Markets – Macro – Technicals

Elements

ElementsAfter yesterday’s whopping 70 handle reversal markets continued to drip and drip and drip lower. It all smelled manufactured to sweep stops and for that reason I decided to hunker down and stick on the action till China open. Trading at 2:00 am. Not what I prefer to do, but we all know these markets are bastards and major games are being played. So we added into longs on $ES and $NQ and it turns out an effort well spent. Whether this is now a retest with higher lows in place we can’t be certain of, but 2 voices keep telling me to fight for long positioning here.

Who are the voices? Mella for one and we all know where she stands and her charts are incredible.  She now has absorbed her charts and her $VIX chart says the “breast” target has been reached with a negative divergence, meaning bullish stocks.

The other voice?  Well my past self frankly. A move like we witnessed is so rare and so intense it is so easy to get caught up in the minute by minute drama. But one has to also step back and look at the bigger picture.

For months and months and months on end we have have been all frustrated by a market that seemed to defy all conventional wisdom. Bad news was good news. Good news was good news. Every tiny dip was bought, excess was building throughout the system, bears were mocked, bulls could do no wrong, it’s different this time, there is no alternative, blah blah blah. You know all the platitudes:

This morning I decided to go back to what I said over the past few months, and I think I have been very consistent about this: I principally said for me to get bullish I would need to a see a combination of key elements coming together.

These elements included things like this market needing a good flush, a cleansing off the excess, a shake up from the complacency, it needed some real fear, some rightsizing so to speak and those that kept pushing people into stocks and claiming things were different this time needed a spanking. Technically I wanted to see some massive oversold readings, a correction of 10-20%, and people getting bearish and frankly scared and some serious volume!

And as I look at the landscape over the past few days I must say we have all these elements in place and that means we have to stay true to our analysis and be bullish and not get bearish like most seem to get right now.

Let me walk you through some of the elements, starting with one of the main themes pushed on all of us relentlessly:

“It’s different this time”. Google it and you find dozens of articles and the message pushed by Twitter royalty too:

This is this chart now:

COMPQ M

Live by MoMo, die by MoMo. Now we can bounce from here, very largely so, but people got hurt here. Big time.

And this is what I frankly abhor about the perma crowd. They didn’t warn people, they didn’t tell people to take money off the table, in fact they told people to stay FULLY INVESTED even as late as August 6:

Kristina Hooper, U.S. investment strategist at Allianz Global Investors, is counseling clients to stay fully invested despite the market’s bumpy ride…..She cautioned investors not to worry about the short-term moves. By not being fully invested, “that’s often where they lose the most money … because they often don’t get back in when the market starts to recover.”

I could cite dozens of examples, but you get my point: You got to be kidding me, fully invested through this?

DJIA D

Just irresponsible and they hurt people. Big time. I don’t know how these people keep their jobs. Even my partner Mella the perma bull has been ranting bear warnings for months and indeed her $VIX 55 target has come to fruition.

But now that this crash has happened let’s look at the implications.

In the $DJIA chart above you see the $DJIA disconnected by over 2,000 points from its 50 and 200MAs. Just wow.

The $SPX MA compression is still very alive above:

SPX D

Note we have daily RSI readings completely on the floor.

The immediate implication: Reconnects will happen. I’m sticking to that.

Look at the latest signals:

$NYMO in historic buy zone:

NYMO LT

So you know where it matches up in historical context, we are consistent with major crisis events per Mella’s $NYMO chart:

NYMO M

But where’s the real crisis? China having some growth issues? Not new. Fed rate hike by a tiny amount? Don’t really seem to amount to a cause for a massive flush.

And did we get a real flush? Oh yes we did, a wholesale flush indeed. People GOT OUT:

Ryder

Wow.

Stocks are DOWN:

200

50

Now note this, remember the high lows?

USHL

Big flush, but guess what, despite the big reversal down day yesterday that spike lower DISAPPEARED from the long term chart:

HLLT

Someone was buying.

Did we have fear? Hell yea, but we also have huge gaps below that need filling:

VIX

The other element we were missing? Volume. Well we got that:

SPY D
Another wow. And as I mentioned Mella saw her target reached, but most importantly now her read is the bull market will resume based on these negative divergences on the $VIX weekly.

VIX M

Another element, on August 13 I posted an $SPX annual chart and I said:

SPX AA

Well the freak is here. We haven’t quite reached that level, but we got really close twice now. Downside risk is still here, in fact the monthly lower Bollinger band is at 1795:

SPXM

You get my larger point: All the elements are here. The pieces of the puzzle have come together. Hence I will remain a buyer and if they take out my stops so be it.

We got a Fed speaker today, Jackson Hole is starting tomorrow. Monday is month end, positive seasonality into early September. Odds are we see a massive rally soon. We can’t tell you if the bottom is in, but we can outline the elements of where we are in the big picture, and that big picture says: Buy weakness.

And this is what we have been doing. We are seeing another massive bounce overnight and our buys are in huge profits. I took a couple of scales, but I’m massively bullish positioned and aim to play on this basis until we see MA reconnects. Then we can talk. Let’s keep an open mind until the month closes and review where we stand.

Our mantra this week: Don’t get shaken out. Ignore the noise, look at the charts, use stops. Even when it’s hard, especially when they scare you. Bottoms are ugly events. Always have been, always will be.

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Categorised in: Daily Market Brief, Market Analysis

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