​$SPX is gaining upon its previous all-time highs, but the broader NYSE composite ($NYA) is nowhere near its all-time highs. In fact higher price was rejected at the previous broken support just a few weeks ago. Currently we may be in the process of making a lower high. The Advance-Decline (AD-Lines) lines for $NYA are still trending lower. The Bullish percent index and % of stocks above the 200-day EMA are still in the bearish territory.
         CHART OF NYA

​Just a few weeks ago when the Federal Reserve finally made a decision to even consider increasing the interest rates at its December FOMC meeting, bonds came under selling pressure. At that point it was clear to me that this was a buying opportunity and I tweeted about it on November 10th. Since then bonds (AGG) went on a nice rebound. While the municipal bonds fund (MUB) made an all-time high. This is a counter-intuitive action, since it is a widely held view that rising interest rates hurt bond performance. This action is telling me that the bond market is sensing fear and the smart money is positioning itself appropriately by rotating into the more defensive areas of the market.
       CHART OF AGG
       CHART OF MUB

​The Dollar is gaining upon its 52-week highs following its recent breakout in early November. While there is talk about tightening the monetary policy in the United States, there is talk of more quantitative easing elsewhere in the world – this is very positive for the US Dollar index ($USD) while negative for various commodities that are priced in dollars.
       CHART OF $USD

Last week on November 17th, I believe we had a meaningful and conclusive breakdown in the price of gold. Gold closed below the recent July lows while simultaneously making fresh multi-year lows. Gold was oversold last week; it’s even more oversold now. Gold is bearish - therefore I generally ignore oversold conditions and instead look for overbought conditions to open short positions. My subscribers were alerted as early as mid-October to my view of the fact that gold presented an excellent shorting opportunity and are sitting on very nice gains since then. Please consider signing-up for my Trade Alerts Service – its well worth the small investment. My conservative estimate is that the current drop in gold price would take it to around $1000 before any kind of short covering rally materializes.
       GOLD CHART 

GDX is doing what gold is telling it to do, almost. GDX is still struggling at the previous support level of $13. So we now have a bit of a divergence – gold closed below its support, but GDX is still dragging its feet. Should GDX close below $13 though, we can easily see it trading around $10 based on the measured move rule.
       CHART OF GDX.

For a good illustration of a measured move rule take a look at the chart of $COPPER. You can see that $COPPER broke support in mid-November and before any kind of a meaningful bounce took place, it dropped around the height of the previous cup and handle-like pattern.
       CHART OF COPPER

       Oil ($WTIC) spent the last week rebounding to the previously broken support at around $43. November 24th it failed there and this Friday we saw the more serious selling take place. Oil is bearish, and at least a re-test of August lows is highly likely. That August price support at $37.75 may not hold. Will we see oil trading at $30 next year?
       CHART OF OIL

       Spot $NATGAS closed at multi-year lows this Friday. I am bit surprised at a lack of any meaningful rebound. $NATGAS hasn’t even been able to close above its 50-day moving average for the past 4 month. A close below $2.188 may call for a push to the $2.00 gas. $NATGAS is strongly bearish, but that doesn’t mean its currently a good opportunity to short. I want to see a rebound take place before I would even consider shorting again.
       CHART OF $NATGAS

That’s it for this week’s market recap,
Best Regards and have another great trading week!
 
Alexander Berger (www.MasterChartsTrading.com)
 

​I presented my proprietary Market Breadth Indicator (MBI) several weeks ago. MBI is composed of several breadth indices, momentum and trend indices all rolled into one. I back tested MBI all the way back to the 1970, and it appears to have a rather high predictive value. Specifically it called 8 out of 9 major trend changes (bull vs. bear markets) and helped eliminate numerous whipsaws if one was using trend-following strategies to time entries and exits. Let us now examine several such major trend changes in more details.

​A lot of comparisons were recently drawn between today’s market action and that of 2011. We have had a similar sharp drop, followed by the 50-day moving average (MA) crossing below the 200-day moving average. However on the chart below from 2011, it can be clearly seen that MBI never dipped into the bearish territory. Stocks continued sideways after a major drop and then recovered relatively quickly. The same goes for the chart of 2010 correction – MBI never dropped into negative territory even though the 50-day moving average crossed below the 200-day moving average. A relatively quick recovery followed.

​Now let us look at the 3 examples when MBI called the bear markets, namely those of: 1973, 2001 and 2008.
 
       The picture in 1973 was not exactly identical to the one today, but the similarities are there: the 50-day MA was below the 200-day MA and MBI dropped into the bearish territory. After MBI confirmed bear market, there was a sizable rally to above the 200-day MA. However, MBI never crossed above the bullish threshold and the index itself rolled over into a bear market – characterized by lower lows and lower highs with a total loss of about 50%.

​In 2001 the picture in stocks was somewhat different. The stock market seemed even weaker then back in 1974 when MBI crossed into the bearish camp. What followed was several years of a bear market with a peak to trough loss in $SPX of around 50%. 

​The picture at the start of the latest bear market of 2008 looks a bit more like what we have today. The 50-day MA crossed below the 200-day MA in December of 2007. Then MBI followed suit and signaled a change from a bullish to a bearish posture. Immediately after the MBI flipped bearish, stocks rallied and recaptured the 200-day MA. But was that enough? No. MBI never flipped into a bull mode and stocks rolled over with a vengeance. $SPX lost around 60% of its value before finally bottoming out in 2009. 

​What does the picture look like today? Today’s picture in stocks looks more like it looked back in 1973 and in 2008 beginnings of bear markets and less like it looked back in 2011 and 2010 corrections. Can stocks reverse and rally hard from here and negate the bearish MBI signal? Of course they can! But based on the previous 3 examples as outlined above it is unlikely. At best I can visualize a scenario of the stock indices struggling close to their highs and more sideways consolidation. More likely is at least a retest of August lows with a possible support break there.
CHART OF SPY

Bond markets seem to be shrugging off the potential interest rate hike in December. Various bond funds held their supports last week and are in the process of rebounding. Municipal bond fund (MUB) is approaching its all-time highs - this looks like bullish action to me.
Chart of MUB

The Dollar is also approaching its 52-week highs. $USD broke out 3 weeks ago above its previous peaks and for now this breakout is holding. Mario Draghni of the European Central Bank hinted at more quantitative easing. This sent the Euro vs. the US dollar sharply lower this week. EURUSD is now approaching its 52-week lows and this is weighing on $USD. ($USD is composed of almost 58% Euro.)
       Chart of $USD

Gold broke support this week with a close below $1072.30 - a multi-year low that was set back in July. Gold has since attempted a quick rally back above the broken support. On the heels of potentially more QE coming out of Europe, the dollar is likely to benefit and this will weigh further on gold. One scenario for gold is a short-covering rally back to around $1100, while a more likely one, in my opinion, is continuation down to around $1000.
       CHART OF GOLD

Gold miners (GDX) again are trading around the $13 level. This level previously held significance to GDX as it rebounded off of it. If gold continues down, GDX is surely going to follow it. A support break here could put GDX around the $10 level in the not so distant future. Another possibility is a rebound to around $14.75 where the 50-day moving average currently is.
CHART OF GDX

Oil ($WTIC) broke support last week with a close below $43.21. I have been pointing out this level for many weeks - it being critical to the fate of oil prices in the short-term. This week oil spent its time rebounding back to this broken level with a rising wedge pattern of sorts. Rising wedges are bullish while rising, but once broken (in a bearish security) call for significantly more movement to the downside. A retest of multi-year lows around $37.75 is very much in the cards still.
CHART OF OIL

Natural gas ($NATGAS) is still very much in a bear market. About a month ago I pointed out that NATGAS might have reached at least a temporary bottom and a rebound to around $2.50 is possible. That rebound proved fleeting and this week we saw the January 2016 natural gas contract hit a multi-year low. UNG – the natural gas tracking ETF followed suit and hit all-time lows. Bottom picking a bearish security is fraught with dangers – I strongly suggest traders avoid the urge to bottom pick.
CHART OF UNG

​That’s it for this week’s market recap,
Best Regards and have another great trading week!
 
Alexander Berger (www.MasterChartsTrading.com)