pebblewriter

Category: Charts I’m Watching

  • Decision Time, Again

    We start this morning’s post with a peek at the Russell 2000 as it perfectly illustrates the dilemma facing the broader markets this morning.

    Up until September 2017, RUT followed a well-defined rising channel shown below in yellow.  Like all channels, it was defined by the tops and bottoms along the way. The only problem: The channel was rising only about 5% per year – hardly enough to get excited about. By late 2016, it had become obvious that algos had more influence than discretionary, fundamentally-oriented investors. The algos were, in turn, influenced by certain factors which central banks and their proxies could usually control quite easily.  By wagging the tail (the factors) the whole dog (the market) would usually fall in line.

    In September 2017, after RUT had been bumping up against the top of the rising yellow channel for over 9 months, the factors went to work and RUT  broke out of the yellow channel and rose 21% over the next year. The slope of the new rising white channel was good for about 20% per year.

    Everything was going well until September 2018 when RUT topped out at 1742 and plunged 27% in only three months. To make matters worse, the new rising white channel broke down and RUT fell back below the top of the yellow channel from which it had broken out.

    It spent the better part of the next year trying to break out of the yellow channel again – failing seven times until Dec 4, 2019, when it finally shot above the channel top and remained there. There was a scare last month when, on Jan 31, it successfully backtested the channel top and bounced 5.5%.

    Given yesterday’s carnage, though, it has fallen back to the top of the yellow channel where it faces that same important test all over again.  If it holds, all is well and investors can go back to mindless trend following.

    Even if it doesn’t, the SMA200 is now up to 1574, a modest 3.3% below yesterday’s close. But dropping through 1616ish would mean breaking down below the horizontal support (which served as overhead resistance between Oct 2018 and Dec 2019.) It could accelerate losses and complicate the rescue mission.RUT is typical of many of the indices and individual equities I chart every day. The Dow, for instance, faces a similar test at 27,700.And, SPX and ES completed important backtests (the purple channel top below) in the process of tagging our next downside targets yesterday.Given the way the factors are behaving this morning, there is a good possibility that we’ll see additional backtest targets such as DJIA 27,700 tested today. But, that would mean taking a chance on the algos’ ability to rescue stocks from some very risky waters.

    Stay tuned.

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  • Stocks Plunge as Coronavirus Not Contained

    In light of the selloff which has caught so many mainstream pundits off guard, we are offering a $100 discount on the first quarter of a Quarterly Subscription and an $80 discount on the first month of a Monthly Subscription. Former Annual Subscribers, contact us to to inquire about renewing at your previous rate. For details and to sign up: CLICK HERE.

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    There’s a lot going on this morning. S&P futures were off as much as 97 points earlier……nailing our downside target from Feb 14 [see: A New Day, Same Old Nonsense.]

    As we discussed then (and just about every day since then):

    The big picture for stocks hasn’t changed. There are upside targets which have opened up as the result of “breakouts,” but IMO the breakouts are bogus. So, I’m expecting more downside…

    Central bankers will certainly do their best to contain the damage the coronavirus is doing to markets. But, it remains to be seen whether the usual gimmicks will be up to the task, especially if the virus grows at the same rate as Italy with cases and deaths doubling every few days.

    Even though the US has relatively few cases, it’s only a matter of time before the coronavirus affects every single person in the US. My projections indicate we’ll see over 500 deaths within the next month. How many businesses will remain open?

    Can Bullard’s and Buffet’s cheerleading on CNBC possibly be enough to offset the most serious threat to the global economy in the past 20 years?  I seriously doubt it.

    Other targets tagged this morning include VIX……which has tagged our 23.28 target from Jan 27 [see: More Where That Came From.]  Remember it was our daily VIX chart which suggested that this downturn would likely arrive in late February.

    And, perhaps most alarming, the 10Y has dropped through our 14.50 target – not to mention its Sep 2019 lows. Our forecast ultimately calls for much lower lows, but the lack of even a bounce here at 14.29 should trigger additional selling from the algos.

    If ZN breaks out past our 133’040 target from last year, things could get very ugly very quickly.

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  • Just When You Thought It Was Safe…

    Futures made a valiant effort to recover yesterday’s losses, even climbing back above the 10-day moving average by the close after coming within a few points of our 3336.50 target.

    But, the selloff continued overnight, with ES shedding about 30 points from the close before beginning the obligatory recovery as the open approaches, egged on by soothing comments from CNBC’s guest host James Bullard, who has a distinguished history of appearing whenever TSHTF. From all appearances, even the machines are starting to take seriously the potential for the coronavirus to evolve into a global pandemic.

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  • Buckle Up

    Algos have been given the green light by VIX, oil and especially currencies – which present an incredibly bullish picture courtesy of a signal which hasn’t failed in at least 20 years. But, the coronavirus is a different kind of threat with enormous implications. USDJPY’s improbable breakout smacks of desperation. Will the algos really behave themselves and get with the program or is this just another head fake to distract from the huge correction the bond market says is right around the corner?Buckle up.

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  • PPI, USDJPY and Kitchen Sinks

    PPI increased by 2.1% YoY in January, the sharpest increase in 15 months. The monthly increase of 0.5% strongly outpaced expectations of 0.2%. Most of the commentary attributes the beat to transitory trade factors. Yet even core PPI increased at 1.5% YoY.

    Futures initially slipped about 1 point on the news, then settled higher, paced by a vitally important breakout in USDJPY. DXY is also threatening new highs as EURUSD tagged our next lowest and most important downside target in years. Yes, this is one of those kitchen sink moments.

    I suppose in a logic-based economy a PPI print such as this would diminish expectations of further CB easing. But, that ship sailed a long time ago. The latest numbers I’ve seen call for 60% odds of further rate cuts in July.

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  • When Will News Begin to Matter Again?

    Apparently AAPL slashing guidance is inconsequential and Bill Gates, who is predicting 10 million deaths, is some sort of conspiracy theorist – because the market continues to ignore the coronavirus story. Perhaps somewhere down the line the investing world will come to realize what we’ve known for years: stocks have become increasingly easy to manipulate.

    Lately, it has been VIX’s constant smackdowns below various measures of support and the perennial games played with currencies which have directed algos to buy every dip.  With oil and EURUSD having reached important downside targets, the formula might change somewhat. But, at what point will the game be obvious to all?

    Futures are off about 15 points, not even 1/2% after a slew of dreadful headlines over the weekend.

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  • A New Day, Same Old Nonsense

    It’s a strange phenomenon: the more serious the coronavirus threat, the more strenuous the efforts to prop up stocks. After headlines such as those below, the market has no business being in positive territory.

    Yet, here we are, with ES up 6.50 points.  VIX is actually off.  Sheer lunacy.Likewise, oil and gas are rallying as though the EIA, API and OPEC hadn’t all downgraded their demand estimates.

    Will the market take any of this information to heart, or will we get the usual holiday weekend gap higher?

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  • CPI: Feb 13, 2020

    So…the coronavirus isn’t tapering off after all. Not to worry, though, says WHO adviser Ira Longini. It should only infect about 5 billion people.

    If you’re surprised by the degree to which governments and the mainstream media have been downplaying the severity of the outbreak, you haven’t been paying attention for at least the past 10 years.

    Having said that, don’t expect that the folks whose job it is to advance the never-ending rally to give up now. Consider how well the market muddled through during the Spanish Flu. And, that was before central banks assumed control of markets. Meanwhile, annual CPI came in right at our expected number of 2.5%, thanks to the YoY oil/gas price boom as we’ve been discussing for the past several months.

    For those looking for a big bounce from oil/gas, don’t get too excited just yet. The delta in gas prices for Feb is shaping up as a 5% YoY gain – not as extreme as in Jan but still a factor. For a Fed which is looking for excuses to keep rates low, a big rally in oil/gas right now would be quite inconvenient.

    With services inflation up 3.1% YoY, the interesting question is what will happen to goods inflation. Slowing global trade could reduce overall demand, but interrupting supply chains could also be expected to create shortages in certain areas such as electronics. Fortunately, the BLS has models which will smooth these things away.

    Futures are none to happy with the spike in coronavirus infections/deaths – with ES off over 30 points overnight……before being buoyed by a timely smackdown of VIX which dared to broach its SMA200.

     

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  • Where There’s a Will…

    The algos are working overtime, this morning, employing the usual VIX breakdown and CL “breakout” to keep futures on the rise. We saw the bullish 10/20 cross in SPX and ES yesterday, so the technical picture has officially shifted. When it comes to this market, where there’s a will…there’s a way.

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  • The Dog-Faced Pony Soldier Market

    SPX broke out to a new high, yesterday, prompted by a last-minute breakdown in VIX that sent algos scurrying.It had all the integrity of a dog-faced pony soldier, but it counted all the same. Now, as the market is about to open this morning, we’re seeing repeated plunges in VIX – just enough to remind carbon-based investors that there’s more where that came from.

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