Dots
The Price Action is Not QE-Like
Wednesday, July 25th, 2012
Think back to those QE days when the market went up day after day after day for months on end without more than a single pullback of more than 1%. Yes, the good old days. Certainly, there was a lot of angst in the air not because prices were going higher but because to participate in the rally you had to hold your nose, jump in and pray that the end wasn’t tomorrow.
During the QE days, the market never pulled back and it only went up. Looking at the price structure — which is the path that prices take as they swing from low point to high point and back again — we note a series of higher lows. See figure 1, a 60 minute bar chart of the S&P Depository Receipts (symbol: SPY). The black dots are key pivot points, which are the best areas of support (buying) and resistance (selling).
Figure 1. SPY/ 60 minute
The area inside the gray bars is the time frame from December 9, 2011 to March 1, 2012. During that time, the market blasted off because of the belief in Operation Twist and the European Long Term Refinancing Operations. What we note is 12 consecutive, higher key pivot points over 3 months, which is an extraordinary amount of time without a pullback that breaks support. This kind of price action was also seen during QE2 (12 consecutive, higher key pivot points over 3 months) and QE1 (8 consecutive, higher key pivot points over 3 months) .
Now contrast this with the current market environment. See figure 2, a 60 minute bar chart of the SPY.
Figure 2. SPY/ 60 minute
Since the bottom in June, prices have traveled within a well defined trend channel, and it is only over the past 2 days that prices have fallen from this channel. But more importantly, the pattern of higher lows, which is characteristic of unabated buying seen during Operation Twist and the QE’, is not being seen. In fact, prices have struggled and appear to be rolling over.
Tags: Amount Of Time, Amp, Belief, Current Market, Depository Receipts, Dots, Gray Bars, High Point, Lows, March 1, Market Environment, Pivot Points, Price Structure, Pullback, Qe, Rally, Refinancing, Resistance, Time Frame, Trend Channel
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Gold: Fundamentals Strong, Price Action Ugly
Thursday, May 17th, 2012
by Guy Lerner, The Technical Take
Until proven otherwise, central banks will continue to devalue their currencies and intervene in markets because if they didn’t “life as we know it would not exist”. This is the sole basis for understanding the positive fundamentals behind gold. Period. Economic weakness leading to lower interest rates is very gold positive. But sometimes the price action gets divorced from the fundamentals, and this appears to be the case with gold. Price is breaking down despite the positive fundamentals.
Figure 1 is a monthly chart of the SPDR Gold Trust (symbol: GLD). The pink labeled bars are negative divergence price bars. (The divergence is between price, which is heading higher, an oscillator that measures price, which is heading lower.) What we know about negative divergence bars is that their presence signifies slowing upside momentum such that price usually consolidates within the highs and lows of the negative divergence bar itself. The low of the most recent negative divergence bar is 154.19, and a monthly close below this level would imply lower prices. Based upon this analysis, the next level of support is at 145.20.
Figure 1. GLD/ monthly
Figure 2 is a weekly chart of the GLD. Price has gapped below the 153.12 support level. Old support is new resistance. Such breaks in the price structure are never good and imply further selling.
Figure 2. GLD/weekly
Figure 3 is a daily chart of the GLD. The red and black dots are key pivot points, which are the best areas of buying (support) and selling (resistance). Note the gaps in price as the 158.20 and 151.96 price levels were broken. The next area of support is at 144 to 145.
Figure 3. GLD/daily
In summary, the price action in GLD is ugly and incongruous with the fundamentals. As I see it, there are two ways to play this. You can buy into further weakness, and this would be the support level at 144.145. Or you buy into strength and that would be when price closes above the 151.96 resistance level.
Copyright © The Technical Take
Tags: Central Banks, Dots, Economic Weakness, Figure 1, Figure 3, Gaps, Gld Price, Gold Price, Guy Lerner, Highs And Lows, interest rates, Momentum, Nbsp, Negative Divergence, Next Level, Oscillator, Pivot Points, Price Structure, Sole Basis, Two Ways
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Gold Miners Still Not Pretty
Friday, May 4th, 2012
by Guy Lerner, The Technical Take
I last looked at the technical picture for the Market Vectors Gold Miners ETF (symbol: GDX) on March 22, 2012. At that time, prices were near $50, and I was concerned that the GDX would roll out of its trend channel and would proceed lower in a waterfall type decline. This scenario appears to be happening.
Figure 1 is a weekly chart of the GDX. The pink and black dots are key pivot points, which are the best areas of buying (support) and selling (resistance). As stated in the original article, a close below 3 key pivot points is “a pretty ominous sign regardless of the asset under consideration”. This was an early warning sign of trouble ahead, and this breakdown point is identified by the down red arrow as prices closed below the 51.95 support level. Once the 48.74 support level was taken out (up green arrow), prices were rolling out of the downward sloping trend channel. This water fall decline will likely end up at the next level of support, which is at 41.83. Moving to this level also would be consistent with price projections based upon the prior topping formation.
Figure 1. GDX/ weekly
In summary, GDX is heading to the next level of support at 41.83. I would look for prices to stabilize at this level.
Tags: Breakdown Point, Dots, Early Warning, Figure 1, Gdx, Green Arrow, Guy Lerner, Market Vectors Gold Miners, Next Level, Ominous Sign, Original Article, Pivot Points, Price Projections, Red Arrow, Time Prices, Trend Channel, Vectors Gold Miners, Warning Sign, Water Fall, Waterfall
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4 Reasons to be Bearish (Lerner)
Thursday, December 8th, 2011
by Guy Lerner, The Technical Take
Betting against equities – the market – is always difficult. First, the market isn’t designed to go down. Companies provide those goods and services for one reason – to turn a profit, and hopefully, such activity can be recognized with a rising stock price. Second, our economic stewards and political leaders (wisdom?) use the stock market as a vehicle that validates all that they do. Fixing a crisis is one thing, but fixing a crisis and having the Dow confirm such actions with a 600 point move is even better. Call this headline risk to any short position because market participants are likely to shoot first and ask questions later on any rumor. When was the last time you heard some elected official say “run for the hills”? There is always the hope that they can fix the problem. For example, this week alone, we have US Treasury Secretary, Tim Geithner, in Europe for “important” meetings. That’s 3 days of headlines telling us Europe’s problems will be fixed.
Nonetheless, here we find a market hoping for a Santa Claus rally just like they were hoping for the traditional Thanksgiving lift that showed up about a week late. How did that work out for you? Thanksgiving week was the worst Thanksgiving week since 1932. Oh well.
So why am I bearish? I have 4 reasons.
The first is purely technical. See figure 1 a weekly chart of the S&P Depository Receipts (symbol: SPY). The red and black dots are key pivot points, which represent the best areas of support (buying) and resistance (selling). The SPY is at a prior key pivot point (126.89) that was support but it is now resistance. There is also resistance from the down sloping 40 week moving average. The SPY is at the upper end of its price range. How it got to this point –i.e., a rally built on poor volume and breadth — is another concern. In essence, I would rather short the market at this point because if wrong I will be shown an exit rather quickly. This would be a “meaningful” close above the aforementioned resistance levels.
Figure 1. SP500/ weekly
The second reason has to do with my belief that we are headed into a recession. This can be seen by my real time recession indicator, which is shown in figure 2 a monthly chart of the SP500. (See this article to read about the real time recession indicator.) The red price bars are those times when there is a risk of the economy going into a recession. As can be seen in this snapshot, the risk of recession seems to coincide with prices being below the simple 10 month moving average. So with the SP500 bumping up against the simple 10 month moving average and with the economy on recession watch, I am willing to say, “prove me wrong”. A close above this level would have me re-thinking my thesis. I like to think of the simple 10 month moving average as the line of hope, and in a recession, that hope keeps getting crushed. We shall see if this time is different.
Figure 2. SP500/ monthly
The third reason has to do with trading models that characterize the current trends in the Dollar and Treasury as being bullish. Last summer, when the Fed announced QE2, equities really didn’t take off until the Dollar Index sank and Treasury yields started moving higher. The current situation is completely opposite to the Summer of 2010, and every market watcher knows that there are only two trades in this market: the Dollar and Treasury bonds (risk off) or everything else (risk on). Figure 3, a weekly chart of the SP500, shows this graphically. In the middle panel is an analogue chart of the Dollar trend which is currently up. The lower panel shows an analogue chart for the trend in Treasury bonds, and this is up to. The vertical black line is August, 2010, and we note that equities took off when these two trends reversed.
Figure 3. SP500/ weekly
The final reason has to do with market sentiment. Currently, market sentiment is neither bullish nor bearish, and this presents a problem for the bulls for several reasons. If there were more bears, I could make the argument that this is bullish. (This is the traditional interpretation.) If and when the market turns higher, there will be plenty of short covering to fuel any rally, and there will be plenty of investors willing to chase prices higher as they are on the sidelines wanting in. If too many bears is a good thing (and it usually is about 80% of the time), then too many bulls must be bad. But that really isn’t the case. Why? At important market junctures, like market bottoms in 2003 and 2009, too many bulls was a good thing. In essence, it took bulls to make a bull market. But in the current market environment, we have neither bulls nor bears. There are no bears to provide short covering fuel for a rally and the bulls don’t seem to be particularly interested for anything but a trade.
So let’s put it all together. Prices are at resistance. There is risk of recession. There are intermarket headwinds. And investors aren’t committed either way. I think this skews the dynamic to the downside even if there is headline risk.
How will I know if I am wrong? As silly as it sounds, higher prices on bullish news. And the appearance of bullish sentiment as investors truly embrace that news and get their speculative mojo back. Until that happens, I am willing to say, “prove me wrong”.
Copyright © The Technical Take
Tags: Breadth, Depository Receipts, Dots, Dow, Guy Lerner, Market Participants, Moving Average, Pivot Point, Pivot Points, Point Move, Political Leaders, Poor Volume, Santa Claus, Short Position, Stewards, Stock Market, Stock Price, Tim Geithner, Traditional Thanksgiving, Treasury Secretary
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Commodities: A Favourite Theme
Thursday, June 11th, 2009
The Reuters/Jeffries CRB Index – an index that was first constructed in 1957 and comprises 19 major commodities – has been rising non-stop for the past four weeks and for nine weeks out of the past 14. This surge represents a gain of 30.2% from its low on March 2. But one needs to put this in perspective: the Index fell by 57.7% from its high in early July 2008, and therefore still needs to rise by a further 81.5% to match the previous peak.
I posted an article a week ago entitled “Secular bull in commodities remains intact” and concluded as follows:
“… commodities still seem to be in a supercycle that was only temporarily interrupted by the global economic malaise. As inflation money finds its way into commodities, it is still not too late to purchase these, but only on price corrections that are bound to occur from time to time.”
David Rosenberg, chief economist and strategist of Gluskin Sheff & Associates, concurred, saying: “… what we experienced last year was a severe cyclical correction in what is still a secular bull market – you can connect the dots on the chart and see that the CRB looks a lot like what the S&P 500 looked like in the months following the sharp 1987 collapse. It seemed like the end of the world in October of that year, and yet in retrospect it was just the fifth year in what proved to be an 18-year secular bull phase.”
Bringing technical analysis to the equation, Adam Hewison of INO.com has prepared another of his popular analyses, specifically on the CRB Index. Click here or on the image below to access the short presentation.
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Tags: Bull Phase, Cape Town, Chief Economist, Collapse, Commodities, Crb Index, David Rosenberg, Dots, Economic Malaise, Gluskin Sheff, inflation, Jeffries, Nine Weeks, Retrospect, Reuters, Secular Bull Market, Strategist, Supercycle, Target, Time David
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FRONTLINE: Inside the Meltdown (PBS)
Tuesday, February 17th, 2009
On Thursday, Sept. 18, 2008, the astonished leadership of the U.S. Congress was told in a private session by the chairman of the Federal Reserve that the American economy was in grave danger of a complete meltdown within a matter of days. “There was literally a pause in that room where the oxygen left,” says Sen. Christopher Dodd (D-Conn.).
In case you missed PBS’ ”Inside the Meltdown,” aired tonight, February 17, 2009 at 9:00am, it is an in-depth 1-hour program detailing the breakdown of the financial system over the last year. Its very well done, and provides some valuable insight into the credit and financial markets meltdown we have experienced during the course of the last year. Click play to view:
Hover over the dots next to the clock for the story chapters.
Tags: American Economy, Chairman Of The Federal Reserve, Christopher Dodd, Clock, Complete Meltdown, Congress, Conn, Dots, February 17, Federal Reserve, Financial Markets, Frontline Pbs, Grave Danger, Insight, Leadership, Oxygen, Pbs, Pbs Org, Private Session, Story Chapters
Posted in Credit Markets, Economy, Markets | 2 Comments »
