Markets Macro Technicals Sven Henrich

Not a Bull

notabullNote: We’ve received some questions regarding swing trades and I’ll put out a dedicated post on it in the days ahead.

On to markets. As tricky as it gets. Yesterday was a nice outside reversal day. Technically that is bearish yet price discovery continues to be dominated by magic ramps at night as tonight of course futures are ramping on expected tidings to come from Mario Draghi. We still have to wait to see what he will deliver, but be sure currencies will go nuts either way as this is what this is all about: Currency manipulation to achieve results. What these results are nobody can tell as all the QE in the world has failed to produce inflation, other than housing prices going rampant I guess.

But let’s add some flavor. We are literally in the home stretch here for the year. Yesterday we caught some nice shorts and scaled out some and grabbed $SPY hedge calls near the lows which should do well on open unless Mario fumbles the ball.

New highs always remain a possibility, but I continue to want to sell strength and as yesterday’s reversal has shown, pushing long can hurt. A lot.

Here’s the lay of the land. We continue to be in range:

SPX

Aside from the dip in August/September we have seen nothing but a ping pong in a 100 handle range all year. How will the rest of the year play out? I’ve drawn out some basic scenarios, but principally either we see some downside into mid December or we won’t. I’m positioning for downside for all the reasons outlined in the past. The plan remains to position long after a correction into mid December ahead of OPEX.

This recent consolidation, btw, reminded me of last December and the issues were very much the same. Back then I wrote an article called “no bull” and in it I lamented how difficult it was to position for the short side and how the downside ended coming without warning. It is virtually the same now and we are dealing with the same prices in essence: and back then we peaked this week before the big decline occurred:

2014

The weekly chart continues to support the notion of a repeat to come:

SPXW

What’s different of course this year is that this flat price box consolidation in the $SPX is a complete lie.

Look at $NYSE and $TRAN as examples:

NYSE W

TRAN

We are within 1.5% from all time highs with most stocks being UNDER their 200MA:

NYA

200ar

That’s not a bull market. It is a bull market in some select stocks. The ever so strong $NDX? Look were it rejected yesterday and under what internal conditions:

NDX

And the $COMPQ? Nudged out a new high versus November but with a negative RSI divergence:

COMPQ

No, the only bull in this market is the kind that smells.

Fact remains key indices can’t get above their weekly 50MA:

RUTW

IBB

And yesterday’s internals were of course horrid again:

NYAD

But, as I pointed out on stream, they were oversold enough that we could expect a bounce and this is what we are seeing now, in no volume overnight action.

So my plan remains to add onto shorts on strength when we get it post Mario.

$BPSPX looks close to breaking the bear flag:

BPSPX

And speaking of negative divergences I have a new one for you: Cumulative High/Lows. Wow:

USHLC

It in essence says there never was a rally.

Which is of course is the message of equal weight:

RSP

No I realize big rallies out of thin air make any seller look like a fool, but the fact remains these markets are highly dependent on a handful of vastly overbought stocks. The underlying remains horrifically weak and if there are new highs they will come with horrid negative divergences. Stock markets need Mario to deliver something or things could get ugly quickly.

I can’t tell you how much Mario Draghi can push stocks here. But the analysis continues to show that strength needs to be sold. The big short opportunity may not be until 2016. If we indeed sell-off into mid December oversold readings by then would make a compelling case for a solid long trade which I will be glad to take especially if $NYSI gives us a nice oversold reading:

NYSI

Yes it is heading toward oversold again. Cray. But with most stocks not participating perhaps this is no surprise.

To see the sell case confirmed we need a close of the $VIX above its 200MA. It remains the key pivot at the moment:

$VIX

TRADE PLAN: We have hedge calls on and I will scale out of these on strength today and tomorrow. I’ve taken several scales on futures shorts and will aim to re-add on strength to remaining core positions.

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Categorised in: Daily Market Brief, Market Analysis

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