Stock Market Viewpoint

Stock Market Viewpoint
Reading the Tea Leaves...

Monday, February 29, 2016

Backtest of QQQ Game Over MA Downcross is Losing Steam

Following up tonight on my last post where I detailed the importance of the QQQ's key moving average pair, I am reposting the updated chart below showing the sudden drop from the downcross and then the backtest that normally would have been the token event after such a key downcross.  As the drop happened though, it quickly appeared the retest might not happen so Fed hawk Bullard was ushered out with his verbal intervention (stating it would be unwise to raise interest rates anymore this year and hinted at the possibility of more QE) that was used to make sure the QQQ downcross did backtest.  It triggered the fiercest short squeeze of the past eight years.  Now, however, as can be seen in the chart below, the backtest appears to be losing steam and it's unsure whether the red line will actually make it back to the green line for the token backtest.  

Taking a look next at the twenty five year chart of the S&P 500 using Monthly bars, we see the two monthly bar drops after the S&P lost both channels.  The lower chart is a Daily bar view of the same chart.

This next double chart shows two starting points for a bear market.  The first chart shows the 9 month moving average with the blue line which is the equivalent of the 200 Day moving average line.  When a price bar crosses below this line the index has begun a bear market but it has not progressed far enough to determine if it will last a couple of months or a couple of years.

The lower chart shows the second stage of an early bear market and is probably the most widely passed around chart on the internet the past couple of months and surprisingly showed up on earlier today.  The red line is the 10 moving average and the green line is the 20 moving average.  When the 10 upcrosses thru the 20 a longterm bull market has begun and when the 10 downcrosses thru the 20 a longterm bear market has begun.  It is easy to see that by looking at the chart that how the next monthly bar, the March bar, closes will mean everything for the stock market.  With the new monthly bar opening Tuesday, it appears that we will be able to see the tip of the red 10 appear below the green 20.  However, the battle that is about to take place during the month of March between the Fed and the bears will likely produce the craziest price action we have seen in some time as each side exchanges short term victories.  The deal is not done though, until the March bar closes showing either the Fed having its way by keeping the 10 above the 20 or the bears succeeding and the bear cycle that is due begins.

Lastly, taking a look at the VIX with 60 minute bars we see the 2016 range for the VIX and that it is now positioned at the lower line as the March monthly bar is about to open.

As the month of March progresses expect multiple verbal interventions by the Fed.  Whether it will be enough to prevent the return of a natural cycle that the Fed looks intent to break is yet to be seen.

Trade well my friends


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