Daily update 5/31 Why I think Stocks Won’t Crash Spectacularly but ...

A little selling and a little buying to end the month.

The buying and selling action left us with a hanging man bar.  That follows double doji bars.  Lots of indecision here.  Breadth was just slightly negative, but started the day +55%.  New highs increased quite a bit to 172.  New lows also increased to 98.  That is the highest number of new lows since early March.  The high this morning was less then 3 points from the all time high.  New lows should not be that high here. 

The futures tested below the 20 SMA this morning, but bounced the rest of the day.  They popped up 4 points after hours for a reason unknown to me at the moment.  The consolidation phase continues for now.  Will it be a pause that refreshes or a top?

The green count slipped a bit more today and is barely above 50 now. 

Three trading days after SPX broke out to a new high there has been absolutely no follow through.  At the same time there are plenty of dip buyers to rush in on any intraday weakness.  It is the rally chasers that are still missing in action.  They seem to totally disappear every time SPX climbs above 2400.  Until that changes the market is not going higher.  Bears need to see a close back below 2400.

This is an interesting article everybody should read just in case.  Why I think Stocks Won’t Crash Spectacularly but May Zigzag Lower in Agonizing Ups-and-Downs, Possibly for Decades 

Because of the high margin debt it is pretty hard for me to imagine stocks not crashing pretty spectacularly at some point.  A pattern like Japan with many ups and downs for a prolonged period seems pretty likely after that.

On yesterday's article on bubbles I believe both types of bubbles are in play.  Clearly monetary policy has created bubbles all around the world in many assets.  However, I also believe there is a story type bubble going on as well.  What else can explain why 5 stocks make up over 10% of the market cap of the entire U.S. market.  Those are story stocks.  How many times have we heard about some model that magically shows stocks aren't overvalued.  The funny thing is they never provide historical data that can be used to verify their claim.  Not to mention those people always seem to be long only money managers.  Check out these TTM P/Es.

Keep in mind profit margins are way higher then they were in 2000.  With the same profit margins valuations would be very close to 2000 levels.  That Russell 2000 sporting an 81 P/E sure looks awfully cheap to me.  I guess I better back the truck up.  Does it make any difference if we have a double bubble?  Maybe, 1929 was the last time it happened.

Bob

Daily update 5/30 The Bubble That Could Break The World

Uh oh.

Not a good day for bulls.  Breadth was -61%.  The popular big cap stocks were the only thing holding the market up today.  New highs slipped to 122.  New lows increased to 65.  That should not happen if the market was truly breaking out to go higher.  I think my initial assessment that this break out would fail will prove to be correct.

The futures closed back inside the channel indicating the thrust should be over and some consolidation or pullback is to be expected.  Since the break out did not go very far there is not much room for a pullback.

The green count took quite a hit today, but remains above 50.  Notice the last two upward thrusts were not strong enough to reach over bought levels.  The last solid thrust was back in mid Feb. 

Since the exhaustion gap on 3/1 upside progress has been extremely slow.  SPX has only managed to climb a few points above that intraday high.  Meanwhile there is no shortage of bullishness.  Even bears are throwing in the towel (at least in the short term).  I don't really get that with all the negative divergences here.  Why turn bullish now?  I think the May high and June pullback pattern is going to play out this year.  The bulls were willing to buy the dip today, but had no interest in chasing price higher.  The increase in new lows is a big warning sign.  No way that should be happening if the market was strong like the pundits keep telling me. 

There seems to be three opinions that are in the majority at the moment.  The first is the obvious everything is bullish and the market is breaking out to go higher.  The second is that longer term everything is bullish, but there might be some corrective type activity over the summer.  The last major category is longer term bears that think the market goes higher for now.  The number of people that think we could see a sizable move down from current levels seem to be almost non existent.  I can't think of seeing, hearing, or reading anything in that category recently.  I am sure there are some out there and I have just not seen them.  There definitely is no wall of worry to climb any more.  Whether that means the market is done climbing is impossible to say.  However, it remains a possibility.  The more normal thing to do would be to pullback over the next few weeks and rally into July and August.  That extreme complacency really bothers me though.  There is probably a non zero chance this ends up being the final high.  We might see a deeper pullback then people expect and a rally to a lower high over the summer. 

One thing I have not mentioned that is not always obvious to people.  Things always look good at market tops just like they always look bad at market bottoms.  That is the real reason why most people miss the turning points.  The usual way it works is for the market to top when things are as good as they are going to get.  They bottom the inverse way when things are about as bad as they are going to get.  Tops and bottoms cannot really be spotted by looking at current fundamentals.  They are usually evident by internal divergences of some kind though.  We did not the usual divergences on 3/1 as I noted at the time.  However, we have lots of them now.  Stay vigilant.

Regardless of how things play out over the summer a close by SPX back below 2400 is likely to start a pullback.

This is an interesting perspective on the types of bubbles.  The Bubble That Could Break The World  I will give you a chance to read that article then I will add some thoughts of my own tomorrow night.

Bob

Daily update 5/26 Don't Blame Minsky If Your Portfolio Value Crumbles

Zzzzzzzzzzzzzzzzzzzzzzzzz.

I just want to say that a 4 point intraday price range at this price level is totally and completely ridiculous.  The low volume suggests a lot of people decided to make it a four day weekend.  The breadth was slightly negative.  New highs dropped way down to 154.  New lows dropped a bit to 37.

The futures are still above the upper channel line.

Virtually no change in the red/green counts.  It truly was a nothing day.  That means there was no follow through to yesterday's break out.  Here is a look at the 60 minute intraday futures chart.

Truth be told nothing has happened since 11 AM yesterday.  I would guess that was about how long it took the shorts to cover.  So far there seems to be little interest in either buying or selling the break out.  That is a condition that probably won't last long.

There is a common pattern of SPX having a sell off into June when making a new high in May.  The internals and low VIX would seem to give that scenario pretty high odds of playing out.  If we get that pullback and a decent VIX spike we could easily see new highs over the summer.

Today Bob Pisani was saying that he does not know of anybody that is worried about anything bad happening to the market.  The interesting part was he thought that was a good thing.  Maybe he has never heard that old saying about the wall of worry.  That is the exact kind of stuff that happens at THE top.  Since nobody is worried it likely mean very little hedging.  THAT is something to worry about.  This is an unusual time of year to make such a final high, but not completely without precedent.  Should this be the top I would expect some chopping around through summer with the bigger drop in the fall.

Interesting article sent in by a reader (tnx trip).  Don't Blame Minsky If Your Portfolio Value Crumbles

I think it is well known that a small group of stocks makes up an awful lot of market cap in the U.S.  This chart indicates that we are probably in tech bubble two.

The intermediate trend in SPX turned back to up while the sub intermediate trend in R2000 turned down.

More technology for country folks.

Have a great long weekend.

Bob

Daily update 5/25

I added the title to last night's update only to forget to write about why I added that title.  At the last minute I thought about the China stuff I had read and ended up forgetting about the bear capitulation thing.  So I am going to start out with what I was supposed to write about last night.  Yesterday they interviewed Robert Shiller (famous for his CAPE P/E calculation) on CNBC.  He said that the market could gain another 50% over the next 10 years.  Jim Cramer mentioned that he had interviewed Mr. Shiller many times over the years and he had always been cautious and sometimes a little gloomy about the market.  Cramer seemed to think it was great that Mr. Shiller was  now joining the very big crowd of bulls.  I view it as just another well known bear capitulating.  While there was some of that in 2000 there was still a number of market skeptics at that top.  I think the number is much smaller now.  What I find most interesting is that a look at historical charts of indexes shows that big uncorrected moves always end in a meltdown.  Stock markets need those periodical 15-20% sell offs to cleanse themselves and keep margin debt from getting out of control.  We have not had a correction like that since 2011 and margin debt is definitely out of control.  The market going higher will only add to the probabilities it ends in a crash.

SPX extends it winning streak to a new high.  That is the good news for bulls.  I commented yesterday on the breadth being weak for a new high.  Well, it was even weaker today at +51%.  New highs expanded to 230, that was still over 100 less then we saw on 3/1.  New lows increased again to 41.  That should not happen on a trading range break out to new highs.

The futures stayed above the upper channel line today.  Coming back into the channel will indicate the upward thrust is likely over.

The green count picked up considerably today, but now it is almost to overbought levels.

The intermediate and long term bull pressure lines actually turned down today.  They are barely positive to begin with.

In the short term I think this is do or die time for the bulls.  This is one crummy looking break out to me.  Internals suck.  The small caps and financials were nearly flat on the day and did not participate.  Most of the talk was whether AMZN would hit $1000 or not.  It only got to 999.00.  The VIX closed at 9.99.  The VIX rarely gets this low and when it does the market always struggles. 

The last two thrusts to new highs came after election results that had caused the VIX to rise over 20 without much of a sell off in price.  With nothing to worry about that is unlikely to happen again.  If it takes the VIX getting over 20 again the excite buyers SPX will likely have to have a bigger pullback.  I think the internals are too weak and the VIX to low to support this breakout.  If SPX closes back below 2400 it is likely to bring out more selling this time.  If the market continues up I would expect it to be slow and choppy.

Today turned the short term trends for SPX and COMPX to up and R2000 to neutral.

Bob

Daily update 5/24 Bear capitulation continues

SPX makes a new high close, but it never got above the 5/16 high.

For most of the day SPX had a 3 point range between 2398 and 2401.  After the FED meeting minutes were released a few buyers stepped in to get that new high close.  However, the market truly lacks energy.  Breadth was +54%.  New highs were down from yesterday at 125.  New lows increased for the second day in a row to 33.  That is elevated for a new high close.

The futures ended the day slightly above the upper channel line.  Will they stay there and accelerate higher or fall back? 

The green count shot up a bit today, but remains below 50.  Still not particularly good for a new high close.

All three time frames on the bull pressure chart have positive crossovers.  However, none of them are showing any real strength.  The short term indicator has actually turned down a bit.  I don't think it is safe to conclude the market is going higher from here.

The market still looks very tired.  It took fairly dovish FED meeting minutes to get the push to new highs.  Of course the trouble is that most news events like that get retraced.  The market looks like it needs a pullback.

Under the radar there is talk about banking and bond market problems in China.  It sounds similar to what happened in the U.S. in 2007.  I don't know if that will blow up and become a global problem or not.  However, China is the second largest economy in the world these days.  Should things get out of control there it is hard to imagine the global economy going completely unscathed.

Bob

Daily update 5/23

Foiled again.

SPX tried a couple of times to cross 2400, but failed.  Breadth was +57%.  New highs came in at 146.  New lows increased a bit to 26.  Volume dropped considerably.

The futures stopped right at the upper channel line.  Will they roll over there?

Its a bit hard to see, but the red count actually increased today and crossed back above the green line.  Probably not a good thing when testing a high.

There still is no buying interest above 2400.  It might have been resistance long enough to become  self fulfilling now.  The low VIX and high valuation appears to be enough to keep the buyers sitting on their hands.  A pullback still seems likely to me.

The sub intermediate trend is flopping around which is indicative of a correction.  IWM is lagging badly which also indicates the market is not running on all cylinders.

Bob

Daily update 5/22 Investors Better Hope This Time Really Is Different

The bulls showed up again.

Volume dropped off considerably, but the bulls pushed prices higher.  Breadth was +64%.  New highs increased again to 137.  New lows dropped considerably to 20.

Quite the V shape on the futures.  They are now above all the moving averages.  There is a bit more room up to the upper channel line should the bulls feel ambitious tomorrow.

The green and red lines have come together into a neutral condition.  The intermediate indicator is barely above 50 and SPX is almost back to the high.  The  negative divergences since the 3/1 high are still getting bigger.

So here we are with SPX nearly back to the high and VIX under 11 again.  Today seemed to convince a lot of people there would be no follow through from the 5/17 splat.  Right near the end of the day both SPY and QQQ closed their gaps.  This is exactly where the stiffest resistance is likely to be.  The internals continue to weaken.  At some point this market is going to fall if the bulls can't get SPX up and through 2400.  I don't see anything at the moment that gives us particularly high odds of doing that.  It seems like a lot of bulls might have been caught flat footed on 5/17.  With SPX back in the vicinity they might want to lighten up a bit.  If that is the case they are likely to make their presence known tomorrow.

This is an interesting article.  Investors Better Hope This Time Really Is Different

Bob

Daily update 5/19 The Running of the Bulls’ Mouths

The buying was sparked by a FED head talking about QE.  A late day sell off was sparked by news out of D.C. on the Russian investigation pointing a finger at somebody in the white house.

Unlike yesterday, the rally today was broad.  Breadth ended at +73%.  New highs increased to 92 while new lows dropped to 42.  SPX closed above the 50 SMA.  It remains to be seen if it can stay there.

The futures rallied up and over the 20 and 50 SMAs, but ended the day below them.  This would be a logical place to roll over if they are going to.

The red count took quite a tumble today.  The near oversold condition has been worked off.

Today's rally got SPY into the 5/17 gap down which should be significant resistance on this first test.  The rally slowed down to a grind, but kept pushing a bit higher until late in the day.  The market had turned down a bit before suddenly accelerating to the downside when the D.C. news hit.   This is a logical place for the sellers to show up if they still have inventory to unload.  It seems to me Bullard's comments will be a one day thing.  The Russian investigation on the other hand will go on for a long time.  It seems more likely the sellers will be back on Monday rather then the bulls.  If the bulls can generate a close above today's high it would change the picture.

This article is exactly what I have been saying lately.  The Running of the Bulls’ Mouths.  The author expects the market to tank some day, but that some day is not now and the bull will continue on.  It is truly hard to find anybody that actually believes the bull run might be ending here.  That is common at an actual bull market top.  The market might keep on steaming higher after a bit more correction.  Maybe it won't.  There are bears out there, but they don't seem to be bearish now.  That is why it is time to pay attention just in case this is the real end.

Today turned the SPX intermediate trend to neutral with a positive bias.

More technology for country folks.

Have a great weekend.

Bob

Daily update 5/18 Industrial Production (IP)

The bargain hunters came out as expected.

SPX crossed above the 50 SMA mid day, but failed to stay there.  Breadth was barely positive.  New highs dropped a bit more to 38.  New lows dropped a bit to 74.  SPX closed about 10 points off its high.  That indicates considerable selling into the bounce late in the day.

The futures rallied up to the red line and turned back.  That line was resistance that turned into support in May.  Now that it is broken it may have turned back into resistance. 

The counts didn't change much today.  However, the intermediate indicator is getting real close to the key 50 level.  Notice the prior crosses in July and Sept.  There are two ways this indicator works.  The quick crossover and back like in July is usually bullish.  The other way is a crossover that lingers like in Sept.  That indicates a more prolonged corrective move usually leading to a lower low.  This being an intermediate indicator it lags price.  The magnitude of the move down in many stocks yesterday will most likely take this indicator below 50 even if the market keeps rallying from here.

We got the expected bounce today, but it looked like the dead cat kind.  It is important for the bulls to get SPX back above the 50 DMA.  Today's failure there was not a good sign.  After the Feb. low last year I commented a few times on what appeared to be a strong underlying bid to the market.  Today appeared to be more overhang of supply rather then an underlying bid.  That would be a serious change of character for the market if that continues.   While today had high odds of bringing out the bargain hunters tomorrow is not so easy.  The sell off in the afternoon might indicate the bulls have already run out of ammo.  However, it is not clear that is the case.  Since the bounce did not get very far the bargain hunters may come out and do some more nibbling.  Based on today's lack of enthusiasm it appears to me we are going lower eventually if not tomorrow.

IP took a big jump up last month.  This is definitely a positive, but there is one caveat that I know of.  About 40% of the increase came from the auto sector.  As I have reported in the blog the last two months saw abysmal auto sales.  Ford just announced layoffs.  I recently read that sales were down in China, Europe and the U.S. year over year.  This is the first time since 2009 all three areas were down at the same time.  In that scenario it seems odd that auto production was up so much.  I wonder if the data is even correct.  It also seems unlikely that increased auto production will continue given the lack of sales.  While the last several months have been positive for IP we are not out of the woods yet.  IP has never been off its high this long without the U.S. going into recession.  As I have noted before sometimes there is one last spurt of economic activity that rolls over into a recession.  I still can't rule that out.  With the soft economic data coming back to earth it is hard to say if IP will continue higher or not. 

Bob

Daily update 5/17 Global credit impulse

Splat.

SPX closed below the 50 SMA.  There is some volume for you.  Breadth was -78%.  New highs plummeted to 44.  New lows increased to 82.  It looks a lot like a possible double top forming there doesn't it.  I don't think it is any secret I have been surprised the market has not reacted to what has been going on in D.C. before now.  I guess they finally decided it might be time to take some money off the table.

The futures ended the day below the 200 SMA.  Notice the -DI line is above 35.  That opens the door to a bigger sell off.  It remains to be seen if the bears decide to step through that door this time.  They did not on the last signal back in March.  However, this time we have a very tired market.

The red line really shot up today and almost reached the oversold level.  Since the Feb. 2016 low there has been very little downside follow through to a spike of the red line.  Will it be different this time?

The bull pressure chart has negative crosses on all time frames.  Notice the long term lines never got a positive cross after the April low.  hat makes the market somewhat vulnerable.  However, that condition sometimes lasts for months before the market tumbles.

That 3/1 gap has always left me with a nagging feeling it was an exhaustion gap.  Market internals have deteriorated ever since.  The COMPX has continued to climb, but the advance has been built on a handful of stocks.  Meanwhile I get lectured every day on CNBC how this market can only go higher so every little dip is a buying op.  They were parading people today proclaiming that very thing.  It is really hard to find anybody even a little cautious.  Bob Pisani mentioned the transports being below their 2014 high, but nobody seems to be bothered by it.  Well I am very bothered by it.  I don't know exactly what is going to happen here.  However, I do know we have a technical and sentiment picture that could easily be THE top for this bull market.  I have commented a number of times on the difference between the soft and hard economic data.  In recent weeks the soft data seems to be crashing.  The transports lagging and the charts presented below have me worried about the global economy.  This is no time to be napping when it comes to long term index positions.  The pundits are constantly telling us how rosy things are.  It simply is not true.  There are a lot of things that could go wrong including a global recession. 

The usual response to a big down day coming off an all time high is for the market to bounce the next day.  The so called bargain hunters usually make an appearance.  If we get such a bounce I expect it to be short lived (1-2 days).  The market was clearly exhausted at the top.  Today did not generate any fear whatsoever from what I can tell.  I think there will be more downside to come.  A trip to the 200 DMA is overdue.

In this article (Why China Will Trigger Our Next Stock Market Selloff) I found this interesting chart.

I have to admit that global stocks definitely seem to struggle when China's credit impulse goes negative.  Seeing this chart made me google credit impulse and I came up with this article (PIMCO: China credit impulse decline sharper, more extreme - material drag on growth ) and chart.

That is a precipitous decline in the global credit impulse.  Clearly much lower then at any time in this recovery.  The only times it has been lower were 1999, 2001, 2008.  The U.S. did not go into recession until 2001 so the 1999 signal was early.  However, the U.S. economy was growing above 4% in 1999 and 2000 so it took a while to go into recession.  Last year the currently reported number is 1.6%.  It would not take long at all to fall into recession from such a low level.  The global economy is growing at a much slower rate then either 2000 or 2008.  In other words, it would not take as long for a global recession to happen as it did in those years.  Despite what the pundits say the global economy could be headed for trouble.  With stocks at extreme valuations a recession would not be good for the market. 

Bob

Daily update 5/16 Fake “Trump Trade” Dies on the Vine

Still no buyers above 2400.

The bulls managed to keep SPX above 2400 at the close.  The market started with a gap up that people started selling into right away.  No rally chasers to keep the bounce going.  Breadth was -52%.  New highs picked up a bit to 170.  New lows also picked up to 55.  That is way elevated on a day SPX hit a new high intraday.

Something must have happened between 5 and 6 PM EST when the futures were closed.  After they opened back up at 6 PM they headed lower and are down 15 points from the 4 PM close.  I have no idea what happened or whether they will still be down in the morning. 

The red count picked up slightly today, but remains below 50.  A down day tomorrow should take care of that though.

Today's failure to find buyers was not a good thing for bulls.  It is pretty clear there simply are no takers above 2400.  It is easy to imagine today being a short term top even without the futures being down after hours.  If they are still down in the morning it will be interesting to see if they sell it anyway or if the dip buyers come in.  To date the dip buyers have been rushing in on any weakness.  If that does not happen tomorrow then we have a change of character at least in the short term.


This is a good read on how Wall Street works sent in by a reader (tnx trip).  Fake “Trump Trade” Dies on the Vine

Bob

Daily update 5/15 This Time is Not Different, Because This Time is Always Different

History was made.  SPX closed at a new high.  It only took 6 weeks to get 1.34 points above the 3/1 intraday high. 

While SPX closed at a new high that close was below the 5/9 intraday high.  Breadth was +71%.  A lot of stocks were up only a little as the indexes were not up very much.  New highs increased to 146, but that is well off the 331 we had on 3/1.  New lows came in at 37 which is elevated for a new closing high.

 

While SPX made a new intraday high the futures did not eclipse their 5/8 overnight high.

The green count picked up only a bit today and remains below the red line.  This would be good for bulls if the market continues up since we have a long ways to go to a short term overbought condition.  On the other hand, there is a big negative divergence that could mean SPX is not going to break out.

The bulls gave it another try today and managed a close above 2400.  That is about all they accomplished though.  Once SPX got above 2400 the buying dried up.  Rally chasers sat on their hands again.  I think they need to show up tomorrow if this market is really going to break out and move higher.  I don't see anything tonight that gives me any confidence that will happen.  While SPX made a new intraday and closing high it did not really break out.  The new intraday high was by a whopping .18 points.  The market has to do better then that to give me confidence the consolidation is over.  It would not surprise me if the sellers show up tomorrow and SPX closes back below 2400.  The bulls need a good thrust bar that closes well above the 3/1 high. Can they do that tomorrow?

This is a pretty interesting read.  This Time is Not Different, Because This Time is Always Different

Bob

Daily update 5/12 Astonishing Facts About Berkshire Hathaway’s Cash Stash

More nothing.

SPX tested below 2389 again today, but failed to stay there.  Breadth was -55%.  New highs slipped a bit more to 72.  New lows were stable at 40.  SPX bent, but did not break.  How much more can it take?

The futures ended the day just below the 20 SMA.  No confirmed break down yet. 

The red count crossed above the green line, but remains below 50.  The bulls are losing their grip.  Lets take a look at the weekly version.

The green count is still above the red line, but is below 50.  The green count dipped and the red count picked up quite a bit this week. 

Every dip gets bought and every bounce gets sold.  Overall SPX is slipping slightly lower while COMPX hangs out at the highs.  The COMPX is being held up completely by the infamous FANG stocks plus AAPL.  The new acronym is FAANG.  This is not really a healthy situation.  The market does not get this thin very often.  This is very much like May 2015.  The difference this time is the sentiment.  We saw a technical condition in 2015 that looked like a top, but it proved not to be the bull market top.  SPX was held in check for over a year though.  This time we have a similar weak technical condition combined with the most complacent market I have ever seen.  This truly is a recipe for a bull market top so pay attention to your long term investments.

If Monday is down I think the bears will be in control in the short term.  There are multiple changes to the trend table tonight.

This is an interesting article on the difference between what Warren Buffet is saying and what he is doing.  Astonishing Facts About Berkshire Hathaway’s Cash Stash

More technology for country folks.

Have a great weekend.

Bob