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Trend table status

Trend

SP-500

R2000

COMPX

Primary

Up 7/31/19

? 2/28/20

Up 6/28/19

Intermediate

?- 3/20/20

Dn 3/20/20

?- 3/20/20

Sub-Intermediate

?- 3/26/20

?- 3/26/20

?- 3/25/20

Short term

? 3/26/20

Up 3/26/20

? 3/24/20


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

Wednesday, March 18, 2020

Update 3/18

SPX took out the Dec. 2018 low and fell somewhat lower.  However, it bounced going into the close and ended the day above that low.


There is a possibility the Dec. low holds for now and causes a bounce.  It is along ways down to the next support level so that would be a good thing.


The futures show the break below the recent lows and recovery back into what looks like a consolidation.  This is the best looking bounce setup yet.  Will the bulls step through the door?

What I am looking for as a good indicator of a short term bottom is for the VIX to plunge at least 13% in one day.  We have had several big bounces, but the VIX did not meltdown on any of them.  It is up to the bulls now.

Peace and good health to all.

Bob

Monday, March 16, 2020

Update 3/16

I did not expect the FED to act over the weekend.  The action of cutting a full point Sunday night and ramping up QE indicates they expect a recession is unavoidable at this point.  The FED has now fired all the ammo they have.  I have been worried about the next recession for years because I believe there has been a gross misallocation of capital because of the extended period of low rates.  A lot of investors were buying all kinds of risky bonds to get the higher yields.  I think a lot depends on how fast we can get this virus under control and get the economy running again.  Too long a recession will probably start causing considerable financial stress.  I have no idea how long is too long.  There is far more uncertainty in the economy now than anytime since the early 30s.  I don't think there is any hurry for investors to rush in and buy.


The weekly chart shows SPX is approaching the Dec. 2018 low.  Everybody that bought into SPX last year and still holding is underwater.  I suspect that is a considerable amount of people due to the rapid decline.  About the only thing I can predict is that the market will be volatile for quite some time.  We just blew through a number of potential support levels as if they were not there.  Emotions are running the market and there is no way to analyze that technically.  If the emotions were not enough of a problem we are in the dreaded margin debt unwind I have been talking about for years. Back in 2017 in Daily update 4/5 What Could Possibly Go Wrong? I wrote:

"I was listening to one analyst today saying he did not see the ingredients for a big decline.  Here is the problem I have with that statement.  If one studies the history of the market and margin debt it becomes obvious that high levels of margin debt relative to GDP (>2%) have caused more crashes (including 1987) then any other factor.  We have record levels of margin debt today.  The ratio to GDP is lower then it was in 1929, but probably a record high otherwise.  Margin debt is like a loaded gun.  It can sit around and not be a problem for a very long time until the trigger gets pulled.  All of a sudden the market is crashing uncontrollably.  Wall street has many ways to measure risk, but they never include margin debt.  I understand that because the risk can't really be quantified.  Just because it can't be quantified does not mean the risk does not exist.  In my book margin debt is the single biggest risk in the market any time it is above 2% of GDP.  Its north of 2.5% now.  However, it has been high for years.  That is the very trouble with it.  Nobody knows when the trigger will get pulled.  So while things are calm and the volatility is very low the market could still crash much more severely then people think.  The problem is it may not happen anytime soon.  This is a subject that has bothered me for years when doing this blog.  I am 100 percent sure there will be a very ugly margin debt unwind some day.  But when.  It is highly likely to happen during the next recession.  When the market sniffs out a recession is coming people will unload in mass and surely trigger many margin calls.  That is why I spent so much time going through the economic data in 2015.  I want to know as early as possible when a recession is happening. "

I never expected a virus to be the culprit for a crash.  I have no idea how this plays out and I see no point of guessing.  I think we are in a full fledged bear market and rallies will be sold by the pros.

Peace and good health to all.  Stay safe.

Bob

Friday, March 13, 2020

Update 3/13

Much better.


The futures were limit up at the open.  The sellers went to work right away and SPX gave up much of the gains before buyers stepped in.  Breath was strong at +86%.  Volume was very good also.  This is the best bounce set up yet.  Will the bulls show up on Monday?

The FED is expected to cut rates on Wed.  I heard some saying 1 point.  I doubt that.  A cut of .25 seems to be what the FED fund futures are saying.  With a lot of bad news already out as far as travel restrictions and event shut downs and closings a rally is possible.  People also expect more testing and an increase in the numbers.  I think it is possible the market has discounted all that we know at the moment.  The ticks showed good buying today which started on central bank moves to support economies around the world.  The market rallied strongly during the president's press conference the last hour of the trading day.  Unless there is a negative shock over the weekend the bulls might be able to get a bounce going on Monday.  A rally into the FED announcement is possible.  I was thinking that yesterday's big crash down could have caused the need for a lot more margin calls again.  However, today's big rally leaves SPX just 30 points below yesterday's close.  A good bounce on Monday should take that threat away.  Maybe next week will be a little better for bulls.

For all March madness fans sad to hear it is cancelled this year.


Peace and good health to all.  Have a great weekend.

Bob

Wednesday, March 11, 2020

Update 3/11

SPX trying to hold support.


The green support line SPX is testing was from the June low last year.  SPX tested below the low of the last two days but bounced back.  Breadth was -94%, a level not often seen.  The down volume was 96% of total volume, another level not often seen.  New lows were 1121, down from 1606 on 3/9.  There were a lot of really negative tick readings and another tick distribution signal. 


The futures show some consolidation at the lows.  They are up from the 4 pm close as I write this.  This pattern could spring forth a bounce.  Time will tell.


The red count is over 90% again.  The intermediate indicator is below 25% so we should expect this low to be retested if we do get a bounce here. 

SPX closed at a slight new pullback low, but despite intense selling pressure it did not massively break down.  This kind of action has led to short term bottoms in the past.  If this low does not hold it is going to get really bad.  In that case you might want to put on your crash helmets.  I hope that does not happen, but until we get some lift it is a possibility.

I think the crash in oil prices has greatly increased the odds of a recession in the U.S.  The oil price crash that started in late 2014 slowed down the manufacturing data in the U.S. significantly.  However, the rest of the economy outside of production for the oil industry held up well.  In the current case the ISM manufacturing data has been down to 50 and below for several months.  Further slowing because of the oil industry would not be good.  In addition it is clear the services data will get hit hard with the virus.  I don't think there is any doubt about that.  Large gatherings are being cancelled all over the country.  The NCAA just announced today the games will be closed to the public.  It will still take 4 months or so before we would know if we are in recession and by that time the market would probably be much lower than it is now.  With this one-two punch it will probably be very difficult for the U.S. economy to keep growing no matter what kind of fiscal measures might be enacted.  You know the old saying prepare for the worst and hope for the best.  I believe that is fitting here.

Peace and good health to all.

Bob


Tuesday, March 10, 2020

Update 3/10

There was strong late day buying based on fiscal stimulus talk.


Both sellers and buyers were at work today.  The futures gapped up hugely only to find sellers that took SPX negative.  There was a tick distribution signal during that move down.  However, buyers showed up around yesterday's low and caused a tick accumulation signal in the afternoon.  The last time we had both signals in the same day the last one was distribution.  Maybe this combination will form a short term bottom.


The bull pressure lines have a story to tell tonight.  The short term lines are positively divergent into this low.  However, the long term lines have issued a caution flag.  The red line has reached the threshold that could be the start of a bear market.  That does not mean we are in a bear market, but how the market behaves over the next several weeks will be important.  To clear this signal the mid term green line needs to reach its blue line at +67%. 

As long as there is talk of fiscal stimulus and the virus news does not get really bad the market should have a chance to bounce from this setup.  At least some money managers are buying a little stock.  If the virus starts taking hold in other countries like it did Italy the market could head south again.  But then again, fiscal stimulus talk could keep a floor under the market.  Needless to say volatility is still high and one should be very nimble to participate in this market.  This situation could take several weeks to work itself out whether to return to bull market conditions or break down again.

Peace and good health to all.

Bob

Friday, March 6, 2020

Update 3/6

Retest of the recent low.


There was another tick distribution signal mid afternoon.  However, the market rallied strongly into the close.  SPX is still oversold short term.  Take a look at the TLT chart.


Bonds have had one crazy run.  This has the look of a volume climax top.  What happens if people decide to take some profits here?  Where might that money go?  With stocks still oversold some of it might find its way there.  How much money that might be I have no idea.


The red count is showing a sizable divergence.  The intermediate indicator is near rock bottom.

The market is set up just about like last Friday.  SPX is oversold, it gapped down today and sold off even more.  Then it rallied into the close and ended back above the open.  With the bonds so extreme it is not out of the question we get a another bounce next week.  The market sure could use one.  I hate to think what happens if we keep going down.

Bob

Friday, February 28, 2020

Update 2/28

Happy leap day! 


The market gapped down once again, but this time it closed the day well.  That may have been because the FED's web site posted something that sparked a rally.  The red line which may appears to have acted as support corresponds to the Jan. 2018 high.  New lows flew up to 928.  Quite the oversold market.  The volume increased again.  Given the market rebound this might really be a short term climax this time.


The red count is up to 97 while the intermediate indicator has dropped to 21 (this will keep falling for a few days).  That combination over the last 15 years has always led to a retest of the low.  If we get a multi day bounce it is likely we will see this low again.

With the market this oversold it might grab on to the belief the FED will do something to generate a relief rally.  This is a good setup for a bounce.  If the market starts up on Monday it could keep going for a bit this time.  I would have no idea what happens if the market keeps going down from here.  When a market this oversold can't bounce it can only crash more.

Have a good weekend.  Peace and good health to all.

Bob

Thursday, February 27, 2020

Update 2/27

Another smack down.


SPX is getting close to the gap fill line at 2948.  I thought the volume was big the other day.  Today was even more massive.  New lows jumped up to 691.  Breadth was -90%.  Down volume was well over 90% on the downside. 


After the gap down the market sold off further, staged a big rally back above the 200 SMA.  That rally generated a tick accumulation signal.  I had to leave early and missed the big smack down late in the day.  That move generated a tick distribution signal.  It is rare to get both signals in the same day.  It last happened in Feb. 2018 as SPX hit the 200 SMA.  That was the big VIX pop that messed with the VIX ETFs so bad.  The time before that was in Jan. 2016 and then 2014.  It is better to get the accumulation signal after the distribution signal, but that did not happen this time.

I suspect this move down from all time highs is probably historic.  Take a look at the monthly chart. 


Even if there was a huge rally tomorrow we would still have a massive reversal looking pattern.  It did all that in just over a week.  Amazing.

What now?  Most market panics turn out to be short lived.  However, it really is different this time.  This virus is not the flu or like any of the other recent viruses we have had to deal with.  How this plays out is truly unknowable.  This is the proverbial falling knife at the moment.  Even though the daily chart shows a possible volume climax it might not be so.  It is possible the market has a legitimate reason to panic this time.  We could be at the start of an 87 or 29 type of crash.  I really don't know.  If we don't bounce strongly soon I think we really are in serious trouble.

Peace and good health to all.

Bob



Tuesday, February 25, 2020

Update 2/25

Massive selling with VIX over 30 intraday.


SPX went through the 100 SMA, but still is a ways above the 200.  Volume was up again.  This could be a short term volume climax should we bounce tomorrow.  Despite all the selling there were 50 new highs.  New lows were 360, the most since Dec. 2018.  Over 90% of the volume was on the downside.  The gap fill line is the open gap from last Oct. that kicked off this big rally.  I have always expected that gap would get filled one day.  If SPX falls through the 200 SMA in the days or weeks ahead that would be a logical next target.


Today saw a super tick distribution day.  That signal on a big down day can make a short term bottom.


Notice the mid term bull pressure lines.  After the start of the virus sell off in late Jan. distribution started up.


The red count crossed over 90.  The last time it was over 90 was Dec. 2018.

After the VIX crossed above 30 the market staged a good rally.  It sold off into the last hour, but only made a marginally lower low.  That creates a bit of a dilemma.  Was the market sold out or did the VIX 30 bring out enough dip buyers to stem the decline?  We have the conditions that often make a short term bottom with the high volume and 90% of it on the downside.  There is no doubt the market is oversold short term.  SPX has a sizable open gap up above as well.  A rally back up into that gap would not be unusual.  However, an oversold market can always become more oversold.  The proverbial falling knife.

Longer term I have no idea how this plays out.  The CDC warned today we should prepare for disruptions in the U.S.

(Bloomberg) -- The U.S. Centers for Disease Control and Prevention warned Americans to prepare for a coronavirus outbreak at home that could lead to significant disruptions of daily life, though the warnings were downplayed by the White House. Congress was told that there’s shortage of masks needed for health workers if one occurs.

Right now the global numbers are still rising.  Economically this looks like the biggest uncertainty I have ever seen in my lifetime.  The virus could wimp out in another month or two, or continue to spread around the globe for months.  The economic impact is completely unknown.  Liquidity cannot fix the economy if everybody is stuck at home afraid to go out any more than absolutely necessary.  We have no idea how long a vaccine might take or even if one is possible.  They have been working on the ebola vaccine for at least 5 years, maybe longer.  The medical community may figure out how to treat this virus to minimize its effects at some point.  That would be a big help.  There seems to be more we don't know than we do know.  Are we in for a serious global recession (big market crash) or just a blip on the radar screen (short term dip to buy)?  I don't see how the market could have enough information to properly model this situation.  Everybody is guessing.   That makes taking some money off the table a logical thing to do.  I don't think we can be sure people have finished doing that yet.

I think the best advice I can give you is to stock up on supplies so you can go a few weeks without running to the store.  I am hoping the reports of this virus being a bio weapon turn out to be wrong, but it is possible.  This virus seems hard to stop.  If one were designing a bio weapon that would be a desirable trait.  It might take an act from God to stop it in that case.

Peace.

Bob

Monday, February 24, 2020

Update 2/24

The market decided to realize there might be a problem.


We had another tick distribution signal today.  Very high volume as well.  The last high volume distribution signal day ended up being a short term bottom.  We are getting quite a few distribution signals with no accumulation signals since last August.  This kind of pattern has not happened before in this bull market.


SPX is at the lower 50 Keltner channel line.  That can often cause a bounce the first time it is hit in a long time. 

Due to the slow nature of a virus slowing the economy a bounce here would not be surprising.  We should not be surprised if the sellers show up before new highs are hit if we get a bounce.  The news flow is likely to remain negative as far as the virus goes for a while.  Trading this market short term is likely to be tough.  One needs to be very nimble.

Peace.

Bob

Friday, February 21, 2020

Update 2/21 Narrow market the last three months could be trouble

Wow, down two days in a row.  That is hard to believe!


SPX followed through on yesterday's selling.  It nearly tested the 20 SMA, but bounced before it got there.  Volume was pretty heavy.  SPX is well extended above the 200 SMA which it has not touched since early last June.  That is a long time.  A sizable pullback would not be uncommon.


The futures tested below the 50 SMA, but had a significant bounce going into the close.  That is a good place to bounce from, but what will the news bring over the weekend.


The red count crossed above the green line.  This is the fourth cross on this rally.  Often the third cross is enough to cause a few weeks of consolidation/pullback.  The odds are higher on a fourth cross.  Nothing is 100 percent, but odds to favor more pullback in the days ahead.


This is a curious chart.

In the past 3 months there has been over 20 days with less than 50% of stocks outperforming the index.  In the last 15 years getting up over 5 has caused a bear market (2007) and a year long correction (late 2014).  The sample size is small, but this chart shows the market leadership is narrow.  History has shown narrow markets usually make important tops.  This isn't a great timing indicator, but it is a great warning sign of trouble in the not too distant future.

Schwab has been reporting a big surge in retail investor trading accounts that started last fall.  I suspect the resolution of the China trade situation gave retail investors the idea it was time to pile back into the market.  As reported a few times the ticks suggest this rally has been driven largely by retail investors.  I have not seen a tick accumulation signal since last July.  This is the longest period without a signal in this bull market.  They always say retail investors buy the most at the top.  The retail investors have been buying the most for several months.  This is really the first time in this bull market that we have the kind of optimism often seen at bull market tops.  I have not seen anybody try to argue the market is not overvalued lately either.  The transports and IWM still have not made a new high.  We have technical problems within the market at the same time retail investors are driving prices to extremes.  Add in potentially serious economic problems from a global pandemic and there is a combination that could lead to some serious downside. 

Since the announcement of the virus the upside in the market has come largely on upside morning gaps.  I have to wonder if this was not a pump and dump scheme by market insiders.  It does not take all that much money to run the market up overnight.  Then they sell into the retail investor feeding frenzy after the open.  I heard Bob Pisani saying a few times this week it was confusing why the big tech stocks were going up at the same time utilities and other defensive stocks were up strongly.  I don't find this confusing at all.  Smart money managers were selling their tech stocks to the retail crowd while putting the money into more defensive stocks.  They are preparing for the coming correction that any long time money manager has to know is right around the corner.  The only other times I can remember this much retail excitement was 2000 and 2007.  The trick is to figure out when the frenzy is going to end.  That is tough.  Maybe this is a good time to take some money off the table and see what happens.

CNBC keeps parading people on TV comparing this virus situation to SARS and saying it is nothing to worry about.  I have been around for 6 decades and in all that time I never saw millions upon millions of people being quarantined.  This is most definitely not like SARS or any other virus in my lifetime.  Unlike the market pundits the healthcare professionals are claiming the risk of a global pandemic are very high.  Who do you think we should believe on that subject?  Infection numbers outside of China are picking up.  More countries are having infections.  Due to the ease this virus spreads I think the only way it gets stopped is if it dies out when the weather warms up.  We don't know enough about this virus to know if that will be the case.  If it does we could still have a problem if it is like the flu and comes back in cooler weather next winter.  We really have a lot of unknowns about this virus.

With the market this overvalued and the risk of economic slowdown because of the virus the risk/reward seems skewed to the downside.  Be careful.

Have a great weekend.  Peace.

Bob

Friday, February 7, 2020

Update 2/7

I do not like rapid retests of highs or lows.  They are prone to failure.  This retest of the high is very odd being built totally on overnight gaps which as the information below shows is not normal.


From SentimenTrader:

Buyers keep coming into stocks before regular trading hours. Before each of the past 3 sessions, buyers pushed S&P 500 futures up at least 0.45% before the open. 
With a new all-time high by the close, this kind of buying pressure has never been seen before.
Since the inception of the futures in 1982, there have only been a few times when buyers were so eager that they pushed the futures up at least 0.25% before regular trading hours for three sessions in a row. Each of them preceded losses in the futures either 1 or 2 months later, but at this point it seems like any historical precedents are strictly “FWIW.”


This has preceded some trouble in the past. Over the past 15 years, there was a total of 53 dates when the Composite closed at a 52-week high but more than 50% of stocks were in bear markets and more than 65% in corrections. Returns over the next 3 months were well below random for the Nasdaq and (especially) the S&P 500.
There are some reasons to suspect there will be some weakness coming soon.  There are lots of divergences here including the advance decline line.


Some people refer to this pattern as a potential tweezer top.  It certainly is an odd pattern.  I will not be surprised if this retest of the high fails.




The green count barely got over 50 and has already dropped way back.  This could cross negative easily in just one down day.

Along with the internal divergences the VIX is staying elevated near 15.  It has been rare in recent years to be that high with SPX at new highs.  Generally it has been in the 13 area by the time we see a new high.  Listening to the people on TV it seems like quite a bit of optimism in the air.  No worries over the virus or anything else for that matter.  I think sentiment is at least a little frothy if not a lot.  When we combine the current sentiment with the poor technical condition we should not be surprised if the market corrects a bit here.


Have a great weekend.

Bob

Important

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