Daily update 3/29

Failure to launch.

I have marked out a resistance zone I think SPX needs to clear to give a rally a chance.  SPX rallied nicely today, but late in the day it sold off and closed well off its high.  Not a particularly good sign.  Breadth was +75%.  New highs were stable at 32.  New lows continued their declining pattern in recent days and were 52.  SPX could still make a short term bottom, but the pattern is starting to look more like a consolidation to go lower.  The bulls need to show up and win on Monday.

The futures got briefly above the 20 SMA.  Then the sellers showed up with some force.

The red count came down from oversold, but is still well above 50.  The intermediate indicator dropped below the Feb. low.  Not a particularly good sign.  Here is a look at how the Sept. 2015 and Feb. 2016 lows looked.

Both those lows had big divergences in the intermediate indicator.  We have a much different situation this time.

I am not seeing anything at the moment that suggests the market is making an important bottom.  That does not preclude a good bottom from forming, but nothing seems to suggest that is the higher odds outcome.  I keep hearing people talking about the LIBOR–OIS spread spiking higher.  There is still a lot of loans indexed in some way to LIBOR rates.  I do not know the particulars, but I have not heard this much talk about LIBOR since 2008-9.  Some people are getting concerned.  Whether that will turn into a problem I cannot say.  I can say there appears to be a bigger overhead supply in this market then we have seen in many years.  A lot of intraday bounces are getting sold into sharply.

The technical condition at the Jan. high would be very unusual for a bull market top.  However, the price action since then has acted like we could be in a bear market.  Because of all the leverage in this market there is significant risk on the downside.  We have already seen some big range days both up and down.  Those happen more often in bear markets then bulls.  The liquidity is very thin at times.  The algos that were pumping the market higher over the years appear to be really nasty when they sell.  Be careful.

Happy Easter to those that celebrate it.

Bob

Daily update 3/28

Inconclusive.

Both the bulls and bears showed up today.  The bears started selling a small gap up and sent SPX slightly below yesterday's low.  The bulls showed up there and generated a sizable bounce.  However, the bears showed up to sell the strength.  The afternoon saw rallies getting sold and dips being bought.  Breadth was slightly negative.  New highs were 21.  New lows slipped some more down to 105.  Volume was elevated once again.  The SOX was down over 2% and COMPX was down .85% as rotation out of tech continued.  Small caps and financials collected some of that money. 

The futures are hanging around the lower channel line.  They did not implode when they tested yesterday's low.  That is a positive, but at some point the bulls are going to have to show they can hang on to a rally if this market is going to bounce significantly.

The red count remains at oversold levels.

I don't know whether we are going to bounce or break here.  Either way is likely to be a sizable move.  When a market gets this oversold, consolidates and breaks down bad things usually happen.  I suspect the Feb. intraday low would end up getting broken.  On the other hand, the market is oversold right on the 200 DMA.  Should a rally break out it should be significant.  Usually SPX gets back to the 50 DMA at least.

The advance/decline line is looking much stronger then SPX.  A lot of people might be looking at that as a positive.  I remember seeing a similar phenomenon back in late 2000 as the tech bubble was bursting.  The money coming out of the extremely overvalued big cap tech stocks was moving around to other areas of the market.  That made the breadth data look better then the major indexes.  The problem was the big cap stocks kept taking the indexes down.  They eventually just broke.  The breadth data was actually quite misleading.  We might be in a similar situation here as FANG stocks are clearly seeing significant profit taking.  The question is does it last long enough to break the entire market.  I don't have any idea how to quantify the odds.  I just know it is currently a risk. 

Bob

Daily update 3/27

News on NVDA:
(Reuters) - Chipmaker Nvidia Corp said on Tuesday it has suspended self-driving tests across the globe, a week after an Uber Technologies Inc autonomous vehicle struck and killed a woman crossing a street in Arizona.

Shortly after the headline hit NVDA tanked and people started selling everything.

SPX tested below yesterday's low, but bounced.  Breadth was -66%.  New highs increased a bit to 37.  New lows were down considerably to 124.  Volume was heavier then yesterday.  We had three fairly high volume down days out of four.  Not exactly the classic three day mini cascade, but it might work similarly. 

The futures came close to the 20 SMA before turning down.  They ended the day back outside the channel.  There was a 17 point bounce off the low into the close.  That shows there was some buying interest down there. 

The red count still is in oversold territory. 

I have seen some short term bottoms very similar to the daily chart.  The key is that the bulls need to show up again tomorrow.  If we continue down a test of the Feb. intraday low seems likely.  Yesterday felt like a concerted effort by bulls to make a bottom.  Today's selling seemed to be connected with the NVDA news.  That probably would not change the mind of bulls intent on making this a bottom.  COMPX and R2000 both undercut their Friday lows.  I think SPX was close enough to its low to constitute a test.  That makes a possible short term double bottom in conjunction with the daily chart double bottom.  If the bulls show up the odds would seem to favor a tradable bounce from this pattern.

Bob

Daily update 3/26 The Good, the Bad, and The Ugly From the Market’s Retest of the February Low

Strong oversold bounce.

SPX made up more then it lost on Friday.  Breadth was +75%.  New highs were 23 while new lows were 186.  It is still a pretty good ways just to get back to the 20 SMA.

The futures rallied all night long.  There was a sell off after the open until Europe closed at 11:30.  Then it was up the rest of the day.  The futures ended up slightly back inside the channel.  If they do not reverse back outside over night this suggests a move up to contact the 20 SMA. 

The red count dropped considerably.  It is still near oversold.

The cartoon from Friday was appropriate.  Instead of testing the intraday Feb. low the market decided to bounce instead.  This is the more tricky scenario so it makes the most sense that is what the market would do.  There is more room for this bounce to carry higher even if the market is going to roll over and head back to the lows.  Is this a dead cat bounce or something more meaningful?  I don't see anything that gives me any hints on that.  There is another acceleration point from SPY options at 265.  We ended the day right around there.  More upside tomorrow could cause some more hedges taken off pushing the market higher.  Hedges being lifted on the 260 and 261 strikes probably helped the bulls considerably on the afternoon rally.  I wonder if a lot of option sellers are fuming a bit today.  The real screaming will come if the market falls back through those levels and they have to hedge again.  Investors have been selling volatility for years with no punishment.  Maybe the market is trying to make up for that.  The easy money in the market never lasts forever. 

News the U.S. was in negotiations about trade with China and that the U.S. had reached an agreement with S. Korea helped fuel the upside.  I have no idea how negotiations with China will go.  Is China actually going to agree to play nicer, or is this all lip service?  Unfortunately there is no way to know at this point.  We may get further headlines either good or bad.  It is clear that trade headlines are affecting the market.  Until all this gets settled better be careful.  The market might have more ups and downs to go.

Interesting article on how the retest is developing.  The Good, the Bad, and The Ugly From the Market’s Retest of the February Low

Bob

Daily update 3/23 SPY option data

Contact.

SPX touched its 200 SMA.  Breadth was -77%.  New highs were 16.  New lows were 206.  Test of Feb. low in progress

The futures are in the area of congestion around the Feb. low.  They briefly penetrated the line marking the lowest close of any bar this year. 

Oversold got oversolder.

SPY broke down through the 261 and 260 high put option strikes causing more delta hedging.  That is probably what caused the down move to speed up.  I guess it is not a good thing to have a high number of options at adjacent strikes.  The next support/acceleration points are 255 and 250.  I suppose this could work in reverse as well.  If SPY gets back up through 260.5 or so they would probably pull the hedges back off which could send SPY up through 261 enough to cause the same action there.  Keep that in mind because that will hold true until the April expiration. 

The high TRIN brought out a few buyers this morning, but the sellers took over late in the day.  When we were here in Feb. there was no panic.  All anybody wanted to talk about was how good the fundamentals were.  Many thought the low would be retested.  Well here we are.  Now the majority of talk is trade war.  Occasionally somebody mentions earnings are good.  Having some fear at a bottom is a good thing.  However, you have to have the selling tied to the fear exhausted.  I can't say we have that yet.  Back in Feb. everybody was salivating at buying a retest of the low.  Maybe they still are.  On the other hand, we have that double top lower high pattern that often breaks the low of the initial sell off.  I don't know how to handicap this.  Most of the time the Feb. intraday low is exceeded.  If the market bounces back the bulls pile in.  If it doesn't bounce back then all heck breaks loose.  Sometimes the market bounces before the low is exceeded.  Those are tricky.  The bounce can turn into a bottom or roll over and break the low and keep going.  Any bounce that starts before that low is exceeded is suspect.  We will need to let the market prove itself before piling in on the long side.   

Have a great weekend.

Bob

Daily update 3/22 STA Weekly Report – Volatility: A Useful Signpost

Big splat.  Late in the day SPY broke the key 264.5 level mentioned last night which started a mini cascade lower from delta hedging. 

Despite the big splat there were two sizable rallies intraday.  Breadth was -79%.  New highs dropped way down to 23.  New lows were stable at 126.  All day long they were saying the volume was light.  At the end of the day volume was high.  There was a lot of stock to sell with market on close orders.  Today's close was below the 3/2 swing low.  The last time we closed lower then this was on 2/9.  That was the low that so many people thought needed to be tested.  It is looking like that is pretty likely.
 

The blue price bars on the futures indicates they closed below the lower Bollinger band.  The -DI line is over 40.  Price is stretched in the short term and subject to a bounce.

The red count shot up to an oversold level.  Not as high as the original sell off, but possibly enough for a little bounce.

The market is oversold in the short term and the TRIN closed over 2.  That is often a recipe for a bounce the next morning.  In addition, a friend mentioned that the last six Fridays have been up days.  About the time I mention a pattern in this blog it usually stops happening.  A bounce tomorrow would not be unusual given the conditions.  However, I think any bounce from here will be of the dead cat variety.  SPX looks headed for a test of the 2/9 low.  It should at least get to the 200 DMA.  If the market continues down tomorrow the next acceleration point is 260.5. 

I am sure the trade situation is the reason for the sell off.  How many times have you heard the market hates uncertainty?  Nobody knows how this will work out.  We also do not know how long it will take to work out.  DT is the most protection leaning president since Reagan.  By the end of Reagan's presidency the U.S. had a lot of bilateral trade agreements.  Our trading partners did not like that.  The trade mess ended up helping cause the creation of the WTO.  The U.S. has brought many trade disputes to the WTO with very little results.  The fact is the U.S. has the freest trade policies in the world.  It is not unreasonable for the U.S. to desire more fair trade terms.  If the WTO is not willing to help what else can we do except take matters into our own hands.  With any luck the threat of a true trade war might get the WTO to actually do its job.  I won't hold my breadth though.  At any rate the market might be unsettled for a while.

This is an interesting article.  There is a section on Quant funds I found particularly interesting.
STA Weekly Report – Volatility: A Useful Signpost

Bob

Daily update 3/21 Money manager worries plus SPY option data

There was a good bit more intraday volatility then we have seen after recent rate hikes.  I found Powell's press conference to be straight forward.  He directly answered questions rather then spew a bunch of economic gobbledy gook like we have seen from the last three chairs.  Refreshing.

After the FED announcement SPX rallied up over the downtrend line, but turned back down.  Was that the infamous kiss good-bye?  Breadth was +54%.  New highs were up slightly to 64.  New lows were down slightly to 134.  Still quite elevated.

The futures rallied above the last six price bars, but turned down and ended right at the 200 EMA. Last ditch support is trying to hold.  Tomorrow might be an important day.

The red count turned back up and recrossed the 50.  A sign the down move may be ready to continue.

The market gyrated up and down quite a bit after the FED announcement.  At the end of the day it settled near the bottom end of the day's range.  SPX closed at a slight new low for the current pullback.  The last two days still look more like a pause to go lower rather then a bottom.  Tomorrow will probably be the key.

I think the market was so preoccupied with the FED it did not notice this headline from Bloomberg today.

President Donald Trump plans to announce about $50 billion of tariffs against China as soon as Thursday over intellectual-property violations, according to people familiar with the matter.

I don't know if that will actually happen or not.  Based on the data shown below the market might not like that much.  I find it interesting that everybody says China cheats, but they have absolutely no guts to do anything about it.  A trade war with China will probably hurt the economy.  I am hopeful Europe will get some guts and join in.  People seem to forget that China is a totalitarian government.  People that run afoul of the government do not get a trial they simply disappear from the face of the earth.  China is spending a lot of money building up its military.  They already do not play fair with the rest of the world.  Can we rely on them getting a conscience some day and becoming a force for good in the world?  I seriously doubt it.  I may sound harsh, but in my lifetime China has never done anything to make me trust them.  At the same time, they have done many things that indicate they cannot be trusted.  I have long thought the movement by western countries to move manufacturing to China would come back to haunt them.  The longer this goes on the stronger China gets and the larger the threat becomes.  I do not understand why there is so much focus on Russia and not China.  They are getting closer and closer together.  Russia is busy building pipelines to send oil and gas to China.  I think they will eventually sell enough to China they will no longer need to supply Europe.  Russia and China working together to hurt the west is a serious threat.

There are a lot of puts at 260, 261, 265, 270, and 275.  Strikes with a lot of calls are 275, 278, and 280.  We are already well below the 275 strike.  The puts at 270 could be supporting the market here.  These strikes with a large numbers of puts can be either support or acceleration points when broken.  Getting below 269.5 or so could accelerate down.  Should we bounce strongly the calls at 275 could be resistance.

Take a look at these survey results.

Trade war, inflation, and a slowdown in global growth top the list.  That certainly explains why the market gets jumpy on tariff talk. 

Bob

Daily update 3/20

SPY had a doji day. 

The bulls and bears fought to a standstill.  The breadth was -54%.  New highs were 44.  New lows increased a bit more to 148.  It looked more like a pause day on the way to lower prices rather then the beginning of a bottom.  The bulls need to get going if we are headed higher.

The futures were in a fairly narrow range overnight.  The upside never got going after a small gap up.  Price is stuck between the 200 SMA and 200 EMA. 

The red count slipped back under 50.  The more troubling thing for bulls is the intermediate indicator may have rolled over after hitting 50.  That indicator must get across 50 to signal the correction is coming to an end.

The bulls were not very excited today.  It looked like nothing more then the FED day drift. I heard Pisani talking about it on CNBC again.  This has been widely known for a long time and yet it continues to happen.  That is very odd for markets.  Tomorrow will be interesting to see what happens after the announcement.  This will be Powell's first meeting.  I am sure the FED watchers will be hanging on every word.  I have no idea what to expect.  How will the market react to a rate hike without Yellen reassuring us all she is nothing but a dove at heart?  Will the FED hint at a fourth hike this year instead of three?  I have heard a lot of people talking about that.  Many seem to worry about a fourth hike.  So we will see what happens and reconvene after the dust settles tomorrow.

Bob

Daily update 3/19

Smack.

When the upside break out from the triangle failed to attract buyers the expected action was to fall below the uptrend line from the Feb. low.  That finally happened today with the support of options expiring on Friday gone.  Breadth was -76%.  New highs were 31 while new lows increased to 141.  SPX rallied considerably off the low late in the day.  That might have been because of the upcoming FED meeting on Wed.

The futures dropped below all the moving averages.  The -DI line climbed up over 35.  That will often trigger a bounce.  It did not do that back in early Feb. and the result was a cascade lower.

The red count crossed the green line and is above 50.  The bears are trying to take control.

The market got extremely oversold on an intraday basis and bounced into the close.  The futures rallied even more after the close.  I have mentioned for years how the market usually gaps up the day before the FED meeting (Wed.).  Today's late day bounce could be for that reason.  I made a rule back in the last decade not to be short the two days before the meeting.  It almost never pays.  A bounce into the announcement is possible.  I don't know if we have started a move down to test the Feb. low or not.  I want to see confirmation of today's apparent break down by a close below today's low.  A bounce that fails before climbing back above the 50 DMA could be a decent short op.  The bulls are going to have to show up in force.  I don't know if they have the heart to do that at the moment.

Bob

Daily udpate 3/16

Was it the SPY options that kept the market in a narrow range?

It was one of the lowest daily ranges all year.  Breadth was +63%.  New highs were up a bit to 38.  New lows dropped to 87.  IWM showed relative strength while QQQ was weak.  There was some rotation out of big caps to small caps.  The break out of the triangle pattern was never confirmed.  While the pullback this week was contained above the downtrend line the lack of upside follow through of the break out after four days should be disconcerting for bulls.  Double top lower high patterns tend to break the initial low.  This is a precarious position.  At the Feb. low I expected a retest of that low would be successful.  However, with the way the price action has unfolded since then I don't have that confidence anymore. 

The futures had a narrow overnight range which continued during market hours.  They remain below the 20 SMA.  That is quite a few bars closing in a narrow range.  Rare pattern.  The market is storing up energy for the next big move.

The green count turned up a bit today, but remains below 50.

There was clearly some rotation from big cap to small cap today.  That was probably caused by trade war fears.  If that was the case today might not have been a positive for the market.  The last three closes on SPX were within 3 points.  That is coiling action.  Since volatility has been elevated this year that coil will probably uncoil on Monday one way or the other.  Since the Jan. top the intraday price action has been the opposite of what we have seen the last two years.  After the Feb. 2016 low intraday down moves were sharp and short with a lot V bottoms.  Only days with negative news produced sizable down days.  Strong positive days happened often with no particular news.  Now I am seeing short, sharp rallies with a lot of inverted V tops.  Up days seem to be driven by news.  Down days just happen with no particular news.  The underlying bid of the last two years has turned into an overhang of supply.  I would say some investors are a little jittery.  It could be because of higher volatility, trade war fears, rising rates, or something we have no idea of at the moment.  The path of least resistance was clearly down this week.  Whether that will change next week remains to be seen.  SPX is potentially forming a very bearish pattern.  The bulls need to get going.  There is a lot of talk about serious tariffs specifically on China over intellectual property that may be one source of worry.  I am not sure over what time frame we will know the actual penalties involved.  The market may be uneasy until we know. 

Have a great weekend.

Bob

Daily update 3/15

Another upside gap sold into.

SPX closed fractionally below the 50 DMA.  Not enough to conclude anything except the bulls are trying to defend this level.  Breadth was -61%.  New highs were 26.  New lows spiked up again to 135.  Not good internals. 

Here is a look at the 10 minute intraday chart of the futures.

Yesterday there was a sharp rally that peaked at 2 PM.  This morning's bounce attempt stopped to the tick of that rally high.  Sellers were apparently sitting there waiting.  When the futures slipped below yesterday's low the dip buyers stepped in.  They kept the market from breaking down today.

On the 480 minute chart the futures tested above the 20 SMA, but failed to stay there.  They still have not confirmed a break off the MA.  Often a consolidation just below the MA like this ends up with price rallying back to the upside.  Usually the rebound happens fairly soon.  If that pattern lasts for too many bars the odds shift to a break down. 

The green count slipped a bit more today, but remains above the red line.

SPY closed at 275.  Check out the current option data.

There are now more puts then calls at the 275 strike.  Both puts and calls have a lot of options relative to the nearby strikes.  This could be what is holding SPY in this area.  Both resistance and support will go away tomorrow. 

All the bull pressure lines got negative crosses today.  The bears are on the edge of getting control.

If the SPY options are controlling price action SPY will probably close nearby tomorrow.  Should we get above 275.5 or below 274.5 then some delta hedging could accelerate the move.  We may not know until Monday whether SPX is going to break down below the 50 DMA or bounce. 

Bob

Daily update 3/14

Another gap up sold.

SPX traded slightly below the 50 SMA, but settled slightly above it.  The downtrend line is also in this area.  The breadth was -60%.  New highs dropped way down to 47.  New lows shot up to 82.  Bonds were strong today (flight to safety?) so closed end bond funds were not what caused the spike in new lows. 

The futures bounced overnight, but started heading lower immediately after the open.  They ended the day below the 20 SMA.  No confirmation of a break yet. 

The green count slipped further today.  The red line is turning up sharply so another down day will probably generate a negative cross.  The intermediate indicator has crossed above 50.  A new rally high would greatly increase the odds the correction is over. 

The last two days have seen considerable selling.  All three time frames are barely positive.

This looks like an important juncture.  Any more downside and the internals will start getting negative again.  Closing back below the 50 DMA would put SPX back inside the triangle.  That would make the recent upside break out a failure.  A false break out most often leads to a break out the other side.  The bulls need to show they can hold a rally.  Over the last three days intraday bounces have been sold quickly.  SPX may end up retesting that Feb. low after all.  Trade war talk seems to have taken the wind out of the bulls sails for the moment.  A strong bounce tomorrow is needed by the bulls.

Bob

Daily update 3/13

More tariff talk knocked the market down.

After a gap up SPY hit into the 280 strike where a lot of calls reside.  Those calls provided the initial resistance.  The afternoon saw more tough talk on trade with China that added to the selling.  Breadth was -58%.  New highs contracted considerably to 82.  New lows picked up a bit to 37.  SPX may be headed down to test the downtrend line from above.  As long as it holds the rally could resume.  Volume was rather heavy which is not a particularly good thing.  Technically this was a key reversal day near the same level as the key reversal on 2/27.  I think it is important for bulls that we don't get downside follow through here.  If SPX fails to go higher there is the possibility of a double top lower high developing.  Those can be very bearish.

The futures gapped up again today, but failed to stay there.  They ended the day back in the channel.  They never got escape velocity to get into accelerated up move.   It is not clear yet whether we are starting down again or not.  The 20 SMA is a bit lower and could provide support.  Breaking that would not be good.

The green count fell below 50, but is still above the red line.  This is marginally positive now.  The bulls need to show up to continue the rally or it is in jeopardy of failing.

The COMPX and R2000 also had key reversal days.  It is becoming quite clear the market does not like any tariff talk.  It is also quite clear that DT intends to make good on his campaign promise to adjust the trade deals.  That may be one thing that could derail the market.  SPX is in a bit of a precarious position with the 2/27 high.  The bulls need to clear it convincingly to get a retest of the Jan. high.  With all the trade talk going on I think it might be difficult for the market to continue very much further if we get back to that high.  This is something the market is going to have to deal with because this situation is not going to be quickly resolved.  These trade deals will take quite some time to negotiate.  It is also important to see how things develop.  The U.S. has the most free trade in the world.  I have yet to hear anybody argue it is fair.  DT is going to work to change that.  If the adjustments are too rapid or too broad there could be considerable negative consequences for the global economy and markets.  It took decades for this situation to develop.  It cannot be easily corrected in a few years. 

Bob

Daily update 3/12 Global economy slowing down a bit?

Pause day.

SPX was down slightly today.  There is some resistance here from the 2/27 reversal day.  There was a 4 point drop in the last minute or SPX would have closed slightly green.  There appears to be enough dip buyers to absorb the selling.  Breadth was +52%.  New highs increased a bit to 140.  New lows dropped down to 25.  Those numbers are improving.

The futures remain above the upper channel line.  They still need upside follow through to indicate they are in accelerated up move mode.

The green count dropped out of overbought and remains above 50.

The bull pressure lines are positive in all time frames.

The internals confirm the move up in stocks.  The market was internally strong at the Jan. high and QQQ is already at new highs.  The odds should be high that SPX will get there as well.  The bears need to see a close back below the 50 DMA. 

I have mentioned that ECRI has been forecasting a bit of a slowdown in global economic growth.  Here is an article from them saying the slowdown is materializing and an independent one as well
Global Economy's Wile E. Coyote Moment
Leading Indicators: Is The Global Economy Slowing Down?

The slowdown is barely noticeable now.  If it becomes more pronounced as the year goes on it may negatively impact markets.

Bob