Near Term Assessment For Equities

Yesterday delivered an important breakdown in US equities. Following a 90%+ down volume day on the 24th Jan, we received our second such day yesterday. Price broke triple-support on the SP500 and delivered a lower low which breaks a pattern in place for a year:

4Fe1Like the SP500, the Russell 2000 had been clinging to a lower channel support in last week’s mixed action, but decisively broke it yesterday. So the question is, what now for stocks?

As yet, we do not see sufficient mean reversion in sentiment (II, NAIM, Panic/Euphoria all still evelated), nor has Skew returned to more benign levels. Put/call ratio remains persistently low, despite yesterday’s sell-off, and suggests more selling is required to reset the complacency. Nymo has broken downwards but is still not at typical bottom levels:

4Fe2Source: Charlie Bilello

On the other hand, Vix, Arms and % stocks above 50MA have moved towards levels that marked bottoms over the last year, and that second 90% down day also meant a low was close in that same period. That could mean buyers may become interested again.

However, as per my recent posts, I don’t think last year is going to work as a guide any more. My case for a major top in equities has been aided by treasuries outperforming since the turn of the year and cyclicals changing trend in their relative performance to the SP500 also as of the start of January. We have also been seeing some economic data disappointments, as expected, and this Friday’s jobs report is likely to be another market mover. I believe we need to see those sentiment and put/call indicators wash out before price makes an important low, and that means any near term buying should ultimately give way to selling to a lower low.

If we look again at the 1929, 1987 and 1989 (Nikkei) topping analogs (this post and this post), the waterfall declines were kicked off at similar times in all three: after around 30 trading days from the major peak. Today is the 23rd trading day since Dec 31st, which makes things unclear. We could potentially make an upward retrace over the next couple of weeks to a lower high and then begin the true declines, or we could roll over into the waterfall declines from here. The price action analogs suggest similar: we may yet need to build out more of a definitive ‘second chance’ retrace or we may achieved a weaker version of that between 24th Jan and yesterday. So we need to see how price action develops this week and keep an eye on the indicators for clues.

Solen’s monthly solar maximum and projection update is below and remains supportive of my Dec 31 equities top case, with the monthly spike in sunspots and smoothed solar maximum projection combination:

4Fe3

Source: Solen

 

 

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8 thoughts on “Near Term Assessment For Equities

  1. But from 1914-15 lows there was a +600% Dow Jones revaluation and the Nikkei case from 80´s, about 500%, in parabolic rising process.

    In the current case of Dow Jones the rising process has been ruoghly 150% (`tiny one´) since march´09, more than others similar top structures within 17-y-cycles.

    As you know, John, we have diff. points of view.

    Regards.

    @apanalis

    1. The reason for the difference is demographics. To get something supersized like Nikkei 1989 or Dotcom 2000 you need a supporting demographic swell. We do not have that now, but in fact shrinkage in the key age groups. However, when we look at the levels we have already reached in valuation, sentiment and leverage, then you see the parallels with the tops in 1929, 1989, 2000.

  2. My main scenario for the Industrials, as you know is a plunge about 35%, at least, to touch the 200MA 11.000 or less, 0,618 from 2009or in worst case to 0,76, btw 8.000-9.000 as 1909-23 structure, prior to parabolic rising process to +-2023 300-years cycle top, 90 years cycle top and the end of Capitalism.

    @apanalis

  3. John, as far as I know you contemplate the down-wards wedge in the Indistrials to see ¿around 5000?

    Thanks

    @apanalis

      1. This could be the point, John, in Real prices could be reached lower lows, but in Nominal prices, not.

        Thanks.

        @apanalis

  4. 10 yr Bond yield moving back into Fed affordable zone, but resistance yet to be overcome. Could be a break out (to unaffordable 3%) under test.
    The dilemma for the Fed would appear to be intervention failure via equity collapse or intervention failure via unaffordable debt.
    Strange things can happen – but a strange thing would appears necessary.

  5. Unless we break down under 1710 and 1670ish, I would have to assume that we will see new highs in the course of the Spring/Summer period…….imho

    J

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