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


 

 
 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add 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:

  • The Biggest Stock Market Crashes Tend to Happen in October
      October is the Most Dangerous Month The prospect of steep market declines worries investors – and the month of October has a particularly bad reputation in this respect.   Bad juju month: Statistically, October is actually not the worst month on average – but it is home to several of history's most memorable crashes, including the largest ever one-day decline on Wall Street. A few things worth noting about 1987: 1. the crash did not presage a recession. 2. its...
  • Fed Quack Treatments are Causing the Stagnation
      Bleeding the Patient to Health There’s something alluring about cure-alls and quick fixes. Who doesn’t want a magic panacea to make every illness or discomfort disappear? Such a yearning once compelled the best and the brightest minds to believe the impossible for over two thousand years.   Instantaneous relief! No matter what your affliction is, snake oil cures them all. [PT]   For example, from antiquity until the late-19th century, bloodletting was used to...
  • Canada: Risks of a Parliamentary Democracy
      A Vulnerable System Parliamentary democracy is vulnerable to the extremely dangerous possibility that someone with very little voter support can rise to the top layer of government. All one apparently has to do is to be enough of a populist to get elected by ghetto dwellers.   Economist and philosopher Hans-Hermann Hoppe dissects democracy in his book Democracy, the God that Failed, which shines a light on the system's grave deficiencies with respect to guarding liberty. As...
  • Federal Reserve President Kashkari’s Masterful Distractions
      The True Believer How is it that seemingly intelligent people, of apparent sound mind and rational thought, can stray so far off the beam?  How come there are certain professions that reward their practitioners for their failures? The central banking and monetary policy vocation rings the bell on both accounts.  Today we offer a brief case study in this regard.   Minneapolis Fed president Neel Kashkari attacking a block of wood with great zeal. [PT] Photo credit: Linda Davidson...
  • Thoughtful Disagreement with Ted Butler
      Too Big to Fail?   Dear Mr. Butler, in your article of 2 October, entitled Thoughtful Disagreement, you say:   “Someone will come up with the thoughtful disagreement that makes the body of my premise invalid or the price of silver will validate the premise by exploding.”   Ted Butler – we first became aware of Mr. Butler in 1998, and as far as we know, he has been making the bullish case for silver ever since. Back in the late 90s this was actually a...
  • Donald Trump: Warmonger-in-Chief
      Cryptic Pronouncements If a world conflagration, God forbid, should break out during the Trump Administration, its genesis will not be too hard to discover: the thin-skinned, immature, shallow, doofus who currently resides in the Oval Office!   The commander-in-chief - a potential source of radiation?   This past week, the Donald has continued his bellicose talk with both veiled and explicit threats against purported American adversaries throughout the world.  In...
  • Precious Metals Supply and Demand Report
      Fat-Boy Waves The prices of the metals dropped $17 and $0.35, and the gold-silver ratio rose to 77.  A look at the chart of either metal shows that a downtrend in prices (i.e. uptrend in the dollar) that began in mid-April reversed in mid-July. Then the prices began rising (i.e. dollar began falling). But that move ended September 8.   Stars of the most popular global market sitcoms, widely suspected of being “gold wave-makers”. From left to right: Auntie Janet...
  • The Donald Can’t Stop It
      Divine Powers The Dow’s march onward and upward toward 30,000 continues without a pause.  New all-time highs are notched practically every day.  Despite Thursday’s 31-point pullback, the Dow is up over 15.5 percent year-to-date.  What a remarkable time to be alive.   The DJIA keeps surging... but it is running on fumes (US money supply growth is disappearing rapidly). The president loves this and has decided to “own” the market by gushing about its record run. During...
  • 1987, 1997, 2007... Just How Crash-Prone are Years Ending in 7?
      Bad Reputation Years ending in 7, such as the current year 2017, have a bad reputation among stock market participants. Large price declines tend to occur quite frequently in these years.   Sliding down the steep slope of the cursed year. [PT]   Just think of 1987, the year in which the largest one-day decline in the US stock market in history took place:  the Dow Jones Industrial Average plunged by 22.61 percent in a single trading day. Or recall the year 2007,...
  • Stocks Up and Yields Down – Precious Metals Supply & Demand
      Where the Good Things Go Many gold bugs make an implicit assumption. Gold is good, therefore it will go up. This is tempting but wrong (ignoring that gold does not go anywhere, it’s the dollar that goes down). One error is in thinking that now you have discovered a truth, everyone else will see it quickly. And there is a subtler error. The error is to think good things must go up. Sometimes they do, but why?   Since putting in a secular low at the turn of the millennium,...
  • The 2017 Incrementum Gold Chart Book
      A Big Reference Chart Collection Our friends at Incrementum have created a special treat for gold aficionados, based on the 2017 “In Gold We Trust Report”. Not everybody has the time to read a 160 page report, even if it would be quite worthwhile to do so. As we always mention when it is published, it is a highly useful reference work, even if one doesn't get around to reading all of it (and selective reading is always possible, aided by the table of contents at the...
  • Precious Metals Supply and Demand
      Fundamental Developments The prices of the metals shot up last week, by $28 and $0.57.   Heavy metals became pricier last week, but we should point out that the stocks of gold and silver miners barely responded to this rally in the metals, which very often (not always, but a very large percentage of the time) is a sign that the rally is unlikely to continue or hold in the short term. [PT]   Last week, we said:   “One way to think of these moves is...

Support Acting Man

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

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

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]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com