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.
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.
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! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
One Response to “Stock Market Technical Conditions Update”
Most read in the last 20 days:
- Alan “Bubbles” Greenspan Returns to Gold
Faking It Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. […] The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. — Alan Greenspan, 1961 He was in it for the power and the glory... Alan Greenspan gets presidential bling...
- The Gold Situation
A Growing Bullish Chorus – With Somewhat Muted Enthusiasm A few days ago a well-known mainstream investment house (which shall remain nameless) informed the world that it now expects the gold price to reach “$1,500 by early 2017”. Our first thought was: “Now they tell us!”. You won't be surprised to learn that the same house not too long ago had its eyes firmly fixed in the opposite direction. Da bling be goin' somewhere, fellow rastas and homies! Photo via...
- End of an Era: The Rise and Fall of the Petrodollar System
The Transition “The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.” Ron Paul A new oil pipeline is built in the Saudi desert... this one is apparently destined for the Ghawar oil field, one of the oldest fields in Saudi Arabia...
- European Banks and Europe's Never-Ending Crisis
Landfall of a “Told You So” Moment... Late last year and early this year, we wrote extensively about the problems we thought were coming down the pike for European banks. Very little attention was paid to the topic at the time, but we felt it was a typical example of a “gray swan” - a problem everybody knows about on some level, but naively thinks won't erupt if only it is studiously ignored. This actually worked for a while, but as Clouseau would say: “Not...
- Writing on the Wall
Time to Sell... Maybe BALTIMORE – Yesterday, the S&P 500 hit a new all-time high. And the Dow just hit a new record close as well. If you haven’t sold yet, dear reader, this may be one of the best times ever to do so. It's still flying... sorta. Meet Bill Bonner's tattered crash flag Image credit: fmh We welcome new readers with a simple insight: Markets are contrary, pernicious, and downright untrustworthy. Just when the mob begins to bawl most loudly...
- Gold – Eerie Pattern Repetition Revisited
Gold Continues to Mimic the 1970s Ask and ye shall receive... we promised we would update the comparison chart we last showed in late November in an article that kind of insinuated that it might be a good time to buy gold and gold stocks (see: “Gold and Gold Stocks – It Gets Even More Interesting” for the details). We are hereby delivering on that promise. A Lydian gold stater from the time of the famously rich King Croesus, approx. 570 BC. It seems they already had this...
- Fat People for Trump!
Alphas and Epsilons BALTIMORE – One of the delights of being an American is that it is so easy to feel superior to your fellow countrymen. All you have to do is stand up straight and smile. Or if you really need an ego boost, just go to a local supermarket. Better yet, go to a supermarket with a Trump poster in the parking lot. The protest vote attractor with the funny hair. Image credit: Liberty Maniacs Trigger warning: In the following ramble, we make fun of...
- Destination Mars
Asset Price Levitation One of the more preposterous deeds of modern central banking involves creating digital monetary credits from nothing and then using the faux money to purchase stocks. If you’re unfamiliar with this erudite form of monetary policy this may sound rather fantastical. But, in certain economies, this is now standard operating procedure. The “Tokyo Whale” Haruhiko Kuroda explains his asset purchase madness with a few neat little slides. Photo credit:...
- America Has Become a “Parasitocracy”
Dread and Denial So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to. Eight years after achieving independence, a State modeled after the British merchant state was established in the US. It took a while for the Deep State to consolidate itself within it, a process that was accelerated greatly in the run-up to and aftermath of WW I. Illustration by Ana...
- The Central Planning Virus Mutates
Chopper Pilot Descends on Nippon Readers are probably aware of recent events in Japan, the global laboratory for interventionist experiments. The theories of assorted fiscal and monetary cranks have been implemented in spades for more than a quarter of a century in the country, to appropriately catastrophic effect. Amid stubbornly stagnating economic output, Japan has amassed a debt pile so vast since the bursting of its 1980s asset bubble, it beggars the imagination. A...
- Planet Debt
Low Interest Rate Persons She is a low-interest-rate person. She has always been a low-interest-rate person. And I must be honest. I am a low-interest-rate person. If we raise interest rates, and if the dollar starts getting too strong, we’re going to have some very major problems. — Donald Trump Two low interest rate persons! The Trumpsumptive president (Donald the Tremendous) can be seen here indicating the approximate size of the interest rate that will...
- Long Term Market Perspectives
Methuselah Tree When looking for a good theme for this post I pondered for a while and then decided to use a picture of a bristlecone pine, which are widely considered to be the oldest living trees in the world. Ye olde bristlecone Photo credit: Kosta Konstantinidis You can find them near the Nevada/California border and if you wind up traveling in the area then I strongly recommend that head over to Bishop and from there head up high up into the White...