Markets – Macro – Technicals

Door Shut

door-locked-with-chains

Note: This member post was originally published Thursday before market open and reflects our latest view on the markets. We’ve added a weekend update at the bottom.

Well there you have it, when the going gets tough they close shop. Literally. Stocks may go up 100% no problem, when they drop 33% let’s ban selling altogether and put up commissions to investigate. Shut the door. We’ve long spoken about the desperation by central bankers to keep all the balls up in the air and yesterday’s action in China was as blatant and brazen as we’ve seen yet. The added first involuntary $NYSE closure in its history was the olive in the Campari, the creme in the coffee. All on top of Greece and you had the perfect mix to have a solid flush to new lows.

But we didn’t get it. And frankly I was surprised. Instead what we got was a slow mechanical drip with a bit of fear mixed in the end. The only long I got stopped out of was the $TF which I promptly re-entered a couple of points lower.

By the end of the day everybody was bearish and charts are indeed horrible and real technical damage is being done, but I’m still in the bounce camp here first and look for an opportunity to sell higher.

Let’s go through the charts and signals and it’s quite interesting what’s shaping up here:

First let’s start with the macro charts and as Mella has pointed out yesterday they are breaking and breaking bad:

$WLSH:

WLSH

This is not a bullish chart. It’s a breakdown. And we see these breakdowns everywhere.

The $OEX for the first time in years is now solidly below the monthly 5EMA and 8MAs:

OEX

$NYA weekly, a complete disaster if you are a bull:

NYA weekly

And the trannies, well, falling off the proverbial cliff:

TRAN

So why am I, the macro bear not shorting here, in fact, trading long exclusively this week?

The signals. One of the reasons we haven’t been making new lows is because we are so damn oversold and it just keeps getting worse:

NYSI W

If you own stocks chances are 50% you own a stock that’s below its 200MA:

200

And chances are over 70% that you own a stock that are below its 50MA:

50

But here now it gets really interesting. Several things happened yesterday that indicate we may have finally gotten a fear bottom:

$TRIN:

TRIN

$CPC:

CPC

These are signals that show a bottom is either in place or about to be in place.

Additionally we saw a curious $BPSPX ghost print:

BPSPX

Ghost prints are funny. Sometimes they mean nothing sometimes they mean everything and frankly I have never seen one on the $BPSPX, but I’m giving it the benefit of the doubt here.

Also the $NYMO made yet another higher low:

NYMO

So we have vastly oversold conditions with spiking fear signals and positive divergences and a central bank that is panicking and wants its markets higher. Am I shorting into that set-up? No thank you.

And shorts overstaying their welcome are warned. Those that did in China got massacred overnight:

Chin

That doesn’t mean it can’t work, it certainly did yesterday, I just don’t like the risk reward at the moment.

Today is the Thursday before OPEX. Greece remains unresolved with no progress apparent, but we are seeing an overnight bounce driven by Asia and a bit of Europe.

This weekend is shaping up to be another Greek drama and another weekly gap situation the direction of which will again be completely dependent on any progress on Greece.

My principle view is we will eventually get a move to reconnect with the middle Bollinger band and/or the 50MA in the days to come:

SPXD

What happens then is very much up to debate. Mella remains a long term bull but these weekly and monthly charts are concerning her as much as me and surely a 4% decline can’t be it? But as you see individual stocks have already corrected hard. The top 10 market cap stocks are down an average of 10%. What if these guys bounce 5%? And therein lies the rub, did we already have a major stealth correction that just doesn’t show up in the major indices?

If this is the case a bounce may go a lot higher than anyone thinks and hence I remain open to new highs as I outlined yesterday (see the ’98 scenario).

So the next few days will continue to be tricky has hell, but my bias remains to buy weakness when it occurs.

Once we have oversold conditions alleviated a bit and have reconnected with key MAs then the short sell opportunity may present itself again. Specifically a sell near OPEX is of interest to me still.

Seasonality certainly leaves the door open for new July lows after OPEX, unless they shut the doors again preventing sellers from leaving 😉

Incidentally seasonality also supports the bounce case for the next few days. So it kinda all fits:

july seas

Let’s see if it plays according to script. The $BPSPX says it wants to.

One sign of confirming strength? If for once we find buyers at the open and not sellers like we have been seeing. I’ll be looking for that.

WEEKEND UPDATE:

We did indeed get a massive bounce on Friday saving quite a few of the weekly charts.

Most impressive has been the bounce in the #DAX. We outlined the trade set up in Technical Charts, but here’s how the week ended on it:

#DAX

How Monday kicks off will depend much on Sunday’s events in Brussels, if they turn out positive bulls have the technical set up to repeat another OPEX rally. If not, new lows may still be in the cards, or may indeed come later in July. You wanted volatility? You got it!

Fun times!

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Categorised in: Daily Market Brief, Market Analysis

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