RALLY COULD RUN OUT OF STEAM AND FALL 1,000 POINTS TO
3330 (Forbes)
“Carter Braxton Worth, founder of Worth Charting and frequent CNBC contributor, emailed charts to clients on Sunday, August 14, showing that there are multiple unfilled gaps on the S&P 500 chart... Worth’s chart shows that there are seven unfilled gaps ranging from a high of 4,137 to a low of 3,330. Additionally, there is a declining high line [green line that we have discussed in prior blog posts] that the S&P 500 is extremely close to. If the Index is not able to break this resistance filling at least some of the gaps should come into play. The lowest gap indicates that the Index could fall almost 1,000 points or 22%.”
Story at...
https://www.forbes.com/sites/chuckjones/2022/08/18/technical-analyst-says-sp-500-rally-could-run-out-of-steam-and-fall-almost-1000-points-to-3330/?sh=42f5b750de60
FYI: “Gaps are areas on a chart where the price of a stock (or another financial instrument) moves sharply up or down, with little or no trading in between. As a result, the asset's chart shows a gap in the normal price pattern.” – Investopedia.
BANK OF AMERICA WARNS OF TEXTBOOK BEAR MARKET RALLY –
NEW LOWS AHEAD (Forbes)
“The summer stock market rally looks to be almost over, according to a recent note from Bank of America chief investment strategist Michael Hartnett, who points to data suggesting that recent gains are a “textbook” bear market rally which is poised to soon run out of steam.” Story at...
https://www.forbes.com/sites/sergeiklebnikov/2022/08/19/bank-of-america-warns-of-textbook-bear-market-rally-predicting-new-lows-for-stocks/?sh=17286f7c2ac5
My cmt: I agree, but it is worrisome when so many are now calling an end to the rally. When everyone thinks one thing will happen in the markets, what usually happens is the other.
S&P 500 WILL SEE 3500 IF QT CONTINUES (RIA)
“Don’t Fight the Fed” echoes through the financial media, Wall Street, and in the minds of retail and institutional investors. The phrasing pertaining to Fed-generated liquidity is often the sole basis for investors to chase bull markets when the Fed employs easy monetary policy. Unfortunately, some investors forget the phrase is equally meaningful when the Fed is not friendly to markets...
...When the Fed does Quantitative Easing (QE), they remove securities from the bond markets and, in their place, leaves reserves with the banks. Again, bank reserves can lead to loan creation which is the creation of new money. Ergo, QE adds to the system’s liquidity. Conversely, Quantitative Tightening (QT) removes liquidity and reserves from the system and increases the amount of securities in the market.
For this reason, QE tends to be bullish for stocks, and QT is bearish...
...The S&P 500 could be close to 3500 by year-end if they follow through with their QT plans...” Commentary at...
https://realinvestmentadvice.com/sp-3500-by-year-end-if-qt-continues
MARKET REPORT / ANALYSIS
-Monday the S&P 500 fell about 2.1% to 4138.
-VIX rose about 15% to 23.8.
-The yield on the 10-year Treasury rose to 3.032%.
PULLBACK DATA:
-Drop from Top: 13.7% as of today. 23.6% max.
-Trading Days since Top: 159-days.
The S&P 500 is 4.2% Below its 200-dMA & closed 6.6% Above its 50-dMA.
-Support points for the rally, are 4091 & 3969, the 100-dMA & 50-dMA, respectively.
The S&P 500 closed at its 57% retracement level 16
August. 50% is about what we normally see in bounces during corrections, but
that is only a rough guide. 62% is the next higher Fibonacci retracement level.
*I won’t call the correction over until the S&P 500
makes a new-high; however, we hope to be able to call the bottom when we see
it.
MY TRADING POSITIONS:
SH, short the S&P 500 ETF.
SDS, 2x short S&P 500 ETF. (I added more Monday.)
TODAY’S COMMENT:
The headline on the WSJ this morning read, “Broad Group of Stocks Propels Rebound”. The article cited that 93% of S&P 500 stocks have climbed of their 50-day moving averages. The article went on to state, “In the past two decades the benchmark has on average risen in the months and year after initially crossing the 90% threshold.” Perhaps, but “on average” doesn’t mean that there haven’t been exceptionally bad years in that 20-year record. I also wonder if the year-2000 dot.com crash is included in the stats. Even if it was included, it may not say much about the here-and-now.
The 2022 bubble exceeded many measures of irrational
exuberance of the dot.com era. Just recently, the meme crowd has been pushing
up a number of poorly performing stocks with low, or no earnings. That level of
exuberance must make us question whether the bullish 93% above the 50-day stat is
valid. One measure I follow says it is not.
When I look at breadth as a market tell, I consider the
percentage of issues advancing on the NYSE over a 100-day period. If that stat is below 50%, less than half of
the issues have been advancing over the prior 5 months and this indicates
trouble for the markets. While 100-days seems like a long time, the following chart
validates the indicator. It shows the issue clearly; breadth is falling below
50%. If it doesn’t reverse, it will continue to drag down the major indices.
There are other bearish signs too. Junk Bonds are falling hard and the yield on the 10-year rose to 3.032% when I checked around 4pm today.
If that weren’t enough, 6 of the 10 Bullish signs we saw
Friday switched to bearish or neutral today:
-The 10-dMA % of issues advancing on the NYSE (Breadth) is below 50% - bearish.
-MACD of S&P 500 price made a bearish crossover 22 Aug.
-Only 48% of the 15-ETFs that I track have been up over the last 10-days – bearish.
-Long-term new-high/new-low data switched to Neutral.
-VIX switched to Neutral.
-Slope of the 40-dMA of New-highs is flat - neutral. This is one of my favorite trend indicators.
Today, the daily sum of 20 Indicators dropped from +4 to -2
(a positive number is bullish; negatives are bearish); the 10-day smoothed sum
that smooths the daily fluctuations slipped from +128 to +115. (The trend
direction is more important than the actual number for the 10-day value.) These
numbers sometimes change after I post the blog based on data that comes in
late. Most of these 20 indicators are short-term so they tend to bounce
around a lot.
LONG-TERM INDICATOR: The Long
Term NTSM indicator slipped to HOLD: PRICE is bullish; SENTIMENT, VIX &
VOLUME are neutral. I still expect the S&P 500 to test its prior low of
3667. Remember for the longer-term, one indicator trumps them all – “Don’t
fight the FED.”
Not all signs were bearish today. Today was a
statistically significant down-day. That just means that the price-volume move
exceeded my statistical parameters. Statistics show that a
statistically-significant, down-day is followed by an up-day about 60% of the
time. Unfortunately, this doesn’t say much regarding the longer-term trend, but
we haven’t seen a statistically significant down-day since June. Just sayin’.
I’m a Bear longer-term and short-term. A retest of the
prior lows is likely, but I noticed today that even the bearish commentators on
the CNBC Halftime show don’t expect the Index to fall that low. We’ll see.
I added another short via SDS, 2xShort S&P 500 ETF.
BEST ETFs - MOMENTUM ANALYSIS:
TODAY’S RANKING OF 15 ETFs (Ranked Daily)
*For additional background on
the ETF ranking system see NTSM Page at…
http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html
Here’s the revised DOW 30 and its momentum analysis. The top ranked stock receives 100%. The rest are then ranked based on their momentum relative to the leading stock.
For more details, see NTSM
Page at…
https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html
MONDAY MARKET INTERNALS (NYSE DATA)
My basket of Market Internals dropped to SELL.
(Market Internals are a decent trend-following
analysis of current market action, but should not be used alone for short term
trading. They are most useful when they diverge from the Index.)
I trade about 15-20% of the
total portfolio using the momentum-based analysis I provide here. If I can see
a definitive bottom, I’ll add a lot more stocks to the portfolio using an
S&P 500 ETF.
“Carter Braxton Worth, founder of Worth Charting and frequent CNBC contributor, emailed charts to clients on Sunday, August 14, showing that there are multiple unfilled gaps on the S&P 500 chart... Worth’s chart shows that there are seven unfilled gaps ranging from a high of 4,137 to a low of 3,330. Additionally, there is a declining high line [green line that we have discussed in prior blog posts] that the S&P 500 is extremely close to. If the Index is not able to break this resistance filling at least some of the gaps should come into play. The lowest gap indicates that the Index could fall almost 1,000 points or 22%.”
Story at...
https://www.forbes.com/sites/chuckjones/2022/08/18/technical-analyst-says-sp-500-rally-could-run-out-of-steam-and-fall-almost-1000-points-to-3330/?sh=42f5b750de60
FYI: “Gaps are areas on a chart where the price of a stock (or another financial instrument) moves sharply up or down, with little or no trading in between. As a result, the asset's chart shows a gap in the normal price pattern.” – Investopedia.
“The summer stock market rally looks to be almost over, according to a recent note from Bank of America chief investment strategist Michael Hartnett, who points to data suggesting that recent gains are a “textbook” bear market rally which is poised to soon run out of steam.” Story at...
https://www.forbes.com/sites/sergeiklebnikov/2022/08/19/bank-of-america-warns-of-textbook-bear-market-rally-predicting-new-lows-for-stocks/?sh=17286f7c2ac5
My cmt: I agree, but it is worrisome when so many are now calling an end to the rally. When everyone thinks one thing will happen in the markets, what usually happens is the other.
“Don’t Fight the Fed” echoes through the financial media, Wall Street, and in the minds of retail and institutional investors. The phrasing pertaining to Fed-generated liquidity is often the sole basis for investors to chase bull markets when the Fed employs easy monetary policy. Unfortunately, some investors forget the phrase is equally meaningful when the Fed is not friendly to markets...
...When the Fed does Quantitative Easing (QE), they remove securities from the bond markets and, in their place, leaves reserves with the banks. Again, bank reserves can lead to loan creation which is the creation of new money. Ergo, QE adds to the system’s liquidity. Conversely, Quantitative Tightening (QT) removes liquidity and reserves from the system and increases the amount of securities in the market.
For this reason, QE tends to be bullish for stocks, and QT is bearish...
...The S&P 500 could be close to 3500 by year-end if they follow through with their QT plans...” Commentary at...
https://realinvestmentadvice.com/sp-3500-by-year-end-if-qt-continues
-Monday the S&P 500 fell about 2.1% to 4138.
-VIX rose about 15% to 23.8.
-The yield on the 10-year Treasury rose to 3.032%.
-Drop from Top: 13.7% as of today. 23.6% max.
-Trading Days since Top: 159-days.
The S&P 500 is 4.2% Below its 200-dMA & closed 6.6% Above its 50-dMA.
-Support points for the rally, are 4091 & 3969, the 100-dMA & 50-dMA, respectively.
SH, short the S&P 500 ETF.
SDS, 2x short S&P 500 ETF. (I added more Monday.)
The headline on the WSJ this morning read, “Broad Group of Stocks Propels Rebound”. The article cited that 93% of S&P 500 stocks have climbed of their 50-day moving averages. The article went on to state, “In the past two decades the benchmark has on average risen in the months and year after initially crossing the 90% threshold.” Perhaps, but “on average” doesn’t mean that there haven’t been exceptionally bad years in that 20-year record. I also wonder if the year-2000 dot.com crash is included in the stats. Even if it was included, it may not say much about the here-and-now.
There are other bearish signs too. Junk Bonds are falling hard and the yield on the 10-year rose to 3.032% when I checked around 4pm today.
-The 10-dMA % of issues advancing on the NYSE (Breadth) is below 50% - bearish.
-MACD of S&P 500 price made a bearish crossover 22 Aug.
-Only 48% of the 15-ETFs that I track have been up over the last 10-days – bearish.
-VIX switched to Neutral.
-Slope of the 40-dMA of New-highs is flat - neutral. This is one of my favorite trend indicators.
BEST ETFs - MOMENTUM ANALYSIS:
TODAY’S RANKING OF 15 ETFs (Ranked Daily)
http://navigatethestockmarket.blogspot.com/p/exchange-traded-funds-etf-ranking.html
Here’s the revised DOW 30 and its momentum analysis. The top ranked stock receives 100%. The rest are then ranked based on their momentum relative to the leading stock.
https://navigatethestockmarket.blogspot.com/p/a-system-for-trading-dow-30-stocks-my_8.html
MONDAY MARKET INTERNALS (NYSE DATA)
