This is a rather worrying chart. Not only for what it says about the S&P 500 ticker “SPY”, but also for what it says about the global state of things. This is a 2 year chart, which is a bit unusual for me, but sometimes it gives a bit more perspective on things than a 1 year chart. (FWIW, the 10 year weekly chart looks like a long term top is possible ‘soon’, but that is second guessing at this point. It will take a couple of more weeks for it to confirm or reject that idea.)
Looking at this chart, the first thing to notice is that only US stocks are going up compared to a broad variety of global indicators. (I removed a few others with the same pattern, such as China, just so this is a bit more readable). RUT and SPY are going up; but all the others rolled over some time ago. That kind of behaviour is usually not sustainable. Something is likely to change.
Now look more closely at RUT (The Russel 2000 stocks) and SPY the S&P 500. They have both have a similar pattern. About a month back, RSI had a ‘near 80’ moment, then MACD rolled over with “red on top” and DMI went to “red on top”. RSI is now doing “lower highs” and MACD has crossed the zero line to below zero. All that says “bias and trend are negative”. There are two possible interpretations. Long term “rollover” to a long term negative bias; or “buy the dip” like last November.
Which is it? Hard to say. But… I’d not be buying this dip for a long term hold. I might put a ‘counter trend trade’ on, but be ready to exit at a moments notice. We do not yet have a ‘topping weave’ of the SMA lines, nor has the 10 year chart given a ‘be out’ confirmation.
Now back at those other tickers. JJC, copper, is in the basement. It might have a small bottoming flat to it (the two recent down dips are almost the same depth). But what it is clearly saying is that demand for copper is not very high. Folks are not buying a lot of things that use copper. (Houses, cars, electronics, electrical infrastructure, factories,…)
GLD Gold and TLT long duration bonds are both in well established down trends. The “safe havens” are not being safe. (Yen, the green line on the chart, is also in a long plunge, but showing a bit of flat recently). EEM (Emerging markets – the blue line) and FXI (China) also not on the chart, are down fairly hard (emerging markets often fall apart first and fall further). Both “risk on” and “risk off” assets are falling. EWU, the UK, the darker black/gray line, has been mostly flat, then has a bubble up, and falls back hard. EZU, the EU composite, had risen over the last year or so, but is now back to about where it was 8 months back, and even 15 months back. A lot of wobble going nowhere.
So how long can US stocks have a different story from ALL those other asset classes? Perhaps only as long as The Fed feeds the bubble? Yet The Fed has given a ‘last call’ for the punch bowl…
How about a ‘zoom in’ on things?
OK, different ticker set so the colors have changed. First off, look at the price bars for SPY. Fat bars on the downside, very small ‘star’ like bars on the up move at the right edge. Not good. Fast down, hard to get motion to the upside and not much daily range. It tries to rise middle of each day, but ends up back about where it opened. Sellers come in and swamp the buyers of the mid-day rise. Now look at volume. BIG volume spike on the down run near the right edge, then a much lower volume on the upside days. Also not good. Not a lot of conviction on the upside. Significant “get me out” on the downside.
Some more subtle bits: RUT is above SPY. It tends to overshoot each side, above on ‘close to the top’ and below on ‘buy the dip’ or bottoms. QQQQ, the Nasdaq, is trailing in this rise, and is dropping a tiny bit faster in the rolldown. Also the TIP Treasuring Inflation Protected securities have started dropping too. Even one of the most safe “safe havens” is in trouble. Copper, Gold, and Emerging Markets all dropping fairly strongly.
The biggest thing for me is just those ‘squinched up’ squeezed price bars and the low volume in the rises, vs high volume in the drop. It is just not looking like a lot of conviction in a ‘buy the dip’. In the March start and late April dips, there is a high volume bar to the upside at the reversal. We don’t have that now.
All this says to me that the “safe havens” are not, and cash is the only safe haven at the moment (or some ticker I’ve not investigated). The “trade” looks like “short bonds” at the moment, but perhaps a ‘short stocks’ soon; though a “short commodities / long US stocks” has been working. But even there, the commodities look to be nearing “long in the tooth” as a downtrend. While globally the news flow is not good (trouble in Turkey and a renewal of the chaos in Egypt, for example, and China in a slowdown).
All in all, this still looks “not so good” to me. I just don’t see much reason to think that US Stocks can move against the rest of the global pattern without The Fed continuing to flood the market with free cash.
IMHO, I’d not “buy this dip”, but would instead go to cash. (Then again, I thought that last dip and have been largely in cash since then). Clearly the risk in just about any other asset class has been substantial. The overall ‘risk reward’ profile has not been very good outside of US stocks. So my overall impression is that this is “just another Fed Bubble” and those usually end badly.
The only way this has a happy ending is if global growth suddenly takes off, and I’m just not seeing that. Adding Obamacare costs on top of it, seasoning with EPA regulation to death, and add in a load of higher energy costs and I’m just not seeing where an economic “good times” happens. Interest rates are rising, so any housing recovery will become stilted and business investment will slow. It is possible for a big economic boom to push past that, but from where does that “boom” come? Not China adding a big consumer class demanding US goods. Not the US consumer suddenly feeling wealthy (not with a few $Thousand more taxes sucked out of them by Obamacare and other tax hikes; along with price inflation for what they buy – even as wages stay flattish holding official inflation averages down).
All in all, just too many negatives and not enough countervailing positives to make up for them.
I’m “sitting out” as much as possible.