Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Monday, February 8, 2016

QQQ Game Over MAs Confirm Friday Afternoon Down Cross

Following up from my previous article explaining how the central banks have intervened every time the QQQ game over moving averages have merged and threatened to down cross, we saw a valiant effort take place during the second half of last week to intervene once more as Yellen retreated her hawkish stance mid week and the BOJ eased.  It was everything they always do but this time it was not enough.  

Early Friday afternoon we saw the tip of the red moving average on the daily chart begin to show under the larger green moving average and a QQQ / NASDAQ 100 bloodbath ensued in the last few trading hours.  This marks the starting point.  However, it must also show up in the equivalent moving averages in the weekly bars chart to provide confirmation of the down cross.  With today's open, the red moving average did appear under the green on the weekly chart for confirmation that the QQQ seven year run is game over, the last of the indices to break down.  I have blue arrows pointing to the emerging down cross that began midday Friday in the charts below.


click on image to enlarge



While as of this posting, a little over an hour before the closing bell, the market is near the lows of the day the pattern has been to jam the market back up the next day usually fifty to sixty-two percent of a bloodbath day's loss to break up the selling and sometimes they can get a couple of days short squeeze to keep investors from totally freaking out.  Nonetheless, the down cross has happened and confirmed and it would take nothing less than a shock and awe event to pull the tip of the red moving average back up to the green, such as an emergency Fed removal of the quarter point rate hike.  Even that, however, might not be enough to undo the damage of this historic marker.


Trade well my friends

Alan

Sunday, January 31, 2016

Yellen Retreats, BOJ Eases, Stock Market Squeezes

In the market Friday, there was a monster short squeeze as Japan's central bank took a big step in the easing direction to the surprise of the entire planet.  While it smacks of desperation, it was absolutely necessary that it be done as the world's alliance of central banks continue to take turns in the joint effort to keep the global stock markets propped up, especially the US stock market.  

Many investors wonder just when the central banks know unequivocally that they must execute an intervention.  If you follow all the key moving averages on the SPY and NASDAQ you can see that some moving averages have down crossed and some have bounced without a consistent pattern lending to the argument that you cannot predict when a central bank market intervention is imminent. This belief is simply not true.  Market interventions are actually timed off a key pair of moving averages on the NASDAQ 100 ETF, the QQQ.  The QQQ is the designated market manipulation workhorse.  These two QQQ moving averages are shown in the charts below.




The top is a two year chart showing the key moving averages in daily bars and the bottom shows the equivalent of these two moving averages in weekly bars so a long term view can be seen.  Notice that in 2008 the smaller red moving average down crossed through the larger green moving average and the stock market collapsed.  In mid 2009 the red line up crossed through the green and the game was on once again.  Looking at the lower weekly chart, you see that every time the market was in trouble bringing the red line to the green for a possible down cross and sudden game over there was a central bank intervention either directly or verbally to stop the down cross.  

Looking at the top chart where we can focus in on the last time the two moving averages merged in October, we once again had a central bank intervention to prevent the down cross.  Two days ago, the two lines merged once again on Fed speak day putting the world's central banks on high alert that an immediate intervention was necessary.  First Yellen retreated on her hawkish rhetoric, then Japan's central bank did a shock and awe easing early Friday and then the mighty short squeeze engine was turned on and was very effective as Fridays are always thinly traded and easily manipulated.  The result was a monstrous short squeeze.  

If you look at the top chart closely it is easy to see that if we had not had an intervention Friday that the QQQ would likely have had its first down cross in the entire seven and a half year bull market, the game over down cross.  I must say they do like to wait until they can see the whites of the bear's eyes.

This is a big gift for the bulls but they must step up and buy big on Monday and Tuesday to produce follow through.  If they don't and we have a big down day Monday, the tip of the red line could still turn and begin a down cross.  The odds are in the bulls favor as historically when the first trading day of a new month falls on a Monday there is virtually always a rally.


Trade well my friends

Alan

Thursday, January 28, 2016

Comparing the SPY, USO, VXX, & TLT Channel Charts

With most of the leader stocks either breaking down or trading erratically, many traders and investors are focusing on the big four ETFs which are the SPY, USO, VXX, and TLT.  I have posted the one-year charts of each of these four below.


click on image to enlarge


Looking first at the SPY, we see that after the bounce from the neckline of its two-year wide dome top and breaking out of its three-week declining channel (shown in pink) it has just been chopping sideways the past week at the blue line support level coming across from the late September low. The SPY is also trying to declare the green channel as its new dominant channel.  It is a declining channel also, but it's better than the steep nosedive channel it just broke out of.  

Below the SPY, I have the VXX (short term VIX futures ETF) where it peaked at the upper line of the blue channel at the same time the SPY bottomed at its neckline.  A few days ago, the VXX fell out of its three-week rising channel as the SPY broke out of its three-week declining channel.  The VXX is also chopping sideways just above the support of the center line of its blue channel.  Herein lies the problem, the SPY and the VIX should not both be sitting on support.  If the VXX is sitting on a support line then the SPY should be up against resistance since they trade inversely.  This deviation from their normally opposing relationship is because the SPY is being vigorously propped up this week and anytime it is being manipulated it gets out of sync with its inverse relationship with the VXX.

Next, looking at the USO (US oil fund ETF) we see that it is breaking out to move higher but looking below it at the TLT (20-year bond ETF) it is also set up to move higher.  Here again is the same problem as above, they have been trading inversely but they are both set up to go higher together now.  The TLT is too big to manipulate by anyone but the USO isn't too big and it is currently under verbal manipulation by countries around the world as everyone that is getting decimated by falling oil is announcing that they may talk about cutting production to see if they can get a short squeeze going without actually having to cut back on their production.

Lastly, the TLT continues to work its way higher after recently breaking out of its one-year declining channel.  The TLT is increasingly becoming the favored spot for equity cash-out money as it continues to climb distancing itself from its previous one-year declining channel.


Trade well my friends

Alan





Tuesday, January 26, 2016

Examining Three Slices of AAPL

In the market Tuesday, the usual float up program was running which always drifts the market up the day prior to Fed speak.  The program got a little extra kick from oil being up on some Middle East comments but the $CL_F oil futures took a hard hit after the market closed when the API oil inventory numbers were released that showed a huge inventory build the past week.  

The real story tonight of course, is AAPL's earnings.   After the announcement, it took the standard whipsaw both directions as traders balanced the positive against the negative in the report and the consensus ended up taking AAPL two percent lower after hours as shown in the first chart below.




Next we take a look at the one-week chart with five-minute bars, shown just below, where we see that AAPL has actually been downtrending these past two days leading into its earnings announcement.




Lastly, taking a look at the longterm chart of AAPL, we see that it actually has been holding at a minor trendline the past few weeks waiting on earnings to determine if it will continue going lower and fulfill the projected drop from its recent head and shoulders top.  




If the after hours activity holds true as an indicator, AAPL is more likely to resume its downtrend now but don't forget that it's Wall Street's darling and they will be defending it vigorously on Wednesday if the decline resumes.


Trade well my friends

Alan



Monday, January 25, 2016

Market Wants Yellen to Back Off Hawkish Stance

In the market Monday the short squeeze on oil waned as all the quick to cover shorts did so but the big shorts said no thanks.  Market volume dried up as buyers went on strike waiting to see if Yellen really does stick to her previous communication of four interest rate hikes in 2016 or instead acknowledges that the market is about to be devoured by the bears if she doesn't back off to a one and done statement.  

The following quote has been around the internet but if you haven't seen it here it is:

"What the Fed did, and I was part of it, was front load an enormous market rally in order to create a wealth effect...and an uncomfortable digestive period is likely now." - former Dallas Federal Reserve Governor Richard Fisher - January 5, 2016.  

Looking at the charts below, we see that on Monday the indices gave back the gains from Friday's short squeeze as traders saw that the oil short squeeze is over and realized that the market now desperately needs a rescue from the Fed.


click on image to enlarge




Trade well my friends

Alan

Sunday, January 24, 2016

Examining the Longterm VIX Channels

Taking a look at the twelve year chart of the VIX Volatility Index, the channel to watch now is clearly the red channel.  The VIX spike all the way across this red channel occurred during the last week of August where we saw the Dow open negative 1200.  This red channel is a dangerous place to be but it continues to act as a magnet pulling the VIX into it.


Click on image to enlarge


At the market low this past week, you can see that the VIX briefly entered into the red channel but quickly reversed back below it escaping a bullet for now.  Looking closely, you can see that the pink ascension channel that took the VIX up still contains the VIX and everyone will be watching to see what happens when it gets back to the lower line of this rising pink channel.


Trade well my friends

Alan

Saturday, January 23, 2016

S&P Dome Top Continues to Form

If the newly started short squeeze continues higher for the almost obligatory S&P 2000 backtest (everyone was wondering if this simply wasn't going to happen but it looks like it may now), the technicians around the globe will have a smile on their faces if they see that the huge dome top that is 80% built continues to completion.  The dome is the king of all topping formations and this one may end up stretching 2.5 years wide with almost perfect shape.  When the 2017 stock market text books are published this top will very likely be an absolute must as you will be hard pressed to find a more beautiful price pattern throughout market history looking at it solely from a technical perspective.  


click on image to enlarge


Looking at the S&P through the lens of the SPY in the chart above, it's easy to see how we could have 1-3 additional make or break tests of the neckline before the dome completes its right side.  No one knows how it will play out but if  if the pattern continues to develop with the technical purity it has so far the price action I have sketched in is certainly plausible.


Trade well my friends

Alan