Here are a few different charts we have used in NFTRH in order to keep a view of the US Stock Market’s big picture in mind even as we managed the shorter-term picture, which culminated in the daily SPX breaking down out of the nose of the 50 and 200 day moving averages per the chart in this post.
The point I was trying to make even last year as the MACD rolled over, was that the market was coming due for a correction and that while the MACD looked like a bull ender, similar conditions in 1998 and 2006 were not. They were bull refreshers as momentum refueled for the ultimate drive to the top. The EMA 20 (green) was seen as the bounds of a ‘normal’ correction and as of now, in-month, SPX is well below that MA.
Another message of the chart is that SPX can correct all the way back to 1550 and SPX would be in a cyclical bear within its big bull market breakout. Click for a monster sized view.
I created this chart after reading some cycle work by Peter Eliades, by way of one of Robert Prechter’s EW Theorists. This further defined the time window for the correction. Boink, good job Peter.
This chart shows the ‘higher low’ that SPX needs to make to avoid doing what some other indexes have done in making lower lows to October. Generally, SPX and other US markets need to not close August below that level or a cyclical bear is likely.
People talk about how the US market has not yet accelerated upward and indeed, there is a chance that the manic up phase is still out ahead after this fright fest cleans the market’s pipes. But the slope of the post-2012 bull phase looks similar enough to the post-1998 bull phase. There is no implicit need for further acceleration to end the bull.
It is really interesting though that China/Asia are being blamed for everything right now. The similarity to the late 90’s ‘Asian Contagion’ is clear. That thing ended up being an accelerant to mania. What will this thing end up being? If SPX does not get back above the EMA 20 soon it will look different than the 2 previous downside whipsaws.
Hey guys, the S&P entered a correction the moment it broke down from the nose of the Diamond and the pinch between the MA’s 50 and 200. But here’s Reuters by way of Fidelity to clue us in that S&P entered a correction today.
“NEW YORK (Reuters) – U.S. stocks ended more than 3 percent lower on Monday, their fifth straight drop, in an unusually volatile session that confirmed the S&P 500 was formally in a correction.”
I don’t know about you guys, but I’ll take the informal kind of correction and prepare accordingly. It started when SPX dropped out of the red dot for the 2nd time and was confirmed when 2050, a whopping 157 points ago, was lost.
Here is what actually happened. SPX chose ‘down’ from its moving average decision point. This had been the most likely direction given momentum, leadership and participation that had been fading long before hand, although it also seemed pretty obvious. I mean, you and I both saw it, right? SPX then broke support #1, turning into resistance #2. SPX then broke support #2, turning into resistance #1.
And now here we are. The bull market is intact and the test is at hand. What the market has going for it is Mr. Frumpy Trader up there, and a lot of bear market calls coming out.
So everybody’s got the bear memo, the Margin man has probably made a good amount of his collections and nothing is resolved. Not unless the market loses the October lows.
The consolidation pattern is looking none too good so far today. At some point this could play into our overall Macrocosmic plan as the Microcosm Expands incrementally. Of course those running the machines in the fantasy factory may start to concoct a ‘Fed’s not gonna hike!’ bull story at any point. But right now, this thing is going bearish.
Last Friday it was Hammer Time, Part 1 as the indexes Hammered to close the day, setting up Monday’s bounce. Then came the jawbone, the pump, the failure and now… (would-be) Hammer Time, Part 2. Isn’t this market fun?
However, NFTRH.com posted a chart this morning, while the market was near its lows, of a support level that is really key. The market was going to bounce at this level. It always does at points where you, I and the chart jockey down the street all see the same thing. So too do the algos, black boxes, casino gamblers, substance abusers and day traders.
Adding to the ‘had to bounce’ scenario is MarketWatch dutifully playing the role I had assigned to them last week and had a laugh about this morning.
Yes, everyone seems to be playing their proper roles and nothing is resolved.
 This is an opportune time to mention again that markets do not go down because China is in the news… or Greece was in the news… or Apple is in the news. Markets go down because they go down and they go up because they go up. News flashpoints (and Fed Jawbones) only serve to roil things for short periods. The market is on its own plan and will either break down for real or up for real soon enough.
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.
The Russell 2000 obviously has an ugly topping pattern. It has long since nudged to a lower low to the August low and now has eased below March and January. If it holds below the line this thing will be in a bear trend. The bears should hope that TA geniuses do not come out and blow horn the DEATH CROSS!!! of the MA’s 50 and 200, which is a Red Herring. The chart is bearish enough without the help of that hype.
Anyway, RUT was a leader to the upside on this most intense bull market phase, which has been the post-2012 period and that leader is starting to lose its bull market.
Well, here came the short covering rally in the precious metals. By calling it that I don’t mean that it cannot turn into something more, but today was most assuredly driven by short covering as the US dollar unwound some of its speculative sponsorship. One can assume that large speculators took it on the chin on both ends, in the USD and in gold/silver as the Commercial traders had been aligned increasingly bearish and bullish, respectively.