Broad Market Update-Resistance and Warning Sign For CDNX investors
>>>here's something posted by bretton_woods at iV<<<
I have very minimal time to post anything comprehensive as I am gearing up for my final exam this summer however during an advisory meeting this evening I noticed some shifts in the charts I was not aware of since my previous update. This post is primarily an update to my early March look at the markets which called for essentially a higher market(long and short term), which itself was primarily levered off the March low and secular bear market theory I have been discussing for some time(with cyclical bulls in between). Although my guess is this will be short hopefully it will capture the points I want to make. I highly highly advise anyone using my market research and summary's to weight everything here under the recognition that near term pricing action has not been my focus and therefore some of the additional checks I would like to do against the broad index work(stocks in sectors, currencies etc) I simply don't have the time to currently do.
First off lets look at the SPX. I have pointed to the fact the weighting in the SPX gives us at times a better understanding of the market versus a price driven dow which can be often moved around by a few high priced stocks. It's under that basic premise I like to use the SPX for the longer term work as far as the 03 and 09 bottom. The bottom in 09 saw an inverted H&S pattern with a neckline around 940 and the head at approximately 660. One can clearly see the pattern on this chart, furthermore when viewing the H&S it should be noted the right shoulder was higher than the left, something which signals internal strength and builds confidence in the pattern. The upside target on this pattern is 1221, 10 points above where we are trading today.
The second point to see on this chart is the first real crash in the markets took place right here at around the 1200 level. This is an area we should expect to see resistance from a technical level. The first part of this post is simply that, we are coming up on an area of both horizontal long term(and I'd say quite significant given the context) resistance on top of a price target of an inverted H&S.
SPX(point is we have two technical indicators that should provide some headwind):
stockcharts.com
In keeping with the last post's theme, another thing I had noticed this evening is the small cap index. As everyone knows small caps lead, the point here is to see the exponential moving averages starting to widen even more after the initial box I had pointed out earlier. I have commented before on the nature of exponential averages, and that the fact that a 20 being above a 50, and both being above the 100 are positive's. That is what we saw in early March prior to this latest high. That said exponential MA's also can give us clue's to unsustainable moves, primarily when the widen against each other, as mathematically something has to give at some point.
Small caps(see declining momentum too):
stockcharts.com
Moving on to sentiment, I think one would be wise to recognize that the bullish percent figures for the Dow hit 96.67% today. That is the highest reading we have seen since the index registered a 3 in March.
BP on the Dow:
stockcharts.com
Retailers:
A quick comment on retailers, I scanned the index this evening and frankly I can't believe the price action-see the index having just ripped through what should have been resistance. I randomly got dragged to the mall with an old friend of mine who shall we say is a 'label whore'. I pretty sure thats is the term. Anyways I must have gone to every shop from coach, to louis vitton, burberry, etc etc etc and I can confidently say they are still involved in some serious price gouging. That said I simply don't see it. I dont see 400 dollar purses and 950 dollar sweaters(yes I am dead serious she even had me try it on) really powering the US economy higher, call me slightly skeptical.
I understand the retail index from the growth strategy for companies that have skewed their exposure to the asian markets. I also understand it from a cyclical recovery standpoint, and aligning inventory with demand and the impacts to the bottom line. That said I do not understand it from a price on this chart perspective. I had commented in March this being a bullish sign as the index had moved higher relative to the broad market, however my feeling is this now is an excessive price move vs a leading indicator. Couple this with the bullish percent readings and the nonsensical price to value(perceived or otherwise) ratio of some of these goods(this is not home equity to the moon era) and this to me could be a sign of excess within the markets.
stockcharts.com
Before I move on to the CNDX divergence one quick comment on the overall broads, that is to say I don't see this overbought condition as catastrophic. One thing that should be recognized about technicals is many of the overbought conditions can be cleared away in bull markets simply by sideways action. One thing that speaks to longer term strength is the fact that the NYSE New highs New lows index made a new high with this new high in stocks. That is a strong positive for the future imo.
stockcharts.com
Finishing up with the CDNX I dont have nearly the time I would like to devote to this section. I have spent a bunch of time looking at explorers in the space as we all know the massive price action in many of the companies proving up resource(EAS.V etc). I have been putting together some lists of companies I would eventually like to look at, but some of the symbols so far I've come across are BCG.V, HPY.V, NCM.V, TWD.V, and TMM.V. Now to be clear, THESE ARE NOT STOCK REC's they are just companies I've been researching as of late and are related to the theme of extremely high risk but serious reward(these are the TYPES I am scanning about). If I were allocating capital I would use this opportunity(if it arises) to pick up some explorers.
More importantly the point I wanted to make about the CDNX is investors should be aware of the divergence made between breadth and price, unlike the NYSE the CDNX HAS diverged. Here are the two charts:
long term(cdnx with breadth overlayed):
stockcharts.com
Zoom(breadth with CDNX overlayed):
stockcharts.com
My final observation from the recent market action is that I received a frantic phone call this morning from someone asking if they should just unload the rest of their money market fund in the market right then and there. Mind you the portfolio was already sitting at 80% equity and that I was fast asleep but after talking them down I realized the absurdity of it all. My only point is given the context I would rather be a near term seller than buyer. A quick note about treasury yields too needs to be made, that is the longer term weekly is trading at its inverted H&S neck but also of importance is the 200 week MA serving as resistance:
stockcharts.com
As far as the golds go I havent had time to update these charts or really comment on them, just thought I would post a few as the focus here is obviously the precious metals.
HUI YTD(see H&S holding, back near channel)
stockcharts.com
Silver YTD(in channel):
stockcharts.com
EGO(see big time bounce off the 200, still one of my favorite producers):
stockcharts.com
Rangold(still trending above 50, watching for a move higher to signal overall market)
stockcharts.com
BW |
