In yesterday’s (Dec 12) technical charts I outlined some key follow up charts. If you haven’t seen them I highly encourage you to check them out as the context is important. As outlined 75% $NYSE stocks are now below the 200MA. After reviewing dozens of charts this weekend one message permeates the landscape: Markets need new highs or else.
Why? Because every structural chart points to a repeat of previous major tops. The key ingredients on the monthly basis: Declining RSIs, lower highs, and a marked decrease in participation. At the moment price is following a dangerous path into year end and basically requires a massive rally to prevent major technical damage.
Why? Because December not only marks month end, but also quarter and year end. And the close of the end of the year will leave a mark on charts.
Let me highlight a few facts that probably nobody has told as I have not seen these facts posted anywhere else:
#1: On an annual basis the $SPX has now not tagged its annual 5EMA for 2 years in a row. Such a disconnect is extremely rare. In most years this 5EMA is regularly tagged at least once. The last time $SPX was disconnected for 2 years in a row was at the 2000 top. At the 2007 top the $SPX was also disconnected from its 5 EMA for an entire year. Where’s the annual 5EMA now? 1782 as of Friday’s close.
#2: Both the 2000 and 2007 tops not only saw annual 5EMA disconnects but were accompanied by a severe decline in participation as measured by the $BPSPX and stocks below their 200MA.
#3: Currently the $SPX is showing an inside quarter, meaning that we are inside the price range of the previous quarter. This is also extremely rare. As far as I can tell this has happened recently only at the 2000 top, near the 2002 lows and finally at the end of 2012 just ahead of QE3 which then propelled stocks higher.
What’s the message of all these facts? To count on a higher market without at least a corrective tag is historically a stretch to say the least.
The technical picture continues to deteriorate commensurate with previous tops:
But don’t count on Wall Street or the media to tell you any of this. In fact in this week’s Barron’s annual guru survey none of the analysts see any downside for 2016. Not a one. Only upside. Just like last year.
But perhaps they are right, but as this month, quarter, and year comes to an end markets have an important choice to make. New highs or a lower high.
And judging how closely some of these charts match the 2007 structure a lower high could make for a really rough beginning to 2016. Then, as now, the November rally was sold into mid December and the subsequent Santa rally faded as quickly as it came:
The message remains clear: Get high or else.