Slow Weak Ahead

After over a year of a relentlessly up market, we now have ten consecutive trading days down (Naz) or 9 out of 10 (S&P). This is the worst consecutive string of down days in this bear market, which hit a losing streak of 8 days in Oct 2008. The Death Cross of the 50/200 DMA is a fraction apart. Friday's STU notes that the RSI (relative strength index) is at 8.6, the lowest level since Feb 2009, giving another confirmation of a major change of trend: the end of the Hope Rally and the start of something really bad ahead. 

Stocks tried to rally as they usually do before the 4th of July holiday weekend, but sold off at the close - an indication that institutions did not want to hold positions over the three-day weekend. The most likely prognosis based on wave structure is that we are in (or have just ended) a small wave 4 before the final thrust down (See chart courtesy EWTrends). This wave 4 may have ended as a flat, which implies a gap down Tuesday; or may be breaking as a triangle, which implies a sideways week on light volume. 

EvilSpeculator has been exploring the indicator of stocks above their 50 day moving average (50DMA). Right now the number above has fallen to the level of the bottom last March 2009 at the kickoff of the Hope Rally. I suppose on a short-term basis this indicates an oversold condition with a bounce due - one that should come after we complete waves 4 and 5 - but look back a little farther to the Fall of 2008 (pun intended) and you can see how much lower this indicator can go. 

 

Another way they are looking at this is the percent of stocks above or below. Here is a longer term view. You might check out their site as they explore the usefulness of this. 

Comments

[Les]

I would also look at the distance of the $SPX from its 50-day SMA. It's repeatedly trying to hold support from the level where it's -8 to -9 percent below the 50SMA. The same is true of the Dow Jones Industrial Average and the OTC Composite Average. If you go back to 2008, this has been the support area for rally attempts during the bear market before the averages deteriorated much further.

[Michael]

Happy Birthday America!

[molecool]

Thanks for posting my humble charts, Mr. Yelnick :-)

I'll put up a new (and improved) version of the SPXA50 chart in my update tomorrow:

http://evilspeculator.com

It's subscriber only in the morning but will be free for everyone (as always) Tuesday after the session (i.e. 4:15pm EDT).

[molecool]

Les - SMAs *on price* contain too much noise by design - plus they do not show distribution activity. The SPXA50 and SPXA200 do and provide much deeper insights into the state of the market. Just my humble opinion after having employed both.

I am however using SMAs on other indicators - for instance ratios between momentum indicators or the ISEE for instance. They do have their place by all means, but on simple price you will always be behind the curve. Of course for long term trend traders SMAs on price should do just fine.

My 2 cents for what it's worth (probably nothing).

[nspolar]

So humble molecool ... I looked at your stuff.

What is your .02 for next week, up or down?

TIA.

ns

[Les]

The number of stocks above and below the 50-day SMA is now at extremes where it's becoming less useful. The index can fall significantly from here and the number of stocks would be roughly where it is now. It would ordinarily be very oversold and ripe for a bounce when the percentage of stocks is below 20 percent.

Benchmarks on previous deviations of the index price from the 50- and 200-day SMA is an alternative attempt to gauge levels at which the market may find support or resistance.

[nspolar]

Question?

If we have made some supercycle top, why are the multitude of NBA free agents signing mega buck deals?

How does this fit in with Herr Bear Prechters grand super cycle top?

Imho it does not.

ns

[Hockthefarm]

Yelnick:

Based on this month's review of the MUNI market in the EWFF, has your opinion changed at all? Jim Chanos is telling his clients to avoid muni's. Says the structure of the market has changed so much that comparisons with the past are null and void.

Hock

[Hockthefarm]

Like a puppet on a string:

http://www.youtube.com/watch?v=QTcL6Xc_eMM

Hock

[Hockthefarm]

polar:

The EWFF for July showed a chart of average baseball salaries as having completed 5 waves. Noted that attendance is down this year. I don't think basketball can be too far behind.

Regardless of how folks bash Prechter, few with more than a tooth or two can argue about how severe this downturn is, nor how bad it could get:

http://www.chartoftheday.com/20100702.htm?T

For me, that is the real message from Prechter. Folks that really think someone can call the market turns to the day, week or month have a lot of other issues don't you think?

Hock

[min]

>>>Folks that really think someone can call the market turns to the day, week or month have a lot of other issues don't you think?

Hock

Posted by: Hockthefarm | Sunday, July 04, 2010 at 11:06 PM<<<

Yes Hock, those Folks have some issues.

Issues of zero-tolerance for mediocre market forecasters desperately packaged in "Guru" wrapping comes to mind to be exact.

People who idolize those who can't call 4-5 year long market rallys (2003-2007); that stay out of raging bull markets for 13 years (1987-2000); while simultaneously making countless armageddon calls for 23 years running undoubtedly have the real big and nefarious issues though.

This dowturn isn't YET that severe in relation to the 13 month rally that preceded. You're anticipating the miserable Prechter future you have probably adopted as your own; it has a 50%-50% chance (at best) of working out and with Prechter's 26% acuracy that's a very unlikely 50%-50% chance.

As long as you just keep only grandstanding BP's armageddon and don't actually do anything the worst you'll do is own a lot of devalued cash.

That's actually not that good now that I think about it but to each his own.

As always, your limited EWI experience shines bright!

[Hank Wernicki]

Precther in the new York Times :

http://www.nytimes.com/2010/07/04/your-mon...amp;ref=general

[Hank Wernicki]

Oops wrong link, sorry

http://www.nytimes.com/2010/07/04/your-money/04stra.html?src=me&ref=general

[Roger D.]

Euro

http://www.screencast.com/users/parisgnome/folders/Default/media/968bb5a6-9d08-4bf9-9196-e8b8d9f2af6d

Roger D.

[twitter.com/DrBubb]

Nice summary, Y. But are too many people expecting the same thing?

We may have had a major non-confirmation from VIX.

Chart: http://img693.imageshack.us/img693/9233/aa3.gif
(note: Brown line, above is: 80 - VIX)

VIX is well off its highs, and has not followed SPX, or even AAII sentiment
to a new extreme.

Is this a WARNING of an immanent TURN?

[nspolar]

Hock:

"The EWFF for July showed a chart of average baseball salaries as having completed 5 waves. Noted that attendance is down this year. I don't think basketball can be too far behind."

Since I do not subscribe thanks.

I find that a bit interesting. It has appeared to me that in general the money just continues to pour into sporting activities, in particular salaries and such. I follow F1, the rich person's playground in a way. No lack of teams wanting to get in, no lack of money to pour in ... YET.

One of the new teams that was supposed to be on the F1 grid this year did not make it, due to lack of funding. But there were others willing to take the spot, immediately. Interesting enough the one that did not make it was to represent the US, but was funded from various places.

ns

[yelnick]

Hock, good question, but their comments were along the lines of Cal/Ill are in deep doggie doo doo, foreigners have rushed into munis (and they are the last to know), and people are hanging on to them even though their CDS levels have shot up again as they did in 2008. It doesn't go any deeper. My advice is captured in the Investing in Munis theme on the sidebar of the blog, a post I keep updating: Investing in Munis.  

My take on munis remains that the States will be loathe to default since it cuts off their lifeblood of managing sporadic tax revenues. The main issue that gives me pause it was happened in the Vallejo bankruptcy, which was an attempt to spread the pain around to preserve public union benefits by eating into the munis. It may be what distinguishes this time around from the 1930s is the public unions have much more power and therefore are able to negotiate partial cuts in munis to preserve their bennies. Also, although it is oft stated that munis had a low default rate in the 1930s, in some cases the investor wasn't paid current income on them for a long time - they eventually made good but the patient was starved. 

If you do go into munis, two more things to consider:
diversify across different muni issuerslook underneath to what entity holds the risk; it is often not the State or City but an industrial district (avoid!)

I have also recently commented that the safe harbors against risk should probably include corporate bonds. Here is my list:
Gold has shot up and despite all the comments of goldbugs that it is going to $5000 it seems to be closer to peaking. Treasuries are rising and so perhaps they should have been bought several months ago - right now they might be a little risky (at the long end) since if you buy when rates are lowish and they turn back up the value of the bond drops. Munis are hanging in there and seem to be getting a lift from the expected tax increases next year. Certain foreign currencies/bonds make sense, especially Swissies (where the Germans are running to hedge the Euro)And that leaves corporate bonds as a new safe haven - US businesses are sitting on record cash

[Roger D.]

Manipulaion for months??

http://market-ticker.denninger.net/archives/2474-Market-Manipulation-On-Display.html

[trendlines]

Shanghai Composite: Why i am BULLISH medium-term!

Last week's decline on the SSEC, got tongues wagging & China bears smacking their lips in excitement. This weekend i suggested that this was the final shake&bake, to throw panicked retail feeders off the trail. And yes, i maintain my medium-term bullish and long-term bearish, outlooks. Just like it has in the recent past, Shanghai will probably lead again with the recovery. This long-term chart below, going back 13 years, speaks volumes:

http://trendlines618.blogspot.com/2010/07/shanghai-composite-why-i-am-bullish.html

[Molecool]

Les - very good thoughts about the SPXA50, which is why I also use the SPXA200 - that chart is actually a lot more interesting (more in today's update this afternoon).

[Roger D.]

The ES Daily. The market's inability to mount a rally here so far, is incredibly bearish,IMHO.

http://www.screencast.com/users/parisgnome/folders/Default/media/43d04a79-c807-4922-b716-205b7646b44a

Roger D.

[Roger D.]

The beginning of the Valueline's wave "A" down.

http://www.screencast.com/users/parisgnome/folders/Default/media/667c21d6-dca0-4d76-b602-65a4e56628d2

[Hockthefarm]

Thanks Y:

Dent sees a run up in the 10 year by year end to 4.5%.

It is sure tough out there. Prechter's big picture stuff is landing in spades. Poor Obama. He is just far to young and inexperienced to steer the ship through this one. Some are saying "Mrs Bubba" will be on the ticket 2 years from now.

If we rally in to mid July, I'm going to put on some shorts (say 10,600 or so?).

Hock

[Hockthefarm]

You win min. I'm not going to trade insulting shots with you.

It will be interesting to hear the tune you whistle when the dow hits 6500 this year or when gold hits 600 about this time next year. Woops, that's dow 6500 on October 18th at 10:23 am EST and 680 $/oz on July 7th, 2011 at 11:40 am EST.

Didn't want you to think I was sandbaggin,
Hock

[min]

"You win min. I'm not going to trade insulting shots with you.

Posted by: Hockthefarm | Monday, July 05, 2010 at 04:37 PM"

Hock you're such a gentleman...

Unlike you I do actually trade - and frequently. I've "test-driven" Prechter's calls extensively which is why I feel your Prechter idolization/grandstanding needs to be checked for the benefit of those who haven't had their Prechter hazing..

I am fully prepared for DOW 6500, that's within the parameters of my research and fully expect it. Bought core QQQQ leap Puts 2012 in May to hedge my Gold & Silver physical holdings and really would welcome a Gold drop to $600 to load up on some more with the proceeds from my QQQQ leaps.

Next year you'll probably be the one wishing you had gotten some PMs. Even if gold does make it down to $600/oz, you won't be able to touch it for anyhting less than $900. The premiums will be way more outrageous than the 2008 nosebleed premiums paid by most retail physical buyers.

Don't worry, I won't rub it in. My only beef with you is your Prechter grandstanding. You think he is out of this world and that he knows exactly what is to come because your frame of reference is a scant 18 months. Why don't you buy some of the EWFFs and EWTs from 2003 and 2004 and you can read the same forecasts during a multi-year rally. Then go and order some more EWFF/EWT issues from the 1990s and prepare for some more deja-vu.

Prechter is a one trick pony. The market is now in agreement with his one and only forecast for the past 20+ years —pure coinsidence. Had he some real skill he could have done a little bit better than being 20+ years off.

You are so impressed with the guy yet his targets will again be way off —THOSE are serious issues. Demanding someone do their job reasonably well day to day, week to week is pretty damn normal. And to challenge your argument that he is excused because he is a long term forecaster, well then he should stop publishing things like "SHORT TERM UPDATES" and "MONTHLY FINANCIAL FORECASTS" don't you think?

The biggest skill Prechter has is in marketing his products so they appeal to those with an average interest in the market. Too bad you can't see that but since you aren't trading on his calls you're safe.