Markets – Macro – Technicals

Reading the Tape

reading the tapeTuesday was interesting, not so much because of the vast downside that was printed, but rather in the way it played. In an aggressive correction period price can move widely and unpredictably especially when fear is building. And this was the odd aspect of yesterday’s action: Fear was accelerating, but price really wasn’t. Yes we got another 10 handle spike lower near the end, but it was 10 handles. What’s that in the context of the last 2 weeks? Nothing.

Amidst all the emotion and fear the art of reading the tape is more critical than ever. After we saw the overnight drop of 50 handles the first thing we noticed were positive divergences, yet the intra-day action did not really capitalize on it.

Rather what we saw was a relatively tight range and any small spikes higher were met with instant selling. But again, no panic in the selling. It felt organized, structured and very much controlled, very opposite to what we saw in the $VIX and the TRIN. Those were screaming outright panic.

An odd dichotomy.

We stayed on the buy side and scaled out on spikes. Obviously one can’t know where action like this bottoms so one has to be diligent with stops and that’s what we did.

However the big observation yesterday was this: Fear spiked to new highs while price did not make new lows and by the end of the day a key trend line was saved:

SPXD

When I say controlled selling it is a chart like this that makes me go hmmmm:

NYAD SPX

Why would the $NYAD move in such a structured fashion if there’s real fear and panic? Doesn’t quite make sense to me.

Another thing that doesn’t make sense in a time of panic: High/lows were basically FLAT on a 50 handle down day. REALLY?

HL

Really. So part of me is wondering if this whole decline was very much manufactured to shake out some folks.

In fact, I can make a very strong case here that this is actually a major bottom. Major bottom. And this is Northy the macro bear talking.

Let’s start with this awesome weekly chart. Look were we bottomed yesterday:

SPX W

Weekly 125MA. Note the corresponding $TRIN spike a la 2011. Note the weekly RSI. Sorry folks, but that’s the type of signaling that says be a buyer. Now none of this guarantees the lows are in, but it’s all about risk and reward. The MACD obviously is still pointing straight down and will take time to turn. So major chop fest to come. BUT, and this is key, what’s the ultimate target?

And, like in 2011, or during any other major correction there ever was, there will be an MA reconnect. And as you see in the chart, that reconnect says weekly 50MA, i.e. 2050’s.

What supports such a bounce? All the signal charts, as they scream risk reward is to the upside here:

50AR

NYAD

And the $NYSI hasn’t been seen near its overbought zone since March of this year. It’s basically way overdue for a bounce:

NYSI

The other chart that just stuns is the Ryder bull/bear chart:

SPX RR

Look at the money flow: Rock bottom and as the history clearly shows the odds for a massive bounce are very high. The chart looks like everybody stampeded out of stocks.

None of this means I’m calling for new highs here, but I remain on the side of a major bounce coming, ideally a trend line/MA reconnect. Only then will the real battle for control begin. Major bear or resumption of the bull market akin to the 1998-2000 case we discussed:

SPX M

This will be a tricky navigation over the next couple of months as this plays out.

For now we need to take it one day at a time and my strategy right now remains to day trade the $ES while running swing longs.

As of this writing we are seeing an overnight bounce and the $ES appears to build some sort of inverse. Above 1939/40 it points to a 1980 target:

ES30

But markets remain nervous and we need to see confirmation of strength building. Blocking and tackling, but that’s my current take on reading the tape.

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Categorised in: Daily Market Brief, Market Analysis

3 Responses »

  1. There is excitement in the way you’ve written this, as if you’ve discovered something. It’s radiating confidence in me too, as you’ve put pieces of a complicated jigsaw together & made sense of them, when others including me haven’t.
    I’m a bit of a bear by nature but it’s convincing me!
    Disclosure: I’m currently long but missed your swing lows, so MOAR SWING LOWS PLEEEEZE!

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