The major indexes appear to have pretty conclusively ‘broken down.’ There was a large bullish wick put in place at the bottom of the initial breakdown, but upon returning to the old support, major indexes have since retreated. Here is the long term Nasdaq (weekly) chart that shows a (7 year old!) rising wedge failing at the old 2000 high, forming a double top, and now breaking down. Just based on the time and percentage moves involved in this chart, I’d imagine we have a good ways to fall.
Same ugly story in the S&P.
At this point I am settled into my short and have taken most long exposure off the table. Bear markets are typically incredibly volatile (much moreso than bull markets), so I am viewing big rallies as opportunities to add shorts and trim longs.
It seems like I am always on the road when life gets interesting in the market. This is a post I had started a few weeks ago. I felt no urgency to get the post up because the time frames involves are a decade-plus, and the market topping process seemed to be playing out in slow motion. Last week slow motion turned to a rapid decline. But these charts have played out as indeed very meaningful (perhaps played out too quickly to be very useful now). Remember these charts were produced BEFORE last week’s meltdown (so last week’s drop is not included in these images), but it shows the resistance that the high-flying market leaders were up against. As you can, they could have a long, long way to fall yet.
Three of the biggest names in tech faced serious multi-year resistance: Amazon (AMZN), Netflix (NFLX) and Google (GOOG).
Obviously, the resistance proved meaningful for each of these stocks. The S&P and QQQ have broken down from bearish patterns. I think we have a good bit further to fall, though I have no idea how far or how fast. Fundamentally, I think there is still far too much liquidity stuck in markets with very small doors.
The treasuries (TLT) breakout that I noted weeks ago continues to look very healthy. It looks like it may remain a good place to find peace in the current market turbulence.
Very interesting action in Gold Miners, and Junior Miners on Friday. Commodities have been obliterated this year. Gold and Silver, in particular, appear to be flirting with a major breakdown as they hit multi-year lows. But a dramatic reversal on Friday afternoon (7/24) comes at an interesting spot in the charts of mining indexes.
The ETFs for both large gold miners (GDX) and junior gold miners (GDXJ) have placed bullish wicks at the bottom support of a multi-year falling wedges. First, GDX:
And a matching chart in GDXJ:
That chart pattern is promising and matched by a bullish wick at support in the chart in gold futures.
Compare that with paper gold (GLD). Notice how this week’s action relates to support? It broke support and never recovered.
Interesting. It’s particularly funny to me given that I feel physical gold and paper gold and in some ways ideologically opposite investments – i.e. in a systemic crisis where the price of gold skyrockets, the paper version will likely be worthless.
The Emerging Markets ETF (EEM) is a very interesting chart. Is it a strong buy or a strong sell? It seems both cases can be made.
The weekly chart posted a huge bullish wick last week. That is often a great reversal pattern that indicates the bottom of a selloff.
But the daily chart paints a different picture. It experienced a massive breakdown and has now climbed back to the former support. This would typically be a good spot to short.
So which is it? Strong buy or strong sell? I don’t know, but it’s a pretty interesting situation.
Another very interesting, somewhat perplexing international chart comes from Hong Kong (EWH). It looked like a serious breakout earlier this year, then hit resistance from a decade ago. It pulled back to support and has created a very bullish wick on the weekly chart. I suspect this is a bullish setup. At the very least, it looks interesting.
As an unrelated aside, Netflix (NFLX) rallied 15% after earnings. Breakout? Maybe not so fast. It looks to be coming up on a 20 year old line of resistance.
The Euro Summit statement (or Terms of Greece’s Surrender – as it will go down in history) follows, annotated by yours truly. The original text is untouched with my notes confined to square brackets (and in red). Read and weep… [For a pdf copy click here.]
View original post 3,035 more words
The market has spent most of 2015 chopping sideways. The S&P (SPY) has failed to meaningfully breach 2100 and is once again threatening to turn meaningfully lower. Most eyes are watching Greece and the EU, but I suspect the far greater risk may be playing out in China.
First, however, here’s a quick survey of domestic charts. The S&P has broken the long-term rising wedge that I’ve been following since 2012 or so. At this point, I consider it to have “broken down.” But the 200 day moving average (i.e. ~50 week MA) has held since 2012 and remains a very important support that is still in place. We’ll see how it holds up over the coming weeks.
There are reason to think this is not a “buy the dip” opportunity. One reason for caution is the huge bid that has broken U.S. Treasuries out of falling wedge, to the upside. Chris Kimble, one of my favorite technical analysts, also pointed out that the TLT/SPY ratio is topping out where it did in 2007. Here is the chart of TLT breaking to the upside of its falling wedge last week.
To me, the most troubling news is not Greece, but China. The Shanghai composite (~FXI) has been in full meltdown mode, and it’ll be interesting to see when and how this impacts liquidity in global markets.
The weakness in China has also triggered a serious breakdown in the wider Emerging Markets picture (EEM).
While much of the world is watching Greece, I think China is the boogey-man most worth watching. It is not full-fledged Flail-and-Bail time yet, but it’s sensible to have a foot out the door and a finger on Bail trigger. I think the moving averages of SPY and VEU bear close watching for further weakness.
I haven’t said anything about the S&P in ages because nothing interesting has happened. SPY is still within its rising wedge. It has found consistent resistance around 2100, but has also continued to find support at its rising trendline. This picture remains bearish in my opinion, but a decisive break above 2100 would suggest that the rally has another leg higher. A breakdown here could lead to a waterfall.
I do remain of the belief that this market is a house of cards. It is a confidence ponzi built on hype and hope. That realization may be very slow in dawning on the majority, but when the realization occurs, I don’t think the exit doors will be wide enough to allow for a tidy exit. I expect a waterfall, and the question will be how much buying power and influence the central banks can assert to sustain the ponzi that they have built.
I have long been interested in shorting Herbalife (HLF) for fundamental reasons. But I don’t like to trade fundamentals, so I was quite pleased to see the chart of HLF scream “short!” this week. The stock spiked over 10% yesterday before selling off in the afternoon. The selling has continued early today. We’ll see how the rest of the week plays out, but right now it looks like a giant “bearish wick” (both daily (yesterday) and weekly) at the 200 day moving average and downward resistance trendline. Seems like a good spot to short.
It looks like it is time to bounce again. This is the adjusted rising wedge for SPY. This current bounce appears to be taking place where the adjusted support looks to be. I am tired of this game.. but it appears the S&P is ready to cycle through another rally mode. Global economic data looks terrible to me, but the stock market(s) disconnected from economic data a few year ago in my opinion. So rallying despite bad data is nothing new. I have entered some long positions, but am mostly a bemused bystander by now as I believe we are well into bubble territory.
I am sorry that I have posted so sparingly of late. I am quite ambivalent regarding the market. I still think we are in a topping process. I still think if looking at the long-term picture, market sentiment shows in the chart as a rising wedge: i.e. consolidation of bulls in an unbalanced position. Some technical analysts that I really respect have mentioned the prospect of an upside breakout, which would be a big deal. It would make the notion of a “topping process” only plausible in the most ridiculous hindsight down the road. That said, I still see this as a time to put money someplace safe. Whatever that means, these days. Here is the S&P rising wedge.
The same pattern is still present in both the Nasdaq and the Dow Jones.
Treasuries are very interesting to me as well. Going back almost a decade, there is a rising channel in place. A month or two ago, the 30 year ETF (TLT) hit the upper line of resistance and has since pulled back sharply. A sharp decline in TLT price would seem appropriate for a breakout in equity prices.
I continue to be amazed by what I see as market blindness. Short-sighted pursuit of market profit, regardless of risk. It seems to me that the various Central Banks have driven any authentic “price discovery” from the markets. I do not know what will act as a catalyst to break that confidence, but I do believe that when it breaks, the fall will be further than faster than anticipated. But I am not willing to bet on such a fall right now. Nothing is broken just yet, and the bulls have command.