Absolutely nothing? Well…vol came under pressure again last night despite the recent 10/20 cross and obvious escalation in risk of military action in Ukraine. Apparently the threat of war is good for stocks.
Nevertheless, the futures heard and obeyed and continue to eye the VIX breakdown threat which works more often than not.
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Futures are up slightly as we approach the open – an extension of the bounce off recent lows.
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Yes, it was impressive. AAPL, FB, GOOGL and AMZN delivered big time. Yet, AMZN, the one that was best positioned to clean up, hasn’t yet broken above a key Fib level, let alone the top of the 20-year old channel which marked the July 13 reversal.
If it does, fine, bears should prepare for a long, long winter. But, until it does, this remains a dangerous moment for the recovery’s poster child.
While we’re at it, did anyone notice that after tagging yesterday’s downside target, futures bounced only to the .886 Fib? Or, that SPX is poised to pop and drop at its own .886 Fib?
Again, not a breakout.
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Note: CPI came in right on target: +0.6% unadjusted over the last 12 months. The MoM figure also rose 0.6% – driven, as expected, by the 12.3% increase in gasoline prices.
* * *
The last time I wrote a post including all the FAANG stocks was in November 2018 [see: FAANGs – Now or Never.] Several of them FB, AAPL, AMZN, NFLX and GOOGL were in trouble from a technical standpoint. GOOGL, for instance, had just completed a death cross and the stock had broken down from a 10-year old rising wedge.
The S&P 500 itself was also in a bind, having dropped through its 200-DMA and struggling to remain above its 2.24 Fibonacci extension at 2703. As it turned out, it couldn’t. It shed another 14% (20% from the Sep 2018 highs) before being rescued by the Plunge Protection Team. Most of the FAANGs had similar troubles.
GOOGL, at 1071.05 at the time, dropped 24% from its July 2018 highs and tested its March 2018 lows and completed a huge H&S Pattern targeting 707 before magically finding its footing.
It has since piled on another 500 points, with two downturns along the way turning the rising wedge into a rising channel [it just needed a global pandemic and a horrible recession to help it along] which is once again offering overhead resistance. 
What about the rest of the FAANGs? Any other warning signs that we should be watching? Glad you asked.
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SPX and ES had no trouble reaching our initial downside targets — a backtest of their January highs. We wondered, however, whether the SMA20s, loitering just below, might come into play.
Sure enough, ES tagged its SMA20 with ease. But, emini traders strongly resisted a drop through the SMA20 – bad mojo, don’t you know.
So, SPX only reached 2867.29, just shy of the SMA20 at 2866.27. And, faster than you can shout “help me Clarence!” SPX bounced the 16 points we anticipated, just like it did on Wednesday.
It was a near miss..or, was it? As we discussed on Tuesday…
One little trick we often see on days when it’s difficult to convince the machines to sell/short down to an obvious bounce point such as the SMA10 is to drive the price merely to where the SMA10 will be tomorrow. The SMA10 will likely increase by another 5 points tomorrow, so getting within 2-3 points is potentially “good enough.”
As luck the algos would have it, today’s SMA20 came in at…wait for it…2866.27. January highs and SMA20 were both tagged. 
So, all is well, right? Not so fast. Futures are currently off 10 points, banks are tanking, oil and gas are slipping, FB is scurrying toward the basement and TSLA has tumbled 15% since Tuesday’s short call.
In the distance, sirens. A mob of nervous investors crowds the door. Might the Building & Loan actually be in trouble?
Thanks to overeager algos, the S&P 500 has thus far ignored the threats of tariffs, political turmoil, emerging market meltdowns, rising interest rates and historically high multiples. None of that matters as long as corporations can borrow cheap and repurchase their own shares, VIX can be hammered when necessary, the dollar continues rising and oil/gas prices don’t crash.
If any of those support mechanisms falters, however… Well, we’ve seen what can happen. Keep an eye on 2867.29.
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$20 billion here, $20 billion there. Pretty soon you’re talking real money.
Maybe Zuck should have accelerated his sales a bit more.
Facebook’s disastrous conference call and outlook has seen the stock plummet 25% from its earlier highs.
Note that this brings FB back below:
(1) the trend line which has buoyed it since April 4;
(2) the neckline of the H&S Pattern it completed in March; and,
(3) its 200-day moving average
If this all sounds familiar, it should. In March [see: Facebook Flops] FB fell below its SMA200, completed a H&S Pattern targeting 140, and experienced a death cross — all within the span of 3 weeks.
We noted at the time that the outcome was important, as previous stumbles of this sort were strongly correlated with market corrections (shaded areas below.) 
Three months ago, on April 25 [see: More Than One Way to Skin a Cat], Facebook’s Q1 earnings came out, but barely moved the stock. A few minutes later, however, after a $9 billion stock buyback plan was announced, the stock bottomed, recovered back above all that overhead resistance, and went on to new all-time highs.
This was a repeat, of course, of the Nov 2016 episode where FB plunged below its SMA200, completed a H&S Pattern, and experienced a death cross.
Of course, the H&S Pattern never played out, and the Trump Dump was snatched from the cradle and rebranded the Trump Rally [see: Why the Trump Rally is a Fraud.] But, that’s another story.
That particular near-disaster was averted with a $6 billion stock buyback plan [are we seeing a pattern here?] $4 billion of which was still unused at the time the $9 billion plan was announced 17 months later.
The neckline is currently around 175 — right on top of the .618 retracement at 175.61. The SMA200 is at 181.53. With the stock lingering below each of those in the after-hours, one can only wonder how many “undervalued” shares will be reacquired by tomorrow’s open. Odds are it’ll be however many it takes to get the stock back to 182.
Or…maybe it’s time to announce a whole new buyback.
Want to know where markets are going? Just check Facebook. The stock, that is.
As I pointed out in March [see: Facebook Flops] the stock is a very reliable indicator of overall market direction. And, right now, it’s threatening new all-time highs.
But, its accomplishment raises an important question: does it matter how the stock got to where it is? What about market integrity and price discovery? Do they matter?
As we’ve discussed, each time FB tagged or dropped through its 200-DMA (the red line below,) the S&P 500 swooned — or even underwent a full-fledged correction. The 2015-2016 correction is the most obvious.
But, FB’s November 2016 dip was potentially more serious. Not only did the stock drop through its 200-DMA, but it remained there long enough to produce a bearish death cross, where the 50-DMA crosses below the 200-DMA.
The impending death cross could be seen a mile away. So, after a week of the stock lingering below its 200-DMA, the FB board announced a $6 billion stock buyback plan. The stock bounced a few times, finally clearing the 200-DMA on the very same day that the death cross occurred. 
What better way to convince investors that the death cross wasn’t anything to be concerned about?
Facebook doesn’t publish detailed transaction reports for stock buybacks; but, it seems likely that the shares purchased under the plan were timed to help the stock clear its 200-DMA.
FB ran up to new highs, ignoring the 4.23 Fib extension as it had all the others. A year later, however, it managed to drop back below its 200 DMA. In the process, it completed a bearish Head & Shoulders pattern that targeted 133-140 — another 17-20% drop on top of the 13% it had already shed.
After dropping through the neckline of the H&S Pattern, the stock couldn’t even manage a full backtest before plunging anew. The dreaded death cross occurred on April 13. On the 25th, the company announced a $9 billion expansion of the stock repurchase plan. This was particularly significant, as there was still $4 billion left over from the original $6 billion plan.
The very next day, FB spiked up through its neckline and 200-DMA. Since then, it’s tacked on 25%. Are any shareholders complaining? Of course not. Ditto for the many employees who own shares. So, what’s the problem? All’s well that ends well, right?
I suspect most investors would agree with that sentiment. There has been little outcry, even though 54% of corporate profits — over $5.1 trillion — has been dedicated to buybacks over the past 10 years.
Prior to 1982, buybacks were prohibited. They were considered a form of market manipulation. After passage of Rule 10b-18, however, corporations were offered a safe harbor as long as they met certain conditions.
Supporters of buybacks say they are beneficial. Over half of all Americans own stocks, even if indirectly through a 401(k.)
Critics maintain that they are a financial engineering trick, inflating EPS even if profits aren’t actually growing. Chrisopher Cole of Artemis Capital figures that 40% of EPS growth since 2009 is from share repurchases.
NYU professor Edward Wolff says they benefit the rich more than anyone else, as the top 10% of households own 84% of all stocks. Yale professor Robert Shiller calls buybacks “smoke and mirrors.”
It’s safe to say that as long as corporate management can borrow money at historically low rates in order to drive their stock higher, the practice will continue. But, it’s hard to look at a stock like FB without wondering whether market integrity is still a thing.
That’s a relief! For months, pundits have been arguing whether the Fed needed to hike interest rates three times or four times this year — you know, because of all the growth coming down the pike.
Fed Über-Dove and “Man Who Thinks Market Integrity is Overrated” Jim Bullard just announced that the correct number is zero. That’s right. Everything is perfect just like it is.
Amazingly, and quite by coincidence, this pronouncement occurred on the exact same day that several stock market indices were in danger of falling below a very important technical level of support: their 200-day moving averages. As we discussed on Monday, falling below the SMA200 isn’t usually very healthy for markets.
For visitors and new members, this seems like a good time to take a walk down memory lane. This isn’t Mr Bullard’s first rodeo. Nor is it the first time “someone” did something clever to ensure the market’s continued ascent.
The S&P 500 illustrates the phenomenon quite well, having experienced a number of such fortunate events at crucial times. 
October 2014 – Bullard!
Bullard appeared on Bloomberg to explain that another round of QE might be in order. As “luck” would have it, this enabled SPX to reverse right as it reached important Fibonacci support, ending a 9.9% tumble and narrowly averting an official correction.
Big assist from USDJPY, which soared 16% over the next 7 weeks in spite of the fact that more QE should have weakened the US dollar. The Yen Carry Trade in all its glory.
August 2015 – USDJPY!
This 12.5% correction was set up by USDJPY falling back below a critical Fibonacci level (the .618 at 120.11) in the wake of SPX reaching a key Fibonacci extension (the 1.618 at 2138.)
We had correctly forecast the top [see: The Last Big Butterfly] but it was unclear whether or not USDJPY could remain above 120. SPX plummeted when 120 finally fell but, as “luck” would have it, was (temporarily) rescued by USDJPY’s bounce back above it.
February 2016 – Oil!
The price of West Texas Intermediate Oil (CL) had fallen 77% between Aug 2013 and Feb 2016. While this crushed inflation to a manageable level, it made investors in and lenders to energy-related companies pretty nervous.
As “luck” would have it, CL bottomed out on Feb 11, 2016 — the exact same day that SPX reached that critical Fibonacci support level of 1823. CL doubled over the next four months, and SPX rebounded sharply. By accurately forecast the bottom in oil, we could confidently call a bottom for SPX [see: USDJPY Finally Relents.]
June 2016 – USDJPY!
Stocks plunged in the wake of the Brexit vote. As “luck” would have it, USDJPY — which had used CL’s rally as an opportunity to reset — picked this particular day to bottom out and spiked 8% higher over the following month.
Futures had sold off by 6.5%, but by the time SPX opened the next morning the recovery was well underway. It was soon back above its recent highs and the critical 1.618 extension at 1.618. In other words: new all-time highs.
November 2016 – Trump*! Unfortunately for stocks, the US election results weren’t conducive to a rally. Once Trump’s election became apparent, futures plummeted over 5% in a matter of hours. SPX had bounced off its SMA200 a few days earlier. Unless something was done quickly, it would drop through this key support the following morning.
As “luck” would have it, USDJPY picked this particular day to bottom out. It spiked 5% over the next few hours and 18% over the next few weeks — a supersized version of the exercise which had saved stocks post-Brexit.
And, if that weren’t enough, VIX — the widely accepted indicator of fear and volatility — plummeted even as futures were plunging. It’s the equivalent of calling your insurance broker to cancel your homeowner’s policy as a hurricane bears down on your beach house. How very, very “lucky” indeed.
Futures recovered almost all of their losses by the time the cash market opened the following morning. VIX went on to shed over 50% of its value and broke down through trend line support (above, the white arrow.)
Stocks were soon registered new all-time highs. The talking heads called it the “Trump Rally” and attributed the gains to the incoming president’s pro-business orientation and deal-making acumen. But, I think it deserves an asterisk…on account of the incredible “luck” involved [see: Why the Trump Rally is a Fraud.]
The SPX chart isn’t labeled as such, but the rise from 2138 to 2703 (the next major Fib level) wouldn’t have been possible without continued support from oil and VIX. After doubling in value, CL proceeded to construct a well-formed rising channel (below, in purple) that was very supportive of stocks. It oscillated between the channel’s top and bottom like clockwork — until December 2017. We’ll come back to that.
Also during that time, VIX was trying something new. After years of occasionally bouncing off the bottom of a long-term channel (below, the yellow arrows) it decided to plunge below that channel bottom and spend 80% of its subsequent days in the cellar — reaching new all-time lows in the process.
This sent a strong all-clear signal to stocks (or, at least the algos that trigger stock purchases) that the coast was clear. It was completely safe to buy stocks, which they did — producing a rally that accelerated all the way up to the 2.24 extension at 2703.
December 2017 – Oil!
At that point, oil’s breakout (remember the purple channel above?) and the onslaught of new, daily lows in VIX combined to give SPX the boost it needed to climb above that resistance. I mean, how “lucky” can you get? It popped above 2703 and tacked on another 6.3% for good measure.
Unfortunately for stocks, though, there was a practical limit to how high CL could go without creating problems. Someone had forgotten that higher oil prices mean higher inflation. And, higher inflation means higher interest rates. And, when you’re $21 trillion in debt and pass a tax bill and budget that greatly widen the deficit considerably…higher interest rates are not exactly lucky [see: Why Higher Interest Rates Are a Problem This Time.]
Between that realization and a growing disconnect between price and supply & demand, CL had to drop. When it did, and the (dashed, red) trend line from August 2017 finally broke down, stocks didn’t take it well.
SPX plunged almost 12% over the next two weeks, one of the sharpest corrections ever. Luckily, the SMA200 was there to catch it. A few days later, CL popped back above its channel top and SPX recovered to back above 2703.
As the bounce began to fade, we had a surprise message from Bullard that “too many rate hikes could slow the economy.” It was enough to extend SPX’s bounce for another few weeks. But, ultimately it slipped back down below 2703 to tag its SMA200 again. And, again. And, again. And, again.
By then, DJIA and RUT had finally risen to the point where they could tag their SMA200s as well. SPX bounced at our 2561 target. Investors were in luck! Until this morning.
April 2018 – Bullard!
Apparently, someone forgot to explain to the Chinese that we were supposed to win the trade war (winning them is easy!) This morning, we found out that China had the gall to fight back. When I was woken by an price alert at 3:15 this morning, the futures were off 55 points. SPX would open back below its SMA200.
But, the futures didn’t know what they were up against!
Then came Larry Kudlow, the guy who in May 2008 called the impending Great Financial Crisis a “non-recession recession.” Some people might have misunderstood; but, obviously he meant it would be much worse than a recession. (I can’t wait to find the pot of gold!)
As “luck” would have it, the market was quite pleased with all this positive scuttlebutt. ES, once down 55 points, closed up 34 points. SPX and the Dow rose about 1%. RUT added 1.30%. And, COMP — which never did tag its SMA200 — popped 1.45%. Take that, 200-day moving average!
Bounces are nice, whether driven by oil, the USDJPY or Fed cheerleaders. This one got SPX back above its SMA200, which is a good start. Next comes the 2.24 Fib, which SPX has crossed some twenty times in the past two months. Can it rise back above and stay there this time?
Oil’s limitations haven’t disappeared. Managing inflation and interest rate expectations will continue to dominate its price action. Lately, the market has a very narrow range within which it feels comfortable.
USJDPY is threatening to break out from a falling flag pattern, but one has to wonder why it hasn’t done so already. Japan got no love from Trump in the trade war chatter to date. It’s quite possible they’re done cooperating with currency intervention.
VIX, after popping back above the yellow channel bottom in dramatic fashion in February, has fallen back to a trend line (red, dashed) from its January lows. Every time it pops above the trend line, SPX stumbles. Every time it drops below it, SPX rips. 
Today, it tagged it and reversed lower – hence the day’s gains. It has plenty of additional downside potential, with the potential to drive stocks back above 2700. But, again, it hasn’t done so yet.
It makes one wonder whether SPX will be allowed to put in a lower low in order to make the corrective wave look a little more conventional and give COMP a shot at its SMA200. We have oodles and oodles of downside targets if SPX’s SMA200 should fail. That white dot at 2138 in the chart above is there for a reason [see: More Where That Came From.]
There are countless other factors I haven’t even mentioned: our yield curve model (which tentatively turned bullish today), 10yr note rates, the US dollar’s buoyancy, various momentum indicators, and the continuing sagas of FB, TSLA, AMZN and DB — all of which have played a role in the market’s gyrations (mostly of the bad luck variety.)
Whatever happens, it’s hard to imagine we could reach new highs without plenty more luck. Trade safe, and stay tuned.
Everyone’s asking about Facebook, today. The stock, off as much as 8% earlier, is currently down 6.5%. It has the dubious honor of leading the FAANG stocks on a pretty rough day.
The last time I devoted a post to FB was over five years ago on Jan 16, 2013 [see: Should We “Like” Facebook?] The stock had recently reached 32.21, retracing about half of its tumble from 45 to 17.55.
Fun fact from the post before that one, on Oct 24, 2012: none other than Donald Trump had been touting the stock, repeating 5-6 times during a radio interview that he’d amassed a large position. That day the stock gapped from 19.5 to 24.13, a 24% pop. It’s interesting that Donald Trump and Facebook are back in the news together today…
But, I digress. Some key highlights from the 2013 post:
The stock has retraced about half the losses since its 45 high…Unfortunately, it’s also traced out a Rising Wedge — not to mention a Bat Pattern from its June highs (the purple Fibs above.)
As such, it is likely to weaken considerably here — with a drop to at least the bottom of the rising wedge — currently at 27.75 or so. Often, this results in a new channel [the midline of which] is at 27 (a 10% drop from current prices), and the bottom is way down at 22.75. Bottom line, the road ahead should be very bumpy.
As it turned out, FB eeked out a slightly higher high, reaching 32.51. From there, it was a slow, painful decline to the channel bottom at 22.67 — a nice 30% shorting opportunity that was marked by heavy insider selling.
It bottomed there, spending six weeks below its 200-day moving average before finally breaking out. It was back above 45 four months later.
That was the end of 2013, when the market became “the market” and BTFD went from a cute acronym to a legitimate portfolio management strategy. All the while, FB has continued to ratchet higher, gapping up through successive Fib levels and occasionally bothering to backtest them.
Interestingly, it still pays a great deal of attention to its 200-day moving average. After breaking out in July 2013, it didn’t test it again until May 2015, when SPX topped out.
FB bounced and made new highs, but was back below the SMA200 three months later when SPX plunged 12.5% from 2138, an important Fib level. It only spent a day below the SMA200, but it was a memorable intraday dip of 16.3%.
FB next dipped below the SMA200 in January 2016, when SPX repeated its swan dive — this time plummeting 14.5%. Again, FB recovered intraday. And, again, SPX recovered fairly quickly.
The next trip below the SMA200 didn’t go quite so smoothly. It was in the wake of the 2016 US election, when stocks in general needed a great deal of support. FB fell below its SMA200 on Nov 10 and didn’t recover recover until Jan 6.
As we’ve documented elsewhere, this was a dangerous time for stocks. COMP, in particular, was really struggling to break out from an octo-top [see: Update on COMP, Oct 2, 2016.] If FB couldn’t break higher, COMP stood little chance.
Quite by coincidence (not!) Facebook’s board decided this would be an excellent time to announce its first-ever stock buyback plan. The plan was announced on Nov 18 and allocated $6 billion for purchases beginning in the new year. Needless to say, the stock took off at the start of the new year. By Feb 1, it had gained nearly 70%.
I won’t go into the heavily-debated fundamental justification for the rise. Others have done it well and, in the opinion of many, the stock remains quite overpriced. The latest news throws more cold water on the fundamental story.
It also puts the stock back in an interesting technical position: testing its SMA200 again (tagged it on Feb 9, too.)
Many other views confirm the fact that FB is in a tenuous position. It’s extending below its bottom Bollinger Band; it’s very near RSI support which, if broken, would be quite bearish; and, it’s MACD is close to rolling over.
SMA200s have been excellent buying opportunities in the past. The stock appreciated 680% from its 2013 tag, 171% since its 2015 tag, 117% since its Jan 2016 tag, and 73% since its Nov 2016 tag. It’s obvious that buying the SMA200 dip was an extremely successful strategy, especially when the company’s billions were used to ensure a bounce.
Think I’m being cynical? At today’s close, the 200-day average stood at 172.54. The stock itself closed at 172.56. Probably not a coincidence.
As we know, all patterns work forever… until they don’t. If FB can recover quickly from this debacle, the next upside target is 205.69, a nifty 19% return. If it can’t, the closest support is a channel line at 163-165, followed by the nearest Fib extension at 133.83. Ouch.
For my money, the stock is expensive regardless of which way it goes. And, I just plain don’t trust companies where the revenue model is built on what many people smarter than me consider smoke and mirrors.
Then, there’s the fact that COMP recently tagged our upside target: the 1.618 extension of its drop from its 2000 highs to its 2002 lows [see: Nov 6, 2017 Update on COMP.] This has been a long time coming (SPX tagged its in 2015) and could represent serious overhead resistance.
So, if you’re dying to take a flyer on FB, just keep an eye on its 200-day moving average. It makes an excellent line in the sand at a time when many of our indices, currency pairs and commodities are in a precarious position.
GLTA.
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UPDATE: Mar 20, 12:50 PM
FB held its SMA200 yesterday, but fell through it this morning. It dropped to the support we discussed yesterday. Again, if the white channel line doesn’t hold, it’s susceptible to another 18.5% drop to the 4.236 Fib extension and channel midline at 133.83.
The last time I posted about FB was October 24 [see: CIW Oct 24, 2012], when I happened to hear Donald Trump repeatedly mention the stock as he was being interviewed about something else all together.
BTW, interesting chart on Facebook. I knew something was up when I heard Donald Trump touting the stock on the radio.
He…still managed to mention the large position he’d been buying about 5-6 times. More likely he was going for the ol’ pump and dump.
It’s hard to escape the power of channels.
The channel in question had been stretched to the limit by the gap up from 19.5 to that day’s 24.5 high and looked like this:
The channel de-friended FB, smacking it back down to below 19 within the next two weeks. But, since then, the amazingly positive stock market to the moon has taken hold, trumping that falling channel. The stock has retraced about half the losses since its 45 high (the white Fib levels below.)
Unfortunately, it’s also traced out a Rising Wedge — not to mention a Bat Pattern from its June highs (the purple Fibs above.) As such, it is likely to weaken considerably here — with a drop to at least the bottom of the rising wedge — currently at 27.75 or so.
Judging from the charts, though, I’d say FB is a good candidate for a breakdown of its Rising Wedge. Often, this results in a new channel that features a lower bound parallel to the upper bound of the wedge.
The mid-line of the proposed channel is at 27 (a 10% drop from current prices), and the bottom is way down at 22.75. The good news is that the channel is obviously rising, so these potential targets are also on the rise.
The bad news, however, is that the charts indicate the trend may well have changed and the downturn could be more significant than just 10%. 4-hr MACD just crossed over yesterday (60-min is already negative.)
And, the rising daily RSI channel is probably yielding to a falling channel — signalling a trend change to go with the obvious negative divergence. Though, we won’t know for sure until RSI reaches the bottom of the white channel.
Bottom line, the road ahead should be very bumpy.
Stay tuned.
