A little rally in US equities Friday-Monday, keeping the market in bull-bear limbo. Volume was bearish, relative performance in defensive sectors was bullish. The bigger picture remains the same, with various divergences suggesting bearish resolution. Shown here is high yield versus treasuries, new highs / new lows, and consumer discretionary versus staples:
The even bigger picture continues to show a historic opportunity on the short side.
On the flip side, leading indicators point to a pick up in the global economy as of now through the summer, which coincides with the more supportive geomagnetic seasonal period, and economic surprises have turned upwards in the US and Japan.
So far in May, sunspots look set to continue their monthly waning trend from their peak in February. Should this continue, not only should the excess speculation be pulled from stock markets, but the ‘growthflation’ in the economy that typically peaks around the solar maximum should also ebb. In other words, the stock market and economy should fall together.
We currently see various commodities at key decision points, in the noses of technical price triangles, such as oil and silver. Are they going to break upwards and outperform as late cyclicals as equities turn down, or are they going to break downwards as deflationary post-solar-maximum forces take over? Either way, their predicament is suggestive of a big move ahead in assets.
Returning to equities, whilst I cannot rule out higher prices in the near term, the stronger case is that the markets already peaked out and that stocks tip over again this week. Should that short term prognosis prove false, then the medium and longer term cases are unequivocally bearish, and so I stick with my strategy of selling into strength. The safety is on the short side, time is ticking towards the elastic band snapping in large caps.
S O L A R C Y C L E S 
Found this comment about lumber prices interesting: http://gavekal.blogspot.com/2014/03/more-on-lumber-and-what-it-means-for.html
Algos operate on very casual correlations and analogs – as long as they play out. Yesterday looked exactly the same as previous Monday. So I would be looking for fakeout move up at the beginning and then dull distribution day. Then on Wednesday or Thursday real selling interest should appear. What is more interesting is how they are programmed to survive next crash. I think that we will face dramatic volatility as on gaps at the open they will try to return it to VWAP and this will be scary for both bulls and bears. We will see.
Algos executing symmetrical pattern in SPX that started on May 7th (small H&S) with no pity so the target in that move is at least 1860. HFT rules that market but for how long ?
Brunell…..hi
In no way am I questioning your apparent interest in ALDOS.
I am fascinated by your perceived knowledge of what ALGOS are doing at any given time. There are probably thousands of also programs working at any given time with significantly different resolution criteria.
I am not fascinated with them, I am frightened !. Please take a look on SPX chart from beginning of May. It is all symmetry. Yesterday was like 7th of May inverted, today (Wednesday) is 6th of May inverted. That all chop for me is computerized trading that is looking for analogs in that topping formation.
And that is why the moves are so rapid and we have VIX crashes like this morning. I know all analogs stop to work at some point but algos will exploit it mercilessly.
To all those people saying VIX can permamently return to 10-12 level like in 2006-2007 period I say we are in different times now and it is like dancing on Titanic where everybody knows how it will end. Run to the closing doors will be epic this time.
Brunnell
I have happily been trading since 1984 and as far as I have seen nothing has changed. There has always been intervention. It is just about reading signals.
Let me give you an example. On the stock market floor in the early 80’s the level of information was to some people much less than today. In fact it was just different. I was a jobber and would follow all the brokers who would come and deal with me. Most of them were not important but if the price had fallen a long way and certain brokers came over and bought stock then from that point on I would job it on the long side. They were probably no more knowledgeable than anyone else but they were dealing for institutions who were heavily in the know. They were my edge.
Today it is slightly different but essentially still the same. There are good traders and bad traders. In the 80’s the bad traders would go to the pub and blame everything and everyone but themselves.
The information is there;the opportunity is there; it’s just a case of sifting noise and important signals and then good money management to take account of the unknown.
Forget algos. It’s a sideshow.
Will
Remember, Tuesday is ALWAYS….. ah!
http://blog.stocktradersalmanac.com/post/Five-Disciplines-Signal-Tumultuous-Summer-Ahead-
An interesting day. Implied volitilty hardly registered despite the SPX at one stage selling below the critical 50dma. VIX futures all falling toward VIX cash level.
Taken on face value one would conclude a total lack of fear in investors coming into summer???
Hmmmm. Still thinking this one out?
I agree. VIX is behaving strangely. SKEW also dropped from yesterday. But sell volume was still low today compared to heavy sell days. So yes, I think the fear is not there, yet.
Great work John,
I’d like to add that some Bulls are clinging to the yield curve as their justification for staying bullish. But I wonder what the yield curve would look like if the Fed’s didn’t have their “thumb” on short term rates. We are already seeing the 30, 20, & 10 year rates converging so where would you guess short term rates might be without manipulation by the Fed. My gut tells me we are closer to an inverted yield curve than meets the eye.
I suspect the “symmetrical triangle” pattern in gold gets resolved soon. Possibly inline with a resolution in the 3 month sideways action in the SPX.
UP or DOWN?
I suspect up, but????……..If only one had a crystal ball.
http://stockcharts.com/h-sc/ui?s=$GOLD&p=D&b=5&g=0&id=p35551000307
Does anyone else agree with me that this chart looks really foreboding if you are long???
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&b=5&g=0&id=p29018411518
yes
That tells me that bulls will be very happy if the S&P only corrects to the 1680 level near term.
http://www.cxoadvisory.com/25378/volatility-effects/vvix-as-a-return-indicator/
How can anyone be bearish is beyond me. SPX is STILL MAKING HIGHER LOWS and above 50-day MA support. Are you guys allergic to money!?!
I am still expecting 1950+. I am seriously questioning the sanity of the bears on this blog.
That’s your perogative. I seriously question the sanity of anyone willing to risk capital in a market that I consider has the potential to wipe you out if you are long.
Remember stop loss orders only take you out of your position, they don’t guarantee price especially in a vaccum.
Good luck with that.
The stock market has a history of causing the most pain to the most number of people when they least expect it.
This market WILL teach some very painful lessons very very soon.
There have been 6 breaks of the 50dma on the 60 min charts since April 16th. and during the same time there have been 7 instances of the 1885 level acting as significant resistance ( along with the recent high getting smacked down under it ) I see your point as the 50 dma is holding but the flip side is that there isn’t enough juice to push this and sustain a new rally, indicators are negative or turning down and $VIX only has one way to go over the next several months. God Bless.
When the stability of the entire western “system” rests on asset values staying up, there will be no “ordinary” crash (in markets, commodities, currencies..). SInce things must crash (why? solar cycles, for one thing, I am open to suggestions), the above argument says The Crash, when it comes, will have a form the violence of which is unthinkable to us. What happened in Libya and what is happening in Ukraine and southern europe (incl. confiscation of funds in Cyprus and population declines in many countries) is a small taste of the form this crash will take. Only safe bet? NONE, but gold coins and USD paper might work for a while
Only a trade below 1850 can any sane person even entertain the notion that the top is in. There is absolutely no evidence otherwise to suggest that we have seen the top.
Make that 8 instances of the 1885 Resistance Level holding on the 60 min, and a clear knock down for the Bulls at this point, thus far.
TRIN went above 2+ yesterday. Compare that with past history.
Dennis Gartman is bearish now. He is always wrong. http://www.cnbc.com/id/101692211
CNN Fear and Greed index hit 20. Everyone is bearish.
Mutual funds cash levels are at 2 year highs 5%+.
http://www.bloomberg.com/news/2014-05-18/wall-of-worry-rebuilt-as-nasdaq-rout-sends-cash-to-two-year-high.html
I ve been just transferring wine from carboy to bottles so my head is turning, I am not able so say anything meaningful. Besides the fact that Fomc minutes Wednesday is rarely a directional day, which means that we may go back down. If not – that’s fine, Nasdaq is impatient to break higher, to sqeeze all those FB and AAPL bears.
Hi Leo Cesna, I agree. This time is ‘different’ in that we have not seen the “inverted yield curve”, we all know the Fed is heavily printing money to buy its own paper, so how could possibly the yield curve be inverted? This is so obvious. It is either foolish or deceptive for the bulls to taunt that this time is ‘different’ for the absence of inverted yield curve.
Let’s see how it goes as the QE is supposed to end toward the end of this year, if it is for real, that is: no Belgium surrogate buying US paper behind the scene.
They may want to touch SPX 1892 today and I am prepared to add to positions here. It’s a chop
I’m reminded of Jeff Gundlach’s comment a couple months back that he would grow concerned about the market once margin debt “hooks down” – see link:
http://stocktwits.com/message/23127610
NYSE Margin Debt Declined Again in April; Leading Indicator for a Market Correction?
http://www.advisorperspectives.com/dshort/updates/NYSE-Margin-Debt-and-the-SPX.php
This might be catalyst for drop. Looks like 2k and many traders focused on margin debt.
Yes, WT. Observe that there was at least one last push to the upside/ATH after the margin debt turned down during the peak of the 2000 dotcom bubble and the 2008 financial collapse.
this months data is more important, lets c where it goes
Disasspointed with the rise today. Nothing but a bull trap. Just gotta hang on and wait it out. Inflation is rising and FED will need to contain it soon.
It’s hard to believe FED will act to maintain inflation target under 2% threshold
Well we are at trend line resistance so I am back in cash. I have been an unabashed bull since I found out about this blog and it has never let me down. I mentioned the 50-day MA support many times, if you went long every time you are up 7 out of 7 times, with 1-2% gains each time. All together that’s 7-14% overall return in 2 weeks, and that is more than what a bear on this blog can even dream of at this point. I never short above support and this market clearly has a lot of support. Even the $RUT has never traded below its Feb low, so that is clearly where RUT bears would take control if violated. I always said be careful and don’t be married to a particular thesis or idea. As for “Just gotta hang on and wait it out”, that is a piss-poor idea. Markets can remain irrational longer than you can remain solvent. Will you be waiting it out at 1950+? Just be careful and keep an open mind. If you enter a trade, you should have an idea of where you need to change your mind. A stop loss.
You had a lot of lucky with your long attempts but I have not anything to say for what you think about short positions
Am I lucky or is it because I fully respect the bull market for what it is? Is it trading above or below support? Is it making higher lows and higher highs? You tell me…
I don’t blindly buy at 50-day MA. I watch very carefully and see if prices stop falling. or If we cut right through. But if you pay attention, you will see every single time, the volume dies down and prices stabilize and stop falling. That is not bearish and you have to be a fool to think otherwise.
The only reason I even sold my longs was because VIX is pretty low today. But I see no reason to be a bear until we start making lower lows and start breaking support. A close below 1850 and I will be this blog’s bear.
“If prices stop falling. or If we cut right through. But if you pay attention, you will see every single time, the volume dies down and prices stabilize and stop falling.”
This is one of the conditions to counter a move. Some traders use smaller time frame candle patterns at those levels as well, and divergences in ticks. But what do you do, when the price goes down sharply, then snaps back quickly, with no volume dying down etc. Do you have any recipe for that?
Nasdaq on the verge…
my 2 cents… John is a patient and generous host…. he has done a massive amount of work and shared that work for free to support his market position….we who CHOOSE to post here are simply guests , no more, and those questioning the sanity of our host might well ponder that such language offends other readers here.
Totally agree.
I do not respect EWT much as it is almost useless in these computerized markets but today’s move in SPX and particularly in NDX looks and feels like C wave in A-B-C correction. Just relentless short squeze like corrective C waves should behave. SPX may reach 1890-1892 tomorrow and if it was really A-B-C then my expectation for the market is to roll over and accelerate down.
If this is really bull market then show me please 70-100 point gap up in DJIA and then continuation till the close. Then I will switch to bull side maybe. But with VIX below 12 this is simply too hard for the bulls to gap up and follow. They run on fumes, distribution is almost over and time is getting short to exit.
I, too, believe the markets are being distributed quietly by the big players.
Things that would concern me as a buyer: 1) major rotation out of the momentum names, 2) very low VIX, 3) still non-confirmation between risky and less risky indices, and 4) UST outperformance.
I know it’s taboo to mention, but there is a fractal between internet stocks price action and the run-up to 1929 crash. If this holds true (which it rarely does), there will be fireworks over the next 3 months.
I am cautious like John. Best of luck to all.
margin debt. $437 bn. So down again! Rally today on pathetic volume
01/2013 -77,215
02/2013 -70,265
03/2013 -92,219
04/2013 -105,885
05/2013 -86,791
06/2013 -86,220
07/2013 -98,472
08/2013 -99,615
09/2013 -110,612
10/2013 -117,652
11/2013 -130,879
12/2013 -149,358
01/2014 -159,399
02/2014 -177,524
03/2014 -156,547
04/2014 -148,036
Hello Alex Red ,Are you Okay ?
http://www.safehaven.com/article/33230/the-64-month-bubble-pattern
==> 2014/06
I bet you Red is still reading and stand to “help”…he may give us more “final thoughts” tvery soon.
Red may be a nice guy…buy Grief comes to a man when he can’t help but think that he needs to help others rather than just share his opinion because he doesn’t have a crystal ball.
Thank you all