A Chart Of Market Worries

This chart is a bit different from my usual.

It’s from Bigcharts, and you can get a live version here.

This is a 2 year chart with weekly tick marks, so a ‘slow chart’ showing longer term trends.

SPY vs EZU (EMU stock ETF) vs TLT (bonds)

SPY vs EZU (EMU stock ETF) vs TLT (bonds)

Notice it also has volume and volatility indicators instead of my usual RSI and MACD.

So first we need to ‘train the eye’. Look at the volume indicator. Notice that it has spikes up when prices take a hit and have a down spike. The main ticker is SPY, the S&P 500 Exchange Traded Fund. It has red bars on down days and clear/black border boxes on up days. The open and close are the ends of the boxes and the little line that sometimes pokes out the end is the high / low range. The shape and look of the box tells you things; but we’ll get to that a bit later.

Those two points of high volume and low price spikes pointing at each other are buy points. By extension, you want to be out of the stock when one of those moments is approaching. Now look just before those spikes. Volume drops off and is below the gold SMA (Simple Moving Average 50) line. You get “eyes” of white space between the volume and that line. (Often IMHO two of them).

Now look at the price boxes. They get very small, sometimes almost just a + shape, at the tops. Then look at mid May. Almost + shaped, and then a bit of dropoff lately. And happening just over two “eyes” in the volume data. Furthermore, there was an intraday spike of prices that didn’t hold into the close on about mid December (that long thin line up). Since then, the tops are almost the same height. Price isn’t able to advance past that point. In late Feb and about mid May the highest price is about the same.

Now look at volatility. It tends to spike at bottoms so has a spike up as volume spikes up and price spikes down. Similarly it ‘goes flat’ near local tops of those rise cycles. Mid April it touched the bottom and mid May is almost that low. Volatility is not healthy right now.

Next look at the ADX / DMI indicator. That black ADX line tells you how strong any trend is at the moment. It’s nearly in ‘dead’ country. Usually below 20 is a weak trend, this is at about 7. There just isn’t any recent trend. The run up is running out of gas. Yes, we had The Fed meet (and do nothing) and markets tend to a bit flat then, but there wasn’t a rush upward after The Fed continued ‘easy money’ policies. Folks are a bit spooked about The Fed and the inevitable rate hike (they said “this year” several times and there isn’t that much of “this year” left).

Now look at TLT, the 20 year bond fund. It rolled over in January. The “big money” is exiting bonds. Bond FUNDS have no maturity date, so you can’t hold to maturity to get full face value. Customer redemptions will force a bond FUND to liquidate prior to maturity, so the major safety feature of a bond – the full repayment of face value – is missing from a bond fund. As interest rates rise, exiting bonds will sell for lower prices so that the interest paid matches the new interest rate environment. When The Fed is raising rates, you do not want to be holding long term bonds, and certainly not a long maturity bond fund. What this is showing is that big money is betting it is time to get out of bonds ahead of The Fed raising rates in the next few months.

The raspberry colored line is the EZU ETF that invests in Euro Zone stocks. It is priced in $US so includes the effect of the $/€ exchange rate. It shows a roll over last June, and a reversal to the upside about the start of the year right on top of the bond inflection. Money is moving out of US long bonds and into EU stocks and / or EU currencies.

FWIW emerging markets, not on the chart, were looking pretty grim too so the money isn’t going there right now.

Now this is somewhat counter to what I would have expected from the EU troubles with Greece. But perhaps the notion is just that the ECB (European Central Bank) can’t possibly raise rates with that mess going on, so it’s a flight to the “weakest central bank policy” going on. (As a bald guess).

My take on all this is just a ‘flight to safety’ in cash is likely started, while a move away from assets that will be hit by a USA Fed Rate Hike is also happening. Emerging Markets are a ‘risk on’ asset, while this is a ‘risk off’ move. It would be interesting to know what the Swiss Banks accounts are looking like ;-)

To me, it looks like a “top soon” if not already here. We have failure to advance to the upside, along with weakening trend strength, volume dropouts, and volatility fades. It is looking risky to me and in a ‘risk off’ world that is not the place to be.

As usual, all the typical disclaimers apply. I’m just talking about what I’m seeing for me. I offer no investment advice (this is more about trading strategies anyway). I’m not licenced for anything so it is up to you to get ‘professional help’ from someone who is. I could easily be flat wrong, and have been at times in the past. Etc. etc…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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8 Responses to A Chart Of Market Worries

  1. adrian vance says:

    This market is made of “QE” money that has no basis. Ordinarily, to print more money the Federal Reserve has to sell bonds, “T-Bonds” for $100,000 each. The buyers are often foreign, but in any case the currency they give us in return represents $100,000 of something, somewhere, but in the world economy and to that degree making the printed notes valid, i.e. standing for something and as an endorsement of our “Full faith and credit…” pledge. QE bonds were not even offered to the market as Bernanke knew there would be no buyers. The bond market was tapped out. Now it will surely fail with the only question, “When?” And, it will take with it a lot of real money that does represent real goods, grain, produce, inventory, assets and cause a depression the likes of which we have never seen.

    Google “Two Minute Conservative” for clarity.

  2. R. Shearer says:

    The Shanghai market is interesting. It’s either topped or is in correction, still up about 100% from a year ago. When I was in China last, a couple of months ago, I noticed every single taxi driver that I had was monitoring stocks on their mobile devices. To me that is a sign of a bubble. One question, is this a dip to buy?


  3. p.g.sharrow says:

    China is at the end of their “Great Leap Forward”. Smart Chinese money is leaving that country for American real estate while late comers flood the Chinese market with new money. Run! don’t walk to the nearest Exit. Japan was in the same position 20 years ago. Loads of Eastern cash into American trophy real estate. Take the money and run!. pg

  4. Richard Ilfeld says:

    Hmmm.Professional help? Opens a can of worms for me. A few “professionals” do better than the market, in their investing. They usually don’t offer public shares. Many track the broad market,plusor minus a few hundredths,and charge more than that for the privilege. More terrifying is the new trend of robo-advisors. A legion of automotons tracking the past in unthinking fashion. This will end badly; they will eventually all respond rapidly to a signal that doesn’t mean what they think, and failure is likely to cascade in the face of liquidity need.

    In a world full of funny money, or fiat money which is the same thing, and a government dedicated to “modest 2%” inflation, which is an admission that they are debasing the currency to pay their bills, what to do? Gold and silver have some charm in very small amounts as flight capital, but storage,liquidity, and other pressures make them impractical.

    Companies that do something people have to have, with decent dividends and good cash reserves and free cash flow, in countries unlikely to fully nationalize them,may be the best of a bad lot. Notice how we have looted the tobacco companies, the banks,oil and drug companies with fines and fees and taxes……with food processors being next. Bu the dividends persist, because the public pension folks are invested there too,which may well be the only thing preventing Venezuela. Its awful when we have to go looking for the best of a bad lot, but that’s where we are. That, and a decent part in cash to ride out the owrst part of the roller coaster.

  5. E.M.Smith says:

    Well, 10 days later and markets have been dropping. I’d count this as a decent call.

    @Adrian Vance.

    Yup. Everybody pumping more paper and only financial paper benefits; until it, too, hits the Reality Wall.

    @R. Shearer:

    My understanding is that China markets are now in official “correction”.


    Ah yes, I remember it well…

    @Richard Ilfeld:

    Unfortunately, to prevent being charged under securities laws, I have to put a “seek pos not me” disclaimer even if just “talking with friends on a blog”. As blog operator, the rules are different than for commenters.

    I would be more worried about where to put my money if I had any money 8-}

    The Swiss Franc is usually safe. At least until the mid-crash bubble in the Swissy hits… then better to move to another spot…

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