Markets – Macro – Stocks – Charts – Alerts – SetUps

Weekend Charts: Jan 27

Introduction: Consider Weekend Charts as an ongoing follow-up to my 2018 Market Outlook. I’ll be sharing high level technical observations on a weekly basis whenever possible. For other public analysis please see the latest posts on NorthmanTrader. For our market services, including technical SetUps, please visit Services.

Last week stocks continued on the same program they have been on since the beginning of the year and the consistency of the action is impressive yet also disturbing at the same time.

If you’ve been reading the last edition of Weekend Charts some of these charts will be familiar.

Below is the precise channel $SPX continues to respect:

This week’s small dip followed the familiar script we’ve seen. Tagging of the trend line and a short term oversold reading on the 15 min chart producing a low:

Friday repeated the action of every single Friday in January, closing at new record highs on the closing print:

Hence my sarcastic technical assessment on twitter:

The notion of trillion dollar markets operating on 15 minute charts without any real corrective activity has consequences.

For one, even log charts are now showing markets in a parabolic ascent:

Make no mistake here: This market is as extreme as the lows of 2008/2009 and I can support this assertion with data:

RSI readings are one measurement I’ve been pointing out on twitter. On Friday $SPX closed at its highest weekly RSI reading since 1929. The current reading however is as extreme in singular trend as the 2008/2009 lows were as measured by ADX (see above), the average directional index.

Momentum will go on until it exhausts itself and at times of market extremes reversals can be violent although they tend to be more violent at bottoms.

It is the chart of the $DJIA in particular that keeps highlighting technical danger signs:

I’ve shown the quarterly chart and the extreme has become more extreme with price not only totally outside its Bollinger band, but being 8% above its upper Bollinger band and nearly 13% above its quarterly 5EMA:

There is no history to suggest this is sustainable. This price move remains the most extreme technical disconnect in the $DJIA ever.

The yearly chart highlights this point even clearer:

The main message: It HAS to be different this time because if it is not, then technical reconnects are the next big thing. On the $DJIA yearly chart a reconnect to just its yearly upper Bollinger band implies a 11% corrective move.

Are there any signs that suggest a change in the program is imminent?

Here’s a few select examples of the ones I’m watching:

One is of course the $VIX which I described in Volatility Rising:

Despite renewed highs $VIX remains above its 200MA. This is reflective of increased protection sought as participants are accounting for the increased probability of a reversal coming.

But also perhaps the rally is unfolding oddly in many ways.

Take a signal chart such as $NYMO. Stocks flew to new all time highs again, yet $NYMO closed negative:

This suggests troubles in internals underneath.


What the hell is this? Negative running internals on new highs. Seems suspect to me.

Here’s another goodie: Transports reversed a bit and they carry an ominous message:

Currently over 30% above its 50MA transports, like many stocks, are historically extended. But note the recent highs came on a very pronounced multi-month negative divergence.

Perhaps history no longer matters, but these negative divergence have produced retraces at least to, and sometimes below, the 50MA which historically is an obvious technical pivot as seen in the chart.

Put this in context with the chart of the global Dow the $DJW and you have a textbook case for a sizable correction to come:

During the lows of 2009 we saw extreme price action and historic disconnects defying all modern historic precedence. The weekly RSI on $SPX reached a historic low of 16 in 2008. It produced a bounce in markets and was followed by a new low in price in 2009 on a higher RSI reading, a positive divergence. The charts, action and data suggest we have reached a time period of polar opposite extremes and suggesting perhaps the action will unfold in a similar fashion as well. Which would make volatility the comeback kid.

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1 reply

  1. Is there any evidence that there is a concerted effort to buy stocks and sell futures waiting for FOMO buyers to become fully positioned and also trying to hit remaining short stops before switching the buy programs to sell programs, dumping their stocks and staying short futures?