Key Time

Break out in stocks or new moon reversal back into the range?

The Nasdaq 100 has climbed back up towards its previous high, and so is adding to the moment with the prospect of a double top or bull resumption. Namo is overbought, which could be a constraint on further upside in the near term.

28m7

 Source: Stockcharts

Breadth and volume are more bearish than bullish:

28m8

There is renewed momentum in small caps, biotech and consumer discretionary, which is bullish, but we continue to see money flows into treasuries, out of high yield and recently out of other cyclical sectors.

28m5Treasuries have been outperforming the SP500 all year, and despite new highs in that stock index yesterday, bonds still rallied. The money flows into defensives would rather fit with a stock market in decline, so who has got it wrong?

28m6

 Source: AThrasher

Either the short interest and money parked in cash, bonds and defensives provides the fuel for another leg higher, or the stock market is overdue an imminent correction. The stats show that large speculators are short, that smart money flows have negatively diverged and that a significant degree of the buying is by companies purchasing their own shares. But unless the market is swiftly pulled back into the range here, then short covering could propel it higher.

The Dax made new highs, but has the same weakness in breadth as the US indices. The contrast in volume to price in the SP500 is shown here as the prelude to a correction, historically:

28m4

Source: J Lyons

Gold broke down yesterday as stocks broke up, which is more supportive of equities mustering a rally here. The two commodity indices are also charted below and show a loss of momentum the last 3 months:
28m16

If stocks can break out here, then it’s going to sting. But all those bearish indicators remain in place, and we would likely be looking at a final overthrow move. As one example, in 1987, sentiment hit similar extreme readings around Feb/March time and price range-traded until May before an overthrow rally to a final market peak in August. But let’s first see how price behaves as we pass through today’s new moon, as internals are weak and a true breakout may again prove beyond reach.

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34 thoughts on “Key Time

    1. Depends on the backdrop – if demographic trends are positive then buy-and-hold trumps all (assuming you mean long term). However, collective demographic trends of the major nations are now unprecedented negative.

      1. Hi John, what I mean is whether buying at the minimum and selling at the maximum and then shifting into cash/commodities would have beaten the total returns of simply buying and holding the S&P/Dow over time?

  1. Hi John

    Given that we are pushing up out of a tight distribution with, at least in the time frame pointed out by Chris Puplava, high neutrality of opinion then what we’re looking for is a pick up in volume to know there is commitment in a spike, maybe with a spike in sentiment too.

    Best Will

  2. I´ll try to repeat the 1909-16-19 upward strcture for the Dow Jones. Likely surpasse the upward trendline 00-07-14 in logarithmic, +17K.

    The final crest, as said, ending may´14-beg jun´14, or the final top in the end of ago-sept´14, comparing the 2007 top structure.

    Timing is important.

    In the past recent weeks both, bullish and bearish are claiming for a correction, pull-back in 1st case, a waterfall in the second, but mkts still rising.

    Final crest, or 2nd crest is around the corner.

    I recognice that for bearish this is a disgusting and infuriating market, but let the structures and sentiment set-up.

    Must see more euphoria.

    In the long run, bullish are convinced we are in a bull market, but they hesitate every time.

    +17K Dow Jones com. days/weeks or in the end Ago-beg sept´14.

    Downwards: to the 200MA, best case, 11K, -0,76, 9K, and circa 6-7K worst scenario.

    This likely might occur starting in the 2nd half of 2014 and would finish in the end of 2015, beg 2016, with the EURUSD parity roughly 1:1.

    @apanalis

  3. Hi John!

    hey I have at least a minor cycle top due in the current window of May 28th (normally, plus or minus a day in either direction).

    once complete, I am expecting a short correction into the first week or so of
    June, one that should end up as a countertrend affair, and could retrace back
    to the 20-day moving average or lower.

    stepping back, a countertrend decline into the first week or so of June, if
    seen, would give probabilities in the range of 80%-or-better for new highs to
    again play out into that early-July turn with the Bradley indicator:

    http://cyclewave.homestead.com/bradley.html

    In terms of price, as for a peak in July, I see the potential for a push up to the
    1970 area or better for the SPX CASH, simply based upon the statistical
    inferences in regards to some of the time cycles that I track. if seen, that
    could be the setup for the larger-degree peak that you have been looking for.
    that could then put us down into the Autumn months, though I suspect that
    new highs would follow into the Spring of 2015.

    should be interesting!

    Jim

    1. Interesting! Ive been looking at Bradley turn dates too for a correction low in July. Ive got a turn date of 16-July. But your graph has it down for 7-July. Has it changed? Regardless this window is rapidly running out of time.

      Time for bears to sharpen their claws and awake from hibernation

      1. Hi Duncan!
        well I am glad you noted that. I calculate mine with a version
        that runs in Tradestation. Having said that, I did a quick search
        on the net and discovered that nearly all of the Bradley charts
        do show July 16. so, maybe I will go with the majority, either
        way a high early-to-mid July would be ideal, but only if we can
        get a decent corrective low into early-to-mid June.

        Jim

  4. it’s worth noting that the graph on C Puplava’s article re neutrality was on the 22/05 pre this move …..some of those neutrals may have already been converted to bulls. Interesting to see the sentiment readings this weekend.

  5. Jazzman, to carry the following from the previous thread….

    “Allan, maybe you have already read this, sounds like a (long-term) good news to PM investors:

    “May 27 (Reuters) – China has approached foreign banks and gold producers to participate in a global gold exchange in Shanghai, people familiar with the matter said, as the world’s top producer and importer of the metal seeks greater influence over pricing.”

    There is no doubt in my mind that China will have an ever greater influence on the gold price going forward. To what degree remains to be seen. I susoect that like many China is of the belief that the west has had too much influence over the gold price for way too long.
    I also believe it to be true that gold price suspression has been used to some degree by major western powers in the past.
    As a caveat, I don’t believe that overall trend can be manipulated but I do believe that short term influence can be successful.
    Gold manipulation is a very sensitive and emotive topic, some beleve in it ardently whilst others are totally oppsed to any such belief. I lay somewhere in between.

    One such manipulation antagonist whom I hold in high regard, Martin Armstrong, is totally opposed to any suggestion that gold is manipulated, yet he believes in pretty much everything else illegal and corrupt, including 911 being an inside job.

    Personally I don’t think we will ever really know.

    1. I don’t really buy the speculation of China vs West on gold. There might be a war over technology or oil, but not gold.

    2. ‘History books are lying, you need to know that’
      Michael Jackson

      “Files relating to numerous federal investigations had been housed in 7 World Trade Center. The files for thousands of SEC cases were destroyed, though the SEC has said most of the important files were backed up or could be reconstructed. Salomon Brothers, a subsidiary of Citigroup, lost files later requested by the SEC concerning its connection with the WorldCom scandal. The Equal Employment Opportunity Commission estimated over 10,000 of its cases were affected. Investigative files in the Secret Service’s largest field office were also lost in the collapse, with one Secret Service agent saying, “All the evidence that we stored at 7 World Trade, in all our cases, went down with the building.”

      1. Building 7 was a planned demolition. But so were the 2 Twin Towers, which also fell free fall speed. 9/11//2001 was a planned false flag operation to bring in the “War on Terror” abroad and at home. If more Americans knew this – the games would be over and the Banksters and the PTB elite would not have the power that they currently have now.

        However, the sheeple cannot or will not wake up. So we will continue to be enslaved until they/we do.

  6. Ken Fisher wrote a book some time ago which accounted his experience of prematurely buying (in August 2002) the bottom of the tech bubble burst…..he was confident (using other people’s money) that he was buying the down leg of an “U”. He was buying fear and he was ultimately rewarded amid heavy loss for those investors who left him.

    Well, I think John is buying near the turning point of the up pole of an “n” amid traders complacency and great doubts. He will be rewarded eventually. Since John does not trade with other people’s money, his resolve is being tested for now and an iron stomach is required.

    Bond bears getting squeezed again…..as $tnx continues to break-down (lower yield) = risk-off coming?

  7. John,

    It’s a fantastic way using the solar cycle to explain the stock market cycle. Thanks for your cool articles. Inspired by your thoughts, I do find many spectacular historical events coincided with solar activity maximums.

    However, I would say, it might not so smart as it looks to choose the Sun as your ally to fight the stock markets bulls.

    Let’s be honest to ourselves. How much do we know about the Sun? The truth is human beings only have very limited knowledge about the Earth, let alone the Sun. So, your ally is a huge, hot, and mysterious guy. At best he is unreliable.

    On the contrary, what are the bulls’ allis? Global governments, central bankers, pension fund managers and beneficiaries, and many many other powerful guys. They have made it very clear that they are looking for every chance to print money. Lucky enough, human beings have full knowledge about fiat money system. As far as I know, they don’t need paper, machines or factory to print money. What they need is a computer and a cable, and then they input some numbers into the computer system.

    As the amount of money growing every year, I see little chances for the stock market bears. If there is an imminent correction which you have full confidence it would happen, maybe the best bet is to wait and buy the dip. If there would be a collapse of modern civilization, why bother to make some fiat money by shorting the market? It would be useless anyway.

    1. Thanks. It boils down to whether we are dumb subjects of the sun – and that includes governments, central banks, investment banks and major players. The key test of that metric is right now, as we pass through the solar maximum.

      1. Thank you for your reply. Although I am slightly bullish on the stock market, I still hope you would win the terrific test, which is really meaningful.

  8. After breaking lower from the triangle gold may be bottoming in 61.8% retracement of Jan-Mar rally. I wouldn’t be surprised to see it trading above 1300 until end of this week and this can be just the beginning of very rapid advance.

    In the same time it looks S&P and Dow are topping and we should see strong reversal with volume showing up. Weak hands were shaken yesterday. Nasdaq100 short squeeze was most spectacular and that pattern looks beautiful but it should fall the hardest way now.

    I think that soon markets will fall prey to international events. Yes I know news are not important but sometimes they do matter and they should hit the market when it is already in beginning of the downtrend. Alternatively, huge gap down on Monday may announce change of the trend. S&P topping at 1914 or 1918 would be bad omen.

  9. There appears to be very few people expecting a stock market decline. Even fewer expecting a quick one or one that falls more than 10% or so. They might acknowledge that the maket is overbought and due for a small correction.

    However, one other market that has been pretty at signalling trouble in the stock market is the 30 year treasury bond yield. In the last few days it has broken it’s uptrend from the bottom in July of 2012. That is a significant trendline from a signifcant historical bottom.

    That break of the uptrend line is reminiscant of the trendline break of we saw in late July 2011. The DJIA was trading near 12,700. Just 3 weeks later it was trading near 10,700.

    1. John,

      If you think T-bonds are good, long the bonds. Or, if you think T-bonds are good, short the US stocks.

      Two options. Which one is better?

      1. Hi MIke,

        FWIW the portfolios i manage are 30% individual stocks(mostly food,water,utlities), 40% LT Treasury ETFs and 30% cash.

  10. For what it is worth John, I think the peak could be 6/1/2014. We had a June peak for EWZ in 2008, and this it is not unprecedented. If we continue making new highs past the start of June, July or August would be the next target. I am not sure if the risk-reward is that great either way, as it is like Russia Roulette until we start the ball rolling downhill. I am no longer max short, but could quickly get there — and no, the market cannot outsmart me by crashing before I can get in, because the VIX is a good predictor that things will start slowly enough for a day trader to act less 1-2% off highs. Those that seek to fade an anonymous internet post are free to do so, just as Hussman’s rant suggests. The bears have reached an extreme boiling point.

    1. I find the UST-US eq relationship to be quite informative. Bond guys sniff out trouble before the eq guys — at least in the past.

      I’m in John’s camp here… trouble lies ahead.

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