Summary:
Firework may continue with 63% chances the SPX closes in green next Monday.
A surging bond price told a different story however, just I'm not sure if bond and stock should trend together now.
| Trend | Momentum | Comments - Sample for using the trend table. | |
| Long-term | Down | Idea for trading intermediate-term under primary down trend. | |
| Intermediate | Down | Neutral | Wait breakdown bellow SPX 878 to confirm sell signals. |
| Short-term | Up | Neutral |
*Today’s report has no conclusion, stop here you’re simply looking for the word “up” or “down”.
As far as I can see that the last 5 min price surge last Friday made the bulls very excited. Well, not too soon, let’s take a look at the fact first.
http://quantifiableedges.blogspot.com/2008/10/late-day-market-surges.html, statistically it’s called an over reaction, so it doesn’t guarantee an up Monday. Though, we’ve seen lots of similar cases where the price surges right before the market closes, the next day tends to open very high as big money seems to always know something before we retailers. So I could understand the bull’s excitement and am willing to give a support to bulls, hmm, morally.
7.1.0 Use n vs n Rule to Identify a Trend Change, looks like that bears are not that weak.
8.0.3 Use n vs n Rule to Identify a Trend Change 2008, be reminded again how the market usually tops with several up and down.
So the conclusion is that before the trading range is actually broken, still there’s a possibility the the market is in a topping process. Also 0.0.3 SPX Intermediate-term Trading Signals, a Descending Triangle could be in the forming therefore a breakout on the downside has higher chance. And also, according to pattern expert Bulkowski: price sometimes breaks out in one direction and then reverses to bust out in a new direction, so even the range is broken, either bulls or bears, don’t yell “told you so” too soon. LOL
Very short-term, not sure an up or down Monday. Yes, CPC < 0.8, so according to 7.0.4 Extreme CPC Readings Watch, there’re 63% chances that the SPX may close in green. And also according to 7.3.2 Firework Trading Setup, the firework shall continue. But, here’s a big but…
7.0.6 SPX and TLT Divergence Watch, we all know that the stock and the bond are trending in opposite direction. OK, let’s see what happened on Friday. Both SPX and TLT were up big. From the chart, we can see whenever this happened the next day was not very pleasant. Well, not too soon to get excited, bears, here comes another big but…
7.1.4 Gold vs Oil, the stock and the yield trending together (since the yield is the opposite of the bond so the stock and the bond are trending in opposite direction) only happens on the age of low inflation while in 90s, when inflation was high, the stock and the yield were trending in opposite direction. The question now is: are the stock and the yield still trending together? In 05/27/2009 Market Recap: The 3rd Bearish Reversal Day, I’d explained that the US government needs to issue huge debt so it’s inevitable that the yield would go higher, but if the yield is tool high, it’d be no good for the economic recovery, therefore logically, I believe from now on, the stock and the yield are trending in opposite direction. And this means that the stock and the bond could rise and fall together. So, accordingly, I cannot rule out the possibility that the rise together of TLT and SPX last Friday was actually healthy. By the way, I’ve been asked several times about the gold, from this chart, if you believe that we’re entering an inflation age then the gold is still very very cheap.
Well, still don’t believe the yield will rise, let me explain it in another way, why it’s inevitable that the yield will be rising. The US government needs to issue around 2T debt while the Fed plans to buy back only 300B, so the rest 1.7T has to rely on us patriots as well as foreign investors, who apparently love the US so much, that no matter how high the stock market is soaring, no matter how low the yield is going and no matter how worthless the US$ will be, simply keep buying and buying and buying the US debt, because we all love the US, yeah!
So the conclusion is not sure about short-term and intermediate-term, be patient, let the market unfolds itself.
The following charts are for your reference only.
1.0.2 S&P 500 SPDRs (SPY 60 min), cycle worked so far so good, and the Friday happened to be the end of 7 trading days cycle.
7.5.0 S&P 500 Large Cap Index (Monthly), 7.5.1 Nasdaq Composite (Monthly), up 3 months in a row, the longest rebound in year 2000 bear market was up 3 months in a row too.
Cobra,
ReplyDeleteAs you know, I expected a sell off since early May based on sentiment indicators system. According to sentiment indicators, the sellof is happening, but the market action feels neutral. Well, that is because dollar is dropping very fast (thanks to Fed) and SPX is loosing in real value. One can see that on the $SPX:FXE or $SPX:$GOLD charts.
I hate to say it, but to me, looking at the TA without correcting for currency fluctuations is not helpful.
I feel this is 2003 again, not because we are recovering from recession, but because we are devalualing the US$ agressively again. Some people disagree and talk about no higher lows in stocks, but they are missing the point that China, commodities and gold had higher lows and are breaking out. Simply, US equties are lagging and soon will be irrelevant.
Cobra, could you do me a favor, can you post long term (since 2000 or at least 2002) currency corrected SPX charts (such as SPX:FXE or SPX:GOLD)? That should tell us where we are in the process.
Thanks!
Jack
http://stockcharts.com/h-sc/ui?s=$SPX:$GOLD&p=W&b=1&g=0&id=p37805257250&a=169535204
ReplyDeleteCheck above. SPX:FXE doesn't have that long history, si I use GOLD instead.
If devalues the $ too much, nobody will buy US debt anymore even Chinese government which, at least to me, known as always is willing to sacrifice it's people's interest to fit the foreigners requests.
ReplyDeleteCobra,
ReplyDeleteThanks for the chart. One surprising fact is that March 2003, that everyone glorified as higher low, was actually lower low in real value. This clearly shows how "higher low" can be fabricated by inflation. I bet this is what Fed is working on right now.
From the chart, I cannot say if we are at a point similar to mid to late 2002 or mid 2003.
However, SP lost 85% of it's real value since the peak in 1999-2000. This carnage is comparable to Great Depression.
I guess Marc Faber is right, everything can go up this year, except Dollar and bonds. At some points high commodities and high rates will kill the economy again, but we are not there yet.
I will be looking for a selloff in oil and gas(record inventories and rampant speculation now) and gold to reload. IMHO, shorting stocks will not work in infationary times (however, I though so in 2007 and was wrong).
Jack
Cobra
ReplyDeleteFeatured one of your post as one of my 4 BEST for the week.
The work you do really helps investors and I am happy to do my part to try to get others to visit your site.
Again congrats on the 4BEST choice and please keep up the excellent work
Maximus
4best4worst.wordpress.com
Nice article, your blog is now a daily read for me. The action at fridays close was very interesting indeed, to me the market feels neutral.. and bullish short term.. the bigger the pump the larger the dump
ReplyDeleteJack,
ReplyDeleteI'm with you on thinking that the massive inflation could keep the market going sideways for awhile... without a real crash! If you have enough fingers, you can plug every hole in the damn. Question is... do the Fed have enough fingers?
Of course in real buying power, the market is already crashing. But, that doesn't help us traders to make money from it. In any case... I did take a short position during that end of day rally Friday. I don't expect a big sell off, but a small one back down to support at about 878.
After that... well? We'll just take it one day at a time. However, I still believe we will experience a nice selloff in mid August through September. There is an interesting post at:
http://baltimorechronicle.com/2009/052909Lendman.shtml
It's about how the market is manipulated. IMO I think the government isn't done with their buying spree of companies. If they crash the market again this fall, then they can buy more companies at "fire-sale" prices... taking us closer and closer to total socialism. A true "One World Government", run by the banks... not the people.
It wouldn't have been any different if McCain had won either. Both McCain and Obama are puppets on a string, controlled by the banks. I think the chart at this link explains it clearly. Of course the person I wanted to win didn't have any banks supporting him. Go figure?
http://3.bp.blogspot.com/_SqhhJb_P3Kk/SOVDBMIXukI/AAAAAAAACUM/FuWcYjFjC1s/s1600-h/Contributions+to+McCain,+Obama,+Paul.jpg
Dan Black
Cobra, one thing I will warn you is that you shouldn't mix technical analysis with fundamental analysis. Your technical analysis is fantastic but you may taint its purity with biasing your observations with fundamental analysis.
ReplyDeleteYour ideas on inflation, etc, are true, but I would hate to see them taint your technical analysis. That is what happened to me during April/May and I lost a lot of money because I stopped believing the market would go up because I got married to a fundamental belief that the economy is still terrible.
Cobra check out the WFC daily chart. Diminishing vol last 2-3 weeks and price settling down but not tanking. I'm thinking we are v likely going to see a big move in financials this week.
ReplyDeleteAnd that end of day spike looked like ppl waiting as long as they could to go in then jumping all over each other so they could get in before the wknd.
Cobra,
ReplyDeleteI have to disagree with you about the Chinese Gov't sacrificing the people's interest to appease foreigners. The Chinese Gov't is creating jobs for 800 million villagers in the interior by exporting to the US and others. It is manipulating its currency to maintain trade advantages. This contains social unrest. If they are truly worried about our currency then they should buy something
with it instead of Treas. obligations. Then the US currency will depreciate against the yuan. Please notice that the $ hasn't depreciated very much against the other major currencies.
Thank you guys, like all your comments.
ReplyDeleteAbout FA suggestion, thanks, I'll try to avoid FA part as I said once a TA guy begins to argue FA, it usually means he's out of excuse. LOL But, the bond/yield analysis is always part of my analysis so I still have to watch the yield those days as I believe it'll be the market's major concern. Time will tell that I'd be right on this one. Cheers.
Cobra,
ReplyDeleteThere is one more reason China is accumulating US denominated bonds: Taiwan. At some point China wants to reclaim Taiwan. They know their navy is no match for US Navy. Instead they will blackmail US with dumping the US bonds in the open markets suddenly with a potencial to crash USD and bancrupt the USA. It's an economic war at it's finest.
Too many reasons that China will buy US debt. Just I'm afraid it won't end well.
ReplyDeleteCobra,
ReplyDeleteOne more thing. The TA works if one chooses to use proper timeframes to compare. I would argue that 2003 is the year to model the current situation.
Jack