Market Analysis

Uh Oh?

In context of the week’s market gains Friday’s decline was minor, but context may matter.

While bears again got the rug pulled from under them as markets got a new dousing of central bank liquidity, beginning with PBOC intervention on Monday and Tuesday and ongoing rounds of larger repo operations accompanied by new rounds of optimism, virus optimism, election optimism, you name it, and markets gapped relentlessly higher to new record highs suddenly these gains were taken away on Friday.

The question arises: Did indices such as the $DJIA put in a double top?

It may be a ridiculous question to raise without confirmation, but note all new highs came on negative divergences and were rejected below the previous highs in some cases.

Here’s the $DJIA daily chart:

The new high on a pronounced negative divergence didn’t hold and $DJIA fell below the January highs by week’s close.

The weekly chart shows a similar picture:

At the same time, despite the fierce rally this week, $VIX defended its pattern breakout all week long and then took the weakness on Friday as the occasion to bounce off of that trend line:

This suggests $VIX has potential to see more strength into next week.

I context of the technical red flags seen this week in $NDX (Narrow, Warning Signal) the question arises: Did markets just double top? If so: Uh oh.

I’ll discuss in more detail in my weekend update.

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Categories: Market Analysis

6 replies »

  1. “The question arises: Did indices such as the $DJIA put in a double top?”

    I’m not sure this question has any relevance to a central bank liquidity fueled market. A simple FED TGA (treasury general account) model will still get you to 3600- 3700 on the S&P over the next several months.

    And we’re still very far from the gamma flip Vol trigger zone (which I don’t hear mentioned on this site very much). I heard pundits talikng in July 2019 about how the Fed would run the economy hot and how they would never stop until stocks were elevated.

    I think the FED has deep enough pockets to levated the markets to anywhere they want. Nothing to stop them really.

  2. imo it would be interesting if you have a look on the junk bonds etf. i think you already did it sometimes last year.

  3. saw those evening stars all across the charts tonight with double tops. crude, copper and bonds already have fallen off the cliff. s&p looks ripe for destruction. only time will tell

  4. Central Banks will simply flood the market more and destroy whatever technical indication.
    They could push the DJ and the NDQ higher and higher with the RSI bouncing in a range below overbought levels.

    I was observing such a case yesterday by a stock: RSI14 weekly peaked at 840 GBPp (from 450), the stock has
    been pumped up to 1600 GBPp with a sawtooth-shaped movement of weekly RSI14 that never went below 50. The highest high has been 1680 with RSI reading of 66, the true correction from ~1650 to 1000 started with the RSI at 57.

    They can do the same with the benchmarks.
    EVERYTHING is managed, rigged, fudged.
    We take the Treasury yields, the Stock-Indexes, and the volatility indicators, as well as PM’s prices to understand what is happening.. and we know they manipulate exactly those things. Gold/Silver market is officially manipulated by JPM.
    If the Baltic Dry would be broadly considered a market indicator, we would see the FED to book capsize vessels to push the BDIY higher.


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