Time to watch for a short term bottom 10/30

Some say election jitters hit the market the last couple of weeks.  Maybe that is true, but I believe the sell off this week was largely virus related lock down  fears.

If you have been a long time reader you might recall how SPX started a multi year series of making bottoms every time it hit the 100 DMA starting in 2013.  Notice in this chart the last short term bottom was at the 100 (white line).  SPX closed below that line on Wed., but it still has not confirmed a break of that MA.  When it fails to confirm a break after two days, the probability of a rebound back above the MA increases considerably.  I don't have specific stats, but watching this kind of price action around MAs over the years is what caused me to look for confirmation of a break in the first place.  Way more often than not this pattern leads to a rebound back above the MA.   Breadth was -59%.  That was considerably less bad than the -89% on Wed.   The price bars are blue which indicate SPX closed below the lower Bollinger band indicating price is extended on the downside.

 

The futures show a bullish engulfing bar followed by a retest of the low.  This has some potential to make a short term bottom.  Also  notice the -DI (red line bottom panel) has turned down below the ADX line (blue line) from a very high level.  This technical condition often leads to a short term oversold bounce.

The red line is way up into oversold territory.  This is definitely a bounce worthy condition if not a true bottom.

We have a good setup for an oversold bounce.  SPX is in a good place to turn a bounce into a true tradeable bottom.  The door is open for the bulls to do something here, but they need to step through that door early next week.  Should we fail here the next target down is the Sept. low at 3209.  If that fails to hold a trip to the 200 DMA (3129) is likely.

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

Bob

Stimulus on hold 10/6

SPX tanked after it was announced negotiations on stimulus were put on hold by the president.  The result was a key reversal day down.

Breadth went from +70% before the announcement (with SPX at a new bounce high) to -59% at the close.  That is quite a reversal.  

 The futures are holding at the 50 SMA for now.

 

The bull pressure chart show the mid term (middle) and long term (bottom) lines are still bearish.  Only the short term lines (top) have a bullish cross.

The breadth and ticks have shown decent strength on this bounce.  However, there has been some short bursts of selling as well.  I thought some and maybe many people were buying expecting more stimulus.  Until that is back on the table, I wonder if buyers might be a little less enthusiastic than in recent days.  Many news events are short lived and are quickly retraced.  Every once in a while something comes along which lasts for extended periods.  The market is a little vulnerable as the bull pressure chart shows.  The next couple of days will be important.  If people were buying for reasons other than stimulus, then the bulls should come back out to play in the next day or two.  Otherwise, we are likely to see a retest of the recent low.  I am in wait and see mode until the market decides whether this news is important or not.  Maybe the talks will restart and send the market higher again, but we can't predict that.

Peace and good health to all.

Bob

Legs? 9/25

 When we last left off I was looking for a roll over or a sign a bounce might get some legs.   SPX turned down and made a new closing low for the current correction, but did not follow through on the downside.  The door was left open for a bottom to form and with the last two days of bounce I believe the door is much wider now.

SPX seems to have found support at the 100 EMA.  While the volume was not particularly strong the last two days I got a very strong tick accumulation signal yesterday.  Ticks were pretty strong today, but not quite enough for another signal.  

The futures dropped below the 200 MAs, but failed to keep crashing.  They closed back above the 200s and above the 20 SMA as well.  This is a good place to form a bottom and it looks like that is what has happened.

The short term indicator in the bottom panel is showing an extremely oversold market.  This is a bounce worthy condition.  

The door is wide open for a tradeable bounce.  The bulls just need to step through that door early next week.  The longer term moving averages are still in bull market order.  With the market this oversold new highs would not be a surprise if the bulls come out to play next week.

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

Bob

Bounce, but is it only a dead cat kind? 9/22

 The market followed through on yesterday's late reversal.  We closed one of the open gaps below.

Yesterday SPX bounced off the 100 EMA.  After hesitating a while this morning the bulls followed through on the upside.  Breadth was only +54% and volume was light.  So far this looks like it could be nothing but a dead cat bounce.  

The futures found support at the 200 SMA.  The 20 SMA would be the first target and the 50 SMA the second.

The market is bouncing from a short term oversold condition.  It remains to be seen if this is just a bounce or something more.  I don't have a clue at this point.  The sell off after the FED announced free money from now until the cows come home bothers me a bit.  I believe the market wants more fiscal stimulus, but I am not sure that is going to happen before the election.  I am going to keep a close on this bounce for strength to indicate it has legs or a roll over to head down again.

Peace and good health to all.

Bob

Short term bottom? 9/18

 The market sold off pretty hard this afternoon, but bounced well of the low.

SPX tested the 9/11 low, but closed slightly above it.  Today was the lowest close of the pullback, but it looks like a failed new low pattern (FNL).  Breadth was -63% which is not all that bad.  This sell off is largely big cap tech driven.  If they have finished the selling for the time being, we could get a decent bounce.

The futures dipped below the 9/9 overnight low which had been the lowest point of the current pullback.  They bounced from the area of the 200 SMA.  This is a good place to rally from.

The green count dipped just slightly below the red line (middle panel), but is showing a positive divergence into this lower close.  The bottom panel is also showing a positive divergence.

The VIX is showing a rather large drop since the 9/8 low.  This seems like an extremely large positive divergence.

IWM is showing considerable relative strength the last few days.  In recent weeks IWM and QQQ have been at odds with each other some days.  When one is up, the other is down.  Since I believe today was a short term bottom I decided to be long both small cap and big cap tech.  My theory is if one is down on the open Sunday night the other might be up.  If they are both up so much the better.  If both down, well then my guess the bottom is in might not be correct.  Will the bulls take advantage of this nice looking setup?

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

Bob

Interesting FED reaction 9/15

The FED was unimaginably dovish today.  They plan on holding interest rates at 0.1% through 2023.  At first the market reacted as one would expect by rallying.  SPX got above the 9/9 high, but reversed and sold off into the close.  Closing below yesterday's low leaves us with a bearish engulfing bar.

 

SPX was briefly above the 20 DMA, but failed sharply on an increase in volume.  The 20 DMA is now resistance.  The bulls have to overcome that line to get control.  This pullback has generated three strong tick distribution signals so far.

The green count (middle panel) crossed above 50.  SPX has worked off the oversold condition.  If the bears show up tomorrow they are still in control.  A strong up day should put the bulls in control if they can close SPX above the 20 DMA.

I find the FED's action today really disturbing.  I have been somewhat worried about fallout from the virus and rioting.  I think there could be a lot of businesses going out, especially in the retail and hospitality sectors.  We could see considerable stress in commercial real estate.  Does the FED also believe there could be severe stress?  I wonder if money managers thought as I do about the FED move.  It is common for FED induced moves to be retraced.  Sometimes the retrace happens the next day.  It is rare, but sometimes there are prolonged moves started by the FED.  Downside follow through tomorrow is likely to send SPX below the recent low.  If the bulls come out fighting and can get SPX above the 20 DMA, it should set up a test of the high.

Peace and good health to all,

Bob

Strong Bull Market Indications (according to Martin Pring) 8/31

 Let us start with the monthly chart.

This is quite the megaphone or expanded volatility pattern.  There is nothing like this in the last 100 years.  I am having trouble picturing this chart as a launching point to a big bull market.  Martin Pring has a different idea.  Here is a chart and some text from his very good article Strong Bull Market Indications. 

The beginning of a powerful long-term bull market is often heralded with short or medium-term oscillators reaching an exceptionally high level. Chart 1 compares the S&P to its 20-week ROC and shows that three of the last four bull markets were signaled by the ROC reaching an extraordinary high level. Mid-July saw this indicator reach a post-1946 record. It's not the only example of a strong initial thrust, as I could have used several other breadth and price momentum series that transmit a similar message. In the three previous examples featured in the chart, it would clearly have paid to downplay the inevitable short-term correction, but instead to focus on the bigger trend.

...

The bottom line: expect the bull market to continue big time, but don't be surprised if a seasonal correction comes first.

Mr. Pring has a good point about the current thrust.  It shows a lot of strength.  Similar strength has started prior bull markets.  This may be dangerous, but I am going to say it is different this time.  All three prior signals came after many  months of downward price action.  The subsequent strength was smart money piling in while individual investors were largely still afraid to get back in the market.  Our current situation is much different.  We had a short, sharp sell off which greatly excited individual investors who piled into stocks like there was no tomorrow.  I believe the old adage (individual investors buy the least at the bottom and the most at the top applies) here.  Check out another chart from the article.

This chart shows a long running negative divergence of the common stock adv/dec line.  A big enough divergence to signal a very significant top.  There is actually a long term divergence from the high earlier in the year, and a short term divergence over the last few weeks.  Only 4 of the last 13 trading days saw positive breadth as the SPX kept climbing higher.  Very odd!

This next chart shows an amazing amount of optimism in the market.  Even more than in 2000!

 

A stunning chart amidst all the current unknowns, which are many.

The bull pressure chart shows all three time frames barely positive.  The long term lines (bottom panel) did not get up to the green line which was the minimum threshold reached at the initiation of the last two bull markets (2003, 2009).  That is as far back as my data goes.  Based on this data, I cannot say we have launched a new bull market.  

The size of the spring sell off happened in the shortest time in history for such a big move.  The retrace back to new highs in SPX happened in the shortest time ever from a sell off that large.  I see a lot of volatility.  I don't see a clear sign the market is breaking out and heading higher.  It looks like a significant top could be forming.  We need to stay vigilant just in case we are riding a bucking bronco.

Bob

 

 

A little tired 8/19

SPX finally made a  new closing high yesterday, mission accomplished.  Today SPX tested a bit higher early in the day before selling off late after the FED minutes came out at 2 PM.  I do not know why that sent stocks lower.  What I do know is breadth and volume are showing this last leg up in the market is weak internally.

There are a lot of open gaps left below.  I can't imagine this market rocketing higher without closing something down there.  There wasn't much enthusiasm to buy the highs today.  We will have to see if the bulls get more ambitious over the next couple of days.

The red count crossed above the green line today showing internal weakness.

 

Both the short term bull pressure lines (top panel) and the long term lines (bottom panel) have negative crossovers.  This chart clearly indicates the market has been under distribution for the last several weeks.  It is very rare to see a negative cross on the long term lines with SPX at an all time high.  At the Oct. 2018 high the lines were barely positive.  Price action tends to be sideways or down after a cross at the high.  In the past, it took a 5% or more pullback or a strongly positive event to reignite the bulls.  If the market continues higher from here, I would expect the first pullback would come back to around this level.  

The sentiment data is a bit interesting.  Let us look at the NAAIM survey (active money managers).  This survey is based on actual positioning, not on the outlook for the market.

The money managers are the most long they have been in the last two years.  Doesn't that strike you as odd in the middle of a recession?  Generally, upward progress is slow to come by in this condition, but the market usually moves higher over the short term.  What is really odd to me is my bull pressure indicator.  It usually shows a lot of strength when this survey is heavily long.  I am not seeing that this time.  It looks like the market is under distribution, but the active money managers are not the reason.  The data shows individual investors are buying stocks right and left, they are not the reason.    Is it so called smart money doing the selling?  If that is the case we could have serious trouble ahead.  Stay tuned.

Thanks for the cartoon sunny!

Peace and good health to all.

Bob

 

Last downside gap closed 8/5

Mission accomplished!  SPX managed to close the 2/24 gap down today.  Now what?

SPX pulled back a little bit when it hit the edge of this downside gap back in July.  I don't know if it was enough to alleviate the usual selling when a gap of this magnitude is closed or not.  We will have to see what transpires in the days ahead.  The only remaining objective would be to forge a new high in SPX.  Time will tell if that happens.

Neither the red/green count nor the short term indicator is in an overbought condition yet.  There is more room to run if the market wants to. 

I don't think SPX would get much past the old high should it get there on this go around.  Overall, the market is pretty thin now and in need of a pullback.  I guess we continue to play along with the bulls until we get a reason not to.  We just have to watch to see if there is some kind of negative reaction after closing that big downside gap.

Bob

Weak breadth 7/31

The market finished strong today on the back of some well received tech earnings.  However, breadth was -57%.  The market rally has been thin lately.  IWM was down nearly 1% while QQQ was up nearly 2%.  Money keeps rotating back and forth between those two.  Some days when QQQ was down and IWM was up.  Very strange.

We still have one open gap up above.  Will we get up there and close it soon?

The green count is below 50 and slightly below the red line.  The short term indicator is also divergent.

The breadth chart shows the McClellan oscillator was below zero today and has not shown any real strength since early June.  I think I know why.  Look at the USA daily new virus cases chart.

Notice the new cases started increasing dramatically around the 3rd week of June.  I think this data may be weighing on the market at least somewhat.  However, a small handful of stocks like AMZN, FB and AAPL are holding up the entire market.  I also suspect the talk of another stimulus bill in congress is keeping sellers at bay.  Should they fail to pass another bill the market would probably head lower.

Under the covers speculation by individual investors is running rampant.  This is very similar to 2000.  I don't think there is any way to know how much longer that will last.  When the music stops grab a chair quick.  In the mean time, enjoy the rally.

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

Bob

Extremely low put/call ratio 7/17

The test of the June high continued all week with no resolution.

Monday gapped up and tested above the June high, but reversed sharply in the afternoon.  SPX rallied back strongly on Tuesday.  However the last three days saw a tight range and no break out above the June high.  We will have to wait until next week to find out if this is a double top or a bullish cup and handle pattern.

The Monday reversal in QQQ was much more dramatic than SPX.  The high flying big cap stocks took a hit.  Notice QQQ has not made up the ground it lost in that sell off like SPX did.  If profit taking continues in the high flyers SPX will go lower. 

The green count jumped up to overbought levels on Wed. and SPX made no further progress.  The short term indicator in the bottom panel is still showing significant divergence from the June high.

The all company advance/decline line is showing a slight divergence.  Every internal I have looked at shows some negative divergence.

This chart shows the 10 DMA of the put/call ratio (blue line).  That line getting this low is usually associated with a sizable pullback.  All prior instances since 2009 have seen pullbacks.  The occurrence in late 2010 took a few months.  Most of the signals make a short term top within a few weeks.   This signal was at the June high so it has already been over a month.   Excessive optimism seems really odd in our current situation.  The fundamentals are not good, so why all the optimism?

There are technical reasons the market might turn down from here.  Divergences do not mean anything until price confirms them.  If the market breaks out above the June high on Monday all is probably well.  If the market turns down instead, I think we can expect a sizable pullback.  SPX would have a double top lower high pattern which sometimes leads to big declines (i.e. late 2018).  I think the resolution should happen early next week.

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

Bob

Consolidation pattern continues, but 7/10

The buyers stepped up this morning and kept at it all day.

There was a tick accumulation signal today.  The first one since 6/5.  At least some people believe this consolidation period is about to end.  SPX is close to making a new rally high.  Will it follow through on the upside?  The internals are a bit suspect, but nothing the bulls can't overcome if the desire is there.

The green count is above 50, but well below overbought levels.  If the market turns back down this is a negative divergence.  If the market continues higher there is some room to run.  Same with the bottom panel, the short term indicator.  There is either a big negative divergence (it is below 50) or there is a lot of room to run before becoming overbought.

The breadth chart is not showing a lot of strength.

The 10 day advance/decline lines are positively crossed, but the volume lines are not.  The McClellan oscillator is still negative and has been most of the time for the last month.  The story is the same here.  Either we have negative divergences or lots of room to run before becoming overbought.

The key to what happens resides with QQQ.

In what seems ridiculous, QQQ is over 20% above its 200 DMA.  That is a fairly rare occurrence, but in the middle of a recession it is unprecedented.   It appears some investors believe a few big cap tech stocks are recession proof.  Take a look at some of the major stocks (AAPL, AMZN, NFLX, MSFT, NVDA, and TSLA) that are driving this move up.

Are you getting the picture?  Could these stocks be making blow off tops?  I think if QQQ had traded sideways like SPX I think the odds would be high SPX would be bracing for a break out.  The problem is the market cap of these extremely extended stocks is so large.  If they were to all correct at the same time as they often do, SPX would move down.  If you look closely you will see TSLA is up 50% in eight days (that is after doubling from the March bottom).   While these NASDAQ stocks are going crazy key sectors are being left behind.  All three Dow Jones indexes are below their 200 DMAs.  In addition, IWM and XLF are also below their 200s.  These indexes indicate that investors do not believe the recession is over. 

I believe I understand what is happening.  During the bull run from 2009 many retail investors avoided individual stocks and put their money in ETFs and index funds.  They have watched some of these stocks make huge runs over the last decade.  I suspect many people saw the crash as a buying op they did not want to miss out on.  As the stocks moved up rapidly FOMO took over and people starting piling in like mad.  I have heard stories of 10 year old kids day trading while home from school.  This is so much like 2000 I am suffering from deja vu.  A small number of stocks are driving the market higher while many stocks topped out a month ago.  Can this irrationality continue?  Yes it can, but will it?  It seems really crazy with the virus picking up all around the world and some businesses being closed down again.   We are coming up on earnings season.  Will the glamour stocks that have been rallying so strongly have good enough earnings to keep their prices up at these levels? 

A friend of mine recently mentioned this is a game of musical chairs.  When the music stops we better be quick to grab a chair.  I concur.

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

Bob