Cruising Altitude?

It looks to me like the charts of major U.S. indexes are in the clear for the moment.  I still believe we are in the final inning(s) of a major top and macro-economic and socio-political warning signs seem to be flashing everywhere, but based on my read of the major U.S. index charts, it seems like markets may grind higher into the end of 2014. Most resistance was taken out two weeks ago.  Last week, markets nudged higher.  Here is a chart of the S&P futures, on a weekly basis.  While it is not facing resistance at the moment, it’s worth noting the divergence of rising prices alongside weakening moneyflow over the last two years.

2014-11-10-ES-W_CHARTS

The Nasdaq is similarly comfortable, having broken through the bottom trendline(s).  It doesn’t appear to be facing resistance at the moment.

2014-11-10-QQQ_CHARTS

Stepping back from the relative peace of the broad U.S. indexes, it’s worth noting that Russell small caps have reached the underside resistance of a multi-year rising wedge that recently broke.  This is a significant test, and may foreshadow weakness in the broader indexes should small cups struggle here (as shorts might expect).

2014-11-10-IWM_CHARTS

Another source of potential risk worth keeping an eye on is the broader context of global equities.  VEU, the Vanguard Global Equity fund, continues to show weakness.

2014-11-10-VEU_CHARTS

One final note is on QCOM.  I pointed out a massive 20 year pattern in QCOM a few weeks ago, suggesting that it looked awfully bearish.  Late last week, QCOM dropped 10% after rallying to the underside of its broken long-term (20 year) support.  It’s a large Nasdaq leader that is worth keeping a continuing eye on.

2014-11-10-QCOM_CHARTS

 

 

  1. Draft
    November 15, 2014 at 10:36 pm

    I wonder how much further we have. My sense is that we’re at a top now, but I’ve gotten that wrong already for a couple of weeks now so who knows. I often look at the Market Harmonics Nasdaq sentiment as a guide, and it’s at a historical max:

    http://www.market-harmonics.com/free-charts/sentiment/nasdaq_sentiment.htm

    It almost perfectly times tops and bottoms when it rolls over (I’m often impatient and often try to time it a little early and end up being a lot early, but I would do well just to wait for it to turn).

    • November 17, 2014 at 12:08 pm

      Draft, my sense may be similar to yours. I harbor deep incredulity and a feeling that this surreal environment must end soon. That said I remain pretty balanced long/short in my portfolio at the moment. I am not really adding to the small cap shorts I hold, nor have I yet sold the ultra-long S&P (UPRO) that I’ve held as my long-side exposure through this rally. Though I definitely “feel” like the end is at hand, I don’t see a catalyst in the charts. So I am staying pretty flat. I definitely agree that the behavior of central banks is just astonishing in its audacity and hubris. I have no idea what they think is being gained by prolonging the ponzi at this point. And they have been pushing on this string long enough that they should realize their current tactics are not related to the actual economy in any way. Velocity of money has been in a tailspin since 2009, and until that changes deflationary pressure won’t abate in my opinion. I am just in wait-and-watch mode for now.

  2. Draft
    November 21, 2014 at 8:55 pm

    Did the wick in the SPY today poke above wedge resistance but close below? I wonder if that’s true on both a daily and weekly basis.

  3. November 24, 2014 at 12:29 pm

    Draft, yes it looks like it did. However, it looks to be a pretty small wick. Incidental almost. Today, the S&Pis edging above my upper trendline. The Nasdaq is hitting the upper most resistance line. I still don’t feel especially bearish as it feels like a completely surreal environment, but I may add some short options if I can get them cheap.

  4. Draft
    December 2, 2014 at 11:29 am

    Seems to me that we’re getting close to some fireworks in the market but it’s not clear to me what kind.

  5. December 2, 2014 at 1:43 pm

    I agree. A lot of frayed behavior. I have sold most of my remaining long positions gone very slightly short, but still overwhelmingly cash. I think the way you put it is very apt. I am content to mostly just watch things continue to unfold at this point. The market is near resistance, but it doesn’t feel frothy (though it is, by most any fundamental measure) – it mostly just feels extremely unstable, as you said.

  6. Draft
    December 13, 2014 at 6:32 pm

    Ok, now the question is — where’s the bottom going to be. On one hand it doesn’t seem like there’s actually that much serious economic risk to cause a deep pullback. On the other hand sentiment levels and other indicators were pretty overly optimistic so it will take some time for them to bottom out. Also, the SPY wedge is pretty narrow at this point, so I can’t imagine it’ll provide support.

    • December 15, 2014 at 10:56 am

      I keep meaning to post charts, and I captured a bunch on Friday but failed to get them posted. S&P broke support without much of a fight. Nasdaq is nowhere close. I have some new short positions (moreso long VIX, than short stuff) but remain largely cash. The trouble in high-yield is another important risk factor for the bull market, imho. Trouble in bond land is the kind of large catalyst that could easily get the margin call chain going and lead to more serious selling. We shall see…
      I do think that the real economy is in terrible trouble. Not corporate balance sheet, but the real economy on Main Street. According to polls I’ve seen, 40% of the population lives paycheck to paycheck and labor continues to have a stunningly low overall participation rate given that we are in the 5th year of “recovery”. On top of that, wealth disparity is an almost certain catalyst for serious social unrest sooner or later. So I feel like there is plenty of macro-economic risk in play. It won’t take much for people to go from barely getting by to not getting by at all… and it won’t take much to go from not getting by to trying to do something about it at the expense of the filthy rich. Washington and big business are on the same team, supporting the very rich, but history would suggest that the wall of protection government builds for the rich always eventually crumbles.

  7. Draft
    December 15, 2014 at 3:31 pm

    I agree — I have had a nagging sense for the last year or so that the real economy is on the brink of descending back into 2008-like conditions, but I look at how the market is doing and such and think that I must be wrong. But perhaps it is that bad and things are just papered over, just as it was in 2007. (I was surprised to see the only columnist in a mainstream publication saying something like this is Mark Bittman — the chef — in his NYT op-eds. The rest of the mainstream political and economic pundits seem pretty oblivious, so perhaps it takes a chef to say it.)

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