I had imagined a situation in the China 25 (now 50) vs. the S&P 500 that called for China to either rise more than the US or decline less. It was based on this weekly chart and its moving average ‘up’ signal which, while still in effect has turned out to be a load of crap. You know, fair disclosure and all… got to put the bad calls up along with the good ones. So there’s a bad one for you.
It would be best if you’ll click the chart and blow it up to its full size. It’s fairly huge and it’s fun to look at.
This chart was produced last year in NFTRH as MACD was rounding into a topping situation. What I found interesting was that in the last two instances (Humps 1 & 2) a down-triggered monthly MACD served to drop SPX to the EMA 20, providing the refreshment that gave fuel to the dynamic final upside for the stock market as the ultimate down-trigger and liquidation came well over a year later and from a much higher price.
What is different this time is that price has not done squat (save for the hard stab down during last October’s flash correction and reversal), doing all it can do to touch the EMA 10 while MACD makes a stronger looking initial bearish signal than it did on the two previous cycles.
The way I interpret it is that in resisting any price destruction while MACD continues to roll it is probably a good idea to view 2000 and 2007 as cool comps but to realize this thing, built by will of man (and woman) per the chart below, is its own animal fully capable of attaining its targets, which once seemed ridiculous, or imploding for a test of major support or worse.
Humps 1 & 2 were attended by at least some semblance of monetary stewardship. Hump #3? Not so much.
So our post concludes, hey SPX can either rise a long way or drop a long way. Sounds about right because we are in uncharted territory. But as it stands now, that is an ugly looking MACD.
Well, what can we say? The market is the market and it is what it is. We have to go with its signals. Here’s how NFTRH 351 concluded the US Stock Market segment on Sunday…
Let’s close the segment with a look at the Biotech index. The daily chart pattern still has a sneaky bullish look to it. If it gets above 4200 the bullish look would be more than sneaky, it could indicate a return of speculation and eventually, momentum to the US market. A failure of the 50 day averages, as BTK very temporarily did last week, would turn this thing bearish quickly.
Here’s the chart that was associated with the above (now updated obviously)…
In NFTRH 351 we had an extensive look at the Semi sector including its nominal technicals, its market leadership status and a potential setup that could be in play if my read on its fundamentals proves out. FWIW, here is the status of the Semiconductor sector’s leadership.
Since Q4 2012 SOX has led the S&P 500, which makes sense since Q1 2013 was when we became alerted to the Semi Equipment sector’s ramp up (which in turn was an early economic signal). 3 times since the circus last October centered around Microchip Semi’s outlook brain fart SOX’ leadership became over done and now the question is, has it been over done to the downside yet again?
All trends end sometime, but as of now this one is completely intact.
In NFTRH we have been following a transition to a gentle uptrend in the Equity Put/Call ratio since the beginning of the year. With that gentle uptrend (in the weekly EMA 20) has come a transition in the S&P 500, from bull trend to sideways. In other words, pressure has been building. This has come along with other pressures like a fading Bullish % index, which shows that participation is thinning out to fewer and fewer stocks.
It’s one of a lot of different tools that need to be used and cross referenced in managing markets. You can’t take any one tool and assign mystical powers to it.
Well, I have held a short position against the SPY for weeks and weeks now. It flashed profitable once or twice but has mostly sat there at a loss. It is a straight out short with no leverage, so it has been easy to hold. Today it’s actually pushing its way nicely into the green.
After discussing the potential that the Dow and S&P 500 bounces were just breakdown tests in a mid-day update on Friday, I decided to leverage up and buy the 3x inverse fund SPXS. I am now taking profit on that because the market has taught me that gains from the short side, especially when using leverage and they come on hype-filled events, should be respected, cherished and taken! I’ll continue to hold SPY short, however.
Here is the ugly SPY chart at a point that could be considered minor support. But we have better support for the S&P 500, which would still not threaten the bull, significantly lower. This chart says SPY 200 is doable if the current level is lost. But again, I don’t really trust this Greece hype as a bear motivator.
I am not here to promote the merits of Biotech or to claim it is or is not in a bubble. I am just a dumb macro fundamentals and technical guy. As such, I know that the macro has burped up all kinds of cheap, easy money that has flowed into speculative areas like the Biotech sector. There are solid entities in this space, like Gilead for one (ref. April 21 NFTRH+ highlight), which are real companies transforming real qualities of lives, and then there are a lot of hopes, dreams and promotions.
There is also a secular bull market in Biotech vs. the balance of the Tech sector. However, the post-2011 up cycle has now reached levels of leadership (and distance from the EMA 30) that have capped previous expressions of greed and momentum.
But it is not so clear as to just say ‘Bio’s are due for a correction’. Bloomberg is noting that the bears are gathering against the sector (IBB iShares), but the stock market has other leaders with higher measured targets and one of our ongoing scenarios is for a classic manic stock market blow off.
Look, I have been thinking a market correction could start by now and this correction has not yet come about. Most recently, market sentiment took a real lurch toward over bearish and as usual, that proved supportive. Now Bloomberg is highlighting the bubble in Biotech and the sharks are circling.
What’s a poor schlep to do? Keep an open mind and respect the charts. The monthly above shows that Biotech leadership is at a point that has triggered reversals, historically. The daily chart shows the iShares (IBB) above initial support and filling a little gap. Better support exists down to 360 or so. MACD and RSI are each constructive.
Below are charts of some US market leaders; some simply because of their price and momentum and others for those things and also fundamental reasons (like for example, the Banks w/ respect to interest rates and the Semi’s w/ respect to a booming ‘bookings’ situation’ in the Equipment segment).
A long-standing target for RUT is 1350-1375. That goes back about 2 years using monthly charts. Now the daily is pretty much in agreement as the pattern measures 1340 (assuming the breakout holds).
Unlike the RUT, BKX is nowhere near blue sky. But it has recently worked its way into a leadership role.
Despite a wobbling stock market, a key leader (the Semiconductor sector) is trying to find support and as such, remains constructive. Until I get cross referencing evidence (ex. from the Semi Equipment sector’s book-to-bill ratio, technicals, etc.) to the contrary, this is a still bullish sector. The SOX includes Equipment companies like AMAT, along with the actual chip makers like INTC.
Here is the very nice state (on balance) of my Semi sector holdings. They are all chip makers (Fab’d and Fabless), but I have interest in the Equipment guys too, again, as long as the b2b remains firm.
In the previous post Tom McClellan highlights Peter Eliades’ work on the cyclical top due in the S&P 500 this year. To add some color to it, here is the chart I produced for NFTRH subscribers several weeks ago after purchasing and reading an Eliades report myself. His work came to my attention by way of Robert Prechter.
Bear in mind that this big picture cycle is a blunt tool, much like market sentiment or other indicators that show risk, but for extended periods, little risk discovery. So as McClellan mentions, it takes much finer detail management to gauge a topping process. That is what makes market management interesting and sometimes even fun; adding details and color to big picture theses.
We should not look at one chart and its message without cross referencing other charts, data and indicators. The best risk vs. reward scenarios come about when multiple data points come to similar conclusions.
Anyway, staying on the big picture, here is another monthly chart of the S&P 500 we have been using in NFTRH that shows yes indeed, a top (of some kind) is indicated by the monthly MACD signal, but…
…that each of the last two major tops included a bearish MACD signal that preceded a drop to the monthly EMA 20, which turned out to be a pause to refresh prior to ultimate bull market highs in both cases.
Will it be different this time? Very possibly, but also very possibly not. The stock market cycle indicates that it will be different because the S&P is supposedly due for a major top. But the color and detail can only be painted in by doing the shorter-term work each week. Especially since this cycle has had a certain ‘rule breaker’ aspect to it, due in my opinion to historically aggressive policy maker inputs (and resulting distortions) from its birth in Q4 2008/Q1 2009 to today.
Per this chart created several months ago, the Semi index hit the first target of 750 on June 1. I had not even realized it. “Essentially in the books” is now IN the books. Way before the Semi’s recently started gaining the M&A hype in the media NFTRH highlighted the sector for a coming bullish phase (January 2013) for fundamental reasons, and then in early 2014 when the big breakout came we added technical oomph to the case.
Dutifully, SOX has been pulling back, which is a good thing since I did my selling and am without exposure. I have my eye on some buy targets for a few items, which were mentioned in NFTRH 346. They are stocks that have been mentioned here as well at various times. As for the sector, SOX is completely unbroken.