Market Analysis


KISS. Keep it simple stupid. Mella has perfected the art. My turn to give it a shot. Why? Because markets are very complicated and uncertain right now and when things are complicated it helps to simplify them, step back, to get a larger and better perspective of what’s going on here.

This recent market crash has shocked the entire system and we’ve talked extensively about it (Collapse, the Big Short II).

Time to get over the shock and focus on levels. $SPX hit a level today that’s relevant for 4 reasons. For one it was Mella’s ‘poop your pants target”, it was also the near the December 2018 low and it was the .382 fib going back to the 2009 low:

All technically nifty for a nice bounce. Indeed we rallied 200 handles off of that target zone today before seeing markets give it all away again.

But $SPX did something else altogether, something very rare and something historically extremely meaningful.

$SPX hit the quarterly 20MA:

This is a monster chart. Let me explain.

Firstly understand that the quarterly 20MA is a major pivot level. It rarely gets touched. The bull market from the late 1980s into the 2000 top found it to be a key support time and time again. Indeed that 20MA area served as support during the 1987 crash as well as the 1991 recession. Then it wasn’t tagged until the 2001 recession following the 2000 top.

Following the bottom in 2002 it then served as resistance in 2004 before then not being touched again until 2008. Following the 2009 bottom it again served as resistance again in 2010 before becoming support in 2012.

$SPX hasn’t touched it since. Until today. It got close in December 2018, but didn’t quite touch it. So tagging it has been a long time coming.

Now there’s another moving average in the chart, the quarterly 5 EMA.

This one gets tagged regularly. In uptrends it’s support, in down trends it’s resistance. And guess what? Each time the quarterly 20 MA gets tagged we see a counter reaction in the following quarter to the 5 EMA.

Show me one time that hasn’t happened. I bet you can’t.

Which means this: This quarter is coming to an end in 2 weeks. $SPX will close where it will close, but it has an appointment with the quarterly 5 EMA during the next quarter.

Currently that 5 EMA is at 2813. That number will change, but this chart history suggests a case for a sizable rally to come once a bottom has confirmed.

In 2000 and 2008 the retags of the quarterly 5 EMA were rejected for new lows to come and the full bear market began to unfold. The only way for $SPX to avoid that fate is to regain the quarterly 5 EMA and avoid a cross of the 2 MA’s for once a cross happens it’s game over and the bear commences in full swing.

Currently the 5 EMA is still far above the quarterly 20MA but in time these will meet, unless $SPX can rally hard and get above the 5 EMA in short order, as in 1984 or 1991 for example.

Which case will it be? Past trend breaks may be informative in that regard:

The 2000 and 2008 turns came on major trend breaks. This trend here too is broken, but it already broke in the 2018 and the Fed induced liquidity rally managed to make new highs while retesting the broken trend line from the under side several times. Each of these attempts has failed. All of this is ominous for battered bulls.

Either way a quarterly 5 EMA tag is coming and this is where the big battle for control will take place. But for the right here and now $SPX still needs to form a confirmed low.  Once it does  traders have something to aim for.

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Categories: Market Analysis

3 replies »

  1. Nice wider perspective, thanks Sven. I find the quarterly 20 MA interesting. My target was SPX below 2500 (more specifically 2450) which equates to Mella’s poop pants level and I’ve said we’ll feel lucky if the rout stops there. It really needs to claw its way back above 2500 soon, probably tomorrow, and hold there to avoid a drop to 2150 and maybe below 2000 – upon which things start to get seriously scary. Mella we didn’t quite make the VIX 90 target today, must we before this is done?

    I’ve no doubt that relatively recent structural changes in markets (concentration in a few shares, ETFs, buybacks, lax taxation, algos, Fed profligacy…) have contributed to the violence of these latest moves down. Part of me is wondering to what extent these have been partially squeezed out allowing things to calm down a bit?

    So, we’ve passed the poop stage, those daipers need to be changed fast, preferably tonight, else the stink could linger for years.


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