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Friday, September 26, 2014

Our Stock Market Forecasting Record and Current Stock Market Analysis for the Week of September 29, 2014

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There are more than a few ominous signs on the horizon and as you know, I'm not one to get all excited about Hindenburg Omens like the two from last Thursday and Friday... We don't need information like that or fractals of the market now vs. some viscous crash like 1929, as bearish as I am, I don't cling to these or point to these as evidence and rightfully so as we've had several years of both and their dire, imminent warnings we for nothing.  My opposition to such ideas are based in the idea that history doesn't repeat itself, although it may, as Mark Twain said, rhyme. I believe that we don't have the immagination to understand how this market will spider crack from one area to totally unexpected areas based on the simple fact that at no time in history have we had such a globally connected economy that has seen such a massive failure in monetary policy. 

The US unemployment rate may be around what the F_E_D's objectives were, but it didn't get there without the exclusion of over 9o million Americans from the Labor Force "Participation Rate", it's hard to be counted as unemployed when you are not counted at all because your unemployment benefits expired, that doesn't mean you still don't want or need a job, but it does mean you will no longer be considered part of the workforce or unemployed and as the participation rate drops (especially this year as Congress removed extended benefits from the budget, effecting some 3.1 million Americans this year alone) so does the unemployment rate, although nothing has been fixed. 

Europe is looking at a triple dip recession and during the last 5+ years, China has gone from a growth dynamo story to a massive bubble and economy on the verge of the tipping point. 

Japan, the 3rd largest economy in the world can't extricate itself from its decades of economic troubles with one of the most ambitious Central planning undertaking seen (considering the time period they have unleashed Abenomics in).

The only reason for the market's rise is the eighth wonder of the world, an enterprise that can literally create money out of thin air just as if you could create wind by waving your hands, the F_E_D and the F_E_D's expansion of their balance sheet from $858 billion 7 years ago almost to the day to more than $4.4 trillion dollars is set to stop growing, to actually decline with increasing interest raters, why traders who cheered POMO's ability to lift the market, don't get that in their "New Normal" in my view is nothing more than denial. If you live in a certain environment long enough, that starts to become a part of your reality, the problem is, this is a dynamic environment with very static views among traders.

As I have recently been comparing the market to a beautiful pier over the water...

It's breadth charts and 3C charts like this...
 The Percentage of NYSE Stocks Above Their 200-day Moving Average (green) vs. the SPX (red) and...

The long term 3C chart of any of the averages, SPY shown above... all add up to one thing, that beautiful pier traders are strolling on looks a bit like this just below and out of their site...

Unless of course you were to go through the trouble of looking at the structure you economic life relies on.

As for last Friday's, "The Week Ahead" post we were forecasting the following for this week...

-"HYG continues to see 3C distribution...I still expect HYG to break down first and lead the market."

 HYG with a -1.71% loss on the week 

Which pulled the market lower, which if not for the late day, after op-ex max pain pin release, would have been a lot uglier. The SPX down -1.39% on the week , the Dow-30 -0.97% on the week, Dow Transports down -2.20 on the week, the NDX down -1.16 on the week, but for some perspective, as much as -2.25% as of yesterday's close, the NASDAQ Composite down, the NASDAQ Composite down -1.50% and the Russell 2000 down -2.40% as the downtrend continues with small caps being hammered...

The Russell 2000 down -5.09% for September as it has been on solid downtrend and -4% on the year.

From last Friday's "The Week Ahead"...

-"Yields as a leading indicator worked perfectly, price was drawn to them like a magnet, so looking forward, I suspect some declining yields... The daily TLT chart with out initial post calling for a TLT pullback on 8/26 , the pullback and recent posts calling for an upside reversal which we got today. This should send leading yields lower and the market is attracted to them like a magnet as we saw this week again."

While the shorter term 5 year yields have been working well for intraday and next day trade, the overall yield move for the benchmark 10-year and 30 year did in fact decline and assets prices with them.
10 and 30 year yields on the week, overall the major averages followed them lower as we called the end of the September TLT pullback (from 8/28).

From last Friday's, "The Week Ahead"-"I suspect the IWM might try to break the downtrend early in the week and head lower."

While not a perfect call as far as timing, it was right on as far as concept...
The IWM does break above the trendline which is important as a head fake move, although a slight one and followed by a new low for the week.

And from "The Week Ahead"...

"The macro or larger expected trend for a move lower next week as the head fake is wrapping up is the main forecast."

I'd say the main theme for the week was right on, the white arrow is where the forecast was made last Friday.

With more detail, last Friday's Daily Wrap including the additional commentary...

-"The $USD is doing amazingly well. Remember what the $USD did during QE or Dollar destruction via printing? Well it's signing a different song, a telling one at that as well"

This week the $USD closed up for the 11th consecutive week with a 1% gain making new highs not seen since June of 2010, this should tell you something about QE on and QE off as multiple assets reverse , the markets however are immune? Remember the 50+% of the NASDAQ Composite already in a technical bear market down over 20% and what must be near 50% of the Russell 2000 at the same.

-"Gold is down, although you know we are watching gold, GDX/NUGT for a possible reversal"

And gold for the week...
It looks more and more like our reversal expectations are being fulfilled. Since that was posted, GLD is down a mere 0.02%, flat on the week as opposed to the preceding downtrend.

And from last Friday's Daily Wrap...

"Finally, as I said in the week ahead forecast, I think early Monday we'll see some weakness, perhaps in to a bounce later in the day and maybe in to Tuesday, I expect HYG to decline from there as it has already started falling apart. If the 3C charts don't put together an intraday positive after Monday morning, the market will be in nig trouble fast, however based on breadth like the S&P and Morningstar sectors, I'd expect at least 1 day of correction to allow them to try to work off some of that oversold tension, but oversold can quickly turn in to bear material, that's how this market will end."

The market was down on Monday, it's actually where our divergence started, but we didn't get our bounce until Wednesday, you may recall early Wednesday morning in the A.m. Update I ended the post with this important warning ...

"This market's character is clearly changing to the very bearish, it's just not clear if we have slipped over the edge and that's why it's so important the market make an upside attempt in my opinion, TODAY."

Wednesday was the biggest 1-day gain we have seen in 7 weeks!

As for today...

We started the day with a warning in the form of NYSE Margin debt which has seen its second consecutive rise from $460bn to $463 billion, only $3bn off the all time high from Feb 2014 at $466 bn.

At the same time...Investor net worth plunged making its second consecutive new low of 183 bn or as summed up by BofA:

"Risk: NEW LOW for Net free credit at -$183b is major risk should the market drop

Net free credit is free credit balances in cash and margin accounts net of the debit balance in margin accounts. Net free credit dropped to -$183b and moved to a new low below the prior record of -$178b in February. This measure of cash to meet margin calls remains at an extreme low or negative reading below the February 2000 low of $-129b. The risk is if the market drops and triggers margin calls, investors do not have cash and would be forced to sell stocks or get cash from other sources to meet the margin calls. This would exacerbate an equity market sell-off."

Considering market breadth, this is a VERY real threat...

As mentioned, the move this afternoon after the Max-Pain pin (which the market remained in until 2 pm) expired, was helped not only by yesterday's accumulation of stocks at cheap prices, likely sold in to today for a quick buck before the week ends, but they needed the assistance of HYG to get that done which was unexpected given the divegrence for a move that size was already in place.

 HYG running with the SPX intraday, however severely negatively dislocated on a stage 4 basis and leading the market lower as it was expected to and HYG lower as expected on the week.

HYG is doing what we have forecasted since early August, leading the market...
HYG 60 min vs SPX...

In to this afternoon's seemingly desperate attempt to recoup some of the week's losses,

The MSI went along for the ride, but not much more help than that.
Most Shorted Index...

As for our newest indicators...
 As the VIX inversion drops in to the move this afternoon post Op-Ex Max-Pain pin (typically ending at 2 p.m.) , the relative weakness of VIX and VIX futures jumped back in line as the market made it's afternoon move higher. Note the SPX/RUT indicator in the middle giving a positive signal yesterday for the bounce, but negative in to the bounce, essentially the divegrence had enough gas in the tank for a move of about this size while it also had to maintain the op-ex pin which was about .50% higher than yesterday's close. In the end, I think all of the gas in the tank from yesterday's accumulation was sucked dry between maintaining the pin and pushing the market in to the close, but it was nearly proportionally perfect compared to the size of the divergence.

The NYSE TICK also gave early warning as it broke the uptrend channel with the Op-Ex pin channel to the left, completely lateral.

Our Custom SPY/TICK indicator also told the story from yesterday's lows to today's end of day rally diminishing in to the close...
Our custom indicator shows the changing story and I'm glad to have received several emails this week from members making money with the new custom VIX inversion and SPY/RUT Ratio Indicators , and that without any trade alerts, just from the data which is what I really love to see.

Other than all of the other divergences, we also saw them end of day in Index futures, here's the NASDAQ 100 Index Futures with two divergences, both negative...
The earlier  or larger relative negative divegrence was telling us something on the distribution side was bound to happen in to higher prices and to the right we actually see the distribution in to higher prices as it happens.

As for tweaking the Week Ahead forecast, I think Monday will likely see an open close to today's close and start to deteriorate from there. Our Leading Pro Sentiment indicator which forecasted today's bounce is looking the other way for early next week...
Yesterday's leading positive signal for today and today's negative signal for early next week,  which fits pretty well with our "Window Dressing" theme at least until Wednesday.

Short term leading 5 year yields are still calling for some near term upside so I might not be too surprised to see SPX 2000 sometime Monday before deterioration sets in.

Also fitting with some early Monday strength fading was today's Dominant Price/Volume Relationship among the component stocks of the major averages, today was extremely DOMINANT with 26 Dow stocks, 92 of the NASDAQ 100, 1132 of the Russell 2000 and 383 of the S&P-500, the relationship across the board was Close Up/Volume Down which is the most bearish of the 4 possible relationships and suggests a 1-day overbought condition which typically sees the next trading day close red.

In addition to that 1-day overbought indication, adding to it, ALL S&P sectors closed green with Energy leading at+1.37 and Utilities lagging at +.24%, however for the 5-day period, all 9 sectors are still in the red as you saw last night out to 21 days.

Of the 238 Morningstar Industry and Sub-Industry groups I track, 220 of 238 closed green, again adding to the 1-day overbought condition.

In Breadth Indicators,  we have massive negative divergences in our New High/New Low Indicator as well as the 4 week, 13 week and 26 week versions, all right in the area of the head fake move from last week.

Among all other Breadth Indicators, none of them moved today, not the 1 or 2 standard deviation above the 40 or 2300 day moving average, not the percentage of stocks above their normal 40/200 day moving average, translation, no matter how much the market rallies, even a best day in 7 weeks, breadth is not being repaired at all. None of the Advance/Decline lines saw any improvement and the McClellan Summation Index is now hitting a new low of -1917, trend traders often go short below zero, this is near the extreme low end of the indicator.

As I said earlier today, come Wednesday after the quarter ends and Window Dressing is done, we may see some buying of deeply oversold small caps and perhaps a bounce, although I have no evidence for that yet, we will be watching, but as far as the big picture goes, any strength is to be sold in to in my view while we still can and in many instances, we can't (take our HLF short now well over a 30% gain-it's not one I'd want to enter here, although there are others, it's just a matter of how long. Things are not going well for this market and the new normal is the same old bubble market excuse, "It's different this time", it never is.

Enjoy your weekend and get ready for some more fast and furious gains, they'll just keep getting larger as volatility increases.

Thursday, September 25, 2014

Short Term Market Analysis...

This is one of numerous posts, published live through the trading day as well as pre market and after market analysis from our member's site, Wolf on Wall Street.

Short Term Market Analysis
Thursday, September 25, 2014

A good portion of what I believe to be evidence for a bounce, although I wouldn't go very far in describing it as a bounce, more like noise within a broader developing downtrend, is primarily in Leading Indicators, in fact the 3C indications were just secondary confirmation.

 This is the new SPX/RUT Ratio Indicator I'm using in Leading Indicators. First I want to show you the bigger picture because it's the most important and how the indicator has responded ioin both calling a bottom/base at the August cycle's base (8/1-8/8) and then how it called the head fake move and how it is leading price severely lower like one of our other mainstays, HY Credit.

 However on a very short term, while new lows were confirmed this morning, since then a positive divergence has been building in the indicator, we saw it in an earlier post.

 Again, bigger picture HYG vs SPX through the August cycle, not only leading the bottom by a week, also leading the lateral stage 3 top , leading the stage 4 decline, even leading the head fake move from last week that created the "Chimney", but most of all, leading the market lower and significantly, beyond what you see here (I have this scaled for the August cycle, the bigger picture is far worse).

 However intraday , while HYG has done what we expected in leading the market lower this morning, it has also let up on the pressure by moving sideways giving the market some chance without the downside pressure.

HY Credit doesn't appear to be leading anything to the upside, it's the fact it hasn't made a lower low since yesterday , it's a sort of passive leading, without having to take on any of the long risk.

 As for the August cycle and bigger picture, HY Credit led to the downside in late July (SPX-4%/RUT-8%) and then led with a positive divegrence at stage 1 (8/1-8/8) and bigger picture called a false move or head fake move at last week's chimney we had been expecting. Again the point is the bigger picture is where the juice is. Our last major position entry was at the 8/1-8/8 base (longs or cutting back shorts which have since been added back). This is the next major positioning area since the first week of August for the next major trend which has been thoroughly described for a while as, "DOWN".

 Interestingly out leading Professional sentiment indicators came alive this afternoon, they have been spot on and are leading positiver for a short term move.

 This is the second one we use as confirmation, it too shows the same short term bullish and I mean short term.

 Again, the same Leading Indicator on the big picture chart has the same leading negative in to late July and at stage 3 of the August cycle, leading lower like so many other indicators and 3C.

 Yields have been working recently as a short term leading indicator as we have typically used them, they led the market higher, lower and now have a small leading positive a bit higher.

The SPY 2 min has a positive divgerence through it which looks pretty impressive, but remember the timeframe of 2 min.

The 3 min is seeing migration and confirming, but again remember the timeframe.

And the SPY 5 min, this is migration of a divergence started today.

QQQ 1 min

QQQ 5 min also suggest near term upside,  unless a bigger base is being built, but I doubt it based on leading indicators.

And IWM 3 min is leading intraday.

As I said earlier, this could be for a number of reasons, we have one reason to use short term price strength.

Wednesday, September 24, 2014

$SPX $NDX $RUT $DJIA Market Review

From tonight's,

Daily Wrap...

From Friday's Daily Wrap...the most important part for us this week tactically...

"Finally, as I said in the week ahead forecast, I think early Monday we'll see some weakness, perhaps in to a bounce later in the day and maybe in to Tuesday, I expect HYG to decline from there as it has already started falling apart. If the 3C charts don't put together an intraday positive after Monday morning, the market will be in big trouble fast, however based on breadth like the S&P and Morningstar sectors, I'd expect at least 1 day of correction to allow them to try to work off some of that oversold tension, but oversold can quickly turn in to bear material, that's how this market will end."

From last Friday's The Week Ahead post,

"You may recall I've brought up the subject of deciding how much weight to place on top-ticking position entries vs just getting in. As the big picture goes, a couple percent here or there will not make a lick of difference 6 months from now. While I think that was an important decision for each trader to make, I now think the market is giving us such a strong message, it shouldn't be ignored and in my view, it leans heavily toward, GWT YOUR POSITIONS IN PLACE,  leave some wider stops/take on fewer shares, but get them in place. "

" I suspect the Q's will try to break this flat resistance trendline before heading down, allowing a nice entry in SQQQ long."
And today the NASDAQ's relative strength brought us close to that area.

So Monday's divergence and yesterday's head fake move were both getting to a critical area which is why I posted the following in this morning's A.m. Update

"The bottom line is breadth is so bad right now, it's hard to believe this market is still standing, if it can't bounce here, I doubt it will be standing very long and I only mean corrective bounce to even our some of the breadth lopsidedness, although I expect it to continue to deteriorate as we move forward. However if this market can't get an oversold bounce or correction going (breadth based), then as I said Friday, it's big trouble for the market which is fine for us, it just doesn't allow us that extra time to enter a few choice short set-ups that need a little market cooperation, I've been highlighting them.

 it's so important the market make an upside attempt in my opinion, TODAY."

Between Monday's divergences and yesterday's head fake move, (again the concept holds as it occurred right before the upside reversal and showed confirmed 3C accumulation during it), if it didn't happen today, there was going to be big trouble, especially as bad as breadth has been which was over viewed in last night's Daily Wrap. I'm specifically talking about the number of S&P sectors in the red for two days in a row, the number of Morningstar groups and of course the Dominant P/V relationship along with actual breadth readings which are past the point of absurdity, it really is like a dead market walking.

I don't mean to take this a personal route, but I'm passionate about the market and I recall events that made a big impression on me. My father died of liver disease a number of years ago, but for a good 3 years every time I saw him, I couldn't believe the amount of punishment the human body could take, I couldn't believe someone who looked like he did could still be alive (God rest his soul), while it may sound strange, when I look at market breadth, I have that same feeling of amazement, which is why I call it a gingerbread house and the "Long and Strong" crowd to be whistling past the graveyard.

Whatever it took, the market got it done today. Sure there was some USD/JPY help...There was some VIX help, the Most Shorted Index followed along with stocks but didn't show relative strength above and beyond. This is an event we have been looking for since Friday's Week Ahead forecast so I don't buy the soundbite reasons the market was up today like F_E_D speakers or news out of the PBoC, we've followed this every day , all day for the last 4 days and this was our conclusion, long before any PBoC or F_E_D speakers today.

I posted one target from the Week Ahead post above for the QQQ, I had others as well. As you saw, we fell just short of the target today, this isn't why I posted today's EOD Update with my view that we have more to go on the upside, that was based on charts, but it fits the bill. I posted and SPX target today along the lines of 5 year yields in the Market Update  and specific to the Leading Indicator, "Yields" vs the SPX. That would put us north of 2000 which the SPX tried for today but fell short as it bounced off the 50-day moving average which we talked about as a sort of psychological conditioning of the "Buy the Dip " crowd.

 The SPX bounces nearly perfectly off the 50-day moving average, this has a lot more to do with Technical traders expectations than it does the old rules of Technical Analysis before it became mainstream with the advent of the Internet and cheap online brokers.

 As mentioned, even today our SPX/RUT Ratio Indicator didn't confirm the move which is exactly what we expect from a hollow move and that's why we want to and should be using it to short in to price strength as there's no underlying strength, in fact severe weakness.

Here's a near perfect 50% retracement in the SPX off the August cycle's Head Fake move last week, the "Chimney" part of the "Igloo with Chimney" top concept or the head fake portion.

Ironically from all of the recent weakness, today's move was the strongest in 7 weeks, why do you think that is from a psychological point of view? These moves that are set up in advance are never random, they always have a purpose to fulfill.

As far as breadth repair... That isn't it...
 As you can see, our "Percentage of NYSE Stocks Trading ABOVE Their 40-Day Moving Average" above and the  "Percentage of NYSE Stocks Trading ABOVE Their 200-Day Moving Average"  below, barely budged.

 "Percentage of NYSE Stocks Trading ABOVE Their 200-Day Moving Average" barely moved vs the SPX, this is not the breadth repair that we might have expected on the best daily move in 7 weeks!

Also along our expectations, HYG is leading the market and just as importantly...
 High Yield Credit wanted nothing to do with today's move, the best move in 7 weeks!

In fact, since the August cycle began, HY Credit has led the market just as High Yield corporate Credit and they are both leading lower, both in stage 4 decline.

As you know, our professional sentiment indicator says the market should have some more upside in it, more importantly...
 Our 3C charts with 5 min positives on the week since Monday say there's more upside and this is what today's EOD Update   was tracking. However, very short term as in early tomorrow...

The 3C intraday charts are calling for a pullback in just about everything except the R2K, which is where we may see some rotation as that's the index hit the hardest with small and mid-caps followed by the NASDAQ Composite which was the relative out-performer today.

After that, well... Follow the clues (HYG)...

As for market breadth today, you already saw almost no movement in the big picture...
Even on an NYSE TICK basis, we didn't achieve that much which is why I think this is more psychological than breadth related.

As far as those internals though, a near mirror reversal in the S&P sectors over the last 2-days with 8 of 9 closing green with Health care (which is defensive) leading at +1.75% and Utilities of course in a risk off rotation lagging at -.36% on the day.

Of the 239 Morningstar Groups we track, again a near mirror reversal of the past 2 days with 206 of 239 in the green.

However there's a chink in the armor of internals, the Dominant Price/Volume Relationship for the component stocks of the major averages. 

The Dow had the most bullish of the 4 possible relationships with 16 of 30 in the Close Up / Volume Up category, this often leads to a 1-day overbought condition and we close lower the next day, although I'd be willing to give this one a pass. The other averages all closed with the  most bearish of the 4 possibilities, Close Up /Volume Down, the NDX with 58 of 100, the R2K with 998 of 2000 and the SPX with 197 of 500. Again, this is the most bearish of the 4 possibilities, although not the strongest next day indication which is why I'm willing to let the Dow slide as the 4 averages didn't share the same relationship and 3 of 4 didn't have a strong next day bias.

As far as I'm concerned, NOTHING has changed since last Friday's Week Ahead Post and everything we've expected this week and what we plan to do with it.

If anything, we just have excellent confirmation that the market is not in the AAPL 2012 panic stage as of yet.

The two Call positions in IWM and XLF will stay in place for the moment, some shorts are already starting to show cracks, AAPL was one today , although I'd give it a bit more time.

Again, we're still VERY much on track. Look for more of the same tomorrow...

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