My apologies for being MIA most of this trading session but I have been working. Today’s tape has kept us in the sideways grind we’ve been enduring for weeks now. A hard run up followed by a sell off, followed by sideways action and as I’m typing this the tape is pushing back up again hard. Seems any remaining fear among investors has quickly dissipated – plus poor ole’ bucky just keeps asking for punishment. Time for a wave count:
What’s mostly important about this chart is that we have remained below the lower boundary of that channel going back to early August. Should we drop from here (orange) a lot of support awaits around the 1050 mark. Let’s zoom into this a bit:
Quite frankly – things are a bit messy right now. The best way to count it at this early stage is that we are either in some Frankenstein triangle (greeen) or we are whipsawing around on our way down to shake out the weak hands (orange).
I’m a bit split right now actually. My daily RSI_EMA suggests that we are on our way down and that we should continue until we reach the 20-30 cluster which would also coincide with the SPX 1050 support zone shown above. However, we seem to be consolidating and the dip buyers are already swarming in. NYSE A/D ratio is currently at 0.94, which is mildly bearish and I just can’t shake that inkling that another ramp attempt is in the works. Supporting that suspicion is also the Zero Lite which is completely flat at this point.
So, be on guard – the odds for trading these gyrations are horrible at the current time. Since we heading into X-Mas season liquidity will start draining quickly after the final EOM rush. So, anything could happen and unless the bears are able to finally gain some ground this might be nothing but some sideways consolidation before a final push higher. When it breaks it will break – and as of the final day of November the bears yet have to force the hand of the bulls since the beginning of March – the onus is on the market to confirm a trend change. But for the record – on a more long term basis this market is rolling over and it’s only a matter of time until we see a fast break of the eternal stair step pattern to the upside. But it might not happen until January, be prepared to roll your December and even your January puts into more longer term ones unless we see some downside soon. And even then it might be good medicine to buy yourself more time.
Finally, if you haven’t had a chance – please check out my weekend post – some very important long term charts in there.
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Japan has decided to make public that they MIGHT try Quantitative Easing again. China is hitting back verbally at the world which wants China to stop their “beggar thy neighbour” policy (weak currency and economic growth from resulting exports). Creditors everywhere assume that Abu Dhabi will underpin Dubai’s financial debt (although Dubai gov’t will NOT back the Dubai World debt). US Treasuries are still seen as a safe haven, and the USD continues to be kicked while it’s down. Is this a fair assessment of the situation?
I see trade wars brewing, a race to the hyperinflationary finish line, a weaker USD – and yet GOLD falls as well. Welcome to the Broken Clock.
There is so much uncertainty and SPX does not really have a good entry point, IMHO. With the USD down so much since the peak on Friday, ES is effectively flat. The usual correlations do not seem to apply at the present time. Even though SPX put a pin (above) through an area of support roughly estimated by the dashed green line, that support is still holding on an inter-day basis. I would expect SPX to re-test ULTRAVIOLET (the violet line that runs through the top of the last bar), yet again.
If I wanted to do this re-test short-term play, I would put my stop below the low of Friday – 1083.74 – which gives about 6 points of risk (or more). The upside is to the ULTRAVIOLET trend line – 1105.47 – which gives about 17 points of upside. This sounds like a good risk /reward ratio, but I don’t see a lot of supporting TA. TD Pressure is in transition and could head up or down. I think it all comes down to whether or not you believe that the USD /SPX correlation will reassert itself.
Going short here for a quick scalp is feasible – if one ignores the trend TA. ES is running into resistance at the neutral pivot at 1089.25, and the next support is at the pivot at 1067.25; The recent high resistance is around 1098 - 1100. TD has a resistance level at about 1092.25 (it is the dashed green line at the right of the chart, just above the dotted orange line) and above this would be a good level for a stop. That gives about 6 points of risk for almost 20 points of possible gain. However, the TA does not provide any clues as to direction here.
Typically, the ES and SPX are pulled by the USD and one would expect SPX and ES to head up today – but this isn’t showing up on the tape.
NorthAM was red on Friday on very low volume and a short day. Asia was green overnight, but Europe opened red.
The DAX isn’t looking very good with almost all sectors down.
DAX has been weak since the open – but looking at 5 days, it still needs to breach short term support around 5600. Meanwhile, it appears that there is resistance at 5700ish. Going into the NY open, I favour shorting ES over going long due to the behaviour of the DAX, and the risk /reward mentioned above for ES. However, I woud keep my tight stop at the TD risk level mentioned (above 1092.25).
USD is down. It seems that sales were lined up against EUR for squaring of month end acount. Therefore, the weakness may not last. CAD, EUR, GBP, and JPY are all moderately stronger - but weaker than earlier. DXY put in a higher high on Friday (see the wide white horizontal lines for “high” levels). You’lnotice that DXY is clawing it’s way above the pivot at 74.642 but that the dashed green line at 75.036 is the critical resistance level from a TD point of view. If DXY can get there, then we would have a higher low following the higher high - and hope would still burn eternal.
No sense in listing the pivots – you can see them on the chart and in the legend. IF DXY can get above 75.463 (which is a pivot and resistance level of IMPORT), then 75.88 is the next high that needs to be cleared – thankfully below the next resistance pivot up at 75.929.
A picture is worth a thousand words:
The short on ES right now has the better risk /reward with a stop above 1092.25 (how far above depending on your risk appetite and general volatility of the future right now). Target is 1067.25 which is the S1 pivot.
Michael Davey (CD) here…
The UAE has saved the planet this weekend, coming to the aid of a troubled Dubai World (pictured above).
I for one am really pleased, since I couldn’t understand how such a distant, seemingly insignificant default in the Mideast could ski-rope the global markets by the neck and pull it off the mountain.
Personally, I don’t care in hoot’s hell what the catalyst is. If I sneeze and my arm falls off, then I know I’m coming down with a cold, sure. But that’s got to be the good news, right?
Futures are higher tonight and the potential for a reasonable gap-up for equities is strong. My eyes are burning from screening a couple thousand charts the last 48 hours, but I’m emerging finally now with my new go-to list of eligible shorts.
You’ll cruise the list and go away, which suits me fine. Myself, I’ll key on this as an attack-list throughout the week and key the groups especially which lead us lower on any given session. I’m not trying to short the strongest names in the market. Some of these still show reasonable, overall relative strength (RS), but those few are exhibiting some other negative divergence (and all of the the groups below declining notably in RS for the previous 1-to-6 weeks).
Why am I getting short this market? Do I see the next shoe dropping for the markets?
Ha and Ha! I’m getting short for a variety of technical and psychological indicators (and a hint of fundamentals, but fundamentals have been mostly negative for some time already; you knew that – which is why you were either on the sideline or else getting short some many months ago…let’s not go there for your sake).
Severe downside? Oh sure, most definitely most maybe, it will perhaps be serious.
Or not. That’s not my game this decade. This is the decade to let the market define the terms. I’m just a trader with smugs and few hugs (I sense you noticed I was getting snarky just now) and why the devil should I pretend to know how this chess board is going to play out six and sixty moves from now?
You keep me posted on that and we’ll stay friends, okay?
Anyway, as always, this is not a list of here-and-now shorts, but an eligible list of my personal candidates. This week’s screen is focused on the industry groups, both highly and poorly ranked, which have been dropping notably in terms of relative strength (RS). My selection process beyond that is based on divergences, liquidity and more.
Good trading – should be another fun weak(sic!)…
LVLT (penny stock)
ZQK (penny stock)
Oil/Gas Field Svcs:
Funeral Svcs & Related:
In preparation for next week I think my intrepid stainless steel rats need some low carb & high protein charts to sink their teeth into:
If you have never heard about the II Survey: Each week the service Investors Intelligence surveys some 140 financial newsletter writers to determine whether they are leaning bullish or bearish in their opinions to subscribers. The resulting Investors Intelligence Survey compiles the data to arrive at a weekly percentage of bulls v.s. bears. The Survey is considered a contrarian indicator, since extremes in either direction are signals of reversal of the market’s current trend. We like contrarian indicators – that’s where the magic happens.
Based on that we can derive a bull/bear ratio chart, which IMNSHO is the most important. A rising trendline means bullish sentiment is outpacing bearish sentiment. Besides the numbers it’s also important to gauge the velocity of sentiment change. The 2.00 area is associated with bullish extremes and market tops, and the 0.60 area with bearish extremes and market bottoms. We are now touching 2.9 plus we also made a huge jump in a matter of one week. Mmmh – I wonder what’ll happen next…
Seems to me that since August investors have maintained a very bullish bias – as you can see turning points seem to happen when sentiment leaps forward in a rather short amount of time (indicated in red).
Sorry for the tiny chart but that’s the best I could find (please send me larger version if you can locate one). But what stands out nevertheless is the bearish sentiment reading, which now has fallen below that of the October 2007 top in equities. Despite the fact that we are way below the 700 mark painted during those ‘bullish days’.
At the very same time we also saw the VIX descend to 2007 levels as it attempted a breach of the coveted 20 mark – however failed for the second time. Not did it just bounce – it gapped up the next day and closed 20% higher. Yeah, yeah – Dubai Shmubai… as if that mess wasn’t already known by anyone with real skin in the market.
Bonus chart – remember when I posted this one right at the top?
What does all the above tell you about the ‘health of the rally’? Where do you think we’re going next? Dow 11,000 or Dow 9,000?
Give it time – stay the course.
Have no fear – the PPT is here:
This, my dear ladies and leeches, is how putting a floor underneath the market looks like. For the noobs – the support line you’re seeing is the VWAP. Curiously, after a 30+ drop in the ES futures over Thanksgiving this line is holding like the famed Chinese wall.
Although I was getting some flak from one facetious poster let me reiterate that this is actually long term bearish. Yes, they did put a floor underneath the market and yes, it’s possible that all the ugliness will be gone come Monday. But if you look underneath the hood – A/D ratio is at 0.1 right now and was 0.05 earlier:
Let me repeat – we just rallied over 20 ES points with an A/D ratio below 0.2. – that’s right. So we all know who’s doing the buying right now – none other than the PPT. Futures now approaching 1100 again on no participation.
But longer term this is actually very bearish – come Monday there will be very few stops to run as the bears are not believing this drop. Remember what we’ve been talking about for months now – the market won’t roll over until the bears have truly given up. The spike up today tells me that there are very few bears left – at least none of them are trading today. And even before this ‘Dubay catalyst’ (you all know how I feel about the news) the tape was in the process of rolling over. So, let’s see what Monday brings when the tape is not so easily supported by the weekend crew. If nothing else this drop has probably rattled a few nerves – I’m sure the MSM is already switching into sugar coating mode.
Forget about these crazy temporary gyrations – focus on the longer term picture. And for that you might want to take a peek at my ISEE related post yesterday. Yes, that’s right – while you rats were tripping out on tryptophan I was working my little butt off
I’m here to preach caution. Enjoy the fall and the dawning realization that the FED printing cannot eliminate risk. But, remember that market memories are short in most cases. If there are no more shoes dropping from the Dubai Default, then a bid will come back under the market faster than many think.
:Looks good doesn’t it. The decline in price; Higher volumes for red candles. Breaking the bulish flag that was forming in a bearish way. The violet dashed line just below the green starred-hexagon is where a major ramp up started. It is acting as support this AM. Below that, the red dashed line is a TD indicator of where the buying is likely to come in (A breach of this is likely to turn into a rout and more tears for the bulls – expecially if it is early in a BUY setup count – 1 to 9 bars with price declining).
Notice that SPX (as projected from ES this AM) has not yet gotten below the trend from Aug 17, nor the TD Risk indicator (red dashed line), nor the trend line from Oct 2nd, and certainly not below the last low at SPX = 1029.39 – which has been previously mentioned.
If the USD /SPX correlation is still valid, EUR has not broken below its long run trend line. See here:
As well, there is shorter term support from the trend that began Aug. 18th. Looking at detail on the 30 min chart (quite busy, I know), it is obvious that EUR has not set a new low below 1.4802 from Nov. 20th (extreme left of chart below). In fact, in spite of the “panic” over Dubai, I see a quite orderly bounce off the lower Bollinger, AND THE PIVOT which suggests that not everyone has given over to the emotion and there are still lucid and cunning heads out there who would be ony too happy to take your money.
So enjoy the bears’ day in the sun – but Dubai is nowhere near the scale of the events of last year. In the meantime, here is some fun stuff to look at, if you like the colour red.
The DAX opened down, but has been clawing its way back up. I would imagine that the ES chart will show the same thing when I post it below.
The short term line in the sand is drawn in red dashes by TD. It is 1067.75; Kudos to those who scalped out of their shorts around there. The main resistance line is above at 1082 – if you want to scalp short – according to TD, again. ES Pivots:
- R2: 1116.50 = remember this number in a week or two if there are no echoes or dominoes from Dubai.
- R1: 1112.75 = Looks like the last high, no?
- Neutral: 1107.50 = was the floor before the markets realized that Dubai is only one cockroach.
- S1: 1103.75 = I wouldn’t use any of these numbers because it looks like there is data missing from my graph – all of Thanksgiving AM.
- S2: 1098.50 = I mean, we are so far below these that they are not a factor in any trading. I will use the SPX pivots once they become available. There will be quite a gap on the SPX that some money would like to fill.
Every CB in the world, it seems, is jawboning about how recovery needs stable FX markets. Meanwhile, the FX traders are taking the markets on a ride. I’ve mentioned the EUR = 1.4802 level as the low that has to be breached if the drop (and USD rise) is to stick. It looks like 1.4811 is the level for today on the EUR long run trend line. The apocalypse cannot happen, IMHO, unless these are breached decisively. Further, a lot of money has been made by the USD bears, and I don’t think these levels are enough to cause them to change their thesis. If anything, the resistance below DXY = 75.6ish may make them bolder.
USD is strong – but notice that even in a so-called crisis (Dubai), it is still not above the 75.622 level yet (was the last high). CAD, EUR, and GBP are all down more than a cent. JPY is mildly stronger. This just says that the risk trade is off for now – but that there is no panic, nor blood in the streets.
The funny part is how much GOLD dropped – it usually does well in a crisis. Oil is down as well, so it looks like the USD play is the order of the day, and not the crisis play.
Here are the main Global stories followed by more recent headlines. Notice in the latter that the YEN is earning a higher real rate than the USD – which would explain its strength this AM when every other currency is retreating.
None today. Surprise, surprise! Here is the schedule for next week. Lot’s of green shoot-type stuff coming up – if MSM needs to keep brainwashing the populace.
For now, ignore the ES pivots I posted since they are likely erroneous. Use the two TD risk points I provide (1082 above , and 1067.75) as risk points for short and long trades, respectively.
?? The 10 year on the run Tbond is at 3.20% up 20 bps – looks like selling, not buying (??). Probably a move down into the short end….
As I said, enjoy the bears’ moment in the sun – but beware the whiplash of a move up over the next week IF there is no carry over or dominoes falling from Dubai.
Okay, so I lied. I was planning to completely forget about trading during the Thanksgiving holidays but then I ran into this chart this morning and just couldn’t help myself:
This is the equities only portion of the ISEE chart. In response to some of the pitfalls in the traditional put/call ratio the International Securities Exchange (ISE) publishes their own modified version called the ISEE index. Unlike the old school p/c ratio the ISEE filters out trades from both market makers and broker/dealers. The ISEE further differentiates itself by using only opening long trades in it’s tabulations.
As such the ISEE presents a much clearer picture of how retail options traders are positioned. The ISEE also uses a different equation than the regular p/c in calculating their index. To formulate the ISEE, the exchange takes the modified call volume, divides it by the put side and then multiplies the result by 100. Hence the ISEE is always a whole number.
With a normalized p/c equation a higher reading symbolizes greater put activity to calls while the ISEE formula generates higher readings if call buyers outweigh put buyers. So while a traditional p/c ratio of .75 would mean more puts than calls an ISEE value of 75 is the exact opposite. Like the CBOE the ISE also offers updated calculations of their p/c index several times an hour.
Okay, now that we’re all on the same page you might get an idea where I’m going with this. The high spikes I highlighted mark extreme ISEE readings above 230, which just so happen to precede turning points by a few days. Now, let’s correlate these spikes with daily candles on the SPX:
As you can see the ISEE spikes precede turns by a few days, but they are very reliable. Hey, I prefer a few days early than a few days late. What’s particularly notable is the 247 reading last Tuesday, which is the highest as far as I can see back. It was followed by a 241 close last night, which would be a strong reading on its very own. So, chances are that a significant market decline is imminent, and it is most likely only a few days away.
We now again find ourselves at highly overbought conditions coupled with wide-spread divergences across various averages. Gold and other precious metals were up, with oil and natural gas down as well as the dollar down. The inverse correlation between the dollar and equities are beginning to soften as new extreme down moves in the buck are not accompanied by equally strong up moves in equities. I think Chris Carolan said it best:
The accelerating nature of the dollar decline and gold rally may finally have reached the point where any international earnings positives for stocks are outweighed by the downside of the obvious increasing monetary instability. The markets look like they’re about to get scared again.
In other words – the dollar carry trade is running out of oxygen. I believe Karl ‘No Slave To Fashion’ Denninger made the same point just two weeks ago, and you might want to take a look at his latest update on the subject. Another strange new phenomenon is the VIX rising and falling in line with equities, which confirms Carolan’s point that fear is creeping back into the market. All this suggests that conditions are now favorable for a market decline. You have been warned.
I have been quite verbose on the notion that the thinly traded rally of past few days was designed to further discourage the bears and to shake out weak hands. I’m sure that many traders simply gave up and cashed out as to not to suffer from further theta burn throughout the long weekend. I myself was very tempted but did not yield to my emotions – which was for the better as the ES futures are down a whopping 25 points right now. Yes, this may be quickly reversed tomorrow or Monday but on a more medium term those ISEE readings are usually good for at least a one week reversal.
Weekend Reading Assignment
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Enjoy the rest of the weekend – I might pop in and out tomorrow but don’t expect me right at the opening bell – I’m sleeping in tomorrow
7:30pm EDT: A little update – I got fascinated with the ISEE and worked all day to import the data into Excel – here are some follow up charts for you guys:
Now, isn’t that a lot nicer? I have also highlighted all spikes above 135 and all drops below 100 in the past year.
Here is the ISEE 10-day MA version – the focus here is twofold: First we have divergences which seem to indicate that a medium term trend is running out of steam. Then we also have a pretty obvious channel to the upside, which seems to also be a precursor for turning points lately – it’s actually more timely than the pure data as of late. You might have noticed that we have not pushed into the upper channel line this time around, so perhaps more upside is a possibility.