In August, in fact the week ended 8/21/2015, the market made a significant turn. The weekly indicators (moving averages, linear regression curves) turned bearish for the first time since 7/2011.
The Dow downside targets are 14,500-13,700 or as low as 11,000
S&P downside target 1560-1400
The SPY is the ETF that tracks the S&P and here is a chart with a suggested range for escaping or shorting.
Since everyone is watching the great gas prices of January, disappear I thought I would put up a chart on oil futures. My wife noted that she paid 2.19/gal for gas in January while now it is at 3.29 here in Colfax, CA. The downswing in oil has brought the price of MLPs down to the point where they are now yielding close to 7% (ETP Energy Transfer Partners LP at 6.86%). However with this 50% increase in gasoline you would think oil was rising dramatically. In fact, the energy sector may have bottomed (jury is still out on that) but it certainly has not come roaring back. Today West Texas intermediate crude is under $50 per barrel. I am following the ETF Direxion Energy Bull 3x ERX, and after a bounce in the first half of February it appears to be headed south again, similar to the oil futures (chart here).
“Just by oil getting 20% off its low, they think the sun has come back out and the birds are singing and it’s a wonderful time to own oil,” Evans said. “Meanwhile, the statistics show oil production hit its highest level since the early 1970s — a 40-year high — and is 15% higher than a week ago.”
Crude oil inventories are the highest in 84 years, since 1931. The U.S. Dept. of Energy weekly inventory series dates from 1982, so analysts making that comparison are looking at an older, monthly data series from a different source, he noted.
Inventories of 444.4 million barrels are 80.6 million barrels, or 22.1% higher than a year ago and 89.5 million barrels, or 25.2%, above the five-year average level.
The first is a daily chart of ERX
Interactive Intraday Chart – Just enter the ERX symbol in the box below
The Nasdaq 100 has gone from 1040 to over 3600 since 3/09, just less than 5 years. Looking at the monthly chart, the ADX shows it’s in dangerous territory, overbought and due for a correction. But before taking profits or shorting I would be looking for the ADX to cut down from this level, the ergodic to crossover down, and the orange ball to be taken out with a monthly close below 3300 signaling the correction is in play. Target range 2000-2500.
The S&P continued toward my target in the 1600 area, in fact I believe it hit the 1.618 Fibonacci move today and could retrace from here. Several indicators of that possibility. It is way beyond its upper Bollinger Band, it is possibly forming its third bearish divergence against the Ergodic momentum indicator, and it has touched and turned back at the top of the up channel as you can see in the chart. Another cautionary item to note is the non-confirmation by the Nasdaq 100 and the Russell 2000, neither making new highs here. Soooo I would make an educated guess that the market will find some reason to pull back from here. Now how big of a correction … I don’t know but May is right around the corner and statistically it has been wise to sell in May and go away. The market is setup for this classic traders almanac rule of thumb, to come true this year. On the other hand, the Fed is a long way from ending its QE so this market is in no way normal. In fact, its an example of the new normal.
The S&P is 25 points away from its all time high at 1576, so it has yet to confirm the Dow record. However it put in a strong week and other than the ADX which is giving a cautionary signal, all seems well. The markets are up, not because the economy is so great but simply because the Fed keeps giving money the favored banks and they in turn inject it into the market since the rates are so low, bonds are not the place to be.
The Nasdaq definitely has not confirmed the dow record high but is way behind its 2000 record high. In fact it has yet to take out its Sept. 2012 high of 2878, which until it does, I consider that to be the head of the possible head and shoulders bearish formation. It is basically chopping around sideways with little momentum. Apple of course is a big drag on it, breaking below 400 this week for the first time in over a year.
The small caps measured by the Russell 2000 has confirmed the Dow and is making new highs. For a while I thought this was going to lead the pack down, however, it took off and has been leading on the upside. The only caveat here is the ADX roll over above the 50 mark. It has yet to cross over its moving average, but often this will precede a trend change by 1-3 weeks.
Even though the Dow has made new highs, and looks quite strong here at around 14,300, the S&P still has to exceed 1576 to take out its highs and its just at 1541. This lack of confirmation by the other indices is a bit of a warning not to be too exuberant and protective stops would be in order.
The Nasdaq 100 is nowhere near its highs of 4816 in March 2000 but more importantly its not even taken out its highs from last September 2878 and seems to have fallen back when it stuck its nose above 2800, closing today at 2792. The weekly chart still looks like a big Head and Shoulders pattern, quite bearish.
The Russell 2000 small caps has made new lifetime highs a couple weeks ago, but on this latest rally it has not been able to break above those and on a weekly chart it looks like its getting an ADX peak sell signal. This could come about in weeks or days but it will result in some sort of pull back.
Yesterday gave a confirmed VIX buy signal. The last four of these signals have delivered the goods, however, the last confirmed sell signal took two weeks before a dip and that wasnt even to the level of when it occurred. The chart below is courtesy of Springheel Jack.
Well two up days in a row seem to have voided the big drop on Monday (2/25) however this all seems to be a normal pull back to the 50/10 LRC lines and the volatility stops. On the Nasdaq 100 the 50/10 have crossed under bearish and the 25/5 is already below the 50/10. Unless the price gets over 2780 or the purple 50/10 LRC, this looks to be still headed south. With these wild whipsaws though, it could poke above then sell off. Who knows.
The small caps, the Russell 2000, have not yet had a complete 50/10 bearish cross but did stop their bounce at the 25 LRC and the volatility stop. A normal bounce unless it continues up and exceeds the previous high of 932, then all bets on the bear are off.
Last week I posted that the Russell 2000 was foretelling of an upcoming bear move. Generally small caps lead the way. After a bounce Friday to the 50/10 LRCs and giving the 25/5s time to cross below the 50/10s, the market is now resumed its down move. There was a bounce this morning but it was stopped at all the various resistance points. A great shorting opportunity.
Quite a reversal today with the Nasdaq 100 down 1.5% and the Russell 2000 (RUT – small caps) down almost 2%. Looking at the daily chart the RUT sliced through the 50/10 LRC and actually took out the volatility stop. The S&P, Dow, and Nasdaq stopped right above their Volatility stops but in my experience, the small caps lead the way and therefore the RUT may be telling us something. The Nasdaq needs to take out 2700 and the S&P needs to drop below 1495 before we really have something here. But back to the RUT, the last pullback was to 894.34 so that will be the first important benchmark to see broken. Many more after that including up trendlines 810ish, bolinger bands 890, and big support at 868.50. The Ergodic has crossed down and is giving a bearish divergence. The ADX turned, a magenta ball per Gail Mercer.
The weekly is also validating this possible warning sign. We have a upper bollinger band failure to penetrate, usually means exhaustion. We have a way overbought ADX at 65. And we have the ERgodic beginning to roll over. The week is not over and these are all just the beginnings so we need to see a lot more confirmation but I still think this is a warning of some significant down moves in the market ahead.