Medium To Long Term Perspective

Let me start out by stating that I don’t trust this tape at all. It feels a bit engineered and a short trading week usually opens the gates to much monkey business. But as a few bearish charts are starting to come into sync I decided to devote a follow up post to some of the perspectives I have shared in the past few weeks.

Yesterday we took a quick peek at the long term spoos chart. My sense was that a close below that monthly NLSL would be bad medicine for the bulls. I also threw out the potential of a last kiss goodbye at the 25-week SMA. All in all it was a great shorting opportunity though with only a few handles of risk. But that was a short term trade and if you took it you should be out by now, no matter where we’ll end up today.

This is actually the most bullish chart I was able to dig up today. My SPX P&F is currently suggesting a bullish price objective of 1395. In the context of what follows below this is a bit curious – but who am I to argue with a chart that has treated us rather well for the past few years. Rather let’s focus on defining the inflection points at which we see confirmation or failure for this projected price objective. In my mind 1295 is where the bullish case dies – and 1330 (remember our volume hole?) is where the bulls gain traction and probably win the day. In the between we remain in whipsaw central and none of you are going to have much fun.

Alright, and now on to the good stuff – I do have a few medium term divergences in store which you should be aware of:

Exhibit number one: JNK:TLT ratio – has been leading downward for a while now and it’s already making new lows while equities are still lagging behind. Who are you gonna believe? Credit or stock market traders? Before I look up I’d love to see a bullish divergence here – so far nada.

This is basically the AUD/JPY – it remains carry trade central and thus our closest FX correlation to equities. Also note that beautiful bearish divergence a few months ago. Its leading equities down as well and the next support level is near 0.77.

Copper also leading equities to the downside – next support is near 3.30. Again note how copper is making new lows while the SPX is holding behind. Also note the bearish divergence a few months ago.

On the NYSE down/up volume ratio chart I have been waiting for a breach of either support or resistance for a while now. We may have one right now – if it is a false break out then it should swing back in the next day or two.

On the treasury side we seem to be holding my channel on the 2yr:20yr ratio. Thus far it has been calling the TBT rather nicely so if you’re holding that or TLT then keep an eye on it. An upside breach would have to make it above 0.12 on the ratio.

I’m finishing up with crude – here’s the medium/long term perspective. As suggested that 25-week SMA touch was a last kiss goodbye after which things got really ugly. This chart however does not give us much meat in respect to target zones or support.

Which is where the P&F comes in as we still have an open bearish price objective of 84.5. Didn’t that sound ridiculous just a few weeks ago? Well, we’re getting close – as I’m typing this we are scraping 87.5.

Bottom Line: On the long term I am very curious as to how we are going to close out May tomorrow. If we remain below that monthly NLSL then it could lead us lower even if we get a temporary snap back. Obviously that bullish price objective on the SPX P&F is our proverbial fly in the ointment, which is why I suggest to wait out a breach of either inflection point highlighted above.

Keep it frosty and don’t start guessing directions – the tape will lead the way.

Cheers,