No Edge In Equities

I spent quite a bit of time browsing through my chart universe this Sunday. After careful analysis of a multitude of momentum charts I remain in my SPX 1400 waiting loop:

Look, as I stated last week – we fulfilled our bullish P&F price objective and the tape now has to show signs of weakness, no matter what any sentiment or momentum suggests. The latter by the way is rather mixed but I’ll get to that later.

There is an possible opportunity in the form of weekly and monthly resistance coalescing near ES 1415 (keep in mind fair value when plotting this on the SPX). The spoos are above 1400 in late Sunday trading and we just may make push into that range early this week.

Let me show you some bullish and some bearish charts that will demonstrate why I’m extremely cautious about being short here – subs only, so please step into my dusty lair:

The bear p0rn first. Here’s my SPXA50/SPXA200 ratio and I can confidently say that I have never seen a more pronounced divergence without seeing some type of price response. Some people may look at this and find it extremely bearish – yes – but I also wonder what happens if we are not burning a bit too much downside momentum. What if we eventually correct? There won’t be much downside potential left.

Now let’s take a look at my weekly MMMR charts (i.e. market maker mind reader charts – hint: they are proprietary volatility ratios). That’s looking mighty bearish going all the way back into 08.

MMMR2 – super bearish signal as well.

Weekly MMMR3 – definitely in topping territory (it’s an inverse plot). And not the good kind you put on your frozen yoghurt.

Yeah, I can do this all day – MMMR4 – also now at new bearish extremes.

On the bullish side we have the CPCE (i.e. equity options based p/c ratio) near neutral, leaving us plenty of room to drop much further before.

Copper sitting right at resistance and I think a break out here would trigger a short squeeze. By the way, my P&F chart still suggests a bullish price objective of 5.4. No, that is not a typo.

Old bucky just can’t get out of the gate – as you can see it’s been trying to spike above 81 for a while now and unless we paint 82 this sideways pattern may continue to feed the bulls on the equities side.

Finally we have Mr. VIX bestowing us with a bonafide sell signal (relative to equities) and the very next day we get a drop lower but a close back inside the BB. I really really hate it when that happens and I am not sure how to interpret this in the context of the absolutely valid signal.

Not related to the above but gold is bounced near support as we expected. I had pinned it near 1650 and it went to 1640. This confirms the support which was not as clear on the time based chart and if you are long/short gold then use 1340 as your line in the sand.

More short term we painted an inside candle on Friday and seem to already have breached to the upside. However, I would watch the 100-hour SMA here as 1666 could be our launch pad to the upside (it certainly is evil enough).

Bottom Line: This is a bit confusing but also very simple in terms of how to structure our approach. I am going to stay on the sidelines until I see a clear and present price pattern that suggests that it’s time to look downward. If you are a trend trader you must be loving this tape and I suggest you do nothing as the trend is your friend, especially during extremely overbought periods. Things can turn quite ridiculous until the boyz get tired of short squeezing the hobby bears.

And no, I most definitely do not recommend chasing this thing up – there is little edge in equities right now and the only excuse you have in staying long is because you took this train a long time ago and are simply waiting for your exit signal per your technical rules. Anyway, I will keep my eyes peeled and put up a pertinent post as soon as we see prices paint anything resembling a top. Until that happens let’s focus on Forex and commodities.
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Cheers,