Long term bear case

Admittedly this a bit more of a stretch than the long term bull case outlined in the last post. Let's face facts: USA main indexes are in healthy uptrends, 4 of 5 above all pivots, above most weekly moving averages which are all rapidly rising. Other than oil, other key sectors are doing fine. Global indexes are also up and delivering a lot more gains than SPX thus far. So what is the valid bear case?

Without getting into my dabbles in Elliott wave (which have been pretty good btw), the main bear case has to do with central banks. If the bull case is that indexes have made convincing breakouts above prior highs 2013+, the bear case is that this move would not have happened without the trillions of $YELR (dollars, yen, euros, pounds, rembini etc) that were pumped into the system from 2008.

Proponents of ZIRP and QE might say these measures were like training wheels on a bicycle for a youngster. When the kid is old enough to ride, the wheels come off the the journey continues ahead.

Bears would say give me a break, the measures were training wheels, extra stabilizers, cushion on both sides in case of fall, and oh yeah, a motorized cycle so you only had to pretend to pedal! So when all that comes off, there is only one possibility: bike-wreck. To put it mildly.

From the not zero-hedge site Pimco:

What? 25,000 Billion globally? What even is that number? Is it pronounceable? And these accommodations are in process of ending. From the not very bearish Financial Times blog:

Training wheels are coming off. And the stabilizers. And the cushions. And the motor is stopping. Economy will soon have to pedal on its own. The bear case is that this the bicycle will have to take a tumble after getting so much help for so long. 

For now, my take is somewhere in between. Stocks are still in healthy uptrends. But I don't buy the pure bullish conclusion that markets are 4.5 years into 15+ years up without a major drop. I don't know how much the market will drop, when it does; but think we will see a major decline decline (-20% or more) sometime in the next 4 years.

For now, ideal scenario remains: relatively mild pullback ~5% or so, then back up to test highs, then we shall see.

ps: So far markets have ignored crazy man at the wheel but you just never know when that is going to get real.

Long term bull case

As the end of the first half approaches, I am going to write a couple of posts on the larger picture. 

First, what are the basic bull and bear cases for risk assets? This post considers the bull side. 

Bull case
Major USA indexes have broken out of multi year consolidations to upside, and could be just in early phases of a major run. Here is the SPX quarterly chart with consolidation from 2000-2013. This means the breakout move is just 4.5 years old. 

And this year, the big 2000 top in tech has been taken out in a very convincing fashion after several quarters of stall. 

Using the Dow to go further back in price history, the last consolidation before this from 1966 top to 1982 real breakout was 16 years, followed by an 18 year mad bull stampede into the 2000 top. 

27 2 INDU Q.png

Lastly, the 1929 top was not cleared until 1954, 25 years. Still, that was only a portion of the way to the 1966 high even though the market had increased substantially off Depression and WWII major lows. We could also consider the breakout above the 1930s highs (first in 1946 was fake-out) followed by breakout for real in 1949 - 20 years after 1929 peak and 12 years after 1937 high. 

27 3 INDU Q.png

Also consider RSI on these charts in the lower panels. SPX RSI reached above 70 in 2013 Q3, and since then the low has been 65 in 2015 Q3. This is what happens in bull markets. Current reading of 79 is still well under 1998 top of 95. 1950s bull market quarterly chart RSI on INDU reached up to 90, still considerably higher than today. Also, that was just the first in a series of peaks until the 1966 top. Current charts do not show any divergences on quarterly chart RSI which tend to precede major tops in the market except on parabolic bubble tops like 1929. 

It is safe to say that 4.5 years beyond and 50%+ above the 2000 top on SPX, and 6 months and approximately 20% above the 2000 top in NDX, that the current move is not a fake-out. From these examples, one could conclude the bull market is in early phases and should have plenty of room to run. At the very least we are likely to see quarterly chart RSIs go higher, then show divergence, before a major bull market high. This would imply many more quarters of upside. 

Soon: the bear side. 


Dow yearly levels

The market is testing the YR1 on INDU ie Dow Industrials. While I always pay attention to yearly levels on main indexes, there is a case to be made that the Dow is the most important. Why? So many historical turns have happened bang on Dow yearly levels. 

Weekly charts below. Red means resistance, green support, orange are pivots.

2005 - Low of year on YS1
2006 - Low of year on YP, major May high on YR1, major higher low near tag YP again
2007 - Low of year on YP, major lower high on YR2
2008 - High of year on YP
2009 - Low of year - that's right, the low! - on YS1

I added the 1HP and 2HP for these (pivots only, not support or resistance levels for clarity)
2010 - Low of year on 1HP
2011 - High of year on YR2, low of year near tag of YS1
2012 - Major first half highs on YR1, low of year near tag of YP
2013 - Key pullback lows on YR1 and YR2 holding as support
2014 - Low of year on YP, major second half low on 2HP

2015 - Major first half low on YP; low of year on YS1
2016 - Low of year on YS1, major higher low on YP, key high on YR1
2017 - YR1 high?

Monthly charts

Safe havens: VIX XIV GLD TLT AGG
Currency & commodity: DXY CL1 USO

QQQ amazing and leading all. But other USA indexes showing Bollinger band divergence, a warning sign of potential turn. Trend still gets benefit the doubt. 
VIX and XIV supportive of risk assets. GLD reclaiming 50MA, a positive. Both bond ETFs decent advances but my guess is down for the next bar. 
Biotechs looks positive, but semis putting in textbook doji bar something to watch. XLE hanging by a thread. 
Global stocks mostly strong, especially ACWI, EEM, FXI, and INDA. SHC, EWZ and RSX less so - RSX potential short.
DXY holding MAs, but sliding, no call. Oil looks better on CL1 chart but ETF is terrible. 

Trend up but BB (Bollinger band) divergence, potential negative. RSI still above 70 helps. A combination of BB & RSI divergence would be more clearly negative. 


29 61 QQQ M.png

Bollinger band divergence, and April close barely above the last up close of February.

29 62 DIA M.png

Bollinger band divergence, and wick invites sellers. 

29 63 IWM M.png

Bollinger band divergence. 

29 64 VTI M.png

10.42 is the monthly close low of 1/2007.

Holy camoly - fell back inside BB only to rally back and close outside. 

Above M50MA for the 2nd time since 4/2013.

29 67 GLD M.png

Rallied back above M50MA, but wick invites selling. 

Decent advance, and above M100MA helps, but stopped at falling M50MA. 

29 69 AGG M.png

M50MA held on the lows for several months. Approaching 61% Fib level. 

29 70 XBI M.png

Perfect doji bar! Potential monthly CIT based on this, according to candlestick theory. 

29 71 SMH M.png

Not keeping pace this year, but small down bar invites buying. 

I didn't play the short, but did recognize that the 50MA (purple) and BB would be resistance back in 12/2016. Currently holding M20MA, but if any lower, below all monthly MAs!

29 73 XLE M.png

No BB divergence like most USA indexes. Breakout above 2015 highs is bullish. 

Above M50MA and M100MA, pushing the BB. RSI plenty of room to go up. Bullish. 

Weak selling that held above M10, M50 and M100. 

Holding 10MA and 20MA potentially bullish. 

29 77 SHC M.png

Looking good!

Two weak up bars that have held 10MA, but under the falling 50MA. Potential short. 

29 79 RSX M.png

Closed under the M50MA as well. Looks better than RSX but still could drop. 

29 80 EWZ M.png

Slight close above 10MA and 20MA, but sliding. Tough call. 

CL1 continuous
Not the worst. 

Terrible. Below all MAs, all falling slope. 

29 83 USO M.png

Quarterly and monthly charts

Today I've written out a full analysis instead of posting charts. I suppose this is not quantitative for today's math & backtesting environment, but this is how I do things. All indicators are tools that translate numbers into visuals. In general these indicators are assessing trend, the potential of that trend, and the possibility of reversing that trend. Divergence is especially important to the latter and works on the idea that trends slow before reversing. 

I am talking about moving averages (MAs), Bollinger bands (BBs) and Relative Strength Index (RSI). Here's a little bit more on each.

For moving averages, I use standard 10, 20, 50, 100, 200 and 400 on all charts. In MAs the first thing that matters is whether price is above or below; then the slope of that average; then some judgment of how recently or how many times it has been tested. The latter is more subjective but when I see a good example will point it out.

The next tool is Bollinger bands. Bollinger bands can get tagged often enough, and usually it is not enough to turn the market. What works especially well is divergence - this means a high in price that is outside the band, followed by a higher high in price that is inside the band. The indicator is saying that although the actual price is higher, the time and magnitude of the move is less. As with moving averages, slope matters. 

Lastly relative strength index or RSI. There are several factors in RSI analysis and I've posted elsewhere in more detail. In an uptrend overbought (ie 70+) is not enough to turn the market - it is divergence that is threatening. Although when you have OB quadfecta on quarterly, monthly, weekly and daily charts that is enough to limit upside and increase risk of a drop.

In general USA main indexes (and sectors of interest) are in uptrends, above all moving averages as they have been for several quarters and months. So the issue becomes trend reversal or upside potential. It seems likely that upper bands will continue to act as some resistance for most USA mains (see notes below on SPY, DIA, IWM and VTI). QQQ is the exception, continuing to power up, but I think that becomes vulnerable to a profit-taking or re-balancing move.

Safe havens look supportive of risk assets; but I'll change my tune with TLT above both quarterly 20MA and monthly 50MA (TBD). Even so, the more broad AGG is already under these levels. GLD is slightly under its monthly 50MA as well. 

I think institutions and technicals agree - global stocks are the place to be, and right now INDA is leading the pack followed by EEM. Strength in these somewhat depends on DXY weakness. I'm not sure that will continue, ie DXY looks mildly positive to me. 

There are some quarters where quite a lot looks very clear like Q4 and October where quite a lot looked bearish for both TLT and GLD. I don't have very strong opinions here but key points are:

  • Safe havens currently supportive of risk assets, though would not take huge moves to look more bullish (and thus bearish for stocks).
  • Suspecting upside limited for USA stocks which points to range; if we see multiple USA indexes powering outside bands again i will cancel that conclusion.
  • QQQ current USA main index outlier - does that continue or reverse? Last time QQQ was outlier was end of 2016, when it was clearly weaker than others; in that case catch up was bullish.
  • XLF does not look so great. 
  • Some global stocks are running into monthly bands but in general have far more room to go higher; current favorites INDA and EEM.
  • DXY stall has helped global stocks rally this year, but some up looks possible. This could be factor in hedging INDA and EEM longs. 
  • No opinion on oil, mixed indicators.

So here we go on quarterly (Q) and monthly (M) charts on USA main indexes, safe havens, sectors of interest, and global stocks.

Q MAs: all above, rising slopes.
M MAs: all above, rising slopes.
Q BBs: upper BB rising sharply, near tag.
M BB: outside band 2/2017, close inside band 3/1. 
Q RSI: strong! 77.56, exceeded prior 2014-15 highs.
M RSI: 2nd month slightly above 70 - TBD.

SPY looks strong but potential upside resistance at the April monthly BB; also watching if monthly RSI drops back under 70 again which would be more threatening. 

Q MAs: +
M MAs: +
Q BB: pushing band, which will be sharply higher in Q2.
M BB: 3rd month close outside band - rare.
Q RSI: 80.7, matching 2015 highs.
M RSI: 72.6, better to stay above 70.

QQQ looks incredible here but at some point a profit taking or re-balancing move might drop price back inside the monthly BB. This cannot be ruled out for Q2.

Q MAs: +
M MAs: +
Q BB: was pushing outside band and closed just inside, band higher in Q2 but likely resistance
M BB: closed outside in 2/2017, down bar inside band 3/2017, likely resistance.
Q RSI: 76.39, above 2014 highs.
M RSI: above 70 each month of 2017 thus far, to watch.

DIA issue is quarterly and monthly Bollinger band resistance. These levels will be higher in Q2 and April but still to watch. 

Q MAs: +
M MAs: +
Q BB: near tags 2016 Q4 and 2017 Q1, likely resistance.
M BB: pushing band with some resistance each month since 11/16; band near highs of month each bar of 2017.
Q RSI: at 70, alert for selling - not above 2014-15 highs.
M RSI: 66, not overbought like other.

IWM has had highs near its monthly Bollinger band each month this year and unable to push outside it like each other USA main index (SPY, QQQ, DIA, VTI). In this sense it is relatively weaker. But does that mean leading down or catch up higher?

Like SPY in nearly all respects but monthly RSI right on 70 makes it more inviting for selling. 


Safe havens

Q MAs: broke 10MA in 16Q4 after closing above each bar since 14Q3. Q20MA testing; more bearish for TLT if below that, potentially bullish above.
M MAs: below 10, 20 and 50MA. 50MA has leveled off after climbing most of this decade. 2/2017 managed to lift above but level looks like resistance 3 of last 4 bars. Below 50MA means visit to 100MA currently 113 and climbing. 
Q BB: Overshoot and drop back inside was part of the top and drop last year.
M BB: We will probably see visit to lower band, adds to downside view.
Q RSI: Less likely to reach extremes compared to stocks.
M RSI: RSI divergence at the top; no buyers at 50 area. 

TLT is testing its quarterly 20MA which is near enough to its monthly 50MA. If these levels act as resistance then things are more bearish for TLT. 

Q MA: below 10 and 20.
M MA: under 50 since 11/16. 100MA not support.
Q BB: part of 2016 high
M BB: part of 12/2016 low and recent test
Q RSI: like TLT, less likely to reach extremes
M RSI: less likely to see extremes

AGG has stopped going down the last 4 months, but bounce has been weak and think limited upside or down more likely.

Q MAs: reclaimed 10 but with negative slope, below sharply falling 20 which was resistance at 2016Q3 highs.
M MAs: below 10, above 20, below falling 50, below 100. congestion area but leaning bearish.
Q BB: not tagged since 2012 Q1 divergence high test.
M BB: part of 2016 highs 6-8/2016.
Q RSI: last extreme 2011.
M RSI: last extreme 2011.

GLD will look better if above monthly 10 & 50MAs, currently just below. 

Q MAs: below all, bullish for stocks.
M MAs: below all, bullish for stocks.
Q BB: tagged on lows what appears to be first time ever 2017Q1; potential reversal.
M BB: not tagged since 6/2016 highs and 7/2014 lows.
Q RSI: like TLT, not as likely to reach extremes compared to stock indexes.
M RSI: even less likely to reach extremes.

Q MAs: +
M MAs: +
Q BB: insane strong.
M BB: outside band for last 3 months.
Q RSI: not really enough price history for decent judgment; currently 73 better than 70.
M RSI: matching 6/2014 highs which was not the high, but near a key top.

VIX and XIV still both supportive of risk assets. VIX Q BB tag and XIV 3 months outside monthly BB both show possibility of turn, but this is where pivots come in for fine tuning.


Sectors of interest

Q MAs: +
M MAs: +
Q BB: poke outside but close inside bad, possible reversal or at least resistance.
M BB: outside band 11/16 to 2/17, fell back inside 3/17, likely resistance.
Q RSI: nearing 2006 highs.
M RSI: reached 72 2/17, now 67.2, bearish. 

Have to say Wall Streets favorite 2017 sector does not look so hot right now on Q and M Bollinger bands and Q and M RSIs. I don't know if this is a clue that TLT could rally.

Q MAs: +
M MAs: +
Q BB: outside band 16Q3 and 17Q1.
M BB: pushing band higher without exceeding last 6 months.
Q RSI: 80.
M RSI: 78, nearly matching 2014 highs.

SMH continuing to power up.


Global stocks

Q MAs: First close above 20MA since 2014Q2; although 20MA slightly negative slope, this is likely bullish development.
M MAs: Above all, just cleared 50 and 100 MA.
Q BB: Overshoot and recovery 2015-16 lows. 
M BB: Pushing upper band, possible resistance.
Q RSI: Nowhere near extreme.
M RSI: Low of 31.75 2/2016 lows, plenty of room for up.

Although resistance at upper monthly BB possible, seems like EEM a lot of upside potential.


Q MAs: Close above 10 and 20MA first time since 2015Q2.
M MAs: Just a bit above 50 and 100.
Q BB: Part of 2016 lows.
M BB: At monthly upper band but downward slope more likely to act as resistance.
Q RSI: Nowhere near extreme.
M RSI: like EEM.

Similar to EEM, but EEM has slight edge on monthly MAs and BBs. Some of this was reason for FXI hedge against EEM long. 


Q MAs: above most, below 10MA, rising slopes.
M MAs: above all, but 20MA falling slope, could break.
Q BB: last tagged 2015 highs.
M BB: last tagged 2015 highs, sharply falling upper band likely resistance.
Q RSI: last extreme 2015 highs.
M RSI: 2015 highs all the way to 88, could have dull action for a while.

I think at some point we will see another leg down in this index, but no idea when. Creeper range could continue for 1-2 years more. 


Q MAs: +
M MAs: +
Q BB: + 
M BB: 1 bar outside 3/17
Q RSI: room to go up
M RSI: room to go up

INDA overshoot of monthly band but considering run XLF and IWM had and QQQ in process (3-4 months outside band) think this is not a huge concern.


Q MAs: above 10, below falling 20MA which was the 2017 high thus far.
M MAs: above 10 & 20, 50MA resistance last 2 bars.
Q BB: part of 2016 low.
M BB: upper band overshoot & resistance 12/16-2/17 highs.
Q RSI: not a consideration.
M RSI: nowhere near extreme.

RSX would look better above M50MA.


Q MAs: falling 20MA resistance.
M MAs: testing 50MA.
Q BB: not a concern.
M BB: near tag on 2/17 highs.
Q RSI: not a factor.
M RSI: not a factor.

Close call, better above M50MA.


Q MAs: +
M MAs: tagged rising 10MA 3/17 which held as support.
Q BB: divergence high 2016 Q4 part of weakness 2017 Q1.
M BB: overshoot and drop part of 11/16-1/17 high; possible resistance.
Q RSI: 2016 Q4 high 67.9 could have gone higher but didn't.
M RSI: divergence high 12/16.

DXY looks to be supported but at the same time upside limited to upper band currently 102.82 and not much higher for April. DXY sideways or down will support global stocks but have to say some rally looks doable here. 



Showing a monthly VIX chart with only 1 indicator, a 10 period MA in aqua, and a red line drawn at the lows of that level in 1993 and 1995. 

Main point is that the VIX low in December 1995 was a very long way from a meaningful top in stocks, and if you were bearish stocks because of rising VIX that was a massive mistake. This would have cost gains on one of the epic stock market runs. VIX was rising quite decently in 1996 and 1997, then actually declining in 1999 and early 2000 when you'd think it would be rising.

In other words, even though I've been a big fan of VIX in the last few years, it didn't seem to work that well in the 1990s as a supplemental indicator.

Next chart from 2000+ is same idea, with the VIX low in early 2007, rising meaningfully in the second half of the year, then VIX highs right where they should be in 2008. Seems fine in this millennium.

So, VIX doesn't have to work, but has been in the 2000s which I will take. The 10MA is on the lower side of the last 17 years, but not as low as it was in 2005 yet. 

Using another technique and one that I actually prefer, VIX has reached levels of previous quarterly close lows. Here is a quarterly chart with a line drawn at 11.26 (or as close as i could get it), which was the low in 1993 Q2. All closes since then have been higher, and you can see clear support near this level on many bars. 

In the current 2017 Q1, in addition, VIX tagged its quarterly Bollinger band, which seems to have never happened before. 

I rather dislike sounding bearish alarm, because often these turn out to be wrong, and a bull market will find a way to come back again and again. But I'd add this quarterly VIX chart to a list of a few concerns that the next drop could be more than the mild 3-5% range that was my initial expectation.

Long term RSIs

SPX Q chart
Note the RSI high in 2014 Q4, 2015 Q1 and 2015 Q2 with 3 closes 75.4-75.8. The quarterly bar is not even half done but RSI at 75.6 means testing the highs since the 1990s. RSI can go significantly higher evidenced by 1998 Q1 high at 95 (!!!), but for now clearing the 75 would be a sign of strength in the market. 

RSI for Jan closed at 68.08 and currently 69.06; like 75 area on quarterly chart, clearing 70 without selling pressure would be a sign of strength. Moves that stop at 70 and see selling - notably 5/2015 for example, or 3/2000 - can be more bearish. 

2015 RSI highs were 80-81, and now back at 79.5.

Like SPX, approaching 70 area. Above would be sign of strength, selling here more like 4/2011 or 3/2012.

RSI reaching above 73.6 means highest RSI since the 90s, so far a sign of strength. 

Despite January's near doji bar with RSI at 70.5 and top of the monthly BB, so far February up! RSI higher and pushing the band. 

RSI currently 70.17 after closing 2016 Q4 at 69.44. Sign of strength to be over 70 but we could still see a selling reaction from this area. 

Not as high as the others and still a ways from 70. 

Long term charts - Global stock indexes

Choice of index is key. When I worked at a fund that was very active in Japan of course we were constantly looking at the Nikkei, Topix and $USDJPY. But in my own retail brokerage account I cannot so easily buy Nikkei; instead the choices are EWJ and the currency hedged DXJ. One should prioritize the index where your money is going, and be aware of others that may impact. 

Another example is India. The Nifty 50 Index is sitting on monthly 20MA support, but due to currency issues the INDA ETF is well under a sharply falling 20MA. If I want exposure to India is through the ETF, so I think better to look at that instead of the index. That said if a currency hedged version appeared then given under-performance of ETF relative to index then that would likely be a better alternative. 

The list goes on and on but you get the point. I'm going to keep to what I usually track because that is what I can buy: SHComp, FXI, EEM, INDA, RSX, EWZ, and the broad ACWI functions like an NYA / VTI. 

Sum: China looks like trouble, INDA the better choice for longs among FXI and EEM; RSX very strong but at resistance, and EWZ mixed. 

Ready to resume down. 

Above rising 50MA, below falling 20MA. I would bet on lower. 

Below 10 and 20MAs with quarterly MACD on sell. 

MA cluster pushed down and pivots broke - simple reasons for shorting. It worked.

Below MAs and on MACD sell. 

Below falling MAs, but smaller red bar may have better chance at lift than FXI. 

Small red bar and below MAs. Still proximity to recovering M50MA makes this better choice compared to FXI or EEM.

Rally to near 20MA. 

At falling 50MA, a reason I thought better to cut. 

Below falling 20MA but 2 closes above 10MA helps. 

Resistance near that falling 50MA. 

Small up bar with wick invites selling. 

Also looks ready to drop. 

Long term charts - currencies & commodities

DXY sum: long term room to go higher, next monthly bar is either way. 

EUR sum: DXY in reverse - long term i think this is going below 1, near term maybe some short squeeze frustration.

BTCUSD sum: Wow! Partially confirms problems in China, but also replacing gold as 21st century alternative. 

If a pro fund there would a lot more to do in this regard but since I'm not really trading forex leaving it to these three. 

Room to go higher. 

I saw some comments about the 61% retrace on DXY from 2001 top but this Fib from 1985 seems very much in play with several direct hits on 50% level. This implies room to go up to 107. Some BB divergence but RSI still climbing looks fine. 

Could see drop back inside band, we'll see. 

There may be a shuffle at recent lows but c'mon, below 1.00 remains the more likely move. 

Short squeeze? 

Under 200 as recently as Jan 2015, and under 500 in Aug 2016. 

Oil - OK only one commodity. 

Room to go higher. 

Also not bad. 

Long term charts - safe havens

TLT sum: Room to drop further. 

TNX sum: 3.0 area very doable. 

GLD sum: Looks terrible.

VIX sum: Lower end, but considering several spikes to upper monthly BB and above from 8/2015 to 1/2016, could stay lower before a big jump. 

Break of 10MA and 20MA may force more selling. 

Below 50MA and weak bounce so could easily resume lower. 

This view of things is not that impressive. Still under a falling 10MA and two stabilization bars still well under the high of the last down bar, 3.03 in 2014 Q1. But the hammers do have a chance for follow through. 

Second time above 10 and 20MA since 2007. This has potential for significantly higher, with 20MA starting to slope up and first resistance currently above 3. 

For now pause at M100MA and upper BB. Let's see reaction. Small up bar invites selling, but it would not take much to clear. 

Major league selling from a 1 year bounce - could easily resume downtrend and break 2015 lows. 

Ugh, below falling 10 and 20MAs. Avoid!

Also below all MAs. 

Important study. Key points: #1, 1995-2000 screaming bull market came accompanied by rising VIX! This would throw my current systems off. Hopefully does not happen but have to be aware of the possibility. #2, Return back to falling environment in 2003 Q2. 2007 did correctly anticipate trouble that followed with 4 quarterly bars UP that year and a close above the 50MA! #3, quarterly reversal bar 2009 Q2 pretty good job of confirming stock buys, and again 2011 Q4. #4, 2016 January did not really scare VIX compared to other declines and have to say VIX turned out correct. VIX has not been below 10 since 2006.

Note support at 2007 close lows (price low is the lower red line)

Long term charts - selected sectors

I will include yearly charts when price history is sufficient for commentary. 

IXM (Financial Index) sum: Impressive move underway, but a pause on the monthly chart would be not be surprising.

SMH sum: Quarterly chart fine, but monthly view inviting sellers. Back under 70.75 would add to bearish concern. 

XBI sum: Quarterly chart 61% correction of 6 year rally in just over 6 months. Monthly chart mixed signals. This may continue in wide range bound fashion for quite some time. 

XLE sum: Quarterly chart room to go higher, but monthly view suggests down as next move. 

IXM (S&P Financial Select Index) Q
Very impressive bar, currently pausing at 2000 price & close high area. 

Quite a lot outside the BB. At point point time needs to catch up with price. 

Just above 61% level, so a fade back under 70.75 would look more threatening.

Very strong. 

This view is inviting sellers. 


20161231 75 XBI Q.png

Falling 20MA acting as resistance now countering the bullish hold of the rising 50MA. 

50% recovery.

Falling BB and flat 50MA means down more likely near term move. 

Long term charts - USA main indexes

Unfortunately the the scripts on TradingView will not show 2017 pivots until the new bars open. But we can use this time to do a thorough check of long term charts. Here are comments on yearly, quarterly and monthly charts on a variety of key indexes.

SPX sum: Uptrend across the board, each timeframe above all rising MA lines. No noticeable RSI divergence. Y and Q charts overbought, but that is common in bull markets. RSI overbought on the M chart would be more toppy. 

NDX sum: Sideways since election and a textbook doji bar on the quarterly chart. Though technology did great under Obama (and Clinton) history may be set up to repeat here with tech leading lower in 2017 with the new administration. 

INDU sum: Very strong across the board. INDU M reaching overbought, so just watching to see how that reacts in January. 

RUT sum: Upper band levels on quarterly and monthly charts levels to observe at this point. After INDU, RUT is the next strongest index technically speaking. 

NYA / VTI sum: VTI looks like SPX. NYA more bearish with selling from 2015 high.

Strongest: INDU, then RUT. Weakest: NYA, then QQQ. SPX and VTI are overall uptrends but could be showing more limited upside with reactions from their upper monthly Bollinger bands. 

While some may think a yearly chart superfluous, the 2007 top was clear as day on this view. The market is still quite strong here, powering up outside the band. It is some high inside the band, or a drop back inside with the band acting as resistance like 2000 and 2001, that would mean trouble. 

All above rising MAs and launch above 10MA which has basically held as support. RSI closing at 74.7 is up there but I think stronger to be here than near 70 which would look like threatening divergence. 

Tagging the upper band here and slight fade. The band will be higher as January opens. RSI is not overbought yet. 

This doesn't look bad but anything back under 4816 could become threatening. 

A textbook doji bar! Surely I won't be the only one to notice this and could bring out sellers early in 2017. 

Still above that high but looks more like a struggle. Clear reaction down from upper band. 

Looks great. 

This kind of strength is not how markets usually top out. 

Stronger than SPX outside the band and RSI at 70. I'll be watching to see how that reacts in the new quarter. 

Nothing wrong with this. 

Near tag of the band and RSI back up to 69.50 something to watch. 

Outside the band a sign of strength. RSI not yet overbought. 

Inside the band with clear resistance 2 of last 3 years. 

Thus far a double top. Another interesting level to watch in 2017. 

Clear institutional selling at the 2015 high. 

Not in existence long enough to have yearly bands. 

Looks pretty good. RSI near 74 slight but not threatening divergence. 

Looks like SPX with fade back inside the band. 

Monthly charts

Close of the bar - quite a difference from the first few days of November.

Most USA main indexes look great; global stocks either way; safe havens TLT and GLD look terrible. Generally bullish for risk assets though DXY strength a concern and tech weakness a notable exception. 

Looks to be a hugely successful retest of prior high area when measured by both the price high 2134 and monthly close high of 2107 shown by the grey lines, as well as rising 10MA and near test of 20MA. RSI not yet overbought and the December Bollinger band will be noticeably higher. Everything bullish on this chart. 

Different story here with NDX struggling to close above the 2000 top of 4816 shown at the red line. Not entirely bearish by holding 2015 high and monthly close high (grey lines) as support. 

What a phenomenal move. If you only paid attention to the price high, this chart looked bearish for 2-3 months. If you allowed the monthly close high to act as support shown by the lower of two grey lines, you stayed much more bullish. Successful retest of prior high, hold of rising 10AM and near test of 20MA, close outside the monthly BB, RSI getting up there but room to move up - just nothing wrong with this chart. 

Quickly caught up with huge hold of 10MA and 20MA and blast through to new highs. 

It is rather abrupt of me to condense global stock indexes to one ETF but here goes on ACWI. This is indeterminate - nice hold of rising 50MA, rising 10MA and flat 20MA - however, lower close than last up bar is vulnerable. We'll see what happens. 

Whoa - close under M50MA the first since 4/2014. It looks easy now but calling possible top in early July was much harder. At this point I'd say test of rising 100MA has to happen in next 7 months. 

This chart looks totally terrible. 

I've been calling for move well above 100 for weeks now, and it has arrived. Interesting to see how political events will impact DXY & EURUSD in near future. 

Hard to get too excited despite massive rally. 2nd time above 10MA and lots of upside potential; still this chart looks like struggle to upside. 

Monthly charts - another look

I posted monthly charts on key indexes last week and thought they looked problematic. But I also noted that a lot could happen by the close of the bar, and it has. Let's take another look. 

In general, stock indexes look quite healthy led by INDU on the main indexes, then RUT; and XLF on the sectors. Safe havens GLD and TLT are dropping hard. 

Successful test of 2015 high under way, not just because price back above 2015 top if 2134, but because it held the monthly high of 2107. 

Holding the 2015 monthly close high, slightly above 2015 price high, but resistance again at the 2000 top of 4816.

Wow. This had been the weakest of the USA mains, and suddenly leading.

Looks ready for new highs.

Well under 2007 top, but soaring above 2015 highs. 

Above 100 or H&S top? 

Approaching key 20MA, since already below 10, 50, and 100 (no 200 on this chart)

Last but not least... this looks like a big move but just common pattern after RSI extreme a la 2009, 2011, 2015 and again 2016. How far it drops is the real question.

Interest rates, TLT and XLF

Aside from biotech jump this is the biggest story in markets. In July I was noticing how historically stretched the RSI's were getting on multiple timeframes and did two special posts here on 7/2 which said very stretched but should see a bit higher, and here on 7/9 which said a turn was starting to be possible. On 7/6 in the SPY daily I made the one and only counter-trend short recommendation on this site ever and picked off the level within .02 using pivots.

From 8/15 big picture thoughts: "So far my top call on TLT is still holding. I'm not totally certain that it does, but with TLT below the AugP then hold your shorts if you took that trade. Regardless, if TLT can rally again, then I think this will be a *very* key high. It might be higher, perhaps a double top, maybe lower; but after this, I will be quite bearish TLT and bullish rates. I am basing this opinion on the Bollinger band and RSI action on TLT across timeframes, some timing work, and the aforementioned perspective on government intervention in markets." 

Q4 as started very bearish for bonds as written up hereand each safe haven section from mid October on has pointed to bond weakness. Now what?

Let's start with long term charts. I usually refer to TLT, but for even greater long term perspective let's check out TYX. This has been under the 10MA (aqua) since 2014 Q3 until just now. I think the momentum move is to stay above, and the next level to test will be the 20MA at 3.03. While ultimately I think higher, maybe some reaction from this level and round number area. Longer term, if correct on the rally idea, a move to the upper BB and falling 50MA is not out of the question. Currently these are up near 3.8.

Going back to TLT for the monthly chart, it has broken both the 10MA and 20MA with 50MA at 120.91.

Now the weekly long term pivot chart shows a break of 2HP and resistance from there, and straight down to the YP at 124.65.

TLT daily pivots only (no support or resistance) shows the entry 10/3 with rejection of Q4P and OctP, falling MAs, MACD rolling over. The 2HP really never bounced and the move stayed under the falling 20MA (orange) the entire time. TLT is breaking the YP at 124.57 with no attempt to bounce! Now we might see a break and recovery (like IWM & QQQ recently) but let's watch this key level. Below this means below all pivots for bonds! This is the first time since July 2015 we have seen bonds this weak.

Adding in support levels and momentum, either this YP area stabilizes or we could see Q4S3 at 121.89

This huge move in bonds and rates has turned financials into the leader of the market. XLF above Q4P the entire quarter! What else can say that? All USA mains broke at some point. Only EWZ Brazil and SMH/SOXX held up sideways above Q4P as other indexes dropped. On 11/7 XLF was above all pivots. The market gave plenty of time to spot this relative out-performance. 

Other financial indexes may differ a bit. IYF is the ishares version. It too jumped above all pivots on 11/7, but had a fractional break of Q4P 11/2-4. But both have made new highs for 2016 before anything else that I track. Are financials about to take over leadership like tech & biotech in 2011-15, and EWZ and SOXX in 2016? 

Houston, we have a problem

The issue is the current look of monthly and quarterly charts on USA main indexes. A lot can happen with the remaining 2 months of the quarter so let's keep to monthlies. Even this will likely change before the close of the bar on 11/30. But right now, we have a problem.

Bulls trapped! Anyone who bought the breakout bar is now scrambling to get out. Now under 2015 monthly close high as well.

All time above 2000 high (red line) FAIL.

Failed new high since September; breaking well under 2015 monthly close high in first few days of November. 

2016 high on 2015 monthly close high and wham from there. 

Failed new high since October. 

Monthly charts

Last month this checkup pointed to stocks being in the better position compared to TLT or GLD. Stocks went a bit lower, but TLT and GLD got hammered. USO also started out strong. 

3 /5 USA mains still OK here, as NDX is just a fraction below the 2000 top and both SPX and INDU are so far holding the 2015 monthly close highs as support. But the market has a breadth problem as RUT small caps and VTI (Vanguard Total Stock Market ETF) are more bearish, with RUT getting hit from the 2015 monthly close high that acted as resistance, and VTI falling below 2015 monthly close high as well. 

TLT hammered and now closer to support. GLD in mixed condition. USO no follow through from last months bullish close above the 10MA is vulnerable. What looks clearly best here is DXY.

Though it below the 2015 high of 2134, the situation doesn't get serious until below the previous monthly close high of 2107.

Just slightly below the 2000 top of 4816 but not enough to be threatening. Back above that level will likely bring a surge of additional buying.

This has held the 2015 monthly close high at 18132. Not a coincidence especially as several indexes dropped last week and INDU held sideways. 

Ugh, hit hard from the prior close high. 20MA possible support but flat slope, then 10MA below that. 

Weaker than INDU here, below the 2015 close high.

That got hammered, didn't it. Big move in for now, and possible support at the 20MA. 

Not as bad a bar as on TLT, as it held rising 10MA (aqua). But still pushed down from falling 50MA. 

The first close above the 10MA since 2014 was last month, but no follow through. CL contracts will look different depending on continuous or current contracts, but still. Sigh.

I don't believe this chart will stop at head and shoulders. This means breakout above 100. 


Savvy traders know how to spot divergence. This is a technical term that really involves rate of change. If something is still going down, but going down at a slower pace, then it is more likely that up is the next move. This can work as part of logic to buy, or to cover shorts. 

It can also work as a tool to hold strong positions. If you spot an immanent move and get it right, then it often pays to "wait for divergence" before an exit, ie a slowing of the pace of the up move. 

As soon as one starts using Bollinger bands and moving averages then all timeframes are in play from quarterly or even down to 5 minutes or less if you want to daytrade. Here are a couple recent examples.

DIA daily with Bollinger band below. There are 4 arrows on recent lows. 
#1 9/9 plunge - low and close outside BB
#2 9/14 - less movement but low and close still outside BB
#3 10/13 - low outside BB, close within
#4 10/21 - low and close all within BB

This is what I mean by building bullish divergences. A weak market would have opened on Friday and kept on going down to have another low & close outside the BB.

It is also common to watch for divergence with momentum tools like RSI. Check the daily DXY chart below.

The move powered up to a reading above 70 - 75.71 on the 10/12 high. Anything above 70 means enthusiastic buying. There was an apparent divergence on 10/14 with lower RSI high at 71.83. The next move after that was 3 day consolidation to a sharply rising 10MA which provided the boost for another launch, and RSI is again up there at 74.21. I consider that close enough - a negative divergence pattern would have stopped at 70 again. Also note the power move outside the Bollinger bands twice. The third time is inside, and that is beginning to slow, but with strong move moves and RSI strong my conclusion is - going higher. 

I consider this the most threatening chart for USA stock bull market due to the glaring RSI divergence with RSI stopping just under 70 on recent 2016 Q3 high (69.27 to be exact). Compare this to the power move above 70 in 2014-15, which was preceded by a close outside the Q BB in 2013, a sign of strength. Both of those meant market was likely to go higher, and it did. But now we just saw a slightly higher price high above 2015 highs - but not a close high mind you - on textbook RSI divergence and the Q BB leveling out. Even if a big drop is not immanent, we could be in for a long sideways or upside limited period, especially if $USD strength continues. 

Monthly charts redux

Based on quarterly and monthly chart analysis conducted here on 10/1 I gave edge to stocks and said safe havens TLT and GLD looked weaker. If you avoided damage on TLT and GLD or even shorted, as both were below QPs for the first time in months, you have done well even if holding some stock longs.

But some interesting levels are again in play for SPX, NDX and INDU. Key point: potential bull trap with anything much lower than 10/11, specially SPX 2134 (2015 high), NDX 4816 (2000 top), INDU 18132 (2015 monthly close high). 

Plenty of people bought the breakout above 2015 high 2134. Their patience as already been tested as after a few weeks the move has faded and market went nowhere for 2 months. Now perhaps their risk tolerance will be tested as well. The lower grey line represents the 2015 monthly close high and can still act as support. Then below that are rising 10 and 20MAs in aqua and orange respectively. 

The red line is 2000 top and it looked so great to be above... but now does it hold?

The weakest of the bunch, already below 2015 high and again testing 2015 monthly close high. 

Quarterly and monthly charts

SPX, NDX, INDU, TLT, GLD, USO quarterly and monthly charts and comments. 

Cannot argue healthy close above 2015 highs, with prior quarterly close high acting as support. RSI drifting up to 72.8 is more bullish than stopping at 70. Small wick on the recent bar but could have been worse. 

Very bullish configuration - 2 small red bars show weak selling and clear hold of 2015 high area. RSI and BB (Bollinger band) room to go up.

Above the red line is all you need to know. Very bullish. Also look how 2000 quarterly close high acted as resistance for 3 bars in 2015, then turned into support Q2-3 2016.  

Pushing outside the BB is sign of strength. Again, above the red line 2000 top all you need to know, with 2015 monthly close high acting as support.

Weaker, below 2015 highs and classic RSI divergence with RSI stopping at 69.27.

But this looks more helpful with 2 small red bars and holding 2015 monthly close high as support. RSI and BBs room to go up.

Red bar close back inside BB after being outside suggests down or limited upside to the Q4 BB.

Nice comeback from rising 10MA, but below 2015 top. 

Drop from falling 20MA, but small red bar at resistance is not that bearish.

This looks more threatening with falling 50MA (purple) acting as resistance. 

Small red bar with low all inside the BB shows stabilization after a massive drop. This is a very bullish development. 

First close above the 10MA since July 2014. 

And for kicks a long term pivot chart. This will be the second try above 2HP on very healthy volume.