About a month ago I gave something of a ‘heads up’ that IMHO stock markets were looking a bit thin, and more likely to roll down than rise. That process has continued and the present charts show more of the same. The folks on the financial shows claims this is related to oil prices falling. Generally, lower oil prices are treated as economically stimulative, so that’s a bit of a stretch. On Fast Money, Carter was making a good case that the US markets are up while ROW (Rest Of World) are not, so total global averages being ‘weak growth’ hide the truth that only the US markets were up and when they were removed from Global, the ROW was down significantly. With the ROW in the dumper, the USA can’t fix it…
At any rate, here’s the graph as of Friday:
RUT is the 2000 stocks in the Russel 2000 index. SPY is the S&P 500 core of American industry. EZU is the European Union while EEM is the emerging markets.
So looking at this (rather large if you click on it) chart, we can see that the SPY blue line is starting to merge into the RUT line; joining it in the ‘go flat’. DIA has had a bit of a bump, but only in the context of underperforming most of the time (someone juicing the numbers with some DIA buying?) while only QQQQ is still rising. That’s dominated by AAPL Apple Computer and a few tech companies. So it’s not going to broadly lead America higher…
Looking at the other lines, we find GLD gold dribbling along the bottom with JJC copper drifting down. Not a lot of demand for jewelry or construction / cars / motors / whatever. (Copper is a big indicator of demand for ‘stuff’ since it is in so much of it). Just above copper is EEM as that bright yellow line. It, too, is headed down. The “Emerging Markets” are not doing it… So even Brazil and China are not showing promise.
Now the fun one is that plunge of the dark gray / black line for USO US Oil. It is in a flat out dead fall. That doesn’t happen when economies are picking up and folks have ‘jingle’ in their pockets from commuting to work. (My case is an example. My contract just ended, so I’m now NOT driving about 40 miles / day that had been taking me to work. Once I’m employed again, that demand for oil products returns.) Just stand back from oil until it has the DCB (Dead Cat Bounce…) and at least has a ‘go flat’ if not a return to rise.
Next up is that green line just above oil. The EU. It’s already in a downward trend. The EU is not doing so well… So it’s not lined up to lead things higher. Just above it at the far right is EWJ Japan. Continuing their dead flat “He’s not dead yet!” propped up with 0% rates faux market. “Safe” in a ‘not going to make any money’ kind of way…
That puts us back at the US markets on the top. RUT is flat as is SPY with DIA lagging and a ‘Christmas Rally’ bump on the end of DIA. Only QQQQ is rising, but it is as the top of a cycle, so likely to go down for the next month. It looks a bit like SPY is dropping through RUT that would confirm the roll over, but that is speculative at the moment as the breakdown is not yet shown / clear.
So it looks to me like a time to be in cash or short; or shift to ‘surfing the cycles’ and trade a faster indicator time range. Trading out of the cycle tops and in at the reversals. Once a fall is confirmed, it is risky to even ‘trade long’ and the trade changes to cash at the bottoms, short at the tops. (The trade money management pattern is to be ‘long or cash’ in confirmed rising markets, ‘long or short’ in flat cycling markets or suspected reversals of longer term trend, and ‘cash or short’ in confirmed falling markets. When in doubt, sit in cash.)
For those interested in the “indicators”: DMI on the very bottom is showing a flat RUT. DMI+, DMI-, and ADX all below 20 and dropping. Trendless. MACD shows a ‘be out’ timing (red on top and dropping, but still above that zero line where below zero shows a well developed drop). Divergence (that black histogram in the center around zero) is below zero and has been saying ‘be out’ since the middle of last month. RSI is neutral, so making no claims about the future. The prior bottom was not ‘near 20’ and we need that plus a ‘step higher’ to show a reversal of a fall ‘coming’. Essentially RSI is saying ‘whatever is happening continues’. That is a ‘flat roller’ for about a year, so trade the ranges in RUT. (Other markets will have other indicator readings with some, like EZU, falling and others, like QQQQ, still showing a rising run. So run a chart on whatever trade vehicle you use and act accordingly. But the bias from the context of other markets is neutral / rolling trades or headed down, so watch context carefully.) The SMA stack is in what I call a ‘topping weave’ without clear stack order while PSAR is ‘chopping’. Usually that happens at a longer term top or bottom as things have a fibrillation moment. To me, I’m not seeing a reason to do anything other than short term trades, and that likely not until the new year forms up. Cash is not a bad thing to have on the year end boundary when things go a bit dodgy. At least, that’s what the indicators say to me.
So that’s my view of things, and what I’m likely to do. YMMV and as usual: I can only describe what I’m seeing and thinking and can not give advice to anyone since I’m not a licensed anything… This is only my opinion and you must make up your own mind.