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The rally off of the September lows surprised many market observers, myself included. As we get closer and closer to the all-time highs, is my bearish posture still warranted or not? Let us examine the bulk of evidence.
Trend indicators are still firmly in the bearish camp. If you look at the 50-day moving average, you will notice that it is still below the 200-day moving average. The same goes for 50-day and the 200-day exponential moving averages. These facts alone are enough to set a bearish bias. But as I will show, there are quite a bit of false signals with this system. Charts for SPY and $SPX |
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What about the market breadth?
New highs-new lows indicator for $SPX has pushed above the 5% threshold – it is a positive sign. Percent of stocks above the 50 and the 200-day exponential moving averages also are now in the bullish camps with closes above the 60 percent. Even the bullish percent index for the $SPX was able the clear the 60% mark – pretty amazing feat since just a few month ago it was hovering around 20!
New highs-new lows indicator for $SPX has pushed above the 5% threshold – it is a positive sign. Percent of stocks above the 50 and the 200-day exponential moving averages also are now in the bullish camps with closes above the 60 percent. Even the bullish percent index for the $SPX was able the clear the 60% mark – pretty amazing feat since just a few month ago it was hovering around 20!
Last week I presented my custom market breadth indicator (MBI) and mentioned that it called all 5 major trend changes since the 1990. This week I was able to get even more data and tested the same indicator going all the way back to the 1970. The data still looks rather impressive: MBI called 8 out of 9 major trend changes for the S&P 500. This is an 89% success rate. There was one whipsaw during the 1981-1982 bear market that MBI failed to catch, but it was a rather mild bear market with peak to trough loss of about 27%. However MBI was able to exclude 13 false trend changes (as defined by 50-day EMA falling below the 200-day EMA) so that was quite helpful. Currently this same indicator is showing that we are in the beginning stages of a bear market. With an 89% success rate for my MBI, I will go with it until proven otherwise.
This chart available to subscribers at www.MasterChartsTrading.com
This chart available to subscribers at www.MasterChartsTrading.com
Have bonds reversed? Thursday AGG – the diversified bond fund had gapped down and found support just shy of the 200-day moving average. Today it seems to be going up again and attempting to fill Thursday’s gap. I think bonds are still bullish, so any significant price reduction would likely be met with more buying – especially if stocks decide to take a much needed breather.
Chart of AGG
Chart of AGG
Gold had another bad week. At the beginning of October, gold managed to close above the downward-sloping 200-day moving average. At that point I questioned this possible breakout. A retest of purported support around $1160 clearly failed and gold sold-off hard on Thursday and Friday closing just above the 50-day moving average. All of this happened despite a somewhat weaker dollar. What if the dollar strengthens again and pushes to new 52-week highs? Gold will then likely come under further selling pressure.
From its peak in mid-October, gold is down around 4.5%, for the same time period GDX is down a bit over 12%. (GoldCorp, ticker GG, is down over 19% for the same period). The internals for GDX are still somewhat mixed, but seem to be rolling over to the downside. The bullish percent index is down to 40% from its peak at 43. The AD-lines for GDX continue to trend lower. Now the On-balance volume seems to be breaking its uptrend as well. There is some decent support at $14.50, but should that give we can see another retest of the $13 area.
Gold, precious metals and miners charts
From its peak in mid-October, gold is down around 4.5%, for the same time period GDX is down a bit over 12%. (GoldCorp, ticker GG, is down over 19% for the same period). The internals for GDX are still somewhat mixed, but seem to be rolling over to the downside. The bullish percent index is down to 40% from its peak at 43. The AD-lines for GDX continue to trend lower. Now the On-balance volume seems to be breaking its uptrend as well. There is some decent support at $14.50, but should that give we can see another retest of the $13 area.
Gold, precious metals and miners charts
This week oil ($WTIC) attempted a breakdown below the $43.21 mark, but the lower prices may have been rejected since we had a very strong rally on Wednesday. Will this rebound hold?
Chart of oil
Chart of oil
Natural gas ($NATGAS) hit multi-year lows on Friday. The sentiment for $NATGAS is quite negative and a rebound to at least $2.55 is not out of the ordinary at this point. I am not looking to bottom fish here, but should this rebound occur, would surely be on the lookout to get short again.
Chart of natural gas
Chart of natural gas
That’s it for this week’s market recap,
Best Regards and have another great trading week!
Alexander Berger (www.MasterChartsTrading.com)
Best Regards and have another great trading week!
Alexander Berger (www.MasterChartsTrading.com)
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