Market Analysis

Weekend Charts: All Quiet on the Western Front

All Quiet…they ought to have been mediators and guides to the world of maturity . . . to the future . . . in our hearts we trusted them. The idea of authority, which they represented, was associated in our minds with a greater insight and a more humane wisdom. But the first death we saw shattered this belief. We had to recognize that our generation was more to be trusted than theirs. . .

Druckenmiller warning about the Fed’s policies, Yellen warning about “stretched” sectors, a civilian jetliner getting shot down over the Ukraine, Israel sending tanks into Gaza, the Russell dropping over 5%, none of it mattered. The market finished the week unbothered and where it now always does: Above the daily, weekly and monthly 5 EMAs:

SPX weekly

The voices of reason are ignored and the patriotic cheers to send more money to the algo front continue unabated no matter their ultimate demise: All Quiet on the Western Front.

The 1% drop on Thursday, the first of its kind in over 90 days, was just as quickly erased as it happened. Markets used to have 20% corrections, then 10% corrections, then 8%, then 5%, then 2-3% pullbacks. Now after 2 months of dead volatility you get a one day 1% move and it lasts not even 24 hours. The desperation to buy anything and everything is reflected in more and more exponential chart patterns. I mean what could possibly be more prudent than chasing a large cap stock with a weekly RSI rating of over 86:


The message for most investors? It remains strikingly the same: If you use any sense of risk management, buy protection, are not fully invested or do not throw any available dollar long into the stock market you are underperforming. It remains the historically most dangerous of investing messages, but these are the conditions the FOMC has created with ZIRP.

For traders this week continued to offer plenty of opportunity if one managed to play the roller coaster right. Our focus was on the Russell futures and playing it up and down was a joy. Additional long and short plays worked out nicely as well so no complaints.

The sudden volatility is quite a welcome change and shows promise of more to come. August and September are upon us and, along with October, have historically been quite action packed. Given the end of QE in October the market will likely play a round of truth or dare.

So far markets have continued to play full dare every week yet, bit by bit, a little truth is creeping in:

High Lows are shrinking not expanding:

USHL daily

Participation is lagging and given QE’s end in October the simplest explanation is that stocks are starting to price that fact in:


Despite Friday’s impressive, likely OPEX driven, recovery the $NDX divergences remain negative:


And for all its fury the $SPY managed to knock, but not recapture, its recent trend line:

SPY 15 min

Yet we remain near all time highs and virtually no selling, so consensus is lining up for $SPX 2,000. “The $SPX wants 2,000” is the common phrase as if the market is a person with desires. It is not, but it is subject to agendas certainly.

For next week we have negative seasonality early in the week, but then of course big back to back POMO operations conveniently scheduled just prior to month end markups:

July Seasonality

Fear not, plenty advice will be given to the retail troops via the media and usually it’s a variation to buy the highs and sell the lows. Think I’m kidding?

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