Market Analysis

Weekend Charts: Chains

ChainsWhat a week! Good trades were to be had yet, at the end of the week, nothing had happened. In my writings about the markets regular readers will have observed that I pay close attention to the 5EMA (exponential moving average) as it is the singular most defining chain of this market. You’ll find it in daily, weekly, monthly, even quarterly charts. Other key chains of this market include the upper Bollinger band, the 8 MA, the 13 EMA and the middle Bollinger band. Some people will argue that MAs are not tradable or are somewhat meaningless. I’m going to pull a Janet Yellen here and dismiss GDP data, fundamentals, wars, growth, buybacks, and everything else as “noisy” and declare MAs as the key chains with which this market is managed higher by the powers that be.

I want to highlight the existence, the relevance and the ultimate consequence of this process as it may yield some significant conclusions.

Let’s starts with a daily chart of the $SPX: For the past 2 months the daily $SPX has played an elaborate ping pong match with the 5EMA as primary support, the 13 EMA as secondary support and the 50MA as the final line in the sand not to be crossed:

$SPX daily

Now recognizing these support points can obviously greatly aid in your trading especially if you come to the conclusion that the market is agenda driven. Agenda? “Oh you’re just a nutty conspiracist bear”. Am I? Or perhaps I’m just a keen observer of what’s actually happening. Let’s have a look at the $SPX price action over the past month and look at the POMO action on key days shall we?


We’ve only had three real down days in the past month. All three occurred on days when POMO was less than $1B. The largest price moves or reversals occurred pretty much only when POMO was either over $2B or when Janet Yellen went super dove. Just the facts ma’am. The only exception appears to be this Friday when we had no POMO. Let’s highlight this Friday’s action then in context of the entire week. Note that on the daily chart above the $SPX was under threat of closing below the 5EMA every day this week, yet the ‘rescue’ forces were incredibly active as soon as this occurred:

SPX 15 min

Notable this week was the emergence of sell programs. Thursday morning’s sell program being the most pronounced as it occurred suddenly without notice and moved stocks lower and faster than any move in the past month. No matter. POMO was coming and the 5 EMA had to be saved and markets managed to close above the 5EMA right at the close. Friday morning’s all night negative pre-market futures were erased minutes before open, yet morning selling pressure kept markets in negative territory not only for the day and for the week as well. Then this happened at 15:50 just before close:


143 Stocks moved 2% in seconds and 678 stocks moved 0.5% in the same timeframe. This data comes courtesy Eric Hunsader who keeps track of all sorts of market shenanigans and I’d encourage you to have a look at his source article:

All this action occurred before the anticipated Russell rebalancing at close, but it’s obvious a coordinated buy missile was launched at a precise moment in time with the effect of, you guessed it, closing the $SPX above the 5EMA and getting markets to be in essence flat for the week. So it’s not hard to come to the following conclusion: It does matter not what the price discovery mechanism is all night or all day. It will be righted by close. Now some people may call it a bull market or a trend market, but that really is belittling the obvious purposeful managed action underneath.

So there’s your daily action. Let’s have a look at the weekly chart: Except for the brief January correction and the early April hiccup markets have been regularly confined between upper Bollinger band to the north and the 5EMA and 8MAs as support to the south. Even during the corrective moments the middle Bollinger band acts as the chain not to be broken:

SPX weekly

I’ve been pointing to various negative divergences and obviously they have not mattered. Negative 2.9% GDP growth for Q1? It matters not. So one is left with the conclusion that markets will remain on this auto pilot mechanism. In the above chart I’ve outlined some potential minimal corrective moves that may be in the offing if this MA chain game continues as it has been. For the past 9 weeks markets have not moved below weekly 8MA and for the past 5 weeks we have not even seen a move below the 5EMA.

June was seasonally the worst month of the year. Right. July is supposed to be a nice green month as well. Aren’t they all? Let’s have a look at the monthly chart. 2 years of continuous levitation above the monthly 5 EMA:

SPX monthly

The monthly chart above highlights the importance of an upcoming 1,900 $SPX test. A monthly close below 1,900 would imply a change in a 2 year trend. But what would precipitate any such move? Next week already appears to be pre-ordained as well. Ignore the data, only 2 things really matter: Yellen on Wednesday and Draghi on Thursday and then it’s off for July 4th fireworks, but markets will be closed and the odds of Yellen doing anything to cause markets consternation? 0%.

So as a trader I recognize the relevancy of the MAs and Yellen’s agenda and will trade accordingly. As an analyst I will continue to highlight the historic deviations and divergences that spell trouble and could put at least a momentary end to the seemingly desperate and fanatical efforts to keep the MA chains unbroken.

Some key observations:

The monthly $WLSH (that’s pretty much all stocks) is registering at a screaming 78 RSI with a historically unprecedented disconnect from its middle Bollinger band with a declining MACD divergence. Previous declines and deviations have resulted in a fast reconnect to the middle Bollinger Band which were initial buying opportunities. This would constitute a 15% correction at this stage:


Small caps are still following the 2011 pattern. This pattern would be consistent with the potential move I outlined above:

IWM weekly

My favorite chart remains the weekly 100 MA on the $SPX and I dedicate it to the ‘stocks are cheap and the market will just keep moving higher don’t worry about a thing’ crowd:

SPX 100 MA

I don’t know how long Yellen and her ilk can keep up this game of forcing everyone into stocks and people are free to ignore the massive negative divergence in the above chart as they wish of course, but I do note we saw some sudden sell programs this week and it seemed to take a lot of effort to get markets to stay above the 5EMA every day. Market participants seem so bruised and resigned to this managed price action that nobody is even bothering calling for a correction (I may be the only one left). But it doesn’t change the facts on the ground. We are vastly disconnected and divergences exist highlighting a market that is struggling to be pushed higher even with low volumes and central banks firing on all cylinders and complacency running high.

The key question remains: Why are they firing on all cylinders in 2014 6 years after the financial crisis with employment supposedly already at their previously given targets and no financial stress to be found? The negative 2.9% Q1 GDP was just a hiccup after all, that’s what all the so clairvoyant economists are saying. It all seems so desperate and maybe, just maybe, they know what would happen if markets were to be permitted to have free price discovery. And if I am correct that they are concerned about free market price discovery this fact alone should really scare the hell out of everybody.

But no worries. None of these pesky details are to be found anywhere near CNBC. Why that network still exists is up to debate I suppose. They clearly are not in business to grow their viewership:


Normally TV programs that fail to produce ratings get canceled. Not this one and since their business model is not to grow viewership maybe it’s something else. I couldn’t tell and I’m not a expert in TV programming, but strictly speaking as a consumer, if a formula is not working one may want to expand into programming that is useful to people and clearly this isn’t working:


Anyways, July 4 is coming up and ‘negative rate” Mario and ‘no bubbles’ Janet are on tap to do their bidding. I, for one, am looking forward to volatility and natural price discovery to return to markets near you.

Categories: Market Analysis

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