Market Analysis

Weekend Charts: Make Or Break Time

make or breakTrading this tight range this year has actually made 2015 our best trading year ever and hence Mella and I decided it’s a great time to take this coming week off especially considering it’s our first wedding anniversary! Much to celebrate and be grateful for. From a trading perspective what has particularly worked for us is stick to signals, identifying tradable structures, maintaining a strict stop discipline, but also not letting algos wear us down.

As we are approaching another OPEX week however one can sense that markets are approaching a very critical juncture that demands a resolution of the tight range of 2015. On Friday we pointed to the extreme compression in the moving averages on all time frames:

m d w

The daily chart shows how tight this range has now become, a mere 1% range:


So why are we now approaching a make or break time?

Over the past several months we have been pointing to 2 major overarching price structures in the market.

One has been the trend for markets to ramp into OPEX, not always, but most of the time. The $DJIA chart shows this beautifully:


The other fundamental reality of this market has been the perpetual save of the monthly 5EMA and 8MAs. No matter what happens they get saved, even during the near 10% correction in October 2014 these MAs were saved by month end and so again every month in 2015:


The last time markets have seen any sizable moves below these 2 MAs was during the 2011 correction.

And the persistence with which these MAs are saved is quite amazing considering all that has taken place in just 2015:

Mostly negative retails sales, flat to negative earnings growth, little overall revenue growth, the Greek debt crisis, China slowing and record currency devaluations. None have mattered.

Credit divergences? They haven’t mattered:


High Lows shrinking month after month? Hasn’t mattered:


Even the all powerful Nasdaq has suffered from a dramatically shrinking bullish participation of stocks, but that hasn’t mattered either:


The average $SPX stock correcting 15%? It hasn’t mattered:


But in these charts also lies a powerful argument for the imminent upside: If none of these trends have managed to break the magic MA save program what will? Or in other words, what if these things improve?

In fact the chart above seems to show a bottoming process. As it is OPEX week a rally to the upside seems predetermined and all these oversold stocks could feasibly rally and rally hard.

This has been the standard program. But here’s where the argument becomes one of necessity. As markets have flat lined over the past few months all the trend lines have caught up and are close to breaking.

In fact this past Friday the $SPX got within just 6 handles to breaking its 200MA and monthly 8MA. With no volume and no sellers markets were able to dodge a bullet, but this is how close they are to breaking.

In fact, one could even argue that they have already broken.

Check the $WLSH:


This chart is atrocious and hanging by a thread.

The weekly $SPX doesn’t really look much better and is somewhat reminiscent of 2011 in structure:


So bottom line: Bulls NEED a rally this OPEX. Most likely they will also NEED new highs on the $SPX or risk another lower high put in place and that may technically be a big no no.

Why? Because volatility remains dearth and highly complacent. One other key structure that has worked for us so well in 2015 is to sell markets whenever $VIX hit the 11 range, especially when accompanied by low volume. Like clockwork:


And it is the $VIX that is sending a larger message to bulls: Something’s brewing and the game of low volatility may come to a sudden end sooner than most think:


Yet this market has been lacking 2 critical elements in 2015: A sizable correction, but also a major blow-off topping move. Both of these elements may still make their appearance felt. Ironically it is the latter which may be needed to precipitate the former.

In summary: Bulls NEED a rally this week and the OPEX program may give them this firepower to new highs. However, failure to do so may finally break the monthly MAs and with them may come a change in structure and character.

We’ll be watching from afar on our well deserved break. Have a fun OPEX everyone 🙂

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