It’s probably fair to say that the proverbial bullish kitchen sink has been thrown at this market. BOJ QE, PBOC rate cut, magic ECB QE rumors and now the best jobs report in years and markets closing at record highs. Bad news doesn’t matter and now time for Santa Claus.
On the surface it remains a bullish nirvana as money remains cheap, liquidity high and hardly even a single down day observed in markets that go up day after day. We even almost got the seemingly pre-ordained 18K on the $DJIA on Friday.
Yes the marketing is great, but is there a money back guarantee with this product that is being incessantly sold to a retail public that keeps shoving cash into this market in amounts not seen since 2007? According to Trim Tabs, $42 billion has flown into equity ETFs during the last 4 wks, the largest inflow since 2007.
The retrace free upward bias in the market is incessant and even most bulls would acknowledge that the constant levitation above the 5 MA seems a bit eerie at this point. But constant central bank stimulus intervention talk and action since the mid October lows took on an unexpected fevered pitch.
But despite the headlines this market is far from as bullish as the marketing campaign would have you believe and the weakness that keeps building underneath keeps pointing to danger lurking.
I freely acknowledge that divergences and weak internals have not mattered, but they never do until they do and tops are processes and not events.
Let me walk you through my latest observations:
Firstly, note that since the Chinese rate cut induced gap up the $SPX has barely moved. In fact, a review of the 15 minute chart shows that virtually all gains have come from gap ups and all were sold into. That’s called distribution. Actual trading hours are dominated by super tight 3-4 handle ranges of low volume algo ping pong:
The gap ups? Mostly central bank induced on constant ECB talk. Even when Mario Draghi disappointed the rescue team arrived quickly with an after Europe close anonymous leak released:
And the talk (not actions) continues to be successful. The Euro is being crushed into oblivion:
And of course the Japanese are accomplishing even more in the currency destruction department with the Yen:
So it’s fairly obvious to everyone: It is currency destruction that produces the moves and in a world of no alternative retail cash is relentlessly being pushed into equities more often than not based on margin. The intense rally in Chinese stocks over the past few months? Margin:
And what does it all produce? Good headlines. Yet take a close look at the High/Lows. Weaker and weaker from new high to new high:
Tech didn’t even bother to participate this week and remained in a well defined channel:
Small caps managed a marginal new high versus the recent 5 consecutive weeks of flat closes but remained below the previous week’s highs as well:
The transportation index also made a lower high with another large reversal candle:
And the $NYSE hasn’t come close to make a new high and remains underneath its broken trend line with ever weakening RSI and MACD readings:
These weakening structures are extremely pronounced across the larger market. The weekly $SPX and its RSI and money flow indicators:
And the daily structure shows a repetitive pattern that has produced correcting moves into the 100MA several times in 2014:
And the market at large? It keeps painting a pattern that continues to be eerily reminiscent of 2007: New highs with a heads and shoulders pattern on the monthly RSI:
Put this in context of a $VIX bottom candle below the daily Bollinger band:
Ask yourself what is being sold here? Massive global central bank interventions, record ETF inflows by retail, $VIX with an 11 handle amongst weakening internals and accompanying distribution behavior producing marginal new highs.
I say marginal because what’s the reality? The #DAX just rallied 21% from mid October to produce an exactly 0.3% gain since the June highs:
And the $SPX? Well it looks a bit better. The 14% rally since the October lows has produced a 2.7% gain over the September highs. But consider what it took:
Central bank intervention en masse accompanied by massive volatility in currencies and commodities.
What does it all mean? For now apparently nothing. But given all the outlined above don’t be surprised if it means something at any time. Remember they don’t tell you to sell at the top or buy at the bottom. They tend to do the exact opposite. And right now retail is buying the all time highs. Again.
Best of luck.
Categories: Market Analysis