Medium To Long Term Outlook

Equities continue to defy gravity as we are charting into unseen territory thanks to Draghi and friends at the ECB. None of us were able to foresee last week’s surprise spike but most were thankful to see at least some movement return to our charts after more than a month of mind numbing boredom. Curiously however we were positioned rather well due to strong entry signals on the FX and commodities front. And this remains to be my preferred modus operandi at this point – keep an eye on equities but find exposure in markets that provide clear signals.

The most bearish chart I could dig up today was the long term VIX which once again has descended into bounce territory. I recall our P&F suggesting a reading of 13 or lower and that’s definitely a possibility. Let’s also not lose sight of what happened two years ago when we remained locked between 15 and 22 for over six months. And that means short term we could see a little reversal but long term it’s difficult to say when we see a meaningful correction. More on that further below.

It’s been a while since I posted my weekly stochastic and originally I was waiting for a breach of the 80 mark, which we almost got. But we continued higher from there and we may just get a repeat of what we saw earlier this year when we remained embedded for several months. So until we see a decisive breach here I have little interest in being short equities. As a side note may I add that those 80/20 breaches have continued to be a spot on LT indicator! Which once again goes to show that charts do not have to be complicated to be of value.

Similarly if you look at that gaping divergence on my NYSE adv/decl issues ratio chart then a medium term correction remains to be just behind the horizon. The timing is however where things get more tricky. In hindsight a reversal here right now would look rather justified. But earlier this year this ratio continued all the way down to 1.05. So I would say medium term correction in the next week or two is a possibility – but I would prefer to see us scrape 1.0.

And even if we drop it may just be on an alternating medium term basis – pushing us sideways until we get a big drop. For example compare the highlighted region with the same time frame on our long term VIX chart. So just because VIX is scraping the bottom of the barrel it doesn’t mean we are facing a long term correction. As a matter of fact I continue to wait for a little reset in equities as long term charts across the board are looking pretty bullish these days. Plenty more below – please step into my lair:
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NYSE advancing/declining issues – not really looking bearish. That little divergence right now is technically meaningless especially given the magnitude of previous patterns (which were ignored for months). Meaning I would have to see something quite a bit more significant to start looking down on a long term basis.

Here’s my CPCE deluxe chart – it’s plotting the put/call ratio equities only. This chart has developed a very distinct declining channel pattern in recent years. Based on this we should not expect any fireworks unless this MA ventures toward 0.58.

After last week’s big move I decided to post a fresh view of our point & figure charts – after all they have continued to treat us very well. Before I show you the current P&F of the SPX here’s one taken early this year as we just breached upside resistance. Note the 1430 bullish price objective.

Here’s the current version – same settings. This goes to show how accurate point and figure charts can be and why I continue to use them. And just perhaps the current 1550 bullish price objective is something we should be taking seriously. Now remember, that’s a LONG term chart – obviously we need to anticipate medium term corrections until we get there.

FYI – at the current time it would take a drop below 1400 to give us a high pole reversal warning. And the current bullish price objective remains active until 1360. So if you are long term bearish you have quite a bit of time before you would even get P&F confirmation.

I love this chart – and I hate this chart. Per the former sentiment – what a wonderful floor pattern which I pointed out a few weeks ago. And look where we are now – still a few handles left until we hit our bullish price objective of 129. Per the latter sentiment – this does not bode well for my exchange rate here in Spain. Ole’ bucky is looking very sad these days.

Crude – a bit of a laggard last week, not just WTIC but also Brent. But our bullish PO of 109 remains intact.

Silver – we got a new price objective and it’s looking excessive. Not impossible but if this holds true then we can really kiss ole bucky goodbye.

Gold disagreeing a bit here – we have only about 50 handles to go until we hit our PO. Bullish looking chart though and this PO does not mean we can’t go higher. However, after a long column like this it would not be unreasonable to expect a little shake out here in the near term.

Bonds – well, actually these are the yields charts, just turn them upside down. I’m seeing the very same confusion I recently pointed out on my LT interval charts (i.e. the weekly and monthly). The 30-year is giving us a pretty impressive bullish PO but at the same time we are getting a high pole reversal warning.

And not just the 30-year – here’s the 10-year equivalent which is showing us the very same technical dissonance. Until we get either a bullish or bearish break out I am not touching bonds with a ten foot pole.

Cheers,