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Markets – Macro – Stocks – Charts – Alerts

The Day the Market Died

deathMarkets made new highs on 0.1% retail sales and then went into cardiac arrest and completely flatlined. Yea I know this sounds bizarre but this is literally what happened. You saw me make fun of the $ES action yesterday which bounced and bounced and bounced off of the same level over and over as shown here on the $SPX below. Buyers are simply not stepping up to the plate and sellers lack an apparent trigger to sell anything and so we are subject to absolute lethargy, apathy and sadly limited money making opportunities at the moment. In its current phase markets seem to experience initial volatility for the first hour or so and then simply flatline:

$SPX 1min

Nothing felt natural or like a free market at work yesterday. Don’t want to believe in manipulation? Fine, but the action was even worse in some of the individual names. $AMZN, one of the highest market cap stocks around flatlined into a 50 cent range:

AMZN

If you can trade this more power to you. None of this action jives with record market levels or free market price discovery. This is simply very unusual and unexplained market behavior and it’s leaving a bad taste in everybody’s mouths. Something doesn’t seem right and people are feeling it and they are pulling back. The much bemoaned volume story says it all really:

SPY daily

Record highs and nobody shows up. The $DIA, the ETF tracking the record breaking $DJIA tells the same tale:

DIA

Yet the apathy is in stark contrast to the gravity defying action in select sectors. Hardly anything can be more stunning than the unprecedented action in the Transports that tell us we live in the greatest growth times of human history:

$TRAN

Gosh I’m so relieved that Janet Yellen sees bubbles only in small caps, otherwise I’d be worried. Why should I be? The $VIX is sold daily:

VIX volume

Should I worry about the continued largest weekly 100MA divergence in history?

$SPX 100 MA

Don’t worry is the mantra all around us as Q2 GDP forecasts keep rising even as April retail sales missed large by coming in at 0.1% versus 0.4% expected and 1.2% prior. Don’t worry they just jump in May and June. That’s what the forecasters are saying. And they know what they are doing right?

GDP forecasts

Yea I couldn’t resist the invitation to indulge myself in a dose of sarcasm. So what do you do with such a market backdrop? I look at the macro picture again and also here the signs are mixed. On the daily $SPY I note we put in another black candle with a reversal wick reminiscent of what we saw in December:

SPY black

As is obvious in the chart above black candles have not been kind to markets as of late and are indicative of imminent downside action. The $RUT was the drag on markets yet again and Monday’s rally proved short lived again leaving the $IWM with a continued pattern of lower highs:

IWM

What this is all telling me is that reality is trying to shine through, but the forces of central banks and algos want to keep things floating higher. And so I can’t preclude another push higher to run stops, but the strategy for the end game remains the same. It is still the monthly $SPX chart that remains a key guide. Shockingly red months have been virtually extinct and the 5 EMA remains the market’s saving point. Now at 1861 it is the key line that needs to be broken to see a change in the dynamic. The $RUT is already there. I’m looking forward for the $SPX to join it as this linear program won’t continue indefinitely:

$SPX monthly

Trade Plan: I’m holding off on adding new positions until new levels are hit. I see a high probability of a quick downdraft in the next 24-48 hours to test either the 5EMA on the $SPY or the $188 gap fill. Both these areas will serve as targets to close weekly put positions. A break of $188 on a closing basis may radically and quickly change the market’s dynamic and leave major topping patterns in place. So the current calm in markets may end soon. While monthly OPEX may limit downside action this week things may look quite differently next week going into June. For me the question remains the precise gyrations of the journey not its final destination.

 

 

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Categorised in: Daily Market Brief, Market Analysis

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