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Trend table status

Trend

SP-500

R2000

COMPX

Primary

?+ 6/30/20

?- 3/31/20

Up 5/29/20

Intermediate

? 6/5/20

? 6/5/20

Up 6/5/20

Sub-Intermediate

? 6/24/20

? 6/24/20

?+ 7/1/20

Short term

? 6/11/20

? 6/11/20

? 6/11/20


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 (-)

Friday, January 31, 2020

Update 1/30 Virus woes

Investors suddenly realized there is a virus loose in the world.  I could  not figure out why they did not panic before today.  I am not sure why the panicked today since there seemed to be nothing new.


There was another tick distribution signal today.  Even bigger volume today than yesterday's big volume.  Breadth was -78%.  The volume looks like it could be capitulation, but the TRIN was only 1.9 so maybe not. 


The futures had been finding support at the 100 SMA, but closed well below that. 


The red count has reached oversold levels.  That can mark a bottom OR the beginning of a bigger correction. 

The U.S. had a briefing today.  There will be some mandatory and some voluntary (monitored) quarantine of people coming into the U.S. that have been in China in the last 14 days.  They also said it is definite the virus can spread without symptoms being present in the carrier.  They also mentioned the mortality rate was similar to a bad flu.  Notice those are things we thought were already known as I mentioned them here before.  I don't think there was any new information.  Why did everybody react today?

Today put the market in correction mode.  The bears have the edge until we can see some good odds of an important low being made.  The virus is going to cause considerable slow down in the Chinese economy, but investors should have already known that.  That was obvious many days ago (wasn't it?).  The cat was already out of the bag there.  Now we need to see if they can keep it contained to China.  The global economy has already been weak.  This could be enough of a shock to push it into recession.  Parts of the yield curve have become inverted again in the U.S.  A U.S. recession this year remains a possibility.  There is simply no way to quantify the full effects this virus will have.  I heard somebody on CNBC saying this would lead to massive stimulus which would rescue the economy.  In the last recession it was really China that helped pull the globe out of the doldrums with their massive stimulus programs.  Before the global recession China was growing 10% a year and only slowed down because of the global recession.  Now they are growing 6% a year and slowing.  If there is a global recession they will be the cause of it.  It seems unlikely stimulus will do much good until the virus runs its course.  Maybe we should have a little bit of caution here.

Have a great weekend.

Bob

Thursday, January 30, 2020

Update 1/30 Strong volume up day

After the WHO came out and declared a global health emergency, but did not recommend any travel restrictions the bulls came into the market with considerable volume.


SPX closed slightly above the 20 SMA.  Breadth was only slightly positive, but it was -74% early in the day.  Notice the high volume. 


The futures gapped considerably lower, but rallied from the open.  Mid morning the market sold off to new lows for the day, but the bulls showed up and took the market back toward the morning highs.  After the WHO press conference the futures took off.

The market does not appear to be worried about the virus at the moment.  That may change if people start dying outside of China.  However, we can't know if that will happen or not.  If the news allows it appears to me SPX wants to test the highs again.  The bulls still need to follow through on today's strength.

I read a story about a 10 year old kid in a family that were all sick but him.  The doctors did not want to test the kid at first because he had no symptoms.  The parents finally got them to do it and he was positive.  The article said the deaths appear to be older persons or those with weak immune systems.  The fact that young people can carry the virus and possibly spread it without symptoms will make it virtually impossible to contain it.  The mortality rate of those getting sick enough to seek treatment seems to be around 2% which would compare to relatively bad flu virus.  Doctors will likely get better at treatment with experience which could make the rate drop.  There is still a lot we don't know, but it does not appear to be horrible as one might think judging by the Chinese response.  I am beginning to think the real problem in China is insufficient medical facilities rather than a really bad virus, but I could be wrong.  I can see why the market might shake it off.

Bob

Friday, January 24, 2020

Update 1/24

There was a tick distribution signal today.


This is the first signal since the Oct. low.  The breadth was -69%.  New highs were 231 and have been over 200 lately.  New lows were 63 which is elevated this close to a high.  The number of new lows was low as is normal during a strong rally, but started up four days ago.  I am not sure what to make of that exactly.  The lows spiked up a bit back in Nov. during the tax loss selling season.  This is probably not tax loss selling this time. 


The futures found support at the 50 SMA.  The -DI line reached 34.99.  I consider the 35 level opening the door to a 5% or greater pullback.  The bears don't always step through that door, but the market almost never goes down more than 5% from a new high without a signal.  This is probably close enough to consider it a signal.


The green count did not quite cross below the red line.  We have had two crosses already on this rally.  Generally the third one is the charm for bears.  There are always exceptions of course.  The rally into the Jan. 2018 top took a 4th cross for the bears to strike.  The market does not necessarily collapse right away after a third cross.  It sometimes goes sideways for a bit before getting enough of a pullback to get the red line up near the oversold threshold.

With a tick distribution signal this is the most serious attempt by the bears to take control of the market.  One day does not make a trend so the bears need to follow through on the downside next week. 

What happens next week might be determined by the coronavirus.  I did some research during the ebola scare back in 2014.  That did not become a global pandemic because people had to get sick enough to need treatment before they spread the virus.  Once the systems became well known it was possible to track down everybody that was sick before things went totally wild.  We do not have enough information about this new virus to be able to determine whether it could become a global pandemic or not.  I think the risk is much higher this time.  The last I heard China is trying to lock down over 30 million people.  This is a much bigger response that we saw to SARS back in the last decade.  The question is whether this is because of what they learned back then or because they are more scared this time.  The last numbers I saw suggests the mortality rate of those seeking treatment is 2-3%.  That is similar to a bad flu.  There are generally two ways a virus might spread globally.  The first is that it is contagious without any serious symptoms.  The other is some people become contagious, but do not get sick enough to seek treatment (this is why the flu always spreads around the world).  They just run around spreading the virus.  In either case the virus must be spread easily.  At this point we do not know if we are dealing with either of these cases.  We do know there has been human to human transmission, but not much else (at least publicly). 

The first time a virus circulates there are less people around with immunity. The last big pandemic was in 1918.

The Spanish flu pandemic of 1918, the deadliest in history, infected an estimated 500 million people worldwide—about one-third of the planet's population—and killed an estimated 20 million to 50 million victims, including some 675,000 Americans.

The global economy is showing some signs of a pickup, but not enough to say we have started sustainable growth.  A shock could send us into a global recession from here.  What do we know about the media these days.  They love to cause hysteria.  If this virus starts going global the media could turn that into enough fear to severely affect the economy even if the virus is no worse than the flu.

Money managers did considerable selling for the first time since back in Sept.  Everybody knows the market is overvalued, but nobody wanted to be the first to sell.  Now they have an excuse to take profits so further downside would not be a surprise.  We could come in on Monday with some kind of all clear sign and it is up and away again.  However, I think that is the lower odds scenario with the way China is trying to lock things down.  Put yourself in the money managers shoes.  They are sitting on big profits from last year with an unknown that could seriously impact the economy.  Taking some money off the table would seem to be a logical reaction.



Have a great weekend.

Bob


Wednesday, January 22, 2020

Update 1/22 Several interesting tidbits


I think most people agree the market is getting very frothy.  This morning I heard someone on CNBC trying to argue that the market can be expensive without being overvalued.  An example given was real estate.  A price that might be expensive in one place might be cheap in another location.  I would agree with that, but what has that got to do with stocks.  I don't know of anybody that understands historical valuation measures that does not think the market is overvalued.

I also heard Jim Cramer talking about a taxi driver asking him about the VIX.  What is wrong with the VIX.  Cramer asked him why he wanted to know.  The driver said he was short the VIX, but it was not going down like it was supposed to.  You might recall the famous story about knowing a top is near when taxi drivers start giving out stock tips.  That does not apply so much now because so much money has moved into index funds.  Many retail investors do not buy individual stocks anymore.  I started wondering if the taxi driver trading the VIX is about the same as giving out stock tips.

At the noon time round table on CNBC it turns out all the money managers admitted they were trimming positions.  Everybody was careful to say they were optimistic, but they were selling not buying. 

SPX is gapping up nearly everyday and has been for months.  This type of action is usually associated with a blow off move.  Some bull markets have ended with similar moves so we need to keep an eye out.  I also ran into some interesting charts that speak to the issue of a top.

Source

The smart money index is at the lowest levels in the last two years.  Meanwhile the dumb money is at the highest levels of the last two years.  I am thinking better to side with the smart money.  This charts shows very clearly what I have been saying about this rally being driven by the retail investor.


For those not familiar with options, trades can be made two ways.  A trader can open a position by selling an option or buying one.  Option sellers are generally the more experience traders.  This chart shows that call option buying is at the highest levels on the chart which goes back to 2000.  It also shows two peaks in 2018 nearly as high that were followed by 10% and 20% corrections.  This is a sentiment chart based on real money and it is showing a lot of optimism!


This chart shows how crazy the market has become.  The top 5 stocks by capitalization in the S&P 500 make up over 17% of the entire index.  That beats the 16% at the height of the dot com bubble.

We have a very frothy market combined with a much weaker economy than in 2018.  Here is a look at industrial production.


IP peaked out in late 2018.  It is not clearly in a downtrend like 2015 and 2016, but it is not keeping up with the market either.


Source

The manufacturing ISM number is the weakest it has been since the recovery started in 2009.


This chart is showing a rather straight up move since early Oct.  The caution flags are waving all over the place.  This is a frothy market and I think we should expect a sizable correction coming soon.  A frothy market and a somewhat weak economy could be a recipe for a bull market top.  Be vigilant.

Bob


Friday, January 10, 2020

Update 1/10

All morning Bob Pisani was on TV proclaiming the market was over valued with narrow leadership.  That is a recipe for a pullback.



SPX gapped up to a new high, but reversed early on.  It closed near the lows of the day.  Breadth has been pretty weak lately.


The futures had a wild ride after Iran fired off some missiles.  They look like we have an expanded volatility pattern forming.  I am not sure this means much with news playing a big part.  We can see a sideways looking pattern since late Dec. despite making slight new highs.


The green line has not been above 50 since late Dec. adding to the consolidation look the futures show.  This could be the beginning of a braided pattern which would confirm we are in consolidation mode.


Both the 10 DMA lines and the McClellan oscillator show breadth has been tapering off for a couple of weeks.

There seems to be a lot of optimism in the air.  The Fear and Greed index shows that to be true.


This index is at the highest level in the last three years.  I think this confirms upside will probably be limited in the short term.  The market probably needs to work off some froth.

Market internals show the technical strength has waned while there is quite a bit of optimism.  It looks like the market needs to work off the exuberance of the last few months.  With weak internals like this at the high a 5% or so pullback is possible, but not a guarantee.  Upside progress is likely to be slow if we continue higher.  How aggressive people take profits from last year's big rally remains to be seen.  So far, not much.  How aggressive dip buyers are if there is a pullback also remains to be seen.




Have a great weekend.

Bob

Friday, January 3, 2020

Update 1/3

A little selling today on geopolitics. 


That is quite the straight up move from Oct.  It feels like a lot of FOMO going on.  I am not sure what it is people think they might be missing out on.  The global economy is clearly the weakest it has been since 2009.  There have been a lot of upside gaps and a few remain open.  That kind of move often gets completely retraced eventually.


The futures tested the 50 SMA overnight and bounced.  They ended the day at the 20 SMA. 


This chart is the reason for this update.  The red count crossed above the green line.  This is the second cross since the Oct. low.  The last negative cross was a bounce cross leading to more upside.  There was a clear lack of selling going into year end.  There is bound to be some profit taking early this year.  The question is when.  I would think the odds of a true pullback would be higher this time with the calendar change.  The bears need to see downside follow through.

The global economy has not shown any signs of picking up steam yet.  The U.S. ISM manufacturing number came in at 47.2 today which is the lowest since 2009.  A reading of 45 would greatly increase the odds a recession is imminent.  Don't forget BA announced they were shutting down production on the Max in Q1.  That will not help the ISM data.  I have not seen a tick accumulation signal since last July.  That indicates this rally has been largely driven by retail investors.  We have had a big rally while the economy is the weakest it has been since 2009.  Something has to give.  Either the economy will turn around or the market is likely to sell off.  The conference board's CEO survey says the number one worry of CEOs is a recession.  I am sure they know a lot more about the economy than the pundits in the media that proclaim there is no worry.  The pundits seem to have forgotten the inverted yield curve we had last year.  I am not sure the economy has the strength to withstand a 15-20% sell off in the market and avoid a recession like we did in 2018.  We could see the bull market top this year so this is no time to fall asleep at the wheel.

Bob 

Important

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