Market Analysis

Deja Vu

Let’s all just step back a minute and drown out all the noise. The economy, the trade wars, the Fed, the news, buybacks, everything. Let’s just look at a few very simple charts.

What have markets done over the past 2 years or so?

We had a massive ramp following the US tax cuts leading to a temporary top in January 2018. It then took $SPX  several months to eek out new highs into September.

It was on September 2nd I posted Lying Highs outlining my technical concerns why I thought these highs wouldn’t sustain. I won’t bother you with the details again here, but you can read them here: Lying Highs.

Among the charts I posted then was a simple trend line chart highlighting upside resistance just ahead:

Markets then proceeded to make new all time highs 3 weeks later on September 21 tagging 2940.91. We all know what happened next.

Markets rejected the new highs off of the trend line tag and then carnage ensued into December, breaking the 2009 trend.

Then markets rallied hard again culminating in a set of signals and concerns that prompted a sense of deja vu in me and I posted Lying Highs II on April 16.

In the article I showed this $NDX chart and pattern, highlighting that markets were on a similar path as last year:

Markets then proceeded to make new highs and topped 2 weeks following my article on May 1st.

Today we see this:

What’s the lesson here? I need to time my articles better? 🙂 No, these articles were meant to give a heads up. I can’t pick a top in advance, but I can outline warning signs and while I tend to get bashed for doing so for some unknown reason I think these warning signs are incredibly important to pay attention to.

Now let’s revisit that original $SPX chart:

What’s the chart telling us? For one these trend lines matter, they mattered last year and they have mattered once again as $SPX has failed to recapture the 2009 trend line it broke last year. It just rejected it. The signal charts matter and have once again given appropriate warning that something was afoot. And now we’re faced with markets that have failed the general same price zone three times all in a matter of 15 months.

On May 6 I highlighted the break on $ES:

Here we are today:

Price again rejecting the 2940-2950 zone and now falling below the January 2018 highs again.

Forget the noise, the economy, the trade wars, the Fed, the news, buybacks, everything. What are these charts telling you?

To me they are whispering deja vu. Doesn’t mean we can’t have rallies. Of course we will, but these charts are telling a story. I just wonder if anyone’s listening.


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14 replies »

  1. Sven
    Your analysis is fantastic. Here is why the 3rd time may be the “charm” in terms of something very wicked playing out for stocks in the months/year ahead. Unlike the Jan 2018 and Q4 2018 sell offs, this May sell off has occurred AND short term USTs are inverted against the Fed’s overnight rate.
    Highly ominous and indicative of, believe it or not, a market that thinks slowdown lies ahead and that the Fed is too tight and will be forced to ease in response to the mayhem to come, which yours and Mella’s charts seem to indicate.

    Not telling you to begin to analyze the charts of short term USTs, but if you were to do some quick analysis of the chart of the yield (not price) of the UST 2 yr, you would see a “waterfall” that is about to cascade. And, if you were to chart the price action of one of the longer-dated Eurodollar futures (say the June 2020—EDM20), you would see a beautiful bull market chart that has accelerated since the start of the Q4 maelstrom in stocks.

    Short term US bond markets/interest rates point to a big time slowdown which makes sense with the various charts you have posted of definitive signs of slowdown in all manner of various markets, from earnings to Hamptons housing prices/movement.

    As much as I believe you will be right about stocks cruising for a bruising, I think the Fed will soon begin cutting rates which will eventually take us back to ZIRP BEFORE the next inauguration. What tempering effect that may have on stocks, I am not quite sure. But, any re-activation of QE should begin to play havoc with the USD, so a lower dollar might soften the blow of the upcoming stock market woes ahead.

  2. Sven, Came across your postings recently and appreciate your work. Thanks for sharing.
    Am listening!

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