Market Analysis

Chart Storm

Who’s ready for a chart storm?

In early September I outlined in Lying Highs that many sectors are either not confirming new highs or are not making new highs. Has anything changed?

Let’s start with the macro structure of the current market.

$SPY continues to follow a basic structure of higher highs and higher lows amidst relative strength in volatility compression along a well defined channel trend line. These highs and the temporary break above the trend line were rejected for a 2 second month in a row.

Pullbacks have become more and more shallow:

Yet from late August highs to late September $SPX ended making virtually no price gains as new highs were again rejected:

As a result of ever smaller pullbacks $SPX has advanced in an ever tightening wedge pattern:

This pattern shows a potential apex in October. It should be noted that the last oversold reading on the RSI on the 2hour chart was back in June.

$SPX advances continue to be contained by a large trend line dating back to 2000:

The temporary new highs in September were once again accompanied by a weakening in new highs/new lows:

$DJIA made new highs in September, yet these highs rejected as well and $DJIA closed below January highs:

It should also be noted that new highs on the $DJIA, as on other index charts, came with a large negative RSI divergence:

$NDX did not make a new high versus August, but found support multiple times at its supporting trend line:

As with $SPX $NDX price advances continue to be contained by a long term trend line:

$RUT declined by as much as 3% in September and did not make a new high in September:

In process $RUT broke its rising wedge, but volatility remained subdued and the decline has been orderly.

Price closed below the June highs and underlying volatility remains within an ever tightening wedge pattern.

$RUT price advances continue to also to be contained by a long term upper trend line amidst historically low volatility:

Transports made a new high in September, but closed the month below January highs:

Utilities made a lower high versus November 2017 and closed the month in the red:

Industrials made a new high in September, but closed the month below January highs:

$NYSE remains below January highs and closed September back inside its channel:

$WLSH made a new high in September, but closed the month below August highs:

$WLSH, like other key index charts show large negative divergences on new highs following 6 months of uninterrupted gains.

The larger structure shows strong similarities to the 2007 top:

Semis remain below March highs and made a lower high versus August:

The banking sector continues to struggle and is showing relative weakness versus $SPX and closed down for the month:

$OEX, the $S&P 100 shows a large monthly negative divergence and is pushing against long term trend line resistances:

Key takeaway: New highs remain unconfirmed with multiple sectors showing underlying weakness and internals showing a weakening in performance on new highs.

Larger indices remain entirely uncorrected. Case in point is $NDX which has shown 7 quarters of uninterrupted gains and closed the month 11.5% disconnected from its quarterly 5 EMA:

$NDX also remains in its 10th year run of consecutive gains with a 32% extension above its yearly 5 EMA:

Yields have continued to advance, especially on the short end as evidenced by the 5 year:

The rise in yields couple with limited market gains have cause the $TNX/$SPX ratio to turn south maintaining its potential topping pattern:

Volatility remains extremely subdued, yet maintains its wedge pattern:

Despite low volatility conditions,as expressed by over 64 trading days without so much as a 1% move on $SPX, volatility continues to show relative strength while market advances continue to be dependent on volatility compression.

Without a technical downside break the technical pivot zone of 3042/43 remains a potential target on $SPX:

Since the end of June $SPX has found steady support at its weekly 5 EMA:

As long as $SPX can find support there and volatility remains compressed new highs can be achieved.

However a confirmed break below the weekly 5EMA however would open risk to a revisit of the lower channel trend line. A break below it targets the lower outlined larger risk zone for a larger corrective move accompanied by a breakout in volatility. Such a move could be suggestive of a larger market top in context of the large negative divergences on display. The wedge pattern in $VIX is suggestive of an eventual break into the 20-40+ zone on the $VIX.


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