SPX: 50 Percent Retracement Reached

This is just a brief update of a few technical stock market yardsticks. The holiday week was strong, as is traditionally the case (there is a strong seasonal upward bias in holiday-shortened weeks). However, the market strength is therefore also suspect, as trading volume was extremely light. In the course of last week's rebound the S&P 500 has reached the 50% retracement level on the dot (there is no logical reason for the market to do such things, but somehow it happens over and over again…). This is the minimum retracement level we would expect to see. The next Fibonacci based resistance levels are the 61.8% and the 78% retracements, whereby the former is probably the most frequently observed one.

 


 

 

The SPX with Fibonacci retracement levels indicated by the red horizontal lines. Note that it stopped on Friday precisely at the 50% level. Volume has progressively declined as the holiday shortened week wore on – click for better resolution.

 


 

Sentiment Data

Since we have been keeping an eye on the equity put-call ratio lately, here it is  again. As shown in the chart below, its recent peak was lower than one would normally expect to see at the trough of a decline of such magnitude. The correction into the June low actually did sport just about the right level of put buying by comparison.

 


 

CBOE equity put-call ratio and the SPX. Normally this ratio should approach the 1 level  in corrections of the magnitude recently experienced. Now the ratio is already back near levels that are generally regarded as potentially bearish – click for better resolution.

 


 

So what about surveys and futures positioning? With regards to surveys it really depends on where one looks. Market Vane, Consensus Inc. and the NAAIM survey are all showing traders to be quite sanguine (which is bearish), but the AAII survey and the Hulbert stock market advisor surveys are at levels arguing for more upside. We show one of each type of survey (theoretically bearish and theoretically bullish) below, namely the NAAIM and the AAII survey:

 


 

The NAAIM survey of fund managers. What the numbers mean: the surveyed managers are 64.2% net long on average (the range of responses is from 200% net short to 200% net long), and they are pretty confident about their posture (confidence measures the variance among respondents). Obviously, higher readings have been seen in the past, but what is remarkable is the speed at which opinions have changed – click for better resolution..

 


 

The AAII bull/bear ratio remains fairly subdued, but it has been that way ever since the correction into the June low. Survey charts via sentimentrader – click for better resolution.

 


 

Big Cap Tech Stocks At 38.2% Retracement Level

 

Amazingly, the NDX also stopped right at a Fibonacci retracement level of the recent decline on Friday, but at a different one than the SPX. In this case the rebound has only made it to the 38.2% retracement level.

It is astonishing that it has stopped right there at all, but it is even more astonishing that it did so in concert with the SPX also stopping at Fibo level.

 


 

The NDX has made it exactly to the 38.2% retracement level as of Friday – click for better resolution.

 


 

Conclusion:

 

Every time a typical retracement level is attained following a downturn from a local high it is worth paying attention to see if the market manages to break through or not.

The recent advance has induced a bit of a character change as well, as the market has managed to stay strong into the close on all the trading days since the low. This is demonstrated on the next chart, a 15 minute chart of the SPX:

 


 

Since the low at the end of expiration week, the market has been strong into the close on every single trading day – click for better resolution.

 


 

We're actually not sure how informative this fact is, it is just something we've noticed and it represents a marked difference from the market behavior during the preceding decline.

Although we cannot say whether or not the market will keep rising here, a decline from a lower high followed by a lower low would certainly be informative, as would be a breakout to a new high. Normally the market is in its seasonally strongest period from November to April, but several notable highs or secondary highs have historically occurred in October. These were recorded in 1939, 1948, 1967, 1973, 1978, 1980, 1987 and 2007 (the actual intraday high so far was recorded in September in terms of the SPX and NDX, but the October secondary high was very close and the DJIA's intraday peak was actually reached in October – another divergence,  this time in a very short term time frame).

Should the market decline from a lower high and put in a lower low subsequently, then its behavior would deviate from the seasonal trend such as has happened in the years listed above by way of example. This is generally a very negative sign.

Normal seasonal behavior on the other hand would be nothing special – it is after all widely expected.

Lastly, we note that the broader market as represented by the New York Stock Exchange index (NYA) has yet to better its weekly closing high made in the last week of April 2011, a full 18 months ago.



Charts by: stockcharts, sentimentrader & bigcharts


 

 
 

Emigrate While You Can... Learn More

 
 

 
 

Dear Readers!

It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

One Response to “Stock Market Technical Conditions Update”

  • What about the coming replacement of fiscal stimulus with monetary stimulus? How does this impact the stock market? We are looking at a fiscal cliff, a significant increase in tax rates. QE3 has been announced will be flexible and will give the Fed a control mechanism now the interest rate control is no longer effective. Clearly, these events are not unrelated: policy makers have decided to replace fiscal stimulus with monetary stimulus. Since the impact of the fiscal cliff is difficult to know beforehand, the Federal Reserve will adjust QE on the fly as economic conditions respond to increased taxes. Will this work? In what ways will monetary stimulus impact the economy differently than fiscal stimulus?

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • TMS-2 fast versionA Date Which Will Live in Infamy
      President Nixon’s Decision to Abandon the Gold Standard Franklin Delano Roosevelt called the Japanese “surprise” attack on the U.S. occupied territory of Hawaii and its naval base Pearl Harbor, “A Date Which Will Live in Infamy.”  Similar words should be used for President Nixon’s draconian decision 45 years ago this month that removed America from the last vestiges of the gold standard.   Nixon points out where numerous evil speculators were suspected to be...
  • Perfect-InvestmentInsanity, Oddities and Dark Clouds in Credit-Land
      Insanity Rules Bond markets are certainly displaying a lot of enthusiasm at the moment – and it doesn't matter which bonds one looks at, as the famous “hunt for yield” continues to obliterate interest returns across the board like a steamroller. Corporate and government debt have been soaring for years, but investor appetite for such debt has evidently grown even more.   The perfect investment for modern times: interest-free risk! Illuustration by Howard...
  • CorporateMediacontrolTrump's Tax Plan, Clinton Corruption and Mainstream Media Propaganda
      Fake Money, Fake Capital OUZILLY, France – Little change in the markets on Monday. We are in the middle of vacation season. Who wants to think too much about the stock market? Not us! Yesterday, Republican presidential candidate Donald Trump promised to reform the U.S. tax system.   This should actually even appeal to supporters of Bernie Sanders: the lowest income groups will be completely exempt from income and capital gains taxes under Trump's plan. We expect to hear...
  • mania1The Great Stock Market Swindle
      Short Circuited Feedback Loops Finding and filling gaps in the market is one avenue for entrepreneurial success.  Obviously, the first to tap into an unmet consumer demand can unlock massive profits.  But unless there’s some comparative advantage, competition will quickly commoditize the market and profit margins will decline to just above breakeven.   Example of a “commoditized” market – hard-drive storage costs per GB. This is actually the essence of economic...
  • web-puzzled-man-scratching-head-retro-everett-collection-shutterstock_91956314News from TINA Land
      Distortions and Crazy Ideas We have come across a few articles recently that discuss some of the strategies investors are using or contemplating to use as a result of the market distortions caused by current central bank policies. Readers have no doubt noticed that numerous inter-market correlations seem to have been suspended lately, and that many things are happening that superficially seem to make little sense (e.g. falling junk bond yields while defaults are surging; the yen rising...
  • old friendsAn Old Friend Returns
      A Rare Apparition An old friend suddenly showed up out of the blue yesterday and I’m not talking about a contributor who had washed out and, after years of ‘working for the man’, decided to return for another whack at beating the market. Instead I am delighted to report that I am looking at a bona fide confirmed VIX sell signal which we haven’t seen for ages here.   Hello, old friend. Professor X and Magneto staring each other down in the plastic...
  • tortoiseThe Fabian Society and the Gradual Rise of Statist Socialism
      The “Third Way”   “Stealth, intrigue, subversion, and the deception of never calling socialism by its right name” – George Bernard Shaw   An emblem of the Fabian Society: a wolf in sheep's clothing   The Brexit referendum has revealed the existence of a deep polarization in British politics. Apart from the public faces of the opposing campaigns, there were however also undisclosed parties with a vested interest which few people have heard about. And...
  • Lighthouse in Storm --- Image by © John Lund/CorbisSilver is in a Different World
      The Lighthouse Problem Measured in gold, the price of the dollar hardly budged this week. It fell less than one tenth of a milligram, from 23.29 to 23.20mg. However, in silver terms, it’s a different story. The dollar became more valuable, rising from 1.58 to 1.61 grams.   Who put that bobbing lighthouse there? Image credit: John Lund / Corbis   Most people would say that gold went up $6 and silver went down 43 cents. We wonder, if they were on a sinking boat,...
  • storming the storeRetail Snails
      Second Half Recovery Dented by “Resurgent Consumer” We normally don't comment in real time on individual economic data releases. Generally we believe it makes more sense to occasionally look at a bigger picture overview, once at least some of the inevitable revisions have been made. The update we posted last week (“US Economy, Something is Not Right”) is an example.   Eager consumers storming a store Photo credit: Daniel Acker / Bloomberg   We'll make an...
  • The CongressThe Fed’s “Waterloo” Moment
      Corrupt and Unsustainable James has been a big help. Trying to get him to sleep at night, we have been telling him fantastic and unbelievable bedtime stories – full of grotesque monsters... evil maniacs... and events that couldn’t possibly be true (catch up here and here).   He turned his head until his gaze came to rest on the barred windows of the main building. Finally, he spoke; as far as I was aware these were the first words he had uttered in more than five years....
  • Zimbabwe_$100_trillion_2009_ObverseGood Money and Bad Money
      Confidence Gets a Boost OUZILLY, France – Last week’s U.S. jobs report came in better than expected. Stocks rose to new records. As we laid out recently, a better jobs picture should lead the Fed to raise rates. This should cause canny investors to dump stocks.   Canny investors at work (an old, but good one...) Cartoon via Pension Pulse   But the stock market paid no attention. It follows logic of its own. Headlines told us that last Friday’s report “boosted...
  • 2084759-set-of-pictograms-of-various-consumer-issuesReal vs. Nominal Interest Rates
      Calculation Problem What is the real interest rate? It is the nominal rate minus the inflation rate. This is a problematic idea. Let’s drill deeper into what they mean by inflation.   What to include, and how can it even be added up? Illustration by alekup   You can’t add apples and oranges, or so the old expression claims. However, economists insist that you can average the prices of apples, oranges, oil, rent, and a ski trip at St. Moritz. This is despite...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com