, and strong breadth all say the market should be breaking out to the upside.  Instead it is bordering on breaking down.  This is the opposite of what we have been seeing.  For years I have seen times when there were many things indicating the market should be headed lower, but it didn't.  While the dip buyers have still been active the sellers at higher prices have outnumbered rally chasers.  The bulls and bears are in a major struggle for control.  That is clearly evident in the competing patterns on the daily chart.  Until one side wins the choppy volatile conditions are likely to persist.  I have talked about all the warning signs this market has thrown off for months so nobody should be surprised if the ultimate resolution is down. 


This is a pretty good article Is The BLS Overstating Jobs  There are a number of interesting charts in there.  There was one I have seen a few times, but have not shown that I find very disturbing.  I have not shown it on the blog because the data has not been updated since 2011.

During the great recession the number of new business openings completely collapsed. We don't truly have a recovery if those lines have not crossed back the other way.  I would think the creations would have picked up over the last few years and closes dropped off considerably.  I would really like to know if that gap has been closed or not.  It sure gives a good look at how severe that recession was.  If anybody sees this chart with more up to date data please send me a link.  We still have a lot of empty store fronts around where I live.  That is probably not the case around the energy plays.  I don't know what it is like around the rest of the country though.

I think the GDP and employment data are being fudged and cannot be truly believed.  There are too many things that just don't add up quite right.  Many countries around the world are fudging data.  When they add things like hookers and illegal drugs to the GDP calculation you know they are desperate.  In the last go round the U.S. added intellectual property.  There is no way possible to figure out the true value of the IP of an individual company much less the entire country.  This is simply a fudge factor to be used as desired.  When I look at the econ data as a whole it does not add up to a strengthening economy.  We are muddling around at best.

I have to downgrade the short term trends tonight.  Down for SPX and COMPX and neutral for R2000.  Another reminder that the trend says where we have been, not necessarily where we are going.  I have no idea if the trend will last or reverse yet again.

Bob

Daily update 1/27 Volatility research

Dip buyers showed up once again on the big gap down.  I think there were not a lot of people wanting to sell into the weakness which allowed the market to float up.  Sellers did attack some in the afternoon.  Here is the SPX chart.

SPX retraced the ECB QE announcement pop.  It closed well below the 18 and 50 SMAs.  Breadth was only 55% negative despite SPX being down over 1.3%.  Very odd.  More money was moved toward smaller cap stocks today.  There were 296 new highs and 49 new lows.  That is an odd amount of new highs for such a big down day.  This is a messed up market.  The breadth is pretty good and the new highs are really good, but we are not higher.  What gives?  Lets look at the futures chart.

Overnight the futures sank back below the 100 SMA.  They probed down below the 50, but found no sellers down there.  Then they floated back up to the 100 before selling off again.  After the close they popped yet again back up to the 100 SMA and are still there as I write this.  I see AAPL was up over 5% on their earnings.  That might be the reason for the pop.  This chart is getting sloppy now.  The MACD has turned down and the DI lines have a negative cross.  However, price is sideways and not really down, at least not yet.  Will the futures still be up by morning?  If they are will sellers show up?

This market continues to be volatile and choppy.  That is pretty much the worst kind of market for anybody but day traders.  I don't think we are going to go down significantly as long as there are well over 200 new highs every day.  While there are plenty of dip buyers, investors seem to hesitate to push prices higher.  In order for the market to move significantly higher people will need to get more aggressive.  Will earnings be good enough to cause that to happen?  I guess we will see.

Tomorrow is FED day yet again.  There is no action expected.  However, I am sure the statement will be parsed to death.  I have no idea what they will say or how the market will react.  We are trendless at the moment.  Not much edge in trying to predict what will happen.  Maybe tomorrow night things will be clearer.

Some research that comes out of Wall Street is top notch and very useful.  However, there is also a lot of stuff that rather poor.  I saw this table today and it seems at least a little misleading.

One important piece of data that is missing is the maximum drawdown from the high.  The data in 1998 looks pretty innocuous, but that time period saw SPX down nearly 20% from its high.  Why was 1993 chosen as the starting date for the study.  That seems like a very odd year to me.  My guess is that if you went back further in time the data might not look as positive, but that is just a guess.  Starting dates can definitely change the outcome of a study and are often chosen to present the picture the author most wants everybody to see.  While this study shows the market up nicely most of the time 1 year later there is the matter of the 2000 and 2007 tops being in the table. The full magnitude of the near 50% decline after 2000 is completely masked.  The Oct. 2014 period saw very nearly a 10% pullback in SPX which is also masked.  Exactly what can we really infer from this table?  From what I can see this spurt in volatility can range from being nearly totally meaningless to a full blown 50% crash.  How can we tell the difference?

I have to change the short term trend in SPX and COMPX to neutral tonight.  The R2000 trend remains up.

Bob

Daily update 1/26 Bounce back

Most indexes bounced back today.  Tech lagged a bit as INTC warned.  Small caps outperformed dramatically as more and more people are running from the dollar effect on big caps.  Here is the SPX daily chart.

The futures were down 20 points in the night on Greek elections.  People came to their senses and realized the world was probably not going to end on the outcome of a Greek election.  The futures climbed back to only down 2 points by the open.  More selling started right after the open and SPX dropped back slightly below the 50 SMA before the dip buyers came to the rescue again.  The breadth was 65% positive.  More broad based buying.  There were 267 new highs and 50 new lows.  The new lows remain elevated.  Volume dropped from yesterday and price made up about 1/2 the losses.  SPX struggled around the flat line all day after 11:00.  In fact almost all the gains made on the day came in the last 15 minutes.  Lets have a look at the futures chart.

The futures tested the 18 SMA on the overnight sell off, but bounced back strongly.  They popped up a few points right after the close.  Here we are back at the upper Keltner channel resistance.  They still have not confirmed the break above the 100 SMA.  They need a bar to close above 2059 to do that.  While the short term trend is up it has not been nearly as robust as we have been seeing the last couple of years.  Will we break out of the channel and move up or not? 

The snow storm in the north east tonight is going to keep a lot of people home tomorrow so liquidity might be light.  There is a lot of earnings reports this week which may increase volatility.  That combination could cause some bigger then normal intraday moves.  It all depends on the beats and misses in the reports.  SPX has run into some resistance here.  The earnings will either propel higher or repel lower.  Dip buyers have been showing up on every sell off, but rally chasers have clearly been hesitant.  The market looks like it is in show me mode. Time to be patient and let the market show us what it wants to do.

The R2000 did enough to upgrade its short term trend today.  However, we are still in a very choppy pattern and things can change very quickly. 

Bob

Daily update 1/23 Bottoms up earnings estimates

Not exactly the day most bulls would have liked.  It looked like the sellers were hitting the bids all day long.  In the afternoon there weren't as many bids left. 

Volume dropped considerably from yesterday.  That would have been good if we had closed up a good ways from the low.  On a day when we closed near the lows it indicates it did not take much selling volume to push the market down.  That is not good if it persists.  The breadth was 53% negative.  That probably means selling was mostly concentrated in the bigger cap stocks.  Some companies mentioned the dollar as a problem for their earnings today.  Small caps have little to no issue with the dollar as their sales are primarily inside the U.S.  There were 326 new highs and 45 new lows.  New lows really need to get under 20 and stay there.  New highs are good, but they have been good before without us going higher.  Probably a lot of low interest rate related items.  Lets move on to the futures chart.

I thought it interesting how the last three bars look very similar to the three bars that made the last swing high (circled area).  I am sure it will work out differently, but you have to admit it is kind of odd.  We did not get any confirmation of the break of the 100 SMA today.  A drop back below that line (approximately 10 points below where SPX closed) would likely bring on some sellers.  It could indicate we have another short term top in place.  Last night I mentioned the top Keltner channel line might be resistance and it acted that way today.  A rejection there frequently means a trip to the 50 SMA and pretty often a trip to the other side.  I think it is important for the bulls to break out on the upside on Monday.  Another down day could be trouble.  I want to take a look at the weekly SPX chart tonight.

Despite being within spitting distance of the high we still have a red candle.  It would probably not be good if we turn down again next week.  The VIX closed below the weekly 200 SMA which should target new highs.  Should it close back above it next week that would constitute a rejection at the MA and is likely to be pretty bearish.  It has only done that twice in this bull market.  That was back in 2010 and 2011.  Each time saw a significant move down.  Interestingly the VIX did not make a new high in those moves and significant rallies ensued.  If we do get a rejection next week and we end up making a new high in the VIX it would be something different for this bull market. 

SPX turned back today from the same area as the last swing high.  However, we did not do enough damage to say the bulls fumbled the ball.  They still have a chance next week, but they need to come out with some vigor.  While the retail crowd is full of confidence in this market the money managers are not.  They need to see something to build their confidence up or they will probably lighten up some more.  For next week the SPX 50 DMA (2046) might provide support.  If that fails the bears are probably in control again and it could get ugly.  The market is in a precarious position at the moment.

This is an interesting chart.

The bottom up estimates seem to contradict the big increase in earnings for 2015 projected by the big picture strategists.  I happen to catch Adam Parker (Morgan Stanley) on TV today saying he expects 6% growth in operating earnings this year.  There are two major impacts going on.  The large drop in oil and the large rally in the dollar.  Both are impacting earnings negatively.  With no QE and the threat of rising rates investors might be less tempted to bid up stocks with declining earnings.  If there was ever a stock pickers year this is probably it.  The author of this chart points out the last three times estimates went this negative we ended up in a recession.  Will history repeat?  At the moment I can't say one way or the other.  I can say data is getting softer.  Layoff announcements have picked up and not just in the energy sector.  I saw announcements from AMEX and EBAY this week.  I will be paying much closer attention to the econ data now.  We may be on the way to a recession.

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

Bob

Daily update 1/22 Lumber, oil and the economy

Draghi delivers.  The world is saved.  I wonder how many F bombs were being dropped by people that were short.  Why anybody would go into today short is beyond me.  If we have learned anything in recent years is that markets always react positively to QE on the day of the announcement.  That euphoria does not necessarily last long, but that is beside the point.  Today's ECB action was well telegraphed.  Lets see where we are.

SPX got back to where we were after those two blistering hot days on the 7th and 8th of Jan.  The last couple of weeks look like a rectangle forming.  We are now at the last high and the oversold condition has turned into slightly overbought.  The breadth was 75% positive.  There were 290 new highs and 33 new lows.  That is the most new highs since the 304 on 12/23.  That was three days before the all time high.  Have the sellers been vanquished or will they show up again?  Lets see what the futures chart looks like.

The futures have a blue price bar so they are above the upper Bollinger band and extended in price.  They are also at the top Keltner channel which can act as resistance.  While they closed above the 100 SMA at days end there is no confirmation of that move yet.  The ADX is extremely low.  I can't remember the last time it was this low at a short term bottom.  For the last few years we have been spiking down with relatively high ADX and reversing strongly.  We don't have the same setup this time. 

The ECB did what was expected and the markets reacted as expected.  What happens now?  All year long the market has acted goofy.  Strength has brought out sellers and weakness has brought out buyers.  Have the sellers run out of ammo?  They came out and sold some this morning right after the open.  The magnitude of that selling caught me a bit by surprise.  I see no sign at the moment the selling has been exhausted.  The VIX closed back under its weekly 200 DMA (17.35).  If it is still there tomorrow that should set up a test of the all time highs in SPX.  A close back above that level tomorrow would indicate a rejection and would likely send the market back to the lows.  I will not try to guess which happens at this point.  I looked at a bunch of indicators tonight and see some pluses and minuses with no clear edge. 

During the FED's QE program there was a lot of money from Europe that flowed into the U.S. markets.  Now the shoe is on the other foot.  The FED is threatening to raise rates and Europe has a trillion Euro QE plan.  Might the Europeans take their money back home? 


In XHB vs lumber I showed how the home builder ETF XHB was well correlated to lumber prices.  That makes perfect sense.  Now check out this rather interesting chart.

I have not seen anything this closely correlated to the ISM data before.  It is a bit hard to argue with.  The current weakness may be starting to enter the ISM data as those surveys have been falling the last few months.

Bespoke had some interesting facts on the oil storage data this week in Crude Oil Inventories See Monster Increase  They had this chart and text.

While this week's inventory report was delayed by a day due to Monday's holiday, the number crunchers at the Department of Energy may have needed an extra day just to count it all.  While traders were expecting inventories to increase by 2.7 million barrels, the actual increase was nearly four times that at 10.071 million barrels.  That is just a huge number for one week and is the largest weekly increase since March 2001, and the 16th largest weekly increase since 1983.  For the current week of the year, US crude oil inventories are higher than any year since at least 1983.  The next closest year was 2013, when total crude oil inventories were 363.1 million barrels, or 9% below the current level of 397.9 million barrels.

Oil stocks are nearly 20% higher then the average for this time of year and rapidly rising  The market is very well supplied at this time.  Without a significant pickup in demand that situation will last and keep a lid on prices.  So far the lower prices are not causing any increase in demand.

The ECRI data has been suggesting the possibility of significant weakness coming.  Both lumber and oil seem to be saying the economy is getting softer.  It may be time to start paying more attention to the econ data.

SPX and COMPX upgraded their short term trend to up.  The R2000 went to neutral.  Remember trends only tell us what the market has done and not what it is going to do.  The last change to down was short lived.  The uptrend might be short lived as well.

Bob

Daily update 1/21 More on global economy

The market looked about to sell off a bit this morning when news leaked of the ECB QE plan of roughly 50 billion Euros a month.  That sparked a bit of a rally, but it was not particularly strong.  Lets take a look at SPX.

SPX is still below the 18 and 50 SMAs.  Like yesterday it settled a good ways off the high.  The breadth was 60% positive.  That is a bit odd with IWM down on the day, but what else is new.  There were 155 new highs and 63 new lows.  Both numbers were down from yesterday.  We have a three day bounce that started with very strong breadth.  There has been some follow through buying, but it does not appear to be very strong.  There has been intermittent bouts of strong selling, but it has not lasted very long.  Does it have enough juice to make it up to the 50 SMA?  Lets see what the futures chart might tell us.

The futures managed to stay above the 200 SMA today and climbed all the way to the 50.  The price pattern is clearly choppy and shows the bouts of selling.  The MACD and DI lines have crossed positive so we have completely worked the oversold condition.  The price pattern is nothing like the rocket blasts off the lows we have seen the last couple of years.  It looks more like a bear flag at the moment.  It could always get legs though.

Tomorrow morning we should find out the details of the ECB QE.  The Euro rallied rather strongly today like it had priced in a bigger QE then 50 billion a month.  European stocks were up mildly.  The QE leak did not seem to excite stocks all that much.  Tomorrow should tell us a lot more about the short term direction.  SPX and the COMPX did enough today to turn the short term trend to neutral.  IWM is still down. 

This chart is a look at global GDP in dollar terms instead of local currencies.

I have talked about the dollar index rally a few times.  The Euro is a big chunk of that index and the Euro has been falling rather dramatically.  I wasn't sure exactly how strong the dollar has been against other currencies.  The first chart shows how the dollar is really strengthening against most of the world's currencies as the GDP is cratering in dollar terms.  It has not dropped like this since back in 2008.  Unfortunately this chart lacks enough history to be able to tell much.  It has the look of 2008, but how many times would this chart have had that look without having the same dire consequences in past history is unknown.  The central banks of India and Canada have recently lowered rates which indicates there is some global slow down going on.  Is this a bad omen?  I don't really know without more history.  All I can say at this point is that the global GDP in dollar terms is crashing unlike anytime since 2008.  Oil, copper, iron ore and other commodities all seem to be pointing to economic weakness.  Something to keep in mind.

Bob

Daily update 1/20 Many stocks well of their highs

They wasted no time selling the gap up this morning.  However, the dip buyers rushed in again mid day.  Here is a look at the SPX chart.

SPX closed right around the 2011 trend line.  It might be a kiss good bye, but too soon to tell.  Despite most indexes being positive the breadth was 60% negative.  There were 238 new highs and 109 new lows.  Once again the numbers are high on both ends.  Friday's strength brought out sellers at the open today.  That is quite different then what we have been seeing.  Maybe the pattern of V bottoms has come to an end.  We are still in a short term down trend on this chart.  Lets see what the futures chart has to offer.

The futures have popped up above the 200 SMA multiple times, but have been unable to stay there.  Will they conquer it or be turned back?

This market is messed up.  The breadth should not be this negative on an up day.  There should not be so many new highs and new lows at the same time.  There are quite a few people on each side of the boat.  This market is unlikely to go very far either way until one side of the boat gets a majority of the people.

We have gapped up nearly every day this year and yet we are lower.  The NAAIM survey jumped from 71 to 87 last week and yet price was down over that time.  If active money managers were adding long exposure how did the market end up going down?  Who was pulling money out?  The path of least resistance appears to be down to me.

I believe the ECB press conference is scheduled for 8:30 AM EST on Thursday.  How the market is going to react to whatever QE they decide to do is hard to say.  Until we get that behind us and see how the market reacts I think it is best to be nimble or flat.  Uncertainty is higher then usual at the moment.

One sign of a bull market coming to an end is when the average stock is much weaker then the major indexes.   Here is an interesting article from Bespoke % from 52-Week Highs  Take a look at this chart.

Utilities are the only sector where the average stock is only down a little.  Bespoke had this to say:

In the S&P 1500 as a whole, stocks are currently down an average of 15.71% from their 52-week high.

That is some serious weakness being masked by the indexes.  That much weakness is usually a signal of a significant correction coming or a bear market.  Yet another warning sign.

Bob

Daily update 1/16 Support held

The put support at SPY 200 I have been talking about played out today.  Not crashing early in the day emboldened bulls to jump into a slightly oversold market.  Here is the SPX chart.

SPX dropped down through the 2011 trend line earlier in the week.  Today's bounce came right back to the underside.  Is it a kiss good bye or will we get back up through it?  SPX closed a bit below yesterday's high.  While volume was higher then yesterday it was a bit light for an expiration day.  Breadth was 79% positive which is an extremely strong day.  There were 243 new highs and 98 new lows.  The split statistics continue.  I guess the close below the 100 DMA brought out the buyers once support proved itself.  Lets look at the futures chart.

The futures managed to get slightly above the 200 SMA.  We have a white bar so we have worked off the oversold condition and are back to neutral.  There isn't enough here to tell if we have made any kind of important bottom or not yet.  We certainly had enough strength there could be some more upside follow through.

Next Thursday the ECB is widely expected to launch some type of QE program.  Markets have been conditioned to expect that to be good for stocks.  Even though it is in Europe I have been wondering if it would not provide some upside excitement all around the world including the U.S.  This may have been the start of an ECB QE bounce.  We might see yet another really big bounce.  What happens after that announcement is hard to say.  Draghi has been long on words and short on action.  Will they do enough to make the markets happy or disappoint.  Beats me.  If they come up short of expectations look out below.  How in the world can you handicap that?  I am glad I am not running billions of dollars.  If we do  not follow through on the upside Tuesday next week could get ugly.  The option support will be gone.  I have no idea if the selling is exhausted or not.  I am sure volatility will stay elevated.  The price direction is not so certain.

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

Bob

Daily update 1/15 More on oil

The bulls showed up overnight after the afternoon bounce and the sellers showed up at the higher prices.  It ended up being another smack down by the bears.  Lets have a look at SPX.

SPX closed below the 100 SMA again.  No panic so far.  Just people looking for strength to sell into.  That is how a lot of serious corrections and bear markets start.  The lower we go the more urgent the selling will be.  The breadth was 62% negative.  Once again broad based selling.  There were 205 new highs and 128 new lows.  It is interesting the new highs have held up so well.  I suspect it is money moving into perceived safety for those that must stay invested.  Closes below the 100 SMA have brought out the buyers, but this is really close to the last occurrence.  It seems much less likely to work this time.  It is not much further down to the 200 SMA from here.  Maybe we head on down there.  Lets peek in on the futures chart.

The last two days the futures have been testing the support line from the last swing low.  It held up today during market hours, but after the close the futures dipped down.  It is hard to say where they will be by morning.  We could be 20 points up or down the way things have been going lately.  All indicators are still bearish.  No need to fight it. 

There is a lot of SPY puts at the 200 strike which may have been supporting the market.  The sellers of those puts would certainly like to see SPY close above 200 tomorrow.  Can they get it done?  Will the close below the 100 DMA bring in buyers yet again?  I have seen some sizable option expiration days before.  If we continue down tomorrow it could get crazy.  The bulls have some work to do to get control back.  People are noticing how strength is getting sold into on a regular basis.  That can only lower confidence in the bulls.  Until they show they can put up a fight the path of least resistance is down.

IWM had been trying to hold up better then SPX lately.  However, it caved hard today turning its short term trend down to join the rest.

This is an interesting article on the oil price drop.  This Is Just the Beginning of the Great American Oil Bust  Here is a chart I found very interesting.  Its almost amazing really.

We went from 200 rigs to 1600 since the depths of the great recession.  That is around 8 times the count we have had since the late 90s.  I find that phenomenal.  I suspect this means energy was the single largest contributor to the economic growth we have seen in this recovery.  Here is another very interesting article that makes a pretty good case for oil being under $50 for a prolonged period of time.  A New Ceiling for Oil Prices  I found this interesting chart in there.

This chart is adjusted to today's dollars.  I suggest you read the article if you have time.  The main point is the time periods above $50 correspond to OPEC keeping the price high.  The time below $50 was when OPEC let nature take its course.  Even before I read the article I was convinced OPEC and specifically Saudi Arabia has decided to let prices go just like in the mid 80s.  If the price stays below $50 and the rig count goes back down to where it was in that period there will be massive layoffs.  We can see how fast they can shut them down like they did in late 2008.  If they cut like that again there will be way more layoffs since there are so many rigs.

I hear the Wall Street pundits out telling us not to worry.  The oil price drop is nothing but good.  It reminds me of Bernanke telling us the subprime crisis was contained shortly before the bottom dropped out of the global economy.  Nobody knows how this will all play out.  I am convinced the oil price is headed lower to stay for at least a few years.  I am also convinced there will be a lot of companies that will go under.  There is over $500 billion in high risk loans to energy companies.  This is way more money then the amounts in the 80s that ended up causing the savings and loan crisis that required a government bail out.  There is going to be considerable stress in the financial sector.  The 80s crisis was primarily contained in Texas since that was the only state doing a lot of drilling.  There are now many more states involved and it is a much bigger driver of our economic growth.  I am not sure we would be growing at all without all that extra drilling.  Anybody that says there is no downside risk to the economy is either uninformed, naive, stupid, or lying (possibly all the above).  There is clearly downside risk to the economy and possibly another financial crisis around the corner. 

I love this quote (tnx sunny).

"When you’re one step ahead of the crowd you’re a genius. When you’re two steps ahead, you’re a crackpot." –Rabbi Shlomo Riskin, Lincoln Square Synagogue, Feb. 1998 (Arizona Jewish Post; Sept. 18, 1998; p. B-10.)

I think differently then other people.  I usually see things long before they happen.  On 8/27/2003 I wrote this to my friends.

I have read where they now offer packages where the first few years the payments just cover the interest, no principle is paid off.  I guess this lowers payments so more people can afford the loan.  I also have heard some mortgage companies on the radio say it has never been easier  to get a loan, in fact you do not need to show proof of income. With interest rates at historical lows who would be in a hurry to loan out money in long term arrangements. The economy has been losing jobs for 6 months in a row and this has not happened since the 30s.  With jobs going by the way side and interest at historic lows who in their right mind would be loaning money out to people that might not even have jobs?  If the FED manages to reflate the
economy, these loans lose because interest rates will go way up.  If the FED fails, we end up in a depression and these loans will be defaulted on.  There is no middle ground here.  We will not have nirvana with low interest rates for the next 30 years.  This will be the biggest financial disaster in history.  I do not know if it is 2 years, 5 years, or 10 years away, but it is inevitable.

It turned out to be five years.  They say nobody could see it coming, LOL.  My life away from the market has been helped by my ability to look ahead.  I have changed jobs at opportune times because of it.  However, when it comes to the market timing is everything.  Being two steps ahead of the crowd can seriously hurt.  I knew stocks were in a bubble in late 1999.  Just like now they displayed all the major warning signs.  The market did not start down in earnest until the fall of 2000.  It was torture waiting for the majority of investors to figure it out. I have had that problem over and over again.

My brain is telling me this situation is going to turn into another financial crisis.  In  2009 the G20 all got together and started massive stimulus to restart the global economy.   China even started in 2008.  However, all that stimulus and easy money did not cause a self sustaining recovery.  I think just about everybody in power around the world realizes that.  Many market participants realize it also.   I suspect that is why they dump stocks whenever they think the FED might raise rates sooner rather then later.  Countries are now up to their eyeballs in debt a lot of which was added after the crisis.  I don't believe there will be a big coordinated effort to restart the global economy if it tanks again.  If it didn't work last time why would it work now.  I don't think the will to do massive stimulus will be there this time.  The global economy is much more fragile then at the start of the last crisis when emerging markets were humming along.  Things could easily get considerably worse then in 2008.  Time will tell whether I am a crack pot or just seeing two steps ahead.

Bob

Daily update 1/14 Is the global economy slowing?

We had another big gap down today that investors seemed to be hesitant to sell into.  Here is the daily SPX chart.

SPX tested the last swing low with a slightly lower low.  It then proceeded to bounce into the close.  The volume picked up pretty good on the bounce.  In case you are not familiar with this price structure it looks like a possible double bottom.  All the market veterans know the pattern well.  Those new to trading the last few years probably wonder what in the world that is.  They have never seen anything but a V pattern low.  Breadth was 59% negative which was a bit less then the last two days.  There were 146 new highs and 222 new lows.  I find it interesting how the new highs have held in there so well.  The pullbacks to the 100 DMA the last couple of years saw sizable drops in new highs.  Is that a sign there is a lack of fear?  I know that nearly everybody is convinced the market can only go up this year.  The election cycle and year 5 stats have been promoted so much you just about have to live in a cave not to have heard them.  Is that why there is a clear lack of fear here?  Lets see what the futures chart has to say.

The futures are clearly trying to hold at the 200 SMA.  We now have a possible short term double bottom structure forming.  They closed below the 200 overnight, but never confirmed the break with a lower close.  This chart is reflecting a 5 point bounce after market hours.  I don't know why.  They still need to get a confirmed break above the 100 SMA to get out of trouble. 

There is a very large number of open SPY puts at 200.  The writers of those puts have a vested interest in seeing SPY close above 200 on Friday.  I am pretty sure they were busy trying to support the market today and likely are why we bounced in the afternoon.  The bulls may be emboldened to buy on the possible double bottom.  However, I think it is equally likely that sellers will show up again at higher prices.  It looked much more like people did not want to sell into the big down opening rather then selling exhaustion.  If they can't hold that support at 200 until Friday we could see a big slide.  A move below 199.5 on heavy volume could cause some selling of futures for hedging which might put significant pressure on the market.  It is a goofy acting market.  Be careful.

I have read a lot of articles and seen a number of pundits on TV saying the global economy is just fine.  Nothing to worry about just buy stocks.  This reminds me a bit of when the ECRI guy was on TV in April of 2008 saying the U.S. was in a recession and they laughed him out of the studio.  Lets look at some charts.

GWL is an ETF representing global stocks ex U.S.  It is more then 15% from its high.  The next three charts show oil, copper and 10 year U.S. rates outright crashing.  Interest rates around the world are doing that.  On top of all that the ECRI WLI growth indicator is collapsing pretty fast as well.  When I last showed this indicator I said the U.S. econ data was likely to show weakening at some point.  Today's disappointing retail sales might just be the start.  There is clearly enough data to show the U.S. and the global economy look a bit precarious.  Whether we tip into a global recession or bounce back strongly remains to be seen.  However, until we see an improvement in these charts there is downside risk.

Bob

Daily update 1/13 What an intraday reversal

The bulls were all happy on TV early in the day, but the market took it all away.  Here is the SPX chart.

That is one heck of a wide range bar there.  All indexes were up well over 1% before going red in the afternoon.  I don't think we have had that big of an intraday reversal since 2011.  More proof  that the price pattern is unstable.  Breadth ended at 53% negative after being up over 73% early in the day.  There was widespread selling into strength for sure.  Anybody that covered shorts on the rapid rally in the morning was probably dropping F bombs in the afternoon.  There were 226 new highs and 124 new lows.  The high numbers in both categories continued today.   Lets have a look at the futures chart.

The futures had quite a run up this morning and quite the meltdown after 11:00.  They found support once again at the 200 SMA.  I don't know if that is lasting or not.  The bulls have run the futures up overnight three days in a row, but could not hold them there during the day.  That seems very bearish, but I have seen similar action get resolved with a big rally.  The futures seem to be ping ponging between the 100 and 200 SMAs.  Whichever one breaks should lead to the next big move.  With the market acting in an unpredictable manner I am not going to try to predict which it will be. 

Day trading is pretty good right now, swing trading not so much.  Be careful if you can only do the latter and cannot monitor your positions during the day.  We have not seen earnings season volatility in years.  I can remember past times with big gaps up and down and wild swings from day to day all based on who reported what.  Between the oil crash and the dollar rally there could be something similar.  Be nimble or be flat.

Bob

Daily update 1/12 Downside follow through

The sellers hit the market immediately after the open.  It only lasted for 30 minutes though.  The rest of the day was a sideways chop.  Here is the SPX chart.

While yesterday SPX only closed fractionally below the 50 SMA there is no question about it now.  The price bar is red again.  Since it was red before the white bars this should indicate the short term trend has turned down again.  That is also true of the COMPX, but not R2000.  The breadth was 61% negative, very close to what it was on Friday.  New highs were 188 and new lows were 143.  Once again we have somewhat high numbers of highs and lows.  The loopy price action continues.  SPX broke the 2012 trend line twice before, but then bounced back above it.  This is the first time that it looks like it went back to kiss it good bye.  I have had this nagging feeling that the Dec. high is the top for this bull market.  The evidence is still pointing to that as a distinct possibility.  Lets see what the futures chart has to say.

The futures bars are still white, but it will not take much now to turn them red.  The MACD and ADX are on sell signals.  The Dec. bounce off the SPX 100 DMA was the shortest lasting rally in the series of bounces.  This one is starting to look like it has already peaked.  The futures have recently bounced off the 200 SMA twice.  They are less likely to bounce again if tested in the next few days.  They need to get back above the 100 SMA (2047) to get out of trouble.

Both of these charts show downward pressure on prices.  The bulls bid up the futures overnight, but were selling off going into the open.  Then they got slammed right from the open.  Oil was busy making new lows yet again.  Investors are getting nervous.  The market is clearly becoming more and more unstable.  I don't know what else to say really.  Between the goofy price action and the high numbers of new lows and new highs this is reminiscent of 2000.  That is the only other time period I have personally seen that resembles the current action.  Maybe the end result will be different this time, maybe it won't.  It certainly would be a good time to have a market crash plan.  What would you do if the market tanked 50%?

Bob

Daily update 1/9 Cumulative down gaps

That was a bit of a thud after the gap up on the employment report.  Here is the SPX chart.

SPX closed fractionally below the 50 SMA. In all the bounces from the 100 SMA since June 2013 never once did SPX close back below the 50 SMA before making new highs.  This is yet another thing that is different this time.  The market is changing its behavior.  I don't think it is going to be quite so easy going forward.  The fact they sold a gap up that hard on just the third day off the low is definitely way different.  People have been piling in and holding on once the market turned up from the 100.  Breadth was 61% negative.  That is somewhat broad based, but not excessive.  There were 174 new highs and 63 new lows.  That is a pretty good drop in new highs from 240 yesterday.  Lets have a look at the futures chart.

The futures ended the day below the 6 SMA.  The futures got above the 100 SMA, but never confirmed the move.  Instead they made a key reversal bar and confirmed the drop back below the 100.  That was enough to turn the MACD back down and cause the DI lines to form another negative crossover.  This looks like it is rolling back over.  If the bulls don't show up in force on Monday I think we test the recent low. 

After the initial sell off that took SPY slightly below yesterday's low the bulls put together a decent rally.  I thought they might have a chance to take control of the market, but they totally flubbed the last 45 minutes.  AA kicks off earning season on Monday after the close.  I have been hearing how earnings are supposed to be great from the pundits on TV, but have seen some articles that suggest maybe not as rosy.  Other then earnings from the energy companies being seriously crushed I don't really know what to expect.  Based on today's action maybe some market participants have questions also.  We could easily see increased volatility day to day depending on the overnight announcements.  I have to give the short term trends a negative bias on all three indexes as they all closed back below their 18 DMAs.

This is an interesting article.  Down Gaps On the Rise 

As one measure of market volatility, we calculate the cumulative number of stocks in the MSCI World Index that open at least 2% higher (or lower) than the previous close over a 65-day time period.  Extremes in the number of gaps often occur in conjunction with inflection points in the market.  As you can see in the following chart, we find that a very low number of gaps coincides with market highs while the number of gaps tends to spike during significant declines.

For the most part, down gaps reached decade-long lows in October 2014 and have been on the rise ever since.  The significant uptick in North America is particularly interesting--especially in light of what is, relatively speaking, a more resilient uptrend in the market.

Here is the chart for the U.S.  There are other charts in that article for the world.

Plunges in the blue line have coincided with the bigger dips in stocks.  We now have the biggest plunge since the mini crash of 2011.  This chart confirms what I have been saying that the market has become unstable.  The plunge in stocks may soon follow.

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

Bob

Daily update 1/8 FED speaks, market soars

I noticed last night a big pop in the futures.  Apparently it was caused by a FED official saying they should  not be in a hurry to raise rates.  I guess if the FED keeps talking enough we can get the Dow up to 36000 before year end.  I want to look at SPY and IWM tonight.  Study the charts for a minute.

We have two very similar looking launch price bars from the two recent swing lows.  However, the volume pattern is radically different.  Both SPY and IWM saw big volume on the first swing low.  Both had much smaller volume the last two days.  My best guess is the rally from the Dec. low saw a lot of fresh longs while the last two days was more in the way of short covering.  Even with that big launch off the first low both these ETFs barely made new highs before selling off again.  This does not look like as strong a launch as that was.  Will they make new highs or fall short?  Lets see what the futures chart can tell us.

The futures price bars went green overnight and continued higher during market hours.  That gives some confirmation of the short term up move.  They ended the day slightly above the 100 SMA.  This move worked of the oversold condition and puts us in a neutral state.  Notice the blue ADX line in the bottom panel.  It was very high on the rally indicating a strong trend.  It turned down briefly when the sell off started then turned up again.  It once again reached a high value indicating the down trend was also strong.  This is pretty rare and indicates a struggle for power.  Usually the second trend ends up winning.  In this case that would be the bears.  The prior launches off the SPX 100 DMA have seen the futures stay above the 6 SMA all the way to new highs.  Will the bulls pull that off again?

This does not look like as strong a launch as the last one.  I have no idea whether it will carry to new highs or not.  The big moves up and down are increasing the instability of the market.  Imagine the emotions of people managing billions of dollars.  There is uncertainty in the global situation and the market is flying up and down  The market is changing its stripes at the drop of a hat and often on news that is more then likely totally irrelevant.  The instability means it is unpredictable.  If you cannot be nimble then sit back and let the bulls and bears fight it out.  There is clearly a sizable contingent on both sides at the moment. 

The big move up has changed the trend to neutral on the indexes in the trend table.  However, the price bars on the futures chart are confirmed green so the bulls have the edge at the moment.  I will be watching for a confirmed break of the 6 SMA on the futures as a sign to flip back to bearish.  With price in an area of possible resistance and the oversold condition removed the market may need some time to decide what to do next.  Tomorrow is the employment report.  I don't know if that will shake things up or not.

Rant on:

This article is not market related.  However, it is about the world we live in and I think it summarizes thoughts I have had for many years.  The Zombiefication Of America  I am very disturbed by how the media seems to be purposely trying to create racial tension.  The author says this nicely.

Our society is breaking down in thousands of different ways, and we can see the evidence of this all around us.
But instead of coming together as a nation, anger, hate and division just continue to grow.  And all of this anger, hate and division is being fueled by the talking heads on television.

I would add that the internet and social media have given a huge voice to anybody that wants to stir up trouble.  In today's world 10 people can create a firestorm in the media.  Barbarian invasions of the Roman empire are widely viewed as playing a major part in its downfall.  What is the difference between people that use social media to stir up trouble and barbarians?  I am having a very hard time trying to figure out how this can possibly be good for civilization as a whole.  While technology has made things way more convenient then they used to be I am not sure I can say life is truly better.  I am glad I grew up when I did rather then today.  I know from talking to other boomers I am not alone.  I find that rather sad.   I apologize for the divergence from the usual market related content.  Even though I have a very even keeled personality I guess I still need to rant occasionally.

Rant off:

Bob