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Stock market turning points - are we there yet?

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1 hour ago, Mercury said:

And EWT and charting and trend following etc etc.

True, but Dow Theory is easier to master than EWP.

 

 

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15 minutes ago, dmedin said:

Dow Theory is easier to master

So you have mastered it?  You must be coining it...

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Just now, Mercury said:

So you have mastered it?  You must be coining it...

:D

No I haven't, but if one cannot master Dow Theory then why even bother with EWP ...

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Another stocks wobble, another potential bull end (or maybe just a significant bearish retrace for US large caps) and another round of Bears getting excited and perma-bulls pulling out trend charts to ward off the evil eye.  All in a days work.  As a swing trader, although I do not trade stocks long anymore due to the inherent risk, I look on this with a view to what evidence there is for the Bear case (plenty of perma bulls to offer the rocket to the moon scenario...).

My last post was on the Dax, it having just made a new ATH.  My working hypothesis on the Dax now is for a double top rally end.  In my last post I projected the scenario wherein a bearish 1-5 would be followed by a relief rally that failed to make a higher high.  This is exactly what we got with a Dax turn at a confluence of the previous ATH and the short term potential ending channel upper line.  This was also just short of the Fib 88%, a strong attempt at a higher high but, as of today, ultimately a failed attempt.  This coincided with a strongly bearish daily candle of US large caps that resulted in a bearish weekly candle.  So the outlook is set for a bearish week next week perhaps, unless we get an early doors buy the dips rally.  With a lot of heavy data releases out next week any negativity at all could send the whole pack of cards into a collapse, this is the nature of where we are with stocks I feel (i.e. when it happens it will happen fast and furious).

Some other stock indices are also showing negativity.  The Russell 2000 is very interesting because it was stopped by a daily channel lower line on Friday but another bearish day on Monday or an ultimately bearish week would see this broken after a potential wave 2 (purple) off the ATH), a very bearish scenario for momentum stocks.  The Nikkei put in a lower high on Thursday and sloped off down from there after a double top.  The FTSE100 did something similar.  Note all major indices turned on significant NMD, with the possible exception of the Nasdaq.  If we also look as the FANGs the picture looks proto-bearish too with Amazon and Netflix having posted their ATHs back in 2018 and looking like they are at or near relief rally turns; Facebook turning down similarly to the Nasdaq as a whole; Apple possible breaking back into a channel and Alphabet unable to break $1,500 on several attempts and also breaking back below a key upper channel line.  Add to that the crazy Tesla melt up, unsustainable, and things are at least worrisome for the perma bulls and the bears are pricking up their ears and sharpening their claws...

In other markets, USD and Yen are strengthening (generally a directional signalling of stocks bear); Gold and Silver are catching a bid; Copper is falling; DJTA remains stubbornly below ATHs (a blow for Dow Theory using bulls) and the 10 year T-notes seem to be going Long again.  All of this can be seen as aligned to stocks bear phase and I can't find any clashing correlations for that scenario.

None of this is conclusive as yet and it is quite possible we could see a retrace and higher ATH on US large caps (after a bearish retrace I feel) but other markets look decidedly bearish for the long term.  Price action and the nature of any bearish phase will be an important "tell" but for now at least some sort of bear phase seems possible.  It could be fraught for both bulls and bears during next week as data releases and Fed rate decision comes in but if price follows my road maps I will trust the technical turning points.  I am Short the Nasdaq and Dax off the top and turn with very low exposure stops and waiting to see if addition opportunities present.

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'Whether he likes it or not he has to participate in the game' - hahaha international financial capitalism will rule the world for all time.  The big sharks will always eat the little fish :D

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Checking in on the markets during my mid morning coffee break is a pleasure today seeing the growing wall of red of stock indices (simply because I am Short Dax and Nasdaq, not for any other dystopian - not sure why the spellcheck has a problem with that word... - doomsayer reasons).  Chatter linking this to the China virus reminds me of the talking heads conclusions in the immediate aftermath of the Brexit referendum and the historic landslide victory by the Conservatives in the recent UK general election.  Many, if not most people need to have some simple reason for events, whether it is in the wider world or the markets.  For Brexit it was lies and stupid racist people; for Labour's shocking GE result it was Brexit or maybe it was Corbyn.  Neither of those are sufficient reasons nor tells the turth of a very complex situation.  The Remoaners failed to fully appreciate this and lost, if Labour do not get the complete picture and act accordingly they will had the Conservatives decades in power.  Such thinking leads people, via a process that Daniel Kahneman referred to as "thinking fast", to fall into the trap of "post hoc, ergo propter hoc" conclusions (literally translated as after, therefore, because of it).  It means that because an event comes after another event it there must be a cause/effect relationship but it very often isn't true or isn't the whole picture.  What Kahneman refers to as "Thinking Slow" is analysis as opposed to gut reaction.  It is hard to do.  It taxes the human brain and body to put in hours and hours of analysis, ask anyone who does it for a living, it is exhausting.

I have laid out the high level summaries of my technical chart analysis and fundamentals assessments previously, I am not going to go over it again (phew!).  As I have mentioned before there are a lot of economic data coming out in the next 2 weeks and most of it is critical to the projections for the economy (Note: the consensus is still calling for steady as she goes...).  Markets do not need a reason to go down, they need a reason to go up, else they go sideways or crash/correct.  Could the big players be getting wind that all is not well with the economic data?  We have had a slew of bad data from the UK and the EU powerhouse (German) for many months now; no one really believes the data coming out of China; Emerging markets are precarious and rising USD is making matters worse for them; Central Banks are apparently buying gold like never before; Japan remains moribund and they have a regional banking crisis in the wings; the European banks are risky at best and even the US an UK banks may not be as robust as we are led to believe.  Central banks keep pumping the economy with accomodative policy, which started in 2009 and never stopped, not exactly the recovery we were all promised!  Housing markets remain overheated with a correction or crash more likely than not and falling house prices generally impact house owners confidence and consumers and companies and governments are maxed out on debt.  If we cannot issue more debt then the fuel for the post 1970s boom is removed.  No wonder the central banks have the taps full on, they know what will happen if they turn them off! 💥🔥❄️

So it will not take much my friends for the pebbles we are now seeing to turn into something more nasty.  For me the perma-bulls need a clean sweep of consensus beats in US data across GDP growth; Capital expenditure (aka investment); ISM manufacturing; ISM non manufacturing and NFP.  And what if we get another months NFP miss..?

Yeah but what about earnings?  Well check the following out:

https://insight.factset.com/sp-500-earnings-season-update-january-24-2020

  • "In aggregate, companies are reporting earnings that are 3.2% above the estimates, which is below the five-year average. "
  • "The blended (combines actual results for companies that have reported and estimated results for companies that have yet to report) earnings decline for the fourth quarter is -1.9%, which is smaller than the earnings decline of -2.4% last week." BUT STILL negative
  • "If -1.9% is the actual decline for the quarter, it will mark the first time the index has reported four straight quarters of year-over-year declines in earnings since Q3 2015 through Q2 2016."
  • "The blended revenue growth rate for the third quarter is 2.9%, which is slightly above the revenue growth rate of 2.8% last week. If 2.9% is the actual growth rate for the quarter, it will mark the lowest revenue growth rate for the index since Q3 2016 (2.7%)."
  • "During the upcoming week, 147 S&P 500 companies (including 14 Dow 30 components) are scheduled to report results." - I'd say this is a pivotal week...

Hmm, remind me what happened in 2015/16 again...

China virus?  Ok but surely fears over the wider economic data deterioration, earnings projections and the fact the the stock market valuations are simply too high MAY just also be having an effect?  Unless the Fed drops rates and ramps their QE4 programme (I think they will stand pat this time and by the time they react it will be too late) we need earnings beats this week and next as well as data beats.

In such an environment a betting man would favour the odds of a few misses that would cause a drop rather than a clean sweep that prompts a rally and even if it happens what level of beats across the board would be needed to stimulate anything other than a marginal rally?

Conclusion:  The odds favour sufficient poor data to cause a significant correction at a minimum.  The odds of a clean sweep beat of sufficient size to prompt a major breakout rally must surely be astronomical.  If anyone has more detailed analysis on this I'd love to hear it.

BTW: I expect a relief rally before any major drop so not suggesting to load up on Shorts just now.

Be careful out there...

 

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1 hour ago, Mercury said:

if Labour do not get the complete picture and act accordingly they will had the Conservatives decades in power.

So if Labour doesn't turn into the Conservative Party-lite (as it did under the war criminal and serial liar Blair), then England will always be ruled by the Conservative Party.

So England will either be ruled by the Conservative Party or the Labour party acting like the Conservative Party.  Perfect :D

 Capitalism is and always will be prone to crises - they are the irrational rationalizers of an irrational system (David Harvey).

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10 minutes ago, dmedin said:

Capitalism is and always will be prone to crises - they are the irrational rationalizers of an irrational system (David Harvey).

And that applies in spades for the stock market!

10 minutes ago, dmedin said:

So if Labour doesn't turn into the Conservative Party-lite (as it did under the war criminal and serial liar Blair), then England will always be ruled by the Conservative Party.

Pejorative statement, that is your thinking fast not mine.  All I am suggesting is that the Labour party needs to be honest with itself in diagnosing why it got such a hiding rather than palming it off on superficial reasons like "it's all about Brexit init? And next time that won't be an issue so carry on regardless..."  The UK soundly rejected the Remoaner position and the ultra left offering.  Can't see that changing, unless maybe we get that depressionary recession some people are talking about, in which case it probably won't matter who is in charge...

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16 minutes ago, Mercury said:

Pejorative statement, that is your thinking fast not mine

Yes I've read Kahneman's book too, it is rather plodding and quite common sense stuff really.  It's in the vein of 20th/21st century science, which is basically validating with evidence things that people knew to be true already for centuries.  What's the word, empiricism?  I prefer dialectics. 

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17 minutes ago, Mercury said:

The UK soundly rejected the Remoaner position and the ultra left offering.

Not really ... 52% out of 75% of eligible voters wanted out of the EU and it excluded young adults.

A majority of the public favour nationalization of the railways and public utilities.

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@dmedin- leadiind from your comment

 

Big downward movement today, are we thinking there's move bearish movement to come, or are you buying the dip...

 

image.png

 

I've just looked at indices overall but what are you tracking?

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@CharlotteIG

Mercury is probably right and there's a relief rally right now, and there will be more downside.  Sooo ... now is probably not the ideal time to be buying the dip :D

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Looks like the daily channel lower line is holding, for now.  If this is sustained, with PMD on the 1H and a clean 1-5 down then I would except a relief rally to close the gap and then turn back Bearish, maybe around the Fib 62%, maybe a bit higher, depends on price action in the rally.  Similar picture can be seen on other US large caps and the Dax.  However the Russell 2000 has broken its daily lower channel line, which is supporting a medium term Bearish bias.  Copper continues to perform very bearish, FWIW.

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US GDP in 10.  The last of this week's big releases.  The US large caps are at a ST critical juncture, Nasdaq at it's daily channel with ST support not far below but looking like there is a case for a stronger retrace.  A break lower will surely bring up a bearish phase that lasts into next week's data heavy calendar.

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A break lower on Gold/Silver was always going to be a stretch if stocks turned south and that seems to be the case.  After the initial buying surge on US opening both Gold/Silver and USDJPY started to reverse strongly and then we got a shape bearish move on the Nasdaq.  The Buy the Dips boys did their usual knee **** fat finger buy (may yet be the right move, let's see) but this didn't make a higher high (not as yet).  The whole of the move on Nasdaq looks like a 1-5 down from the top, followed by and A-B-C retrace to close the gap at the Fib 62% and then another smaller 1-5 down plus A-B-C up.  If the Nasdaq ends the day/week broken through the daily channel and ST support then I think the Bear phase will be on.

 

Interestingly the Russell 2000 has already broken its channel and put in a failed retest and then a lower low.  Currently teasing us at an area of daily chart support, a break of this should open the floodgates.  And the Dax has also joined the party today with a break of its daily channel, after a fakeout (all to common these day with the buy the dip brigade).  A close below the channel line and ideally below the recent lower low would be bearish for the coming days/week or so at least.

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Nope.  Buy the dip won the day at the very last moment.

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13 hours ago, dmedin said:

Buy the dip won the day at the very last moment.

Yep, at least on the Melt-up Nasdaq, mostly on the melt-up Amazon after results posted.  However the other large caps didn't respond as well and now Dax and FTSE100 have made lower lows, the former after a failed retest of a daily channel line that was previously broken to the downside.  Russell 2000 as done the same but earlier and the Nikkei ended its live trading week bearishly.

The technicals on the Nasdaq look as follows:

  • Possible top on Jan 24 (not necessarily "the top" but could be given the Amazon, Netflix, Tesla melt up it could be...).  Turn on NMD at key LT trend lines.
  • Swift 1-5 down with a gap in wave 3 and then a turn at support (ST horizontal plus LT daily lower channel line) on PMD (posting a possible wave 1).  An A-B-C and turn is what I was looking for next.  Initially I though we might have it at the Fib 62% and gap close but that now looks like the wave A (1-5 count).
  • Next we got the whip saw price action yesterday to post a likely wave B, which also turned on the daily channel line.
  • Then we got that Amazon led melt up but on the Nasdaq it only took us to the Fib 88% (no new ATH) and has turned here overnight on Asia bearishness.  The rally is also in a 1-5 and the drop away has, so far, been quite sharp, which would be expected of a wave 3.

Hang Seng and China 50 continue to slide fast while Europeans have made lower lows and non Nasdaq US indices are also turning bearish.  Russell 2000 is approaching another lower low.  If we see the Nasdaq break below the daily channel line again (close below it today) and especially if it breaks the horizontal support at the wave 1 low then I think we can expect a bearish phase into the data heavy week next week.

Gold looks like it is rallying again and USD is also holding up, maybe ready to rally further.  USDJPY still looks bearish.

It is also worth noting that the data releases this week were not great:

  1. US home sales down and German IFO surveys in the red on Monday 
  2. US Durable goods orders ex defense (i.e. consumer based) and non defense captial goods orders went negative on Tuesday
  3. US home sales went negative in Dec on Wednesday
  4. The Fed sat of their hands as expected, no new coolade
  5. The BoE sat on its hands on Thursday
  6. US GDP Q4 failed to meet consensus on Thursday (this is the one the Perma Bulls always point to even thought it lags recession)
  7. US personal consumption and jobless claims failed to meet expectation on Thursday too
  8. EU GDP down on consensus on Friday

I mean even US GDP fell off the pace and if it wasn't for some crazy buying on the FANGs and Tesla the Nasdaq would be down already.  Sure the markets can remain crazy for a long time, but they already have been, just look at a chart on Tesla, Amazon, Apple etc.  Barking mad!  At some point a melt up melts down...

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Great start to the US session for the Bears!  The Nasdaq turned right on cue at the open around the Fib 50% level and tanked.  Maybe traders agree with me that the data is soft and are worried about next week.  Or maybe it is just a "normal" Friday sell off...

While things have potential on the Nasdaq, the other US large caps are approaching lower low support levels, having dropped back through the daily channel lower line.  A sustained break below the support will be significant.

In other indices the Dax, Nikkei and Russell 2000 have already made lower lows and are into important support zones, breaks of which will be very significant I feel.  Looking at the FANGs Google and Facebook are looking decidedly bearish while the others are in potential turn areas that could become melt downs (Amazon and Tesla in particular are worth watching) and Netflix is bearish anyway.

Still need to see the Nasdaq drop below 8900 for me to get comfortable but my Shorts are all stop protected now so just waiting to see which what this will play out by CoP today.  If it stays low I wouldn't want to be holding any Longs over the weekend...

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Crikey!  Has anyone checked out the Jan performance for the China A50 and the Hang Seng!!!

That's 12 and 8% I think...  Can't be just the **** flu!

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Looks like all January gains will be given up and maybe some of December's.

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1 hour ago, dmedin said:

Looks like all January gains will be given up and maybe some of December's.

If the Nasdaq breaks and holds below 8900 there will be a lot more gains given up, maybe even half of 2019...

Nasdaq traders are the only ones still holding their index above the support levels.  SP500 broke below and came back up but everything else is down.  The Nasdaq buy the dips boys are on attempt no.3 to hold the daily channel line.  Should be interesting as third times a charm...  NOT looking good for the bulls just now...

Come on ye Beaaaaaaaaaaaaaaaaaarrrrrrrrrrrrrrrrrr!

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If history is anything to go by, price needs to "refill" that top ascending channel

Capture us 2.PNG

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Quick update on my stocks analysis vs last week.  Markets have put in a small relief rally, which I was expecting.  Nasdaq penetrated back into the channel but is now back below.  Dax retested a potential ending channel lower line.  Fairly static at present with 3 major events to come to kick of a massive week:

  1. US open, as always
  2. ISM manufacturing, anything but a decent beat of consensus (which is still contraction) should be bearish I think
  3. Google to release Q4 results at CoP tonight

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So buy the dips again but what next?  There are 3 scenarios for me, the third is a prolonged sideways move but given the Tech drivers and data release spasms and the overall extreme levels of valuations (and therefore potential fear or a sharp reversal) I don't thing the sideways scenario has a high probability.

Earnings seasons and economic data will probably either spur the perma-bull,this time it's different, don't fight the Fedm dip buying or cause a fear driven sudden drop.  The US markets are leading, no surprise there, so this is where we must watch for signs of cracks.  Was yesterdays Nasdaq wobble one such?

While waiting for the earnings season and economic data to reveal themselves, and notwithstanding coronavirus scares or any other macro events as yet unforeseen, I looks at the technicals to see if there is anything to watch out for.

Using the Dax, which is approaching another ATH, what I see is the following:

  • The weekly chart shows a potential Flag (which could also be a 1-2, i.e. the beginning of a long rally).  The chartist convention is that the Flag marks the halfway point on the rally.  A projection suggests a bull phase end at circa 13,700 (it isn't accurate of course so can fall short or spike through and still be valid).  And ending waves are trick customers to map.
  • EWT 1-5 count possibly coming to an end with the 3-4 being the recent bearish drop and recovery.
  • NMD building on weekly and daily charts (and also on shorter term charts)
  • Oscillators over bought or approaching this level on all chart time frames, but not there quite yet.
  • Nice 1-4 (green) on the Daily chart from the Flag breakout, that would put the market in the final wave 5 of this move.

Net I see the two scenarios as follows:

  1. The wave 5 (green) ends soon and marks the top out on the Dax, with maybe a double top (may not coincide with a US large cap top out, there may be one more leg up on these but only after a sizable correction)
  2. The Flag is really a 1-2 and the market takes off like a rocket and wont look back for some time.  Gold/Silver would plummet on such a scenario I'd imagine...

Who knows which will materialise, or maybe that going nowhere scenario will.  For me I will only trade stocks on the Short side now but if the stock do take off like a rocket then there are opporunities elsewhere that will not keep me awake at night worrying about the inevitable stock market crash...  US NFP is the next pivotal moment for stocks, I'd expect to see higher highs on US large caps and the Dax before any further bearish action.

Note: there is one other scenario but this is more for the US large caps so I'll hold that over until see that correction.

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