As I said a little more than a week ago, this chart of $BPSPX has kept me out of trouble many times. The key is to watch the 14,3,3 sto and when it drops below 80 then you have to be extremely careful in adding to or initiating any new long side positions. Just because the Sto is now below 20 does not mean that $BPSPX is oversold. One has to wait for the Sto to rise up above 20 and then it might be safe for longs.
$NYSI is now confirming what $BPSPX hinted at early in the week of Nov 7th. $NYSI is not yet giving a true ‘sell’ signal, that will come when the MA’s start to cross down through one another, but it is warning that market breadth is weakening. Until this changes, longs will feel more pain.
Chart courtesy of StockCharts.com
Link to long term 60min chart of the Q’s. Because the RSI closed well below 30 this past Friday, I’m expecting some kind of bounce on Monday triggered mostly by computer ‘buy’ programs. But this could be a short-lived bounce. With the Stochastic in an M pattern, it is possible that the Q’s will stall at about the time the first side of the A pattern is complete. If the M-A pattern doesn’t truly develop, there is still a lot of risk for the buy-n-hold crowd who might try some bottom fishing. Should the Q’s manage to get back up into the high 57’s or even the low 58’s before reversing, then that would be another story. Of course, a Santa Claus rally could mean a moon shot.
This daily chart of the Q’s shows the same down trending channel that appears on the 60min chart above. This chart uses the 9/20 method and that method gave a ‘sell’ signal this past Wednesday when the 9EMA pushed down through the 20MA. There are other problems on this chart including an RSI that has dropped below 50 and a Sto that is in a down trend.
I will be looking to get back into TQQQ, but I’m in no hurry.
Weekly chart of $SPX, and we’re in trouble here. For me the main problem I see on this chart is simply that the $SPX has not been able to get back above my preferred MA’s. Back in the summer of 2010, the $SPX took off, cleared the MA’s, and didn’t look back for months. I point out on the chart that that the 52MA dropped slightly this past week. This is significant because during the 2010 decline, the 52MA did not drop. So now we have entered a second recent time period where the 52 has dropped, the other being the middle and end of September.
If this pattern is a Bull Flag, then the $SPX should clear and close above 1238 in the week ahead. However, a close below 1201.92 and/or a close below the important psycho voodoo level of 1200 probably means more downside ahead.
While I generally ignore news, it’s impossible for me to turn a blind eye to what is happening in Europe. The austerity measures that Greece has implemented have caused that economy to shrink by about 5.5% over the past couple of years. So far this seems like little more than noise, unless you happen to be Greek. But Italy is another story.
The Greek economy is ranked as the 32nd largest economy in the world. Italy is rank at # 7. While problems in Greece have certainly impacted Europe and the world, problems in Italy could make those problems in Greece seem like child’s play.
The paranoid will survive the current market uncertainty while many of the froth-mouthed bulls and froth-mouthed bears will fall by the way.
And in times of uncertainty cash is king.
Two more things:
On Friday, with the $NYA up 8pts, the $TRIN closed at 1.38. This is the first time in quite a while where the market closed green and the $TRIN closed above 1.00. This means that while some were buying, more were selling but they were doing so in such a way that most did not notice. I call this Stealth Distribution, but it’s only one day and by itself is meaningless. However, if we get a few more days with this kind of non-confirmation between the markets and the $TRIN and then this probably means trouble ahead for the indexes as Stealth Distribution has been present ahead of every decline we’ve had over the past couple of years. You can track this here.
Also on Friday, the Cumulative Volume Index ticked lower in a sign of negative divergence with the $NYA. This wasn’t much of a negative tick and this is just one day and no big deal, but negative divergences in key breadth indicators have preceded every decline over the past couple of years. You can track this here.
GL in the week ahead.