Monthly Archives: June 2012

UPDATE 2012-06-28

Posted on June 29, 2012 | Leave a comment

Today the market may have had the bifurcation point I was looking for. After selling off as expected, we hit a major road block. If you remember, I had warned that the underlying bullishness might result in a limited down move. I saw the market stall on the down move and I noticed how volume profile showed increased buying activity (even managed to bottom pick within less than 1 point on the S&P 500 bottom).

Possible Bifurcation?

Then we got a massive short squeeze that left many bears running for the fences. I am not sure what started it, but it was quite a sight. The speed of the up move, which far exceeded the speed of the down move suggests a possible bifurcation point with a new impulse wave ahead. Since we are still in the trading range I preached in the weekend update and on monday, we have not confirmed this. We need to break above the 1340 pivot point with conviction, since there will be a lot of sellers sitting at 1335-1340 salivating over the picture perfect head and shoulders top. In order to get past this area, we either need a day of consolidation below or gap through it overnight.

Possible reversal candle

The daily candle pattern is a potential reversal, with improved volume and a long lower wick. We need to close above 1340 with conviction to show that this is anything else but a short squeeze, but this is how the kick-off started in October 2011. So keep your eyes on the 1340 level. If we gap above it (futures are up tonight), it should act as a strong support. I am not holding my breath that futures will hold up, especially since this looks like the carbon copy of the Spain bailout pop, that funnily even happens in the same location of the right shoulder (Spain pop was on second hump in left shoulder).

UPDATE: Futures shot up to the exact same point the Spanish bank bailout pop set. If we sell-off from here and open flat, the topping pattern looks good even in futures charts. A clear warning sign!

→ Leave a comment

Posted in Elliott Wave, Finance, Stock Market, Strategy, Tactical Portfolio, Technical Analysis

Tagged , , ,

UPDATE 2012-06-27 Low volume bounce again

Posted on June 27, 2012 | Leave a comment

EDIT 2012-07-27

I did not want to give the impression of extreme bearishness. I believe we are vulnerable to further selloff based on volume profile, but some leading indicators suggest that the downside would be rather limited (blue line and lower black line both refuse to validate the drop, a bullish indication).

So I am waiting for a washout. Should we break through 1340 area with conviction and close above it on a hourly basis, we might not even get a bear move.

Bullish Indicators

Low Volume Bounce

The implications of the volume profile are bearish. We are up on some faint hope for Europe and Obamacare. Lets see, anything is possible, since we are still in the bifiurcation zone.

→ Leave a comment

Posted in Finance, Stock Market, Strategy, Tactical Portfolio, Technical Analysis

Tagged , ,

UPDATE 2012-06-26 Back in the Trading Range

Posted on June 26, 2012 | Leave a comment

Trading Range again

Just as I had predicted this weekend, we fell back into the trading range  and we bounced of my target for a possible bifurcation point.

We now had a break to the bottom and a break to the top. The odds favor a resumption of the trend to the downside, possibly even breaking the last low. However, there will be a lot of sellers at 1225 and a lot of buyers at 1307, which roughly presents the borders of the trading range (this is also the cause for the range). Once we break out, the move is most likely going to be swift again. A break to the bottom will create a quick washout and set us up for a bounce.

Keep an eye on 1307 and 1325. A breakout must be accompanied by large volume, follow through and a close above or below the range on a hourly basis. Otherwise we could have a false break designed to take out stops.

EDIT: I forgot: The 200 day MA is around 1297. Closing below it on a daily basis is very bearish.

→ Leave a comment

Posted in Elliott Wave, Finance, Stock Market, Strategy, Tactical Portfolio, Technical Analysis

Tagged , ,

Tactical View – Roaring Bears – 2012-06-24

Posted on June 24, 2012 | Leave a comment

SPX Elliott Wave Count

Last Thursday’s drop created so much technical damage, that the bull case can now almost be eliminated entirely. The most likely outcome will be a resumption of the downtrend in the short term with a potential complex extension of the correction up.

From an Elliott Wave perspective, the decline intruded into the wave space of the first impulsive Wave up, thus classifying it as wave A of a correction. I believe our next move will be towards the price area I labeled as the “Bifurcation Point” in anticipation of a trend change from there. As you can see, we re-entered the old trading range (grey area), which could mean further chop.

The decline sliced through several important supports (1358 and 1340 being the most important) without much hesitation and the move up on Friday looked corrective by comparison. Thus I expect further downside next week.

In the update to last weeks tactical view, I noted:

“The volume during the past two days has been very low compared to previous days, showing the lack of interest of professionals to support the rally at these prices. The last few times volume dropped like this also were close to turning points. We could still get a pop from tomorrow’s announcement (and thus create a new negative divergence), but some sort of QE is already expected and should the FED disappoint, a decline could start sooner. Even with a positive announcement, the upside potential is  limited.“

As you can see in the two pictures below (yellow volume bars), price did not move much after I wrote this and collapsed one day after the FED announcement.

Fear indicators still muted

The down move created the largest selling pressure of this entire correction from 1422, yet the fear indicators are still far from their peak levels achieved in 2011, indicating that capitulation hasn’t happened, but that this may be the move I have been warning about for the past weeks. Most EW analysts count this as a W3 down, which should eventually take out the lows of 2011. I believe that the potential W2 A-B-C correction was too short in time. I thus favor a more complex correction. The markets are rarely that obvious. However, caution is prudent at this time. Stay safe!

More fear compared to 1267 bottom

The next two pictures support both cases, please derive your own conclusions:

SPX bear fractals

This picture supports the start of W3 theory. It happened twice before with catastrophic consequences.

McClellan Oscillator Fractal

McClellan Oscillator fractals

This picture supports the final shakeout and move higher theory. It happened before as well.

Semiconductor cycle

The cyclical semiconductor sector often starts a move and ends a move first. On the picture above I highlighted the semiconductor cycle, which is about to bottom soon or has already bottomed. However, as you can see on the left, a cycle high can also occur during a correction in a bear market.

More importantly, the semiconductor sector didn’t move to new highs in 2012, which is a non-confirmation for the broad market and generally bearish. A potential long term Head and Shoulders top could spell out trouble ahead. It supports the long term strategic bear case of a new multi year low approaching in 2014 (chart and article coming soon). Several long term cycles (Kress) are due to bottom in 2014. We are feeling the pressure of those down cycles since 2000.

Europe in a Long Term Topping formation !???

Europe is tracing out a similar potential Head and Shoulders topping pattern, that has the potential to drag out into 2014 with catastrophic consequences (deleveraging).

Emerging Markets relative performance keeps rolling over

Emerging Markets (BRIC) still cannot catch a bid and keep rolling over at an ever increasing pace.

Silver to Gold ratio backing off from trendline

The Silver / Gold ratio, a common indicator of the risk-on trade started to back off from its upper trendline.

Health Care continuation pattern resolved to upside as previously speculated

As I had speculated in my tactical view 2 weeks ago, the pattern in the defensive health care sector relative performance was a continuation pattern to the upside. Since triangles only occur in wave 4, I expect this push to be a top of sorts, with a deeper retracement. This supports my view that the correction to the upside in the S&P 500 could extend in a complex fashion.

Technology on its way to a cycle low

Technology continues on the path I outlined several weeks ago.

Germany vs. Europe relative performance: Backtested breakout

The relative performance of Germany vs Europe backtested the channel and now appears to be ready to slice through the next support levels. Most likely Germany will have to pick up the tap for its neighbors, which will give them a boost and drag Germany down into the gutter with them. With the export to it’s European neighbors slowing at the same time its “Auszeit” for Germany soon.

→ Leave a comment

Posted in Commodities, Elliott Wave, Finance, Stock Market, Strategy, Tactical Portfolio, Technical Analysis

Tagged , , , ,

UPDATE 2012-06-21 Panic washout coming

Posted on June 22, 2012 | Leave a comment

McClellan Oscillator Fractal

Looks like the Fear spike that I have been waiting for is finally going to materialize. The Arms Index and the selling pressure spiked above levels seen at the lows of 1267 already. Meanwhile we can observe an interesting fractal on the McClellan oscillator (see above). However these are somewhat subjective, as a similar fractal also occurred on the last retracement before the bigger drop in 2011.

From a Elliott Wave perspective (5 down, 3 up) the implications are extremely bearish, but EW is also highly subjective (could turn into a double ZZ correction as well).

→ Leave a comment

Posted in Elliott Wave, Finance, Stock Market, Technical Analysis

Tactical View – still in uptrend – 2012-06-16

Posted on June 17, 2012 | Leave a comment

Update 2012-06-19 FED statement tomorrow:

Today we hit the top of my target zone that I posted two weeks ago, with momentum indicators hitting extremely overbought region. The FED statement tomorrow has the potential to push this rally higher or to mark the turning point. With todays price movement, most momentum indicators have erased their negative divergence, indicating a potential for more upside. This implies only a small correction.

The volume during the past two days has been very low compared to previous days, showing the lack of interest of professionals to support the rally at these prices. The last few times volume dropped like this also were close to turning points. We could still get a pop from tomorrow’s announcement (and thus create a new negative divergence), but some sort of QE is already expected and should the FED disappoint, a decline could start sooner. Even with a positive announcement, the upside potential is  limited.

Original post:

S&P 500 retracement are almost reached

In last week’s tactical view, I called for more upside, which is exactly what we got this week. After we went sideways on increased volatility, the S&P 500 and other indices traced out a fake H&S topping formation, catching many bears on the wrong side of the trade. The news media kept the fire alive, reminding investors of the impending Greek elections, FOMC meeting and G20 summit. The consensus about the Greek elections is generally negative, which was ideal to trap bears and keep investors who are undecided out of potentially rewarding long positions, same as last year.

Most of what I wrote in last weeks tactical view is still valid, giving me the opportunity to enjoy the weekend and keep this report short.

The events of next week will most likely have an affect on the market. Depending on the outcome, I may update this article a little sooner.

SPY fractals, divergences and breadth

In my last report I outlined the lack of selling pressure and the panic spikes that we have seen in all previous bottoms. This is still a concern and suggest that we haven’t seen the low for the year, despite other positive indicators (above). The price and cumulative volume profile as well as the divergences in RSI look very similar to last year’s bottom. In November we got a final springboard (arrow) that launched the bull market move. If we get a similar action, we should also expect a similar response.

Despite the many positives, I believe we can expect a pullback to the previous low and possibly beyond later later this year. The daily Demark indicators are on bar 8 of a Sell setup (chart above), which could indicate a pullback next Monday or Tuesday.

SPY Trend and Wave Volume

If we examine the cumulative volume profile of the May / June V bottom low (image above), we can see that the wave into May 18 (blue 1) did have the largest volume, greatest selling pressure. The subsequent bounce (2) already showed much more significant buying volume than the bounce just prior to (1). The final low (3) was on low volume, even lower than the bullish volume of (2), while the A/D Volume (indicator above) showed some signs of capitulation (larger spikes). The subsequent rally (4) showed even greater bullish volume, creating a significant reversal. Wave (6) finally ground higher accumulating the largest volume so far but spaced in time, which makes it impossible to detect on a regular volume profile.

The A/D volume is decreasing, indicating a decreased buying pressure. Eventually we should get a decent pullback, but the bullishness of these profiles haven’t given me any indication of an immediate pullback yet. Monday could be choppy in response to European news and create just that, but we will deal with that later. Currently we are still in a strong uptrend supported by all indicators.

Silver to Gold Ratio

The silver / gold ratio (above), a common indicator for the risk-on trade straddles its upper trend line, showing positive divergence in the indicators that suggest a potential breakout.

Relative performance of Technology sector

Some people have been asking me about the Technology sector, citing that technology has to lead a recovery. Using the QQQ/SPY ratio chart as a proxy, we can see that we seem to be moving into a cycle low that has not to coincide with the low of the broad market (last significant low marked). Since I introduced this chart 2 weeks ago, we are still on track with the proposed pullback. However, I think we may see a bounce or low at the blue trend line.

US Treasury

Two weeks ago I warned of the pullback in US treasuries. Although we have seen a pullback, I believe that the negative divergence and the climactic volume action warrants further decline in treasuries. Capital flight and massive liquidity might keep treasuries afloat for a little while longer, but any whiff of inflation (Quantitative Easing, Ratings Downgrade) should bring treasuries back to earth.

Relative Performance of Germany vs. Europe

The German markets are still in a vulnerable position, lacking the divergences indicating a significant bottom. See last weeks report for more on Germany.

Don’t forget the disclaimer linked above.

→ Leave a comment

Posted in Elliott Wave, Finance, Stock Market, Strategy, Tactical Portfolio, Technical Analysis

Tagged ,

Tactical View – ST up – LT down – 2012-06-10

Posted on June 10, 2012 | Leave a comment

S&P 500

In last weeks tactical view, I called for an intermediate bottom to occur this past week. I described a potential bottoming pattern as “High volume bar (down or up) with long lower wick“.

Even I was surprised to see this bar occur on Monday (see image below), which marked the bottom for last week. The markets rallied strong on Wednesday, trapping many bears who were expecting just another bearish consolidation at the wrong side of the trade.

According to last weeks call, I still believe that Monday’s low was more significant and that we will see more upside, however, I also believe that the long term technical picture still calls for at least a re-test of Monday’s low. More likely than a retest will be new lows.

Daily Candle pattern explained

Short term candle pattern indicate more upside:

Tuesday’s bullish candle fully engulfed Monday’s candle, creating a bullish engulfing pattern, an even stronger sign of reversal. The Market promptly gapped up on Wednesday, locking in bears and running at an impressive display of buying energy (see bottom indicator). Thursday we had a potential reversal candle again, but it was negated by Friday’s action, which constitutes a test for selling pressure. I thus believe we have more upside ahead. A potential target is highlighted on the first picture.

Long term picture remains bearish:

SPY divergences daily (Summation Index still in downtrend)

Even though we have seen a bullish divergence in the McClellan Oscillator, the Summation Index still remains in a downtrend.

No fear in Markets

I haven’t seen anything close to a washout that I have seen at previous significant lows. The markets have been slowly bleeding, without fear instead.

Long Term divergence

This years top in the S&P 500 was higher than 2011, creating a divergence in several momentum indicators (RSI shown above). Furthermore, most of the world indices (see DAX below, which is in itself one of the strongest markets) did not confirm the new highs of the US markets, which is also a bearish long term sign.

On a bullish note, you can see that we got a weekly Demark Buy signal (see chart above) and a railroad track reversal pattern in the candles, which confirms my short term bullish standpoint.

US vs World

The US markets are still outperforming the world markets. I remain skeptical and believe that a stronger pullback in the US markets is due (similar to what Germany experiences already).

Last week I warned of an impending pullback in the treasury market :
“The behavior of the treasury market is climactic. Huge volume and large up bars cannot persist, especially in treasuries where the interest rate provides  a ceiling to the price advance. “

We got  a decent pullback.

Treasury Market pullback

Sectors

Energy Sector relative performance

The relative performance of the energy sector remains poor. We are now sitting on a long term support which I believe will break eventually. We may first observe a bounce, should the dollar pull back further.

Financial Sector Relative Performance

Financials reclaimed their support line, but the overall picture remains weak.

Healthcare relative Performance, consolidating

The relative performance of the defensive Healthcare sector appears to be in a bullish consolidation phase. After the completion, we should see it continue to outperform the broad market.

Germany

On request, I will expand my view on Germany in today’s post.

Germany vs. Europe breakdown

Last week I outlined the potential channel support in the relative performance of Germany with her European market. Germany broke support, without any hesitation. We appear to have started another impulsive decline in the relative performance.

Germany vs. World

Compared to the world markets, Germany underperformed even stronger. It sits on a strong support line.

DAX (Deutscher Aktien IndeX), H&S target and major support

After breaking the neckline of its Head and Shoulders topping formation, the DAX performed a backtest and then dropped to the first target (blue bar) where it bounced together with the other world indices. I believe we will soon revisit the strong support we have at around 5800.

DAX major divergence missing

The DAX did not exhibit the same bullish divergence we saw for the S&P 500, which is further reason to believe that there will be more downside ahead for the German index.

 

→ Leave a comment

Posted in Commodities, Finance, Oil, Stock Market, Strategy, Tactical Portfolio, Technical Analysis

Tagged , , ,

Tactical View – Possible IT Low Next Week – 2012-06-03

Posted on June 3, 2012 | Leave a comment

S&P 500 trendlines

As predicted in last weeks tactical view, the rally failed and the markets headed down in a new wave of selling. I also called for a re-test of the lows to set up a divergence in my indicators that would signify an intermediate term bottom.

Although last weeks price action does satisfy this requirement, and some indicators do show a divergence, I believe that the market is vulnerable to further sell off. However, there is a good chance that the selloff will be limited in scope and will not be able to erase the divergence is my indicators.

Lets review the evidence:

No panic selling

No fear, no panic, just selloff

The picture above and below show volume, RSI,  selling and buying pressure (3 separate indicators). The picture above is useful to gauge the scope of these indicators compared to previous bottoms.

SPY closeup, selling pressure, volume, McClellan

We can see that the volume increased on the decline without becoming climactic. Combined with Friday’s close at the bottom of the bar, that is a good indication the we haven’t reached the bottom yet (buying hasn’t started). The Arms index and the advance / decline issues and volume bars all confirm that there was no panic in this sell-off (only moderate selling pressure).

RSI and McClellan oscillator do still show a divergence (green line), but unless we hit bottom soon we could once more erase the divergence. The S&P500 is still sitting in an area of strong support with further trend line support just below. I will be looking for a bounce in that area and hopefully we will get the divergence and a confirmation in my buying and selling pressure indicators.

I would like to see either:

  • High volume down bar with no significant price advance
  • High volume bar (down or up) with long lower wick
  • Bottom reversal bar (long white bar next to red bar, hopefully engulfing red bar)

while maintaining the positive divergence in oscillators.


Weekly Demark on bar 8

SPY Weekly Demark Perfect Buy next week?

On the weekly chart the SPY (S&P500 ETF) needs one more close in this general are to generate a weekly buy setup. The Demark sequential indicator tries to estimate exhaustion. Furthermore we can see the weekly volume on this decline was already less, which could be a good sign for us to approach an intermediate term bottom. The timing on the Demark indicators is rarely perfect, but they do suggest a possible low next week.

SPY vs TLT

SPY vs TLT leading down

SPY vs. TLT is already intruding into the space of last December’s low with positive divergence in the oscillators.

US vs. World

US Market still outperforms World Index

The US markets are still outperforming the world markets. However, we hit the top channel line of the ratio chart on negative divergence. We should soon see a mean reversion in this indicator, which is a warning flag that any bottom should be treated as an intermediate term bottom only.

Treasuries headed for a blow off

US 30-year treasury futures heading for blow-off top?

This weeks action in US treasuries was simply stunning. This is also the reason why SPY vs. TLT was already so low.

The lack of panic in the US stock market is in strong contrast to outright fear in the US treasuries. Panic buyers drove the 30 year treasuries to an all-time new high and the interest rate to a new ALL TIME low. It appears that capital flight from weaker geographic regions is keeping our markets afloat.

The behavior of the treasury market is climactic. Huge volume and large up bars cannot persist, especially in treasuries where the interest rate provides  a ceiling to the price advance. If the LT US interest rate approaches the LT interest rate of Japan, a country in a decline for well over a decade, the 30-year treasuries could theoretically spike to 170-180. I find that highly unlikely, considering the amount of money we printed since 2008 that should drive inflation sooner or later. I thus view the treasury market as the best indicator of an impending bottom in the stock market and as an opportunity for the short of a lifetime. I wouldn’t go against the trend and wait for confirmation first !

The conundrum is the difference of the Treasury market screaming for mean reversion and a bull market in equities and the massive divergence of the US markets already outperforming the world index.

Dollar

Dollar hit resistance and second target, climactic volume

Dollar hit a longer term resistance and also reached my second breakout goal (shown with the rectangles). It already started to pull back on climactic volume, which COULD precede a reversal in US equities next week.

Commodities

Commodities heading for 2010 then 2009 lows?

Commodites are in about to hit the lows of 2010.

Commodities becoming deeply oversold

Volume and price action look climactic. Last friday we gapped down on lower volume. The daily Demark indicator should fire on Monday. Look at the graph how precise it was during the last two occurrences! Commodities could lead the markets again. If we get a bounce, it could be on renewed QE3 speculation.

Technology

Technology continues underperformance

Update to last weeks call on underperforming tech sector.

Real estate sector

REIT set to outperform

Real estate had a better relative performance. The ratio chart backtested the breakout and should continue to outperform the broad market.

Energy sector

Energy Sector vs. SPY broke channel support and now resting on long term support w/ divergence in indicators

The relative performance of the energy sector broke its channel and is now sitting on a long term support line while forming positive divergence. If we get the bounce in commodities (see above), we could also recover in this sector. However, we have to wait for confirmation as this sector looks extremely weak.

Germany

Germany broke short term support and now heading for channel support

Germany started to underperform the combined European indices, which is not surprising, considering the new anti austerity currents sweeping through Europe. We shall see if the channel support holds or if we completed this corrective wave.

→ Leave a comment

Posted in Bonds, Commodities, Finance, Oil, Stock Market, Strategy, Tactical Portfolio, Technical Analysis

Tagged , , ,