pebblewriter

Year: 2019

  • The Slope of Nope

    As a chartist, I’m often struck by how similarly the stock market acts at important tops and bottoms.  By “important tops” I’m speaking of those which precede large corrections or even crashes.  So, with apologies to Tim Knight’s excellent Slope of Hope…

    In 2000, SPX retraced a Fibonacci 88.6% of its initial drop before falling off a cliff.  If you were to draw a trend line (TL) between the two tops, it would take on the slope of the yellow line below.The 2007 top was completely different: no big retracement, no place for a trend line with a similar shallow a slope to connect, just a setup for a gag featuring a roadrunner and a coyote.

    But, in 2011, we saw the pattern all over again: an 88.6% retracement and a very similar TL.What many didn’t realize at the time was that the TL from 2007 TL was simply making a return appearance.Isn’t it interesting, then, that the slope of the line between the Sep 21, 2018 high and today’s high (and passes through the 88.6% Fib retracement) is exactly the same?The Big Picture…

    Is it possible that all the bad economic and earnings news we’ve had these past few months is just…bad news?

  • COMP’s Turn

    Three sessions after SPX completed its Golden Cross, the NASDAQ Composite is set to join it.

    Stocks continue to benefit from algos keying off of VIX, which has reached our next downside target… …and, USDJPY, which threatened a breakout from the falling white channel. As a result, ES popped through the last Fib resistance standing in its way from reaching new highs.Of course, there are other considerations.

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  • Is Resistance Futile?

    Oil and gas have both now reached our upside targets. USDJPY is pressing up against the top of a falling channel. VIX is testing support that has been responsible for several declines over the past two months. Durable goods orders just came in well below expectations. What will it take to stop ES/SPX from pushing up through overhead resistance?If it can’t push through, the nearest strong support is well below current levels.

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  • Economic Strength or a “Very False Economy?”

    “The fundamental economy looks very good,” Larry Kudlow maintains. Apparently it’s doing so well that we need an immediate 50-bps rate cut.

    If there’s one thing the markets love, it’s more easy money.  If there’s anyone who loves easy money more than the markets, it’s politicians.  Candidate Donald Trump told us so in Sep 2016.

    Republican presidential nominee Donald Trump, who has previously accused the Federal Reserve of keeping interest rates low to help President Barack Obama, said on Monday that the U.S. central bank has created a “false economy” and that interest rates should change.

    “They’re keeping the rates down so that everything else doesn’t go down,” Trump said in response to a reporter’s request to address a potential rate hike by the Federal Reserve in September. “We have a very false economy,” he said.

    “At some point the rates are going to have to change,” Trump, who was campaigning in Ohio on Monday, added. “The only thing that is strong is the artificial stock market,” he said.

    Friday saw stocks break out of a well-greased falling channel.  Today, futures are up another 20 points and threatening to take out March’s highs.

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  • Will It or Won’t It?

    The biggest question in the charting world right now is whether the S&P 500 will complete a Golden Cross — where the 50-DMA crosses above the 200-DMA. Unless SPX falls to around 2600 by next week, it is inevitable.  But, what happens after that isn’t exactly written in stone.

    SPX experienced its evil twin, the Death Cross, back on Dec 7 and plunged 350 points over the next few weeks.

    As positive as Golden Crosses are supposed to be, sometimes they fizzle out.  The most notorious example was in 2015. After the Golden Cross occurred on Dec 24, SPX rose all of 21 points before plunging 269 points over the following three weeks.There were a number of hints that it might have been a head fake.  For one, SPX actually fell below both moving averages the day after the Golden Cross occurred — not a bullish move.  In addition, the 10-DMA (thin red line) hadn’t crossed above the 20-DMA (white line.)

    As we can see from the chart up top, these 10/20 crosses are pretty good — but, not perfect — indicators.  The red arrows mark sell signals and the green arrows mark buy signals.

    If, beginning Oct 9, someone had sold at the close on each day the 10-DMA crossed below the 20-DMA and bought on the days it crossed above, they would have earned 9.2% versus the buy-and-hold return of -2.3%.

    Had someone sold at 2880 on Oct 9 and bought at 2346 on Dec 26, they’d be sitting on a 34% gain.  In other words, there are compelling reasons to try and time the market — whether to maximize one’s return or simply to protect capital.

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  • Under Pressure

    I love it when a plan comes together.  From Pins and Needles on Feb 4…

    And, from this morning…This fits in nicely with our economic model and is helping to drive rates toward our next downside target.Futures jumped 40 points on the Feb 28 announcement of 2.6% Q4 GDP.  Do you suppose they’ll shed 40 points on today’s downward revision to 2.2%?

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  • Boeing: Fixed?

    Two weeks ago, after Boeing’s second 737 Max 8 crashed, I suggested the most obvious outcome from a charting standpoint [see: One Step Forward, Two Steps Back.]

    Obviously, BA is reacting to the second crash of its key 737 Max 8.  But, its chart already argued for a downturn before the latest tragedy.First order of business will be to close the gap at 369ish.  If it can’t hold at 369, look for it to test the SMA200, the .618, or potentially the .786 Fib well ahead of schedule.

    BA closed the gap that morning, then worked very hard to bounce.  Unfortunately, despite the company’s best efforts (and, no doubt a few billion in buybacks) the stock has had a hard time staying airborne.

    From a charting standpoint, there just wasn’t much support at the original bounce point.  As we forecast, the 200-day moving average and potentially the .618 Fib at would likely need to come into the picture.  That’s why the stock has spent over two weeks in limbo.

    And, that’s why someone dumped a bunch of shares at 4:30 yesterday — 30 minutes after the market had closed for the day.  It took all of two minutes for the stock to drop from 370 to 359, and four minutes for it to recover.  No fuss, no muss.The plunge won’t show up on the daily chart……but, it’s on the hourly chart and — the company hopes — in the memory banks of those who are betting that the company needs more than a software update to restore public trust in its products.Meanwhile, ES’s small white channel broke down overnight.  All targets remain in force, with this morning’s EIA inventory report likely playing a pivotal role in next steps for the overall market.

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  • This Is Not a Recovery

    Looking at the latest housing starts data…this is not a recovery. This is a patient who was shocked back to life by QE but is slowly slipping into a coma.

    The rest of the data is just as depressing, including the rate of SF price growth which is pretty clearly rolling over.The algos have ignored the data, preferring instead to focus on VIX’s retreat back below its SMA200 in the after-hours……and AAPL’s rise back above its.

    ES is angling for a 10-DMA backtest — an important line in the sand.Thank goodness consumers are still confident.  Oh, wait…continued for members… (more…)

  • Charts I’m Watching: Mar 25, 2019

    Friday’s onslaught easily reached our first downside target (two days late) and very nearly reached our second (two days early.)I’m continuing to work on the big picture forecast [ see: Macro Factor Cycles and Regime Shifts.] In the meantime, here are today’s charts and a reminder of our targets.

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  • Update on Bonds: Mar 22, 2019

    TNX reached our 24.98 target yesterday, but ZN came up just a bit short of its 123’285 target.  This morning’s action has remedied that, as ZN just reached 123’295 — the target we first charted last May [see: Bonds and Value.]

    As we discussed yesterday the delay in reaching these targets, while tiresome, has provided strong clues as to next steps.

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