Difficult Market Timing and Charts

In many ways, this is the most difficult time to “time” the market. One set of time scales and indicators says “just be out” and another says “be in for the trade”. We’re also near a topping inflection, but not yet “confirmed bear market”.

In general, my personal “trading rules” say to step aside at this point. Often there can be a gain from this particular moment, but more often there can be an abrupt and dramatic fall.

Lets look at some charts and I’ll explain why I ‘step aside’ at this configuration.

The Long View Context

Here’s a 10 year chart of the SPY S&P 500 ETF with a weekly ‘tick mark’ for prices. This sets our context.

SPY 10 year with PSAR, Volume, MACD, and DMI

SPY 10 year with PSAR, Volume, MACD, and DMI

Price has crossed under the SMA stack and is returning to it from below. The entire question comes down to “Is this like October to December of 2011, or 2007?

Once price resolves to either above the SMA stack, or falls away to the downside, we will know. But right now, we don’t. But we can “make guesses”.

First off, 2007 was after a very long bull market fueled by The Fed keeping money loose. This market is after a very long bull run from The Fed keeping money loose.

There was a long run of low volume, leading up to a volume spike on down prices in mid 2007. We’ve had a long run of decreasing volume and a tiny volume spike on down prices in the last couple of months. Not enough volume yet to confirm a bias to the downside, though.

We would need to see a lot more volume to the downside to have a confirmed bear market trend.

Price is still below the PSAR dots, so not a ‘buy’ signal yet on this time scale.

Plus the SMA stack has had a “go flat” but not yet inverted the price stack. To some extent just starting the ‘weave’ with only the fastest line crossed over the middle speed one. (More easily seen if you make a 5 year chart with the same settings).

MACD is cleanly below zero, but showing signs of a “go flat” or maybe even a ‘blue crossover to on top’ setting up for ‘soon’. That can be a pause in a bull run “buy the dip” or it can be a “start of the drop”. Time will tell.

DMI is still ‘red on top’ but the red is crossing the ADX line. That means the recent drop is weakening. (So a possible short term bounce up, but also can be a ‘pause’ in a new downtrend). To me, it looks rather similar to late 2008 for the DMI signal.

All in all, a very muddy image. I’d reach outside to other information to set my bias. Given the mess the world is in right now, that bias is negative. I’m just not seeing the “engine of growth” that will rescue business from the insanity planned for Paris in December and the pending “Balkans Like Moment” shaping up in Syria. We’re one wrong death away from a similar influx of “bound by treaty” escalations as happened to start W.W.I.

In these times, I pull my ‘time scope’ in shorter. Faster trades, and no long term commitment. Be ready to bail on any headline that rattles things. From The Fed rate hikes, to NATO downing a Russian plane in Turkey…

A faster view

This is a 2 year chart of daily tick marks. We can see that the price SMA stack has cleanly rolled over. Price has approached from below and is ‘mid stack’. That is THE most unstable time. For “dips”, it punches through topside. For “rollovers” it falls away to the downside. I typically ‘step aside’ until the market calls the ball for me.

The other tickers on this chart are other markets. TLT is a long duration bond fund. EEM is an Emerging Market ETF (Exchange Traded Fund). EWG is a Germany ETF, while GLD is gold. RUT is the Russel 2000 smaller stocks. Smaller stocks tend to be above SPY in bull runs, below in bear runs (why? because they have less strong buyers in down markets and more folks rushing in to low volume stocks in up markets.)

SPY vs Mix 2 year daily with RSI, MACD, and DMI

SPY vs Mix 2 year daily with RSI, MACD, and DMI

EEM has clearly tanked hard. It MAY be having an early bottoming process as we have a ‘failure to advance’ to the downside with a ‘higher low’ between late August and late September. I have to discount that, though, as the Chinese Government came into their market with big buying and price support activity and they make up a good chunk of EEM. EWZ, Brazil, has an ongoing dead drop…

Gold has also had a ‘go flat’ so has likely bottomed. (More on that in a future posting. It’s time to do another metals and commodities look in depth.)

Very worrying, though, is that RUT is clearly below SPY and falling faster. The latest low is lower than the one August. While SPY can arguably be said to have had a ‘failure to advance’ to the downside, RUT is just blowing through it. Rot happens from weakest to strongest, so this argues for SPY to have failure next.

EWG, Germany, continues down too. This is colored by a strong $US along with the VW Brain Fart Stock Price Assassination… But both of those coupled with EEM beg the question “Who will be buying our products at high $US costs as they sink?”

Finally, TLT is “muddling sideways” with nothing much to say. Last week IIRC some 10 year bonds were sold at zero coupon. Yes, zero. That’s just nuts. Something is very wrong in the price of money. The implication is that The Fed (and other global bankers) are trying desperately to use Monetary Policy to make up for shitty Fiscal and Regulatory Policy. That never really works. It can inflate paper assets, but all the while having the Real Economy slowly die. The end game is Greece, or Portugal, or Brazil, or… When big players can get money for FREE, and STILL can’t find a way to invest it for positive returns and economic growth, you know your Fiscal and Regulatory (and Tax) policies are sucky and killing things.

But stocks ARE a ‘paper asset’… so tend to inflate with large influxes of “free money”…

But, to me, it looks like that has run as far as it can. The drug no longer gives the high and we are shooting up just to feel normal for a while.

Overall, the Chinese are now selling US Bonds. While our annual deficit is down from $1 Trillion per year to under $1/2 Trillion / year, it is still a massive pile of money. If not from the Chinese, from whom do we get it? I think that explains the fall of TLT over 2015. The Fed can only soak up so many Treasuries before folks start to wonder… and when “the best return you can get” is zero, something is very wrong in the world of savings.

Now notice that price peak in mid September. Price now is just about equal to it. If price can’t punch through that point, and falls again in the next couple of weeks, we have “failure to advance” to the upside and it’s way bad. That, BTW, is what I would expect to see happen. We are presently in the middle of the battle of bulls and bears, with both directions bounded by a ‘failure to advance’. I’d sit out until one of them wins. (Or go to day trading until that day…)

RSI has a ‘near 20’ followed by a ‘higher low’. That says “up coming soon”. While MACD is below zero but with ‘blue on top’ and approaching a zero crossing to the upside. Similarly, DMI is set up for a crossing of “blue on top”. All saying a little bull run ought to happen. BUT, in the context of approaching the SMA stack from below, that can be a very short bull run. Again, I’d trade it and fade it, not invest in it. Move to faster charts and swing trade in / out as these wobbles happen until a victor is declared. But these indicators say the bull market is likely to give it one more try before it falls.

But we can look at other data to see if it informs any more.

SPY vs Mix 2 year daily Volume Volatility Momentum Oct 2015

SPY vs Mix 2 year daily Volume Volatility Momentum Oct 2015

Here, volume to the downside was less in this dip than in the first one. Similarly volatility was less. Both saying the downside move was weaker in the second dip than the first. Momentum has a “higher lows” followed by a crossover to positive, if weakly.

Yet volume in the recent run up legs has been modest at best. No bandwagon there. And momentum is only just barely above zero.

My Opinion

To me, it’s a good time to ‘step aside’. I have all the risk, but not much reward likely. Stock picking individual situations. Trading short swing trades. It is likely to be a news driven market in any case. IF we punch through the SMA stack to the upside, there ought to be a medium long run to it in any case (and likely a ‘retest’ where price returns to the SMA stack from above to ‘confirm’ it’s going to stay there – and that’s the less risky time to buy). See mid 2012 for an example of the ‘retest’ back at almost the prior mid-SMA stack point. That’s the safer buy point.

There are so many things wrong with the “news flow” that I don’t know where to start. From China doing high test economic balloon inflation to Russia trying to replay one of The Great Wars, to the EU committing cultural suicide, to the UN and Global Warmers pushing HARD for global economic suicide in Paris in December to the USA having feckless and timid ‘leadership’ that is more worried about Left Wing Legacy than a functioning economy or government and the list goes on… And in all this most of the important Central Banks are in the same situation as The Fed. They have zero or near zero interest rates as they flood paper into the global markets attempting to fix via a sea of Pretty Pieces Of Printed Paper what is destroyed by lousy Fiscal Policy, Regulatory Policy, and Tax Policy.

Then, to top it off, Legarde was on TV saying that the highest priorities for the IMF were “gender equality” and Global warming? Really? W.W.III starting and economic stagnation don’t rank ahead of a fantasy about a magic gas that has done nothing for 19 years and a claim of gender in-equality from a woman heading one of the most powerful institutions in the world? Irony doesn’t even come close… So clueless and so out of touch. (She had some other similar brain dead talking point worry, but I can’t remember it at the moment…)

Sure, a few well connected Crony “3rd Way” Capitalists are making a bundle of that paper off of sucking it out of government, but that game can only go so far. IMHO, we are now globally at the point where the music must stop. Real Economics is shutting down. Yes, Greece was early to that party, but the others are not far behind. Real US unemployment is somewhere over 10% and rising (even as the “polite lie” of the formal unemployment number claims things are OK, if not great) and youth and black unemployment rates are obscene. As that happens, you are setting up for riots and collapse. We’ve seen some of that in places like Baltimore. And Greece. And…

So just where is all the gooey goodness that makes this stock market worth investing? I’m seeing it in the rear view mirror, but out the windshield not so much…

At this point I’m largely not playing the game anymore. More interested in making a new style of bread, or what’s on TV. Maybe signing up for early Social Security in the hope of collecting a little of it before it collapses. Not so much interesting in trying to fight my way though a throng of H1b visa holders and illegal aliens to see about getting a job at less pay than I made a decade ago. And I’ve got it good… Lord knows what Joe Sixpack is going through.

In all that context, a market at one of THE hardest type of inflections to call correctly just doesn’t interest me. I know The Fed Juice is dried up and they will not be pumping in more. I know the real economy is anemic and getting worse, not better, and the statistics are more lies than truth. I know that come December in Paris, Dracula UN expects to suck the life blood of fossil fuels out of economies globally, AND expects to be paid between $200 Billion and $10 Trillion a year for the experience. And I know that Obama is NOT going to do a damn thing to make the world or the economy better in the next 16 months.

Globally the Evil Bastards are winning, and at the expense of everyone else. So just why would I bet on that being good for me or for the bulk of companies in the USA, they being mostly NOT well connected in Washington? We can’t live on making more “Tweets” and spending ever more time on our iTimeSucks as those do not make food on the table, homes to live in, cars to drive, gas to put in them, or clothes to wear. The FANG trade can only take an economy so far. (Facebook, Amazon / Apple, Netflix, Google). At the end of the day we need real goods and services and real heating oil and real lights on. But I’m not seeing much of that in the markets.

So that’s my view of things. Dismal, I know. But IMHO more time to hunker down in a ‘risk off’ mode than play ‘risk on’ when things are blowing up and melting down at the same time and The Fed will not be spiking the punch bowl.

But I could be wrong. YMMV. Caveat Emptor. Make your own call on things. 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...
This entry was posted in Economics - Trading - and Money and tagged , , , . Bookmark the permalink.

14 Responses to Difficult Market Timing and Charts

  1. Steve C says:

    You’re certainly not the only one to have a less-than-rosy view of things economic. Michael Snyder, on his Economic Collapse blog (is there a clue in the name?) reckons it’s the beginning of the Great Derivatives Crisis and signals global financial meltdown (again), and I’ve seen a few others lately in similar vein. (Snyder also mentions, in another article, that 9 of the 16 greatest crashes in history have happened in October …) And you probably check Zero Hedge more often than I do, with its noticeable absence of optimistic stories.

    I feel a degree of sympathy too for Paul Craig Roberts – it must be rather depressing for a guy who has flown as high in the economic sky as he has to find himself reporting on the collapse of The System in his later years.

  2. u.k.(us) says:

    Hypothetically speaking of course, if you needed to sell some investments in the next month.
    Would you be in the “holy crap sell now” camp, or the “do you feel lucky punk” camp ?
    Don’t think about it, I want your gut instinct :)

  3. RuhRoh j says:

    Wow, what a lovely response to a off-the-mark question from me.
    You answered what I would have asked if I was prepared to ask for a juge tutorial effort for which I had no reasonable right to request.
    The discussion of technical indicators in terms of today’s muddled picture is just terrific.
    I’ve never gotten a more coherent exposition of ‘technical analysis’ from any of the ‘pro’ guys I have variously employed, they usually give me one little thing as if it was a teething biscuit.
    It seems like a lot of ‘stackers’ are accumulating silver coins, and paying quite a premium to do it.
    , whereas the Au premium over spot price is much lower. I guess I need to be comparing small units of Au to Ag coins to really clear that up. I guess ‘those guys’ almost always get screwed, except for when they are right.
    I/m generally exiting my equity exposures.
    Am torn between logical awareness that hard assets get dumped in times of crisis, and their merits during a runaway fiat currency thing. Plus the whole storage question is another downside.
    Anyway, thanks for the entirely salient commentary.
    Best Regards,
    RR

  4. E.M.Smith says:

    @U.K.(US):

    I sell at any “return to the SMA stack from below” moment. Period. Full stop. It MIGHT punch throught to above (but then returns from above to ‘confirm’ via another touch and you can buy back in then anyway); but more often than not it “falls away” in a dramatic short seller driven “Spank Them Till They Cry!!!” attempt to herd folks off the cliff. So I sell at that point and come back later to figure out what to do next…

    @Steve C;

    Well, unfortunately, Economics is not called “The Dismal Science” for nothing. All the folly, stupidity, and greed of humanity rolled up into money and THAT’s what I chose to be my major!

    I’m seeing a whole lot more “Aw Shit” in the wind than “Oh Boy!!!”…

  5. JP Miller says:

    Very interesting….scary. I am a “fundamental” investor. I’ve found the story of some biotechnology companies compelling, much like nascent PC software (and other similar tech) companies in the mid 1980’s. I’d like to think I’m making 3-5-7 year bets. Some won’t work out; enough should work out to make the aggregate bet very compelling.

    However, a general meltdown will impact all, especially capital-hungry companies that, even if they have 2-3 years worth of cash now, would be vulnerable.

    So…. since I do not have the technical chops to do the TA you do (but believe it can be valuable), would you be so kind to publish an article when you think this current ambivalent market is signaling a more clear direction… especially if it is down? Be much appreciated.

    I do enjoy your eclectic mix of notes; although the hardware/ software ones are WAAAY beyond anything that makes sense to me.

  6. E.M.Smith says:

    @JP Miller:

    Glad to post when something looks like it’s about to happen. I’ve done pretty good so far I think. (Often posting a bit before the turn, then confirming as it happens).

    Technical Analysis has some things that work, hidden in a sea of crap that is nonsense. I’ve tried to prune back to just the bits that work and are not that hard to see. It is just a reflection of average sentiment as evidenced in the volume and price changes (plus an indication when the Elephants Dance as there are massive price / volume changes that only they can make happen).

    So some months back I said basically “top likely soon”. Then “top is here”. Now I’ve posted “top in rear view mirror, but needs confirmation” and next ought to be “prices dropped away down from SMA stack confirming top is in and bear market” (though it is possible for more fools with cash for free from The Fed to push prices up in a binge… but I think that unlikely after 1/2 decade of free Fed money already… in that case it would be “SMA stack penetrated to the upside, so were not confirmed bear, watch for failure to advance past the prior high”.)

    At any rate, it’s not that hard, and just look at a LOT of charts and the patterns show up.

    @Larry:

    I’ll read the links now that the tech bit is done for the night… Thanks!

    @RuhRoh:

    You are most welcome. I’ve been deep into tech stuff for a while lately and frankly welcomed the opportunity to “look up from the keyboard” for a while ;-)

    Technical Analysis seems like voodoo, until you realize that really it is just looking at two very important bits of data (price and volume) over time and using that to estimate the psychology of the market and market makers. While I do strongly advocate fundamental analysis, it works in 1 year plus time frames (what I tend to call time scales). Yet at the moment when you buy or sell, that is a 1 minute time scale. Between those two is a big gap of panic, fear, euphoria, and ennui that can easily cover a 40% price move… At that moment, like it or not, you are NOT a “long term investor” but a “day trader” as all trades happen “in the moment”.

    For those times, adding in some technicals improves your trading performance at that moment when you ARE a trader.

    On the Hard Assets thing. I’m going to try getting the metals posting up next. We’ll see if I go to bed and do it tomorrow, or just can’t sleep ;-)

    I suspect gold is bottoming, but haven’t run the charts yet.

    Yes, in a panic you are better off to have a garage full of soap and canned beans than a chunk of gold; but true physical panic / collapse is rare and financial bubble / burst / currency collapse for more common.

    FWIW, the Swiss Franc is darned stable and often goes UP in times of panic. My “go to” move is to just move my dollars into Swiss F. if I’m nervous. (As long as we’re not talking bank holiday level of collapse and only Stupid Suit Politician Hyperinflation stupid… ;-)

    FXF is the exchange traded fund in Swiss Francs. Roughly flat lately. In the ’70s it was about 25 ¢ to the SF, now it’s near $ parity. You can buy foreign currency denominate travelers checks at the bank for nearly free if you need modest term and portable “protection”. IIRC it was a one week lead time to get American Express travelers checks in Swiss Francs last time I looked (about 20 years ago… so likely much faster now…) Doing better than € and gold in this chart:
    http://bigcharts.marketwatch.com/advchart/frames/frames.asp?show=&insttype=Fund&symb=fxf&x=45&y=18&time=12&startdate=6%2F1%2F2008&enddate=6%2F3%2F2010&freq=1&compidx=aaaaa%3A0&comptemptext=gld+fxy+fxe+slv+&comp=gld+fxy+fxe+slv+&ma=4&maval=23&uf=0&lf=268435456&lf2=8192&lf3=65536&type=4&style=320&size=3&timeFrameToggle=false&compareToToggle=false&indicatorsToggle=false&chartStyleToggle=false&state=15

  7. E.M.Smith says:

    @Larry:

    Interesting links.

    On the margine debt one, I’d say it’s expected in the face of a Fed Rate Hike real soon now… edging out of free money before it has a cost. But the effect on markets will be the same.

    The other needs more pondering as I wake up. I’ve noticed teh sales shifts, but not thought about a retail / wholesale gap. I might just be vendor information lag, or maybe more. Things that make you go “Hummmm…..”

    @RuhRoh:

    One other feature of Travelers Checks, though a sad one to say:

    If confiscated by the police as you drive cross country in “assett forfiture” you can get them reissued by the bank… Sigh. Having the police act as literal “Highway Robbery” agents for any amount of cash they think is “too much” is just so wrong… but this isn’t “cash”… it also doesn’t show up in your checking account so various other government robbers, er, “agents” can’t just go take it from your bank accounts…

  8. JP Miller says:

    EM, here’s some data/ opinion from an investment site I peruse,

    “Dow Theory Bullish signal confirmed.Dow Transports blew thru 8215 on Friday.Only 2 times in last. 15 years has Dow theory given false signals… flash crash and one other time…”

    Would you concur or not….?

  9. Larry Ledwick says:

    ref retail / wholesale gap
    My suspicion is that retail sails are contracting faster than they can wind down production – or manufactures are reluctant to make the decision to down size and contract production hoping things are just going through a rough patch. Also some jobbers my be caught in a bind where they have to produce at any cost to get cash flow to keep things afloat even if they have nearly zero margin. I think the tale will be told when we see what happens with early sales on Christmas stuff. If stores are giving away the store trying to get sales I would infer that they are trying to burn off inventory. As I noted in an earlier post, perhaps shipping volumes would shed some light on what is going on.

    This was in May this year.
    http://davidstockmanscontracorner.com/mind-the-18-wheelers-trucking-volume-hits-air-pocket-in-march-april/

    Potential for rail disruptions in January
    I was unaware of a potential for a rail shutdown until I did some searching on shipments tonight.
    http://www.centredaily.com/2015/10/01/4946838_rail-service-shutdown-could-cost.html?rh=1

    This item implies that electronics will continue to get hit with contraction in sales.
    http://finance.yahoo.com/news/1-taiwan-throws-towel-2015-053029173.html

    Some isolated down signs but no clear picture that I can see with a quick search scan for recent posts, other than PC demand continues to contract.

  10. p.g.sharrow says:

    The latest that I have heard is that inventories are rising, production is up and sales are down. Not a good combination, specially at this time of year. Cheap/free money may be a contributor to this inventory rise. We have seen a slight uptick in business over the last month, normal for this time of year. Still a very poor year for services providers…pg

  11. E.M.Smith says:

    @P.G.:

    I suspect it’s just the inventory build in anticipation of a big Christmas Selling Season. Could go well, or could be a bust, depending on the consumer mood.

    @J.P. Miller:

    Well, the transports ARE up, but I tend to question their utility these days. That index is not what it used to be. In the past, it was rail and ships for raw materials (and eventually finished goods) to / from mostly US Factories. Now it’s a lot of FedEx and UPS from Amazon moving Chinese goods, and maybe some rail moving our coal to ships to take it to China…

    A quick glance at some charts showed NAT an oil tanker up nicely, but US Rail in a long term downtrend (that did have a little uptick at the end). Truckers will have better profit due to oil being down, as well airlines (also in ‘transports’… which prompts me to quote some of the best advice I’ve ever seen “NEVER own an airline”….) but that’s a short term bump based on low oil costs that are now reversing.

    Overall, I just don’t see where it’s the same indicator it used to be in Dow Theory.

  12. Larry Ledwick says:

    Well Walmart just got socked for a 10% drop in share price ($21 B ) per CEO due to recent wage increases.
    http://www.foxbusiness.com/industries/2015/10/14/walmart-lost-20-billion-wednesday-what-really-happened/

    By the way just noticed this morning that the Lowes near my house has already put out Christmas stuff along side the Halloween stuff. Hummmmm that seems awful early to me, I know in the recent past stores were putting out Christmas stuff well before the traditional Thanksgiving break but before Halloween????

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