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This Just In!!!
The Orange One delivers a 60-second pep-talk on his cordial and highly productive talks with President Obama.
ORIGINAL POST: 3:00 AM
I have a confession to make. Two weeks ago, I plagiarized the title and intro of the post: Stay Groovy. Okay, so technically I plagiarized myself. I originally used it the morning of June 1, 2011 on the old Blogger site to describe a situation that seemed pretty dicey.
On May 31, after 3 straight daily gains, SPX had tacked on an additional 1.1% and appeared to break out of a well-formed channel. Rumor was the Greece debt crisis was nearly resolved (glad we don’t have to worry about that anymore) and financials partied like it was 1999. From the CNBC daily recap:
Most everyone, it seemed, was suddenly bullish. Truth be told, even I still had one foot in the bullish camp, wondering if SPX still might go up and tag the .786 of the 1576-666 crash at 1381.50.
I posted the following commentary:
There are plenty of tripwires ahead in the economic data due out this week. Will they blow up the market, or simply result in another QE airstrike? May as well call your bookie and bet on whether QE3 is coming….While I think there’s some upside potentially to the 1380 level, I wouldn’t bet the farm — especially from these levels. I remain much more concerned about the downside. Stay groovy.
Here are the vitals from the end of the day, May 31, 2011:
- SPX nearing the Fib 61.8% retracement from the 1370 top, still down 1.9%
- every bank stock shown above gapped up on the day
- an established channel had been broken in a way that surprised vis-à-vis 2007
Turns out that the channel in question could be interpreted two different ways. The red channel was indeed broken, but the purple one was still intact, thank you very much…
…which meant that the channel break-out everyone expected was quickly and painfully reversed.
“Okay” you say, “lots of nice information. But, why do I care?” Let’s examine yesterday’s vitals:
- SPX reached the Fib 78.6% retracement from the 1474 top, still down 1.8%
- every bank stock shown above (except HBC) gapped up on the day
- an established channel was broken in a way that surprised vis-à-vis 2011
Reaching the 78.6% Fib retracement yesterday wasn’t a huge surprise — after all, S&P upgraded Greece (at least we don’t have to worry about that anymore.)
Like May 31, 2011, every bank stock (except HBC) gapped up on the day. But, although SPX is up over 100 points (nearly 7.5%), most of the banks are still sitting at or below their May 31, 2011 price levels.
BAC and WFC are the exceptions, but they are rapidly running out of real estate. Most of the other charts look something like the following:
How about the broken channnel? Until last week, the red channel was apparently in control. SPX pushed up through it, then back-tested and took off.
But, suppose it’s the white channel that really matters? Suppose the fiscal cliff solution (that seemingly everyone expects) never materializes, or housing starts are horrid, or the euro zone suddenly lands back on our collective radar? Suppose DX and EURUSD both complete their Bat Patterns tonight or tomorrow? Suppose the recent break-out…wasn’t?
When I start asking rhetorical questions in the middle of the night, it’s probably time to turn in. I’ll leave readers with one last chart that anyone who’s been following our analog might find interesting.
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