The short answer: not much longer, as I’ll explain below.

Our forecast remains on track, despite the unnerving chop and deteriorating news flow.  The latest: the British pound, which flash crashed yesterday despite the supposed control of TPTB.We remain long from 2148.63 on Tuesday.

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Running a little late this morning, so two quick charts right up front.  Everything I posted yesterday still applies.

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Just a quick post this morning.  Yesterday, ES nailed our downside target from Monday, meaning SPX slightly overshot its at 2144.01 vs 2147.65.

The drum I’ve been beating this week still resonates this morning.  CL topped its Aug 19 highs.  This suggests a break out, though it’s still early in the day.continued for members… (more…)

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Today, it’s all about oil — which reached our next upside price target yesterday.  I know, I know. Most investors are focused on how the ECB and German government will bail out Deutsche, or what Evans and Lacker might have to say, or even the NY ISM data.  And, I’d be shocked if oil even makes any headlines, today.

Still, it’s the most important chart I’m watching at the moment.  As I noted in yesterday’s Update on Oil, whether or not it breaks out or reverses at this point will determine not only where stocks go for the next few months, but whether or not the economy is able to muddle through.

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In our last update [see: Aug 30, 2016 Update on Oil] I noted that CL had bounced prematurely, leaving the channel it had broken out of without a backtest.  It was at 46.20 at the time.

…the delay left the falling white channel without a backtest… To further complicate things, DX and USDJPY just broke out.  Is it possible the yen carry trade is being resuscitated and CL will be allowed to decline further?

If so, then we’ll likely see it drop down to 43ish over the next several weeks (the red dot in mid-September) to tag the white channel bottom and, potentially, the white .618 Fib at 43.07.

As it turned out, the yen carry trade was resuscitated.  USDJPY rallied over 4% between Aug 26 and Sep 2.  This left CL free to decline without seriously dinging stocks.

CL did more than backtest the white channel by mid-September.  It dropped through the channel top, tagging 43.07 (actually 43.00) only two days later.  As expected, it got a tremendous bounce at that point — gaining 11% in the next week.

Not surprisingly, not one client complained that the forecast came together so quickly!  But, the rapid rebound left me with a charting quandary.  By coming when it did, the bounce left CL without a solid tag of the rising channel from Feb 11.

Fortunately, there was a solution: another tag on Sep 20 — this time at 43.06.  By coming back for another swipe at it, the rising channel bottom was tagged, too.  With that nicety out of the way, the next rebound was even more impressive: 13.8% as of earlier today, when it tagged our 48.64 upside target from last week [see: Don’t Worry, Be Happy.]

For those who’ve played along in CL, congratulations.  You’re up about 35% (unleveraged) in the past five weeks alone.  This, on top of the 120%+ that came since our Feb 11 bottom call [see: USDJPY Finally Relents.]

For those who haven’t, I encourage you to give it some thought.  Charting CL has been easier than charting equities — especially since I came to understand that CL was being used as a tool with which to drive equity algos.

With that said, let’s look at the path forward.  Today’s high marked an incredibly important inflection point.  Where it goes from here will likely be the most important determinant of equity prices for the remainder of the year.

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October: it’s the month of some of the nastiest markets in history.  Recently, however, it’s been the month of some of the most impressive interventions (remember Kuroda’s Halloween surprise in 2014?)  Which will this October be?

On the one hand, we have another potential global financial meltdown brewing.  Deutsche Bank’s 18% rally off last week’s must-hold bottom [see: Deutsche Bank: Will it Survive?] is in danger of faltering, as the rumor of a deal with the DoJ is turning out to be nothing more than a rumor.  Who would do such a thing!?

On the other hand, several of the most powerful algo drivers have been coiling for the past month, signaling a potential break out.

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September came in better than August, totaling +14.44% compared to the S&P 500’s  0.04% loss.  This brings our monthly average for 2015 and 2016 to 16.45% versus SPX’s 0.31%.

The month started off as a continuation of August’s extremely low volatility.  In fact, through September 7, volatility in the Dow (trailing 40 sessions) was the lowest it had been for over 100 years.

With the S&P 500 having finally topped its 2015 highs and the critical 2138 Fib level, it was on a mission to hold its gains. There was very little in the way of positive economic or geopolitical news to justify it.  As if that really mattered…

Central banks went back to the well with well-timed ramps in oil (26%, 11% and 12% starting on Aug 19, Sep 1 and Sep 20 respectively) and USDJPY (+4.8% between Aug 16 – Sep 2) to goose the algos whenever necessary.

And, the Fed rediscovered its fondness for VIX, repeatedly monkey-hammering the (former) risk indicator whenever stocks needed a little help.  The drop from the post-Brexit 26.72 to 11.02 in early August was one of the steepest declines ever.  Having been so successful in staving off Armageddon, VIX was utilized frequently to prop up SPX.

This sometimes left us twisting in the wind during August and September.  I’d see SPX break down through support towards a perfectly logical downside target and recommend a short position, only to see VIX suddenly plunge by 20-30 cents — sending SPX higher or, at least delaying its decline.  Trade advices were affected a whopping 27 times last month.

It happened most often at the end of the day — the purpose being to make bears think twice about staying short overnight.  After being suckered into it a couple of  times, I recognized the pattern and opened up to more frequent overnight positions — staying long or short 6 times overnight for an average gain of 10 points (about 1/2%.)

As regular readers know, I almost always include the proviso to hold long or short overnight only when you’re able to hedge or watch your position, or are an experienced swing trader.  In my opinion, swing trading has become nearly impossible, with over half the sessions featuring a gap up or down.  In September, it happened 17 times in 22 sessions.

In the end, our forecasting went well.  The dip to 2138 I forecast on Aug 19 was supposed to happen on Sep 12, but occurred a day early.  And, the rally I forecast based on the expectation that the BoJ and the FOMC would hold rates steady went off without a hitch.  From the day before:

The BoJ and FOMC [should] both stand pat, with the BoJ possibly increasing equity purchases (but shifting to TOPIX from NKD) and the FOMC pounding the table on a December rate hike to help prop up the USD.

If all you had done was play the Sep 9 breakdown and the BoJ/FOMC decisions, you’d still have made 8-9% in an unleveraged trading account [more for those who use margin,  options or futures.]  It’s a good reminder that you needn’t follow every trade advice in order to do alright. Some of you would be perfectly happy placing a few trades per month rather than per day.  If this describes you, I encourage you to study the Big Picture posts and the 60-min and daily charts [our last was What to Expect on Sep 20.]  I posted a compilation of them in August, available HERE, and I have to say they’ve performed extremely well.

The fact is I prefer swing trading.  But, given the gap and VIX issues pointed out above, it continues to be incredibly difficult.  The number of formerly successful hedge funds which have closed up shop these past few months is truly staggering.

Regardless of your orientation, I’ll continue to pare down the number of trade advices issued each day.  Lately we’re running about half of what I put out a few months months ago, and I’ll continue trying to reduce the total.  Most of you seem to be happy with the change.

The next few months are certain to be interesting.  Deutsche Bank, with its $47 trillion in derivatives, is on the ropes.  Oil, misunderstood by nearly everybody, continues to enjoy spurious 10%+ rallies.  Currencies bend to the will of central planners rather than market forces.  There’s an important election in the US in about five weeks.  And, there are more central banker decisions to come.

However it unfolds, I’ll do my best to make sure that you see it coming.

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We’re trying something a little different with memberships this month.  I’ve never been a big fan of trial memberships.  Too many folks sign up in order to get the info they need that day, then turn around and cancel a few days later.  But, I recognize the value of knowing what you’re getting into.

The next 25 new members will get the first month of a Renewing Monthly Subscription for an effective $100 (normally $250.)  If it’s not for you, simply cancel.  If you like what you see, you can continue at the regular monthly rate or upgrade to a Charter Annual membership at the currently discounted price of $850 within the first 30 days.

We’re phasing out Charter Annual memberships, in which the subscription price is guaranteed never to increase, on Oct 3 (existing Charter Members can continue to renew at their old prices.)  So, this is a great way to get an inexpensive peek and still enjoy big savings longer-term.

For details and to sign up now, CLICK HERE.

 

 

 

Everyone’s heard of a double-top, or the even more rare triple-top.  How about an octo-top?  When it comes to the NASDAQ composite, the embodiment of “everything is awesome, so buy-buy-buy!” it seems it can’t get enough of its 5132 high from October 2000.

This is one of those indices that shouldn’t even be charted anymore.  Its charts are that silly.  But, for those who are curious, read on.

When we last examined it on May 16, COMP had undergone only 7 failed attempts to retake 5132.  It was hurtling southward in a reasonably well-formed falling channel, shown below in yellow.  But, it wasn’t as bad as it might have been.  At least the huge H&S Pattern targeting Armageddon hadn’t played out.

The old expression “rising crude light lifts all boats” certainly applied here.  When CL bottomed and began its doubling on Feb 11, COMP caught fire.  The ensuing 18% rally, however, wasn’t able to break out of the falling yellow channel.  Caught between a rock and a bearish place, COMP was heading south, again, destined for an important test: the midline of a very large rising white channel.

If they can hold it above the white midline, then the next upside targets are the bundle of moving averages at 4815ish, followed by the yellow channel top at 4950.  If it can break out, then new highs aren’t that far away.

If, on the other hand, COMP breaks down below the white channel midline at 4673, the next support is the yellow midline around 4500, ideally in mid-June, followed by the red neckline at 4440-4480 and the previous low and white channel .236 line at 4116.

As luck central planning could have it, the white midline held.  COMP bounced at 4678 (versus 4673) a few days later, and took another shot at breaking out of the falling yellow channel.  This one didn’t work either.  It shot up 11 points higher than it had in April… then plunged back below the white midline following the Brexit vote.

In so doing, it almost reached the 4500 target we’d anticipated. It certainly would have made sense, as that was also the yellow midline, the red midline, and the (red) .618 retracement of the rise from 4209 to 4980.  Like I said, things are just silly with COMP.

Apparently, everyone agreed that the departure of one of the largest and few remaining stable members of the EU simply wasn’t all that important.  Just as quickly, they decided that the midline breakdown didn’t matter.  COMP leaped back above the midline, the yellow channel top, and — drum roll please — the 2000 highs.

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To add insult to insanity, it went so far as to backtest 5132 in both August and September.  A backtest is supposed to be the final farewell as things hurtle skyward to unimaginable heights.  At 5312, COMP is 3.6% higher than the former highs.  So, presumably its new all-time highs will hold.  At least, that’s their story.

What will it take for them to stick to it?  No exploding iPhones, for starters.  AAPL makes up almost 10% of COMP.  Throw in MSFT, AMZN, FB, GOOG and GILD and you’re up to over 25%.  In other words, if this very small cadre of stocks with PE ratios in nosebleed territory lose momentum, COMP will test 5132 again.

Given that most of the gains since June were a function of higher oil prices and VIX suppression, COMP faces the same issues as SPX, DJIA, etc.  How will they keep all these plates spinning?

Stay tuned.

 

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SPX reached our second downside target yesterday after the rising channel from Tuesday broke down at 1960.  It was clearly headed for 2138 when DB intervened.

This is not a gimme, and is complicated by the fact the we have lots of potential support between here and there: e.g. the white .786 and .886 at 2148.20 and 2145.09.

It got a reversal and 15-pt bounce on Deutsche Bank’s recovery back above 11.45, confirming DB’s role as a new leading indicator for stock prices.

Futures fell another 8 points after the close, only to recover 16 points as DB, CL and USDJPY all bounced after hours.  What real live investors took away, overnight, low-volume ramp jobs have once again restored.  Is this a great “market” or what?

USDJPY, for example, dropped to our red TL, but not until after the close (and rallying 80 pips into the Japan open.)

This morning, ES is up 5 points, leaving SPX in limbo.

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With investors anxious over the meltdown of some of the biggest and systemically riskiest banks in the world, the “markets” needed some distractions.  First, Deutsche Bank rescue rumors started circulating, offering a little hope re our 2178 upside target.

DB is up 7.7% off its lows, and 4.7% since our bottom call, so everything must be okay.  If CL and USDJPY cooperate by breaking out of their triangles, it will be.

But, stocks were still slipping.  Perhaps investors questioned the DB deal, since Merkel had sworn, the day before, that Germany wouldn’t rescue it.  About that time, the EIA crude inventory report was released.

After an initial spike, oil broke down through the bottom of its triangle.  I considered pulling the plug on our SPX upside target, but settled for revising it down to 2171.

Then, quite by coincidence (not), the WSJ flashed a headline that the oil ministers meeting in Nigeria had a deal.

“OPEC reached an understanding that a production cut is needed to lift petroleum prices…but, the Cartel will wait until November to finalize a plan to tackle a supply glut that has lasted longer than expected.”

Any formal agreement?  No.  Firm production limits?  No.  Timeline?  No.  The deal is about as solid as a New Year’s resolution to spend more time at the gym or cut back on drinking.

But, the algos love this kind of stuff.  CL popped almost 7% off its lows, and SPX went up and tagged 2171 seven minutes before the close.  All’s well that ends well.  Or is it?

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