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

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

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

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

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

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