Markets – Macro – Technicals

Weekend Charts: The Army of the 12 Monkeys

armyFed speaker after Fed speaker telling us every which way that they may or may not raise rates at some point either this year or next year. All this after 6 years of ZIRP. To be polite it is really getting sad. The pitifulness of the process was accentuated by a market that simply stopped trading most of Friday clinging all its hopes to what the almighty Janet Yellen may or may not have to say 15 minutes before close to juice markets one more time.

The answer in short: No cigar, but the action speaks for itself, a market stuck in a 3 handle range for hours on end: Flatlined.

SPX 5

But not to worry, the army of the 12 monkeys continues to do battle unabated next week:

fed

Conferences, speeches, engagements, lots of air and no action. In fact, let me summarize the entire process for you with one image:

blow

The reality is this: The economy is slowing and all the Fed’s hopes are anchored on a bounce back from poor winter data much like in 2014. The ghosts of 2014 are indeed fully in play.

In last week’s Autopilot we pointed to the similarity in market structure which projected weakness into last week. We did indeed get this weakness and were nicely positioned for it. The structure also called for some sort of buyable low 4 days following the mid March peak and we did indeed get this low in Thursday overnight futures action.

Whether this structure continues from here is of course entirely speculative, but we can note that the structure continues to follow the script very closely:

Analog

Yet we also notice that this year has more volatility to the downside and this volatility may spell ultimate trouble. In fact, one might say this market needs a big rally very quickly or severe technical damage will be inflicted.

We had pointed out a bearish technical pattern on the public stream on Monday:

And the action was swift indeed:

COMPQ

This is not bullish action at all. The Nasdaq 5000 area has now been rejected twice in as many weeks and the stinky action is matched by stinky fingers in numerous charts that should raise some red flags. Big rejection candles in parabolic charts tend to not have happy endings after all.

$IBB:

IBB

$UUP:

UUP

Along with a failed breakout in the $XVG value line index:

XVG

And while the $RUT still looks safe for the moment:

RUT

Its ETF tracker the $IWM is raising some red flags as well:

IWM

No a rally is needed fast. There are only 2 days left to the month and quarter and the patterns could indeed be ominous. Take the monthly $OEX which points to not only a monthly double top, but also shows an imminent MA crossover in the cards on further weakness :

OEX

The last such crossover was observed in the summer of 2011 and then the party got really started. What was the proximate cause then? The end of QE2 of course. And only the introduction of operation “Twist” by the Fed turned things around. Note the playbook sounds all too familiar. QE3 ended in October and markets have made precious little progress since then and economic data has weakened since then. With QE in full force now in Europe and Japan and over 25 central banks having cut rates since the beginning of 2015 the FOMC is now squarely on its own.

No a rally is needed soon. Very soon. The $NYA is at a critical juncture here, saved by its weekly 50MA so far this week, but trading at May 2014 levels. A trend line break would point to pain ahead:

NYA

How much pain? Well take the above chart in context with the larger $WLSH pattern below and it’s downright frightening as it points to a visit toward the lower monthly Bollinger band based on a structural repeat:

$WLSH

But there’s some good news too: For one, the 2014 pattern is still very much intact and no permanent damage has been inflicted so far. The autopilot program is still in effect if you look at the larger macro charts:

INDU SPX M

BUT the monthly close will matter as you can see in the above MACD pattern. It’s has been getting weaker over the past few months and one must wonder how much longer a negative cross can be averted. The bond market, however, is signaling it is not taking any rate raising talk by the Fed seriously:

TNX

This is good news for fans of buybacks of course. And while they were sorely lacking this week they will be back in effect soon as earnings will be announced. The largest marginal buyer of the first quarter will be back and this is the likely proximate cause of the next rally. Also a source of buying to come: Monthly mark ups, and funds re-buying after quarter end rebalancing has been completed. No, it’s clear there’s a reason for the existence of the structure we had been pointing out. Another piece of good news:

The $NYSI is now very much oversold:

NYSI W

This doesn’t mean a bottom is in, but points to one being closer than last week.

The market needs a rally and the rally monkeys will surely oblige soon. The only question is how high can they bounce this. Based on the macro charts above new highs are needed soon. A weaker bounce without new highs would likely have us deviate from the 2014 structure. How would such a failure play-out? Mella has already dropped a hint: 

But keep this in mind: The army of the 12 monkeys keeps wanting to unmake history. Since the early 1980s, US government debt has increased from $1 trillion to now over $18 trillion. Trillions in continuous deficit spending have artificially inflated GDP results. Central banks have inflated balance sheets and have gone from stimulus orgy to stimulus orgy and despite all this, all this enormous spending and debt expansion THIS is the trend we got?

GDP

No there’s something rotten going on in wonderland and the math doesn’t add up. Especially if Janet Yellen starts raising rates. Because, ultimately, all this debt will have to be refinanced at higher rates. But maybe, just maybe, this generation won’t have to worry about it. Well there’s always the next:

debt

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