I’m working on a WSW full posting, but thought I ought to put up this quick posting first.
A while back I’d said something like ‘looks like time to be in, trade it don’t trust it’ as there was a rising trend. We then had a nice run up. Now the broad market indicators are not looking so good. I still need to look at things like currencies, metals, etc. BUT, right now, it’s worth a quick statement that ‘things are looking tired’ on some important indicators.
First up, a broad look at markets, with NASDAQ 100 (dominated by Apple Computer) showing a nice rise, but the other markets lagging.
(Remember that you can make your own charts, and change the time scale and indicators, by visiting:
OK, first off, only the QQQQ have been on a “Rocket Ride” (IMHO largely due to the folks piling into Apple, that is a significant percentage of the QQQQ weighting). The others have risen, but have not so clearly exceeded prior highs.
Now look at the indicators.
RSI has reached 80 and is now dropping off. That’s the “First Call” for an exit. On a ‘lower high’ (that is, a dip, then rise that does not go as high before turning back down) we have the “last call”…
Look at MACD. Flat to drifting downward. Prepare for a ‘crossover to the downside’ with “red on top” as the confirmed exit.
DMI? It shows ‘blue crossed under black’, which is OK, but says ‘rise getting old’. As soon as black ‘inflects downward’ it’s “time to go”.
OK, the Price Bars and SMA lines part of the graph is a bit “messy” and hard to read, but has a lot of information in it. First off, notice that the QQQQ price bars are starting to pull away from the “Bollinger Band” upper bound. Not by much, and about like the last ‘pause’ that was followed by a new rise, but it’s disquieting. The SMA stack is still in the right order (fastest on top, slowest on bottom), so the “rule” is expect a ‘dip’ not a reversal.
Might QQQQ be overly reflecting Apple?
Now scan down to those “other indicators”. Especially RUT (that’s the 2000 stocks that are most of the smaller market stocks) Notice that IT has gone flatter faster at the very end? Now look down at EEM, that’s the Rest Of World Emerging Markets. Mostly things like China, India, Brazil, Russia, etc. It is even flatter and looks even more stalled. Now there’s an open question of how much this is just reflecting US Dollar vs ROWorld currencies; but the trend is “not good”.
Here we have the entire NYSE New York Stock Exchange vs U.S. market indexes. This includes foreign stocks that list on the NYSE as well as US. In theory, these are the “biggest and best” from around the world. It’s way under performing everything else.
(Oddly, using NYSE as a ‘ticker’ on BigCharts gave a ‘symbol not found’ but using the old URL with the SecurityID in it – that number”sid=3277″ in the URL, does still work…)
DMI/ADX+ barely made it into positive territory (blue on top). MACD has gone “above zero” so indicates “be in”, yet Slow Stochastic is poised for a downturn. As this is a 5 year weekly data chart, it is on a different time scale than the prior chart. So that “Slow Stochastic” fast indicator is about the same as MACD on the 1 year daily data chart.
This says, basically, that the rest of the world is just not doing very well and only the USA (and potentially even just selected parts of the US Markets) are doing the ‘work’ – which we saw above was largely the Tech NASDAQ group. That is looking just a bit tired.
If we look at the Russel 2000, it says that most of the stocks being traded have already “topped out” and have clear indications of a ‘roll down’.
RSI is already showing “lower highs”. MACD is “red on top” and with significant downward slope. DMI has the Black Line inflected down, and “blue ADX+ line dropping”, though not yet a crossover to ‘Red on top’. Still, it says “no new money in, start edging out, don’t short yet, but be ready if a big down day spike happens”
So, all in all, this “context” says that there is most likely at least a significant “dip” coming soon, and quite possibly a significant downturn.
News Flow has been poor (potential conflict with Iran and Syria, Greece bailed out AGAIN, and Italy wanting some too, US Gas prices spiking – that usually causes a downturn) and next week we have The Bernanke talking. I don’t know what he can say that would NOT spook markets. We’ve also got an EU decision next week on part of the Greek Deal and a EU Central Bank announcement on some Financial Games they are doing to third party the debt / risk from Greece.
Given the state of the indicators, I’d expect Shorts to try a run to the downside (watch for a big down spike day, then a weak recovery the following day, followed by another down spike as Fat Wallets bet they can scare everyone else.) Given that volatility has also gone “way low”, buying “Put options” to protect positions will be attractive. Market makers then do a “conversion” to hedge out their risk. Part of that is a short of the underlaying stock…
All in all, I’d expect at least a dip, and likely a large one. This can be both an opportunity to short (on that third day, second dip) and an opportunity to ‘buy cheaper’ when the short run wears thin.
What it is NOT, is it’s not a good time to hold long positions in stocks, especially foreign ones or those in smaller capitalization companies. Move any “must be in stocks” positions to low volatility low beta stocks with large dividends and / or hedge them (with “puts” or with a counter moving issue such as metals or energy)
OK, with this “fast notice” up, I’m going back to the Full WSW work…