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"....the main question is whether blue 3 has already begun or not:" "On the Cusp of an Impulse" [Down]
http://www.pretzelcharts.com/
"The market has gone nowhere since last update, so let's talk about what to look for in order for the current decline to qualify as an "impulsive decline" (which simply means five waves down). This is probably best illustrated using the INDU chart:"
"No change to the big picture -- the main question is whether blue 3 has already begun or not:"
"Worth noting that COMPQ was again rejected at resistance (I called attention to the test of resistance on November 21), so that test of resistance could very well have been a classic "return to the scene of the crime":"
"In conclusion, if the market goes on to form an impulsive decline, that would suggest at least one more wave down of similar size -- it does not guarantee that blue 3 has begun. However, given the turn from the blue 2 inflection, we might treat it that way at least until it reaches the next inflection, which would arrive after the aforementioned "one more wave down." Of course, if it does not go on to form an impulsive decline, then all of that is moot anyway. Trade safe."
PPI spiked as i suspected. now the market must ignore the glaring acceleration in inflation. I mean slam dunk we plow thru many many months of higher inflation data. The PPI almost always is lock step with the CPI. Producers don't decide to eat the cost but instead pass it on.
if today doesn't cause the start of a gap down Tuesday will.
Equating those times to now is like equating the GOP past with the present. There is a 40 year disinflation period where everything was cheap and easy to borrow against. Where every single major calamity was met with a FED willing to bankrupt our future. The notion from all the way back in the 80's that debt would kill us has been dismissed totally. it no longer matters PERIOD! Any matrix you use against the debt market shows we are in deep do do. In the roaring 20's there was no concerns no warnings no preparation for what was about to happen even though COMMON SENSE should have warned you.
Just because we have survived all the insanity of the political world and economic hedonism doesn't mean it will not have a price to pay. Al thing swing both ways and the next drop should be our last for a long time. decades of malaise. What exactly is a BITCOIN and how is it saving us for big government? Funny isn't it. ONE NERD with billions made overnight claims he was in charge but didn't know what was happening as his own firm took most of the ill gotten gains and disappeared without a trace? he actually give interviews. I guess when you have the new HITLER in the spotlight you can change the world view. Imagine Trump back then. Now that would be funny.
We have a Supreme Court as lawless as the President was and gest away with it. WHY? Because there are no checks and balances. They will decide gay rights and most important allow each WHITE Christian MAN STATE controlled to make sure they stay in control. They will discriminate legally, redistrict legally and even throw out YOUR VOTE legally as state controlled officers. TRUMP attempted to throw out the votes in states. the Supreme Court will NOW make that legal. We already have FOUR Judges agreeing to this. You know one was the leaker of his own decision and the other attempted a coup as a family matter.
And YET today we pretend none of this is important or consequential? We are the dumbest race that ever survived. I suspect we will not much longer. I can't wait for more revelations of TRUMP treason and sedition. Minor matter. i suspect we will lean he gave/sold information to his pals like Putie. Missing top secret documents? Who cares! Establishing neo-nazi's in his party? Who cares.
Oh yeah, we had FOUR huge bets on PUTS in November fall flat. We just had another in December. A HUGE bet 1.48 ratio of Puts to calls.
Bespoke Chart of the Week
12/8/2022
How bad has the equity market been for investors in 2022? Even with 15 trading days left in the year, 2022 has seen
the third-most 1%+ down days for the S&P 500 ETF (SPY) since 1993 when it began trading. Only two other years have
seen the stock market experience more than 60 one-day drops of 1% or more: 2002 and 2008. Those two years are
not good company to be in. On the bright side, though, 2002 and 2008 were the final years of the last two extended
bear markets experienced in the US. In both 2003 and 2009, SPY struggled in the first quarter but still managed to
post total returns of more than 25% by year end.
Given the consistent weakness in equity markets this year, it’s no surprise that investors are bearish, but just how
bearish? Judging by the weekly sentiment survey run by the American Association of Individual Investors (AAII.com),
very! In fact, this week marked the 36th consecutive week of more bearish respondents than bullish respondents in
AAII’s survey. That’s a record dating back to the survey’s start in 1987. Investor sentiment is normally seen as a
contrarian indicator. There’s a reason Warren Buffett once said to “be fearful when others are greedy and greedy
when others are fearful.”
Number of 1%+ Down D
http://bespokepremium.us11.list-manage.com/track/click?u=d9df05124e64a31cb695b0f70&id=0f6f37291a&e=c26b4e8c59
A STRADDLE by late day on Thursday makes perfect sense. We either get that dramatic drop we expected November or we show more tame inflation data from the PPI and CPI. that started this rally and could reemerge or end here. I believe we get a bad, inflationary number. Ripe for a crash.
Timeline is very tight. the FED would NEVER allow a crash right before Christmas and not till the New Year. the WINDOW is closing! Either starts this Friday lasting till next Friday at the latest OR the PPI is tame and we start the next leg up.
Ideally would love to see a decent rally right BEFORE the PPI announcement.
"As we know now, the last week's-worth of warnings turned out to be timely, as SPX has since been rejected literally on the button at the blue 2 inflection (which was 4100+/-...."
http://www.pretzelcharts.com/
"For the past few updates, I shifted from my previous near-term bullish stance to a more cautious stance, and on December 5, I wrote:
What we do have now, though, is a case where the "more upside" of the past couple updates has been achieved, the 4100 target from October has been captured, and the month-long standing blue 2 on the chart above has been reached. Thus, this is a neutral zone; people tend to finally "get it" and become bullish or bearish once targets are captured, but that's the wrong time. Once targets are captured, the market is at last truly free to go either way again.
As we know now, the last week's-worth of warnings turned out to be timely, as SPX has since been rejected literally on the button at the blue 2 inflection (which was 4100+/-: see annotation from November 16):"
"In conclusion, SPX has been rejected dead-on from the blue 2 inflection, but we do not yet have an impulsive decline (5 waves down). To that, I would add that the market appears reasonably likely to form one, given the structure so far, but of course that's just how a typical wave would form -- so I'm stating that it looks "reasonably likely" based on the typical wave, as opposed to it actually being there on the chart in black and white yet. We'll see how it develops from here, but do note that if we're already in blue 3 already, things can get ugly over the coming weeks. Trade safe."
3989 is the 4 hour SPX target, the 34MA,, May be getting a little OS on minure charts..
Long way to the next H line support...Around 3875..
https://schrts.co/efzUXwwc
https://schrts.co/dRKiHJan
A SHOCKER is about to be revealed! The last THREE data points are devastating to the notion that Inflation is tapering off. Friday is the really important BIG PPI report. A strong number and we set up for a crash right up to the FED Announcement!
the current move is the most ripe for a crash. NO ONE expects it despite the obvious, a huge mistake in INFLATION going forward. A huge mistake that a recession is here. A huge mistake that had 4 huge spikes in PUTS and now the covering of such mistakes. A huge throwing in of the towel by ALL BEARS. I mean ALL!
Watch the reaction IF we do get bad new at 8:30 Friday. the PPI, if bad should be followed by the CPUI on next Tuesday. that is the timeframe for a possible crash and one that could complete the incomplete drop to 3,000 on the SPX.
I know I am the ONLY PERSON it seems that insists we have not completed this current move down. Not by a long shot. I know all the BEARS assume a rally into new years and then a drop after. The absolute best setup for a crash is here and now! I hope the fibonacci date is correct nd we hold off any deep slide till Friday.
I will be betting for a crash late Thursday. Just on ONE REPORT triggering such an event.
Well the Fed could make a big difference tho. If they keep raising raters might not help the Bulls. As I said I have no system that projects price beyond the mOnthly 320MA or whatever is the lowest MA on the chart.The 320MA is the lowest MA right now but we do not have a signal anywhere close to CCI272 which would have to cross below zero for the signal. The signal right now is for the 20MA residing at 4238..BTW, those Stockchart guru;s are pretty good tho.
December Historical Tendencies Tell Us This Could Be A Stock Picker's Month
Tom Bowley | December 04, 2022 at 09:22 AM
http://stockcharts.com/articles/tradingplaces/2022/12/december-historical-tendencies-621.html
"I know there's a great debate as to whether we've seen the market bottom. I'm firmly in the camp of "YES, we've seen it." I called a bottom in mid-June and, if it weren't for FedSpeak from Jackson Hole in August, I believe that bottom would have held. As it is, we only saw a brief move beneath that June low earlier this quarter before the latest rally took hold.
I also believe that the stock market is heading higher during the balance of December, as it usually does. Historical trading behavior in December is a bit odd as the second half of the month crushes the first half of the month. Here are the annualized returns on the S&P 500 since 1950 during the two distinct halves of December:
December 1-15: +2.82% (51.05%)
December 16-31: +35.68% (58.03%)
In parenthesis, I've provided the percentage of days within the period that saw the S&P 500 move higher. So you can see that the odds of any day within these two periods moving higher is much better in the latter half of the month. Combining that with the annualized returns makes it quite clear that the bulls truly own the second half of December.
Now let's take another look at a historical December breakdown. In the following table, I'll show you how many times December has been an up month vs. down month since 1950, or the past 72 years. Below this monthly performance, I'll break down the month into 3 different periods and show you the rise vs. fall tendency of each:
December (entire month): 54 (up) vs. 18 (down)
December 1-6: 46 vs. 26
December 7-15: 33 vs. 39
December 16-31: 57 vs. 15
Again, the historical tendencies shine through rather obviously. December is a great month for U.S. equities, but be careful during that second week. Once we get past the 15th, however, it's typically full speed ahead.
If we do rise into year end, should we expect growth stocks to lead the way? Well, a lower interest rate environment could play into this scenario, but history would say NO. The IWF is an ETF that tracks large cap growth stocks, while the IWD is an ETF that tracks large cap value stocks. Using the Seasonality Chart at StockCharts.com, we can plot the relative historical performance for the IWF vs. the IWD (IWF:IWD). Check this out:"
http://d.stockcharts.com/img/articles/2022/12/04/f47155fe-96e1-4d8a-b115-e5b15da6b93d.jpg
"The IWF has outperformed the IWD during December 9 of the last 20 years, or 45%. But the IWF has averaged underperforming the IWD by 0.7% over the past two decades, which is the IWF's worst relative performance among the 12 calendar months.
Value stocks really love Q4 and that love affair only grows stronger as the quarter wears on. Check out this 20-year track record of the IWD and add up those average monthly returns by quarter. First, I'll show you the seasonality chart and then provide a table that summarizes the quarterly performance:"
http://d.stockcharts.com/img/articles/2022/12/04/e540efee-6ed9-4ee0-a1d1-440bfea98071.jpg
"Now for the quarterly breakdown:
Q1: +0.7% (add January's -0.5%, February's +0.2%, and March's +1.0%)
Q2: +2.4%
Q3: +1.6%
Q4: +5.0%
Large cap value stocks have gained an average of 9.7% over the past 20 years, but more than half of those gains have been earned during Q4 and December is clearly one of its best calendar months. Ignore this area of the market at your own peril.
Given the December tendencies, I certainly would not give up on the value stocks, even if rates do continue to drop (which would favor growth stocks). On Monday, I will feature one value stock in our FREE EB Digest newsletter that LOVES the month of December and looks poised to take full advantage as its technical picture is very strong as well. CLICK HERE to provide your name and email address and subscribe. There is no credit card required and you may unsubscribe at any time."
Happy trading!
Tom
"This is a tricky market right now........"
http://www.pretzelcharts.com/
"The market has done nothing since last update, remaining range bound, so there's not much to add in that regard -- however, I did want to pull two charts forward and update them, starting with NYA:"
"Note that blue (C) can end short or long of the "textbook" target, so if we see any impulsive declines, we'll go on alert immediately.
Next is BKX, which has remained stalled since its last update:"
"Finally, SPX is still in the blue 2 inflection zone:"
"This is a tricky market right now, because I don't see a cohesive theme across these markets, since if BKX were to sustain a breakout, then that would look fairly bullish, which might line up with Red 2 in SPX, but would then put NYA in kind of a weird position (since it would probably need to overshoot its textbook target notably in order to keep up with SPX and BKX). The only semi-cohesive theme might be if we're at, or close to, the top and the rally ends fairly directly (then all three of these markets might already be on the same page). Doesn't mean that's what will happen, and again, I'm awaiting an impulsive decline... but it's one of the factors making the near-term challenging to read.
Beyond that, nothing to add to Friday's update. Trade safe."
"Does that mean the rally needs to end immediately? It could, but of course it doesn't "need" to, and it's entirely possible it continues on either a little (blue 2 is a zone, not a hard number) or a lot (in the event it decides to become red 2)."
http://www.pretzelcharts.com/
"The last two updates said the exact same thing:
[I]f SPX rolls over here, the first zone to watch is 3865-98 (which would be one area a complex fourth wave could bottom), but it is into a zone where I can no longer promise continued upside. I think it would probably look a bit better with more upside, but it doesn't appear to be "guaranteed" the way it did over the recent past -- thus we'll be watching closely in the event it forms an impulsive decline.
Since those updates, SPX has indeed found more upside, so score one for wave aesthetics and "looking a bit better."
It's also worth noting that way back on October 28, on our forums, one of our regular active members (R2CG) pressed me for a number as to where I thought the rally was headed, and the number I gave was 4100 -- which is exactly the price SPX tagged yesterday:"
"4100 is also where I've had blue 2 sitting on the chart below for a month:"
"So here we are, finally. Does that mean the rally needs to end immediately? It could, but of course it doesn't "need" to, and it's entirely possible it continues on either a little (blue 2 is a zone, not a hard number) or a lot (in the event it decides to become red 2). Thus, as I've written in the past couple updates, I'm still awaiting an impulsive decline before getting too aggressive on the bearish side.
What we do have now, though, is a case where the "more upside" of the past couple updates has been achieved, the 4100 target from October has been captured, and the month-long standing blue 2 on the chart above has been reached. Thus, this is a neutral zone; people tend to finally "get it" and become bullish or bearish once targets are captured, but that's the wrong time. Once targets are captured, the market is at last truly free to go either way again. In the current case: It's not bearish until we see an impulsive decline, but neither is it a zone where one would want to initiate new long positions. Trade safe."
Glen
Here is his thread on SI if you go there. And I believe he has his own site as well at indexinsight.com
https://www.siliconinvestor.com/readmsg.aspx?msgid=34098686
RCKS, do you have the web site for Pokersam.. I might just look at his posts and see what he is up too...JUst for old times sake...I may be banned but might wish him a merry Christmas if not/..
Pokersam's current take........ Bearish as can be........
https://www.siliconinvestor.com/readmsg.aspx?msgid=34098686
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=170583593
To: Jack of All Trades who wrote (1319) 11/30/2022 8:03:03 PM
From: POKERSAM
1320
of 1320
I did not believe we would reach 4065 or higher to complete this wave [B ] but we did. The knee jerk overreaction to the Fed. speak accomplished it. If this really signals a pivot by the Fed the decline to my target is even more assured. Every time in the last 60 years that the Fed has pivoted from raising rates or ceasing to raise rates the market has plunged. See the Dot Com top and the 07 top and the 20 top for a few.
No one believes this but it is true. The charts prove it. The opposite is a myth believed by almost everyone.
So, the inevitable decline to 2200-2400 has been delayed a little, but just a little.
Rolling over? Powell reiterated EXACTLY what he stated perhaps 5 times already but this time they heard what they wanted to hear? Blow off top is here. Lasting thru holidays is perhaps a given. DOW will hit new highs. The street ignored his statement about long term and persistent inflation This time all indices broke down to suggest something in this speech is different. DOLLAR broke down, Yields on 10 year broke down, but i guess they couldn't ignore OIL inventories.
I am as sure about 2023 as i was about the start of 2022 and the start of the pandemic. in both those cases the Common Sense path was ignored. Has earning projections gone up for all of 2023 since a major brokerage firm declared fair value at 3,000 on SPX?
first half of 2023 will see a minimum of 30 percent drop. I also do not see a strong rebound for last half.
I bet early and often as the pandemic hit and the charts were laid out for us. The market refused to accept Common Sense reality. In this instance Productivity will continue to be squeezed and profits will keep shrinking. The miscalculation on 2023 earnings will be devastating.
I am not even sure we don't have a crash BEFORE new years. I say this because Powell (KNOWS) that inflation will be here longer and stronger than anyone expects. WHY? The data coming out will clarify that. if i am right bonds, dollar and stock market will reverse big time and rather quickly. I keep looking at the charts and for the life of me can't see this current rally lasting more than 3 months. In fact the average is less than 3 months (IF) we are still in a bear market.
Can we actually have a crash BEFORE the New Year? I highly doubt it BUT this rally started too soon for my taste. Lets see if we hold up till 2023.
2023 will go down as the most depressing year since the great depression started. Everything is in place especially the HUGE imbalance on P/E expectations.
".....I think it's wise for bulls to remain on alert right now......"
http://www.pretzelcharts.com/
"Last update concluded:
[I]f SPX rolls over here, the first zone to watch is 3865-98 (which would be one area a complex fourth wave could bottom), but it is into a zone where I can no longer promise continued upside. I think it would probably look a bit better with more upside, but it doesn't appear to be "guaranteed" the way it did over the recent past -- thus we'll be watching closely in the event it forms an impulsive decline.
And there's been no real change to that. It is interesting that this apparent inflection arrived when it did, since today we have a number of potential market-movers:
Powell speech
Pending home sales
Oil inventories
JOLTS
PMI
FOMC Beige Book
GDP
ADP
I think my idealized scenario would involve some whipsaws before it really gets rolling, but we are into the blue 2 inflection zone -- and it's not supposed to be easy here:"
"In conclusion, I think it's wise for bulls to remain on alert right now, because, as I noted last update, there is the possibility for ALL OF blue 2 to finally be complete, or nearly so. Trade safe."
5 Things To Know Right Now
Tom Bowley | November 27, 2022 at 01:53 PM
http://stockcharts.com/articles/tradingplaces/2022/11/5-things-to-know-right-now-our-882.html
It's been a long 2022 for many in the stock market as we've seen all-time highs in early January morph into one of the worst bear markets since 1950. While we've seen a significant decline in equity prices, the market environment now is much different than it was at the beginning of the year—and that's very bullish.
At our MarketVision 2022 event on Saturday, January 8, 2022, I was extremely cautious. Price action remained solid, but that was about the only thing the bulls could feel good about. Unfortunately, price action is the only thing that most investors look at. Accordingly, many were blindsided when the distribution period from January through May took place. Everyone was selling. All. Day. Long. But that wasn't the cause of the 2022 problems. It was the effect. The warning signs were everywhere if you only cared to look or consider the bearish argument. I remember being soundly criticized by many for calling for a bear market long before the major indices dropped the "required" 20%. As I said then, "you don't need to see a twister in your dining room to realize a storm is approaching."
The good news is that 2023 is likely to be better. Much, much better. Of course, I reserve the right to change my mind between now and MarketVision 2023, to be held on Saturday, January 7, 2023, but so much has changed since the beginning of the year, and it's all been for the better, except price action. So once again, the question you must ask yourself is, "are you willing to consider the bullish argument now, or are you stuck looking at downtrending prices with no ability to look beyond that?"
Here are the 5 things you need to know now.
It's Cyclical, Not Secular
I've said this all year long and I'm just as convinced today as I've been at any point in 2022. We've just concluded a cyclical bear market, folks. It's over. Is that a guarantee? Of course not. I don't have a crystal ball. I don't know how much more the Fed will raise rates. But after a series of substantial interest rate hikes in 2022, stock valuations came crashing down, especially growth stock valuations. I'm seeing lower rates on the horizon, which will send those same valuations shooting back higher.
I wrote an article back in January 2022, laying out my "4 Bold Predictions About This Bear Market". If you didn't read the article, this would be a great time to do so. If you're willing to put in the time and effort, you have the tools (especially here at StockCharts.com) to educate yourself. Many technicians are perma-bulls or perma-bears, only writing articles that support their biases. I've been called a perma-bull many times, and admittedly, I'm generally bullish. I think that's a good thing as the stock market rises a lot more than it declines. I hope that anyone who thought I was a perma-bull now reflects and realizes that I call what I see. Bullish or bearish, it doesn't matter. I'm going to tell you what I'm seeing. Yes, the bulls will get the benefit of the doubt, because again, the market goes up more than it goes down.
On Saturday, January 7, 2023, at MarketVision 2023, I will tell you what I'm seeing and give my predictions for the 2023 calendar year. This will be a free event and everyone subscribed to our EB Digest newsletter will be invited to attend. If you haven't already subscribed, this is a great reason to subscribe. Other similar events are priced in the hundreds, or even thousands, of dollars. Yet, StockCharts.com will be joining us at EarningsBeats.com for our 4th annual MarketVision event and it's free and very educational. This allows everyone to attend and learn about techniques that you can use to better forecast market direction and feel more confident about your investing decisions. It's not about listening to what the media is saying. That's for entertainment
Do you want to attend MarketVision 2023 for free and learn more about the stock market? Then CLICK HERE to sign up for our EB Digest newsletter and we'll make sure you get room instructions when the event approaches.
Regression To The Mean
I pointed this out at the beginning of 2022, but it's a lot easier to see now. The S&P 500 Index ($SPX) gained 115% over 22 months leading up to its all-time high in January 2022. That type of appreciation is simply unsustainable. The U.S. stock market, coming off the 2020 pandemic, ran too far too fast and we were going to pay the price in 2022. Below is a daily chart going back 100 years with a 450-day rate of change (ROC) below the price chart (there are 253 trading days in a calendar year, so 450 days represents 21-22 months of trading):"
http://d.stockcharts.com/img/articles/2022/11/27/38c107f7-02cc-4bae-984c-536a27bdd0b6.jpg
"Since the 1930s, we had seen the S&P 500's 21–22 month rate of change hit 85% only twice. By the beginning of 2022, we hit 115%! This crazy advance, together with off-the-chart bullish sentiment suggested that you should be extremely careful entering 2022. But were the talking heads telling you to be careful while the big Wall Street firms were rapidly rotating to defensive sectors in December 2021? Of course not. Instead, they'll continue to rotate their seasoned entertainers.
If you were unbiased to begin 2022, how could you look at the massive move higher from March 2020 through December 2021 and not at least consider that the stock market needed a break? Below is the 15-year weekly chart of $SPX that I showed to MarketVision 2022 attendees nearly a year ago, and where we stood as of January 8, 2022."
http://d.stockcharts.com/img/articles/2022/11/27/395c0f69-3c64-44b1-907d-23fb8318a3e3.jpg
"There were multiple warning signs on this one chart. First, look back at 2014/2015. The $SPX broke just outside the upper channel line and what happened next? A regression to the mean. Now, fast forward to 2021. It was a breakout above the upper channel line, only on steroids this time. Then look at the weekly negative divergence on the percentage price oscillator (PPO). Bullish momentum was slowing. Note also that the weekly RSI remained above 50 for 18 months. All of these same conditions were present back in 2014/2015. It was history about to repeat itself. Back at the MarketVision event, I never guaranteed anyone that we would have a bear market. What I said at the time was that the risk to the downside was too great to remain blindly long. I use technical analysis to evaluate risk, not to guarantee future price action. Those who don't use technical analysis will always point out when it doesn't work. But that's not the point. We use it to evaluate and manage risk. That's it.
Those green arrows highlight "regression to the mean." During my talk, I pointed out that, in a worst-case scenario, I could see another regression to the mean, so my downside target was 3500–3800. Here's how 2022 unfolded on this same chart."
http://d.stockcharts.com/img/articles/2022/11/27/8571fbec-28fe-44a7-ae53-8042cadf121c.jpg
"Having this perspective before the bear market began altered the financial lives of many of our EarningsBeats.com members, in a good way. At the end of the day, everyone must make their own individual financial decisions. I always point out that we are not Registered Investment Advisors (RIAs). We're not trying to manage anyone's money and to do so, without the benefit of a financial plan and a risk profile would be irresponsible on our part. Instead, EarningsBeats.com is a guidance, research, and education platform. I'd like to believe that our work helps our members make better and more informed financial decisions. That's all we can do.
Sentiment Has Been Reset
I said in January that our absolute biggest market issue was sentiment. It wasn't inflation. It wasn't interest rates. It wasn't a possible recession. Instead, everyone who wanted to buy had bought. Retail traders were extremely bullish and it wasn't sustainable. I want to show you two charts of the equity-only put-call ratio ($CPCE) and then I'll explain them (see chart below)."
http://d.stockcharts.com/img/articles/2022/11/27/cdc307ec-03cf-468c-9efd-5daaa45bcacc.jpg
http://d.stockcharts.com/img/articles/2022/11/27/059d25ed-e612-4cf1-951d-571538831322.jpg
"The CPCE is a fraction, the numerator of which is the number of equity puts. The denominator represents the number of equity calls. The CPCE is a contrarian indicator. When retail traders grow bullish and are buying too many calls, the fraction (equity puts divided by equity calls) moves lower and lower. When retail traders grow more bearish, the opposite is true and the fraction rises. Over a period of time, sentiment tends to shift too far in either the bullish or bearish direction.
The first chart above simply shows us this fraction every day since the CBOE began providing us this data. Remember, the lower the reading, the more bullishness felt by retail traders. With this in mind, check out those daily readings, particularly in the second half of 2020 and throughout 2021. In the red-shaded area, there's a cluster of readings below 0.45. This level of bullishness was hardly EVER reached in the prior 16 years. By the time 2021 ended, it was the norm. On the flip side, look at few CPCE readings above .60 in 2020 and 2021. Options traders believed the stock market was a personal ATM machine. Just buy calls and make money. Well, we now know the result of that extreme bullishness.
The second chart shows us this same data for the past 20 years. However, the readings have been smoothed out over a 253-day period, or one year. As retail traders grow more and more bullish, this 253-day moving average continues falling. But once this bullishness is exhausted, the market struggles because there are no more buyers and as the stock market falls, retail traders slowly begin to turn against the stock market and become more bearish. That's what drives this 253-day moving average higher. This chart is as of January 8, 2022. I showed everyone at MarketVision 2022 that this 253-day moving average was just beginning to turn higher. I've circled in red previous periods when this moving average turns higher and the S&P 500 results while this ratio turns more and more bearish is not good. We are normally in a bear market or in a period of sideways action. This signal was telling us not to expect much bullishness in 2022. We needed a sentiment "reset". Check out where this 253-day moving average is now and the damage inflicted on Wall Street:"
http://d.stockcharts.com/img/articles/2022/11/27/1669445b-25b7-4782-8d26-e2d4fb5da7fd.jpg
"I'm not sure where this 253-day moving average will top, but when it does, we'll likely be in the midst of the "mother of all rallies". Some might suggest that we can't bottom until this moving average tops, but just take a look at 2016. The S&P 500 bottomed in January 2016 and ran more than 20% higher before the top occurred in the 253-day moving average of the CPCE. This isn't a perfect science. The takeaway here for me is that the sentiment picture has completely flipped now - just as I suggested it would a year ago. Sentiment will no longer be a reason for the stock market to struggle.
Divergences Are Now Putting The Bears On Notice
I mentioned earlier that weekly PPO negative divergences at the end of 2021 suggested upside momentum was waning, another contributing factor to a potential market top. Well, like sentiment, we've flipped and now we're seeing that downside momentum is waning. Check out this weekly chart:"
http://d.stockcharts.com/img/articles/2022/11/27/6683b7a1-108c-4230-bff4-418559f90e20.jpg
"Watch the downtrend line near 4100 and the weekly RSI 60 level. If we clear both of those, it would be pointing to further upside ahead.
The Big Picture
The long-term chart of $SPX supports the notion that we're in a secular bull market. It's really the one chart that drives much of my secular vs. cyclical beliefs. Check this out and decide for yourself if we should ignore the long-term secular bull market thesis:"
http://d.stockcharts.com/img/articles/2022/11/27/e1654cb1-b79f-48cf-88b5-8cacbdf00f69.jpg
Secular bear markets have these common traits:
Monthly RSI drops to 30 or below
Monthly PPO drops well below zero line
Does not break to all-time highs
Everyone loves to bet against the stock market, yet it mostly keeps going higher. There are plenty of times to be cautious and the market will typically provide us signals, as it did late in 2021 and into early 2022. Most of the time, however, betting against U.S. stocks is a worthless effort.
Things could change over the next couple months, such as inflation, interest rates, the Fed, economic concerns, etc., but I'd be careful about being overly pessimistic based on all the technical and sentiment changes that have taken place. I will review every chart that I feel is important and share it all with everyone at MarketVision 2023 on Saturday, January 7, 2023. Again, if you want to be a part of this FREE information-packed event, CLICK HERE to begin your free subscription to our 3x per week EB Digest newsletter.
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Happy trading!
Tom
"... if SPX rolls over here, the first zone to watch is 3865-98 (which would be one area a complex fourth wave could bottom), but it is into a zone where I can no longer promise continued upside. I think it would probably look a bit better with more upside, but it doesn't appear to be "guaranteed""
http://www.pretzelcharts.com/
"On November 18, I wrote that "the last dip was probably just another corrective fourth wave," and that read has finally been confirmed by SPX reclaiming its most recent high. Things are getting a little more complicated now, as some of the more "obvious" needed fourth waves have now potentially resolved, and fourth waves are notoriously complex to begin with. For example, one option is for SPX to form a complex fourth right now, by heading back below 3906.
It would probably still look better with some more higher prices, but we're now into territory where we have to at least consider the option that it's "done enough" fourth waves and reverses more significantly. In other words, I'm not calling the top yet, but it's at least on the table finally and I can't rule it out anymore. However, I'd still like to see an impulsive decline before considering that option in more detail, so the big picture chart remains unchanged for now."
"TLT has rallied ever since my warning (which turned out to be the exact bottom), but is now testing an area that could potentially offer resistance, and is thus worth watching more closely again:"
"In conclusion, if SPX rolls over here, the first zone to watch is 3865-98 (which would be one area a complex fourth wave could bottom), but it is into a zone where I can no longer promise continued upside. I think it would probably look a bit better with more upside, but it doesn't appear to be "guaranteed" the way it did over the recent past -- thus we'll be watching closely in the event it forms an impulsive decline. Trade safe."
"Happy Thanksgiving to everyone! And trade safe."
http://www.pretzelcharts.com/
"On November 18, I wrote:
As of this instant, we still do not have an impulsive decline, and it does appear that the last dip was probably just another corrective fourth wave. So for now, we're just going to focus on the big picture:
And since then, the market has continued in a sideways/up grind, so no change yet, and we're going to continue focusing on the big picture, along with an additional chart. First up is SPX, which is unchanged:"
"Next is BKX, which, in classic technical analysis, would have a bullish appearance if it can sustain a breakout over the black line:"
"If BKX sustains a breakout, that would (again, traditionally) imply a move toward "or 4?" Which, in turn, would imply SPX may well be headed toward the higher red "or 2." Of course, BKX does need to sustain a breakout first, but if it does, it would call for continued bear caution.
Not much to add beyond that, except to mention that tomorrow is Thanksgiving. My in-laws will be on-island for the holiday, and Friday is a short (and typically light-volume) session anyway, so I'm going to take a (I believe!) well-deserved day off on Friday. Happy Thanksgiving to everyone! And trade safe."
"....nothing much to add to the past couple updates....."
http://www.pretzelcharts.com/
"The market did basically nothing on Friday, so the very short-term is now even more of an overlapping mess, thus giving no new clues and leaving us in basically the same place we were on Friday. In other words, we'll continue focusing on the big picture until the short-term clarifies a bit."
"I did want to note that COMPQ is back to intermediate resistance, so while there's still nothing that suggests we've changed the near-term trend (yet), this is still an area of interest."
|In conclusion, nothing much to add to the past couple updates. Trade safe."
Rinse, repeat! Drop the dollar and yields, bring them back. Rinse, repeat!
6 years of a lunatic hell bent on becoming the Antichrist is rewarded and praised by the richest lunatic in the world to come back to the biggest propaganda machine ever built to get his coup completed. He orchestrated a coup, demanded his secret service allow him to lead the rioters as he personally wanted to hang his VP for being disloyal. Result: DEMS afraid of repercussion to punish the Judas, REPUKS can't get rid of his loser status but has no choice but to sidestep the issue as his minions gain control of the political arena. On the economy we have entered a 40 year cycle of INFLATION pressures but in total denial. World a mess as debt, housing, taste for risk, and mass denial that we are not in Kansas anymore.
Historically the holidays will not disappoint! the absurd will become a satire with the belief that nothing will ever change. Like waiting for Godot.
How close are we to a dramatic crash scenario? Can't make up a better scenario had the most famous screenwriter been employed. It's a Wonderful Life where the angels eventually reveal the hard truth about yourself. In this version the hedonistic devil has some explaining to do as they attempt to ignore the past, present and future.
How close: Confused on what the pattern is? Don't be. it is one of chaos. In that scenario nothing seems right and you just have to accept it for what it is. This Holiday can easily be controlled especially when everyone wants it to be a happy ending. We sober up in January. Enjoy the drunken rampage.
Crypto? Oil? Earnings? Nothing to worry about. just get drunk and all seems good till you have to sober up. 2023 is going to be a fun year. the first half will go straight to hell, 2500 on SPX. After that we go to sleep and dream the good dream. When we wake up is another matter.
Am I too dramatic? Too theatrical? Too depressing? Against reality it will be a walk in the woods but as long as you keep the blinders on, headphones plugged in you will be fine.
Threw in white flag. Over weekend FED announced yet again exactly what they will be doing. Raise by 50 basis points in next 2 meetings. Give it a pause to see how inflation responds. the current rally and the assumption is NOW baked in. Obsessed with rate hikes and the street will rally hard thru holidays. Upper range at 4400 on SPX seems likely now. We might even rally thru that mark.
There was an unprecedented equities option ratio of 1.46 That implied HUGE bet on a drop. Markets usually are counter to sentiment this extreme. From Tuesday or Wednesday of next week it should be all upside momentum.
"....the market might be unwinding its upward momentum...."
http://www.pretzelcharts.com/
"Last update noted that the market seemed to have completed several fourth waves recently and noted:
All this implies that the market might be unwinding its upward momentum, meaning the rally might be getting a little tired. I say "might be" because this is the type of market that can easily find a second wind and burn bears who get too aggressive too early, so I'm not inclined to get too far ahead of it... but it's interesting to note that we are approaching the blue 2 zone (chart below).
That said, it's quite possible that if there is a reversal, it will just be a correction on the way to red "or 2," so I'm awaiting an impulsive decline before actually changing footing. As of this exact instant, this is more of a "time to be cautious" moment for bulls, as opposed to a "bet the farm short" moment for bears. It could always turn into one, but we don't have an impulsive decline yet.
As of this instant, we still do not have an impulsive decline, and it does appear that the last dip was probably just another corrective fourth wave. So for now, we're just going to focus on the big picture:"
"In conclusion, the next real test for bulls will come near the downsloping red trend line and blue 2. Until then, bears would need to sustain a breakdown of the rising black channel to get anything started. Trade safe."
S&P 500, Nasdaq fall as Target stokes fears of gloomy holiday season - headlines today.
This despite a huge jump in October retail sales and Lowes projection of higher earnings going forward. Lowes is up 5% on news. YET the steed truly ignores these data points and focuses on their most favorable outcome, a slowing consumer reducing pressure on inflation.
We have a slew of data point over next 2 days. IF housing and manufacturing show the same result as the retail sales the dollar 10 year notes will spike back up and the widow for a crash tightens to the 21st as the last day for such an event.
I know the odds are small but the current rally seem premature leading into the holidays. The Q's are the weakest yet everyone assumes we have another month plus of this counter rally left. It is called the hope and dream stage.
".....the rally might be getting a little tired."
http://www.pretzelcharts.com/
"Last update predicted:
the SPX 24 hour chart (ES+SPX) appears to be three waves up into its high, which suggests that either the rally since 3941 (on that chart) is incomplete to the upside, or that the larger wave (going back to the start of the rally) is incomplete to the upside. In other words, this chart seems to suggest more upside either now or later.
And then later underscored:
let's not get too far ahead of the market yet, as the SPX24 chart (second chart) seems to suggest we're not quite to the bigger B/2 just yet
This read was quickly vindicated by the market, which made new highs later that session. This implies that the correction discussed above was a fourth wave (at micro degree) and that the new high was a fifth wave, with another fourth seeming to play out in the latter part of the session on the 14th, with the fifth to pair with that second fourth ("second fourth" is fun language) showing up in the gap up yesterday. We may have then seen yet another fourth wave (a "third fourth"!) manifest in the remainder of the session yesterday.
All this implies that the market might be unwinding its upward momentum, meaning the rally might be getting a little tired. I say "might be" because this is the type of market that can easily find a second wind and burn bears who get too aggressive too early, so I'm not inclined to get too far ahead of it... but it's interesting to note that we are approaching the blue 2 zone (chart below).
That said, it's quite possible that if there is a reversal, it will just be a correction on the way to red "or 2," so I'm awaiting an impulsive decline before actually changing footing. As of this exact instant, this is more of a "time to be cautious" moment for bulls, as opposed to a "bet the farm short" moment for bears. It could always turn into one, but we don't have an impulsive decline yet."
"BKX, of course, decided to get cute and goofy and whipsaw its breakout, so it's not unreasonable to think it's still headed higher, and we can definitely say that "or 4" isn't a given yet:"
"In conclusion, SPX has spent the last few sessions lunging briefly higher, but then failing to find additional buyers, so while there's nothing yet to suggest a reversal, bulls may want to at least lean forward in their chairs a bit and watch things closely over the next couple sessions. Trade safe."
Inflation is dead? The FED is just lying? We never had a slowdown in inflation on a monthly basis in the dreaded 80's as it went double digit? Earnings JUST revised DOWN for all of 2023 but they are mistaken? Watch this bubble carefully. We hit seasonality factors from 11/23 on.
I agree we are about to launch the rocket soon. Interesting how ONE or TWO data points convince all this is a bull market. Maybe TRUMP will run and win again. Maybe he will be indicted as he sits on the thrown.
Crazy world.
"Everything Has Changed - And It's For The Better!"
Tom Bowley November 13, 2022
http://stockcharts.com/articles/tradingplaces/2022/11/everything-has-changed-and-its-808.html
"The stock market has been like a volcano, simply waiting to erupt. The hawkish Fed and stubbornly-high inflation have wreaked havoc on stocks in 2022, but market participants have been awaiting good news on the interest rate front and I believe they got it on Thursday. The October CPI was released and the core rate of inflation at the consumer level jumped, but only by 0.3%. The expectation was for a 0.5% spike. The idea behind a surge higher in the stock market is the belief that inflation has peaked or will peak in the near-future. That would allow the Fed to hit the brakes on rate hikes and begin to address economic concerns, which would mean LOWER rates ahead, not higher. Falling rates would significantly increase valuations of growth stocks and we saw what that might look like on Thursday and Friday, as many growth stocks absolutely soared.
Forecasting the annual rate of inflation isn't nearly as daunting as it may appear. Here at StockCharts.com, we can track the Core CPI ($$CCPI), both on a monthly and annual basis, with a simple chart:"
http://d.stockcharts.com/img/articles/2022/11/13/dbf2d363-7d4e-403d-a16d-f32a547ec59b.jpg
"If you'd like to set up a similar chart, here are the key chart attributes and indicators:"
http://d.stockcharts.com/img/articles/2022/11/13/35890e25-df05-4835-9ae7-d93bd1254654.jpg
"I've highlighted several important parts of this chart, so let me explain them. Point 1 (black) shows that Core CPI fell during 3 consecutive months after the pandemic began - March, April, and May 2021 Core CPI report dates (published in following month). Falling CPI is extremely rare, especially doing so in 3 consecutive months. A year later, as demand began to accelerate (opening of economy), supply chain issues (supply slow to catch up) aided a surge in Core CPI on both a monthly and annual basis. When the annual Core CPI was calculated in 2021, it "threw out" those negative Core CPI readings from 2020 and replaced them with MUCH higher readings in the same months in 2021. That resulted in the HUGE spike in the annual Core CPI rate (black directional line in bottom panel).
The red circle (Point 2) highlights the slowing of monthly Core CPI numbers in July, August, and September 2021. That contributed mightily to the surge in inflation (red directional line in bottom panel) again in 2022 as those same months - July, August, and September - saw a big spike in monthly Core CPI. When you replace moderate increases with much bigger increases, the annual inflation rate will jump. That's exactly what happened and when those reports surfaced in the months subsequent (August, September, and October), interest rates soared along with that big spike in inflation. Those increasing treasury yields, together with Fed Chief "More Pain Ahead" Powell, encouraged the stock market bears to dig their heels in even deeper, doubling down on Inflamageddon. Big mistake - in my opinion.
But what happened with that blue circle (Point 3)? Wait a minute! Monthly Core CPI for October rose just 0.3% (rounded), below expectations. It was the lowest monthly Core CPI reading (+0.27%) since September 2021 and the stock market exploded higher!
Point 4 (green circle) is the one that excites me, though, from a bullish stock market perspective. The Fed has already had 4 massive rate hikes with perhaps another 50-basis point hike in December on the horizon. We haven't even seen the economic impact from those rate hikes and inflation is already weakening. That next Fed meeting on December 13-14 comes right after the November CPI report is released (Tuesday, December 13th at 8:30am ET). If we look back to the monthly Core CPI numbers from a year ago, November 2021, December 2021, and January 2022 all came in between +0.5% and +0.6%. Since the crazy high readings from April, May, and June 2021, we've only had ONE (!!!!!) Core CPI reading above +0.6%. In other words, it's VERY LIKELY that our annual Core CPI rate will drop over the next 3 months. So unless we see a BIG increase in the monthly Core CPI over the next 3 months, the Fed's narrative is going to change.
If I'm right, the stock market narrative is also going to change in a big, big way, and what we saw on Thursday and Friday won't be a two-day wonder. I think we've come to the end of this inflation cycle and I think the stock market finally sees it. I've said throughout 2022 that we'd see a CYCLICAL bear market, followed by a surge higher in the stock market as interest rates drop. It's starting folks.
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Happy trading!
Tom
"If SPX doesn't resume rallying directly, the first meaningful zone to watch for possible support is probably 3905-3925....."
http://www.pretzelcharts.com/
"Since last update, the market continued rallying, but now INDU has reached the first "5?" on its chart:"
"If SPX doesn't resume rallying directly, the first meaningful zone to watch for possible support is probably 3905-3925... I mention this zone because the SPX 24 hour chart (ES+SPX) appears to be three waves up into its high, which suggests that either the rally since 3941 (on that chart) is incomplete to the upside, or that the larger wave (going back to the start of the rally) is incomplete to the upside. In other words, this chart seems to suggest more upside either now or later."
"That said, this chart (below), which I haven't updated since November 2 and intentionally haven't updated today, is interesting and shows the market tagged resistance at Friday's high:"
"In conclusion, if SPX cannot get back above 3990 fairly quickly, it does have options for a correction toward the 3930s, then the aforementioned 3905-25 zone. If that zone fails, there are several smaller potential support zones below it (3886-96; 3861-74; I won't list them all here), but the bigger B/2 correction shown on the old non-updated chart (final chart) would then at least be on the table, too. However, let's not get too far ahead of the market yet, as the SPX24 chart (second chart) seems to suggest we're not quite to the bigger B/2 just yet -- though this pattern has grown increasingly messy in recent days, so we'll take it as it comes. Trade safe."
Just one more observation and i will let this be.
Tuesday's early announcement of the PPI for October is likely to be as important as the CPI report. if it reinforces the slowdown of inflation the whole year till January should be BULLISH. If it is in lie with expectation slightly bearish. if it shows higher inflation WATCH OUT BELOW! I have called this current move irrational and even a possible blow off top. The EXCUSE for the rally was baked in, lower inflation data. If that argument gets shattered by just one data point, PPI for the same month, and it shows higher inflation the EXCUSE becomes EXPOSED!
This is purely hypothetical. I have no idea if the PPI will be the same as the CPI. I do know that an unexpected reading will shale the market up badly. It will ONLY do so if the current move is terminal, a blow off event. I believe we have such an event today!
If the PPI is a sleeper and as expected, lower, we have an even bigger rally lasting thru year end. In any case BOTH are blow off events. One starts immediately in November the other in January. Like the pandemic event there was NO SCENARIO that would work in favor of the bulls. NONE!
One other observation. Using the current trajectory from the recent rise in the DOW it should hit it's old highs at the end of this year. In one and a half month during the biggest holiday season? Slam dunk! Not only is December usually a good month but coming off a huge drop it should easily make that double top.
Think about this. the earnings projections got dropped big time just last week. The rally that started is going into a seasonality that is bullish. A massive 9 billion dollar debacle overnight where big players that backed FTX are reeling from the loss. The darling most speculative most popular investment in a generation went from nothing to 66K and now at 16K and dropping. This as we have a huge spike move in all stocks. This as everyone, I mean everyone has declared a huge move up is happening and will make December a very happy investment month.
Trump went from the leader of his party declaring fascism in style as his GOP minions followed him like lap dogs. he disrupted all branches of government and all government departments. He placed incompetent ruthless lawless Judges with false pretense and lying to congress to achieve their goals on the 11th hour. He managed to overturn the rights of woman as if the discussion of black slavery was still on the table.
And now? Not a single GOP is using the trump playbook. I guess fascism has fallen into a lull till someone else revives it.
All thru this no politician, journalist, business leader has been so alarmed by this dismantling of our republic to a point where it has been normalized as just a phase. And the biggest bear market to be has already been declared over for now. A time out! Normalizing the absurd. Not even a blink over the Crypto fallacy being exposed. or the slinking back into a primordial mud by Trump.
We accepted such extremes numbed and unresponsive. Zombies to it all.
If no firework happen next week we should sail thru the holidays in blissful happiness. Betting the moon we reach it by then.
The pace and frenzy without the bullish divergence? Without volume? With recent revisions for earnings in all of 2023 and it is decidedly down? The ONE CPI data point did all this? All i can say is the PPI next week better be good. it is the leading indicator of future inflation NOT the CPI.
BUT the last time the dollar plunged like this was March 2020 and we know what transpired then. A huge mega rally.
Wouldn't this be a hoot if right before the holiday season pushed off, Thanksgiving, we crashed? I mean that can't happen because all the bottoming patterns are satisfied? Earnings projections were revised upwards? Inflation is dead? JOLTS, Wages, Employment, unemployment, monthly job additions, 30 year high in quitting rate (jumping to a new higher paying job, is all reversed?
Call me crazy but something is very wrong. We needed 3200 on SPX to start such a push. We are already falling apart with the biggest speculative sector ever, Crypto. i mean implosion at a time when the rest of market is surging?
Anyone have momentum indicators? Stochastic bullish divergence yet?
This is a last gasp or a new bull market and NOT a correction. YOU decide! This is NOT one month wonder IF inflation reversed. It is either the real deal, given the explosive moves in the dollar and rates or a fake out right before the plunge.
Granted timing is everything and thankfully we have the biggest holiday of them all within weeks. SO either this sucker is the real deal and an EXPLOSIVE rally occurs in Decembers. or it all falls apart before Thanksgiving.
Just my crazy musing. this reminds me of the start of the Pandemic. the street ignored it and was hovering at all time highs despite a one hundred year old chart that showed EXACTLY what happened. The start of 2022 we knew with certainty that inflation was spiking yet we preferred to ignore the 40 year cycle of disinflation ending and declared it was transitory. We have a great capacity to believe the unbelievable as long as it is optimistic. We reject the obvious when it is not.
the street JUST revised earnings way down for all of 2023. Did they make a huge mistake?
".....bulls are just trying to decide "how high?" By all indications, they have plenty of room to run if they so choose."
http://www.pretzelcharts.com/
"Last update discussed how INDU's chart implied the market was still going to head higher one way or another, and that proved to be decisive:"
"BKX still hasn't sustained a breakout over 109 (it's over 109, but this breakout has not been tested yet), but it's close:"
"That's relevant because it would imply a bull nest in BKX, which would likewise need to see SPX rally more considerably:"
"In conclusion, the read of the INDU chart last update proved to be correct, now bulls are just trying to decide "how high?" By all indications, they have plenty of room to run if they so choose. Trade safe."
Quick and dirty market shakeout, ...
or beginning of new trend?
The guru I read a lot is still looking at 4K ..Plus...Thanks for the update.
".....INDU has made new highs for November, which implies it still needs more upside one way or another -- which in turn suggests that SPX and BKX may ultimately (see potential paths again) reclaim their November highs as well."
http://www.pretzelcharts.com/
"There isn't a ton to add to the prior update, but there is one notable chart development since then, in INDU, which has already rallied back above its November high:"
"BKX has retested its high, but not cleared it yet:"
"SPX indeed found support at the noted zone:"
"And no change to the big picture:"
"In conclusion, not a lot to add to the prior update, except to note that INDU has made new highs for November, which implies it still needs more upside one way or another -- which in turn suggests that SPX and BKX may ultimately (see potential paths again) reclaim their November highs as well. Trade safe."
I myself have no idea if we drop here or next year. it seems we are destined to fall hard however. I question the irrational nature of the market like i have on the pandemic and inflation data points from last year. the DOW is now close to a 61.8% retrace. that's insane! Can it get even closer to recovering all of the drop before next year?
Hey, when the Pandemic hit the street totally ignored it. irrational to the extreme.
I think this is another example of a crash style setup. There is NO economic theory or expectation the earnings picture will get better for all of 2023 yet we are over 16 trailing P/E here? A bottom?
the dollar is sliding and is now at 109. that can help overseas profits somewhat. BUT the data is so so so much stronger in USA than most places on this planet. the dollar slide is irrational, like the 10 year note at half the yield it is today.
No matter how much analytical thinking i can do in anticipation of future economic conditions the market still moves by it's own choices. I point out the huge disparity. It can get even bigger and YES we can rally till Year End again.
I was a computer programmer/analysts and system data base administrator. My thought process requires concise evaluation. that's how I am. When i see the path is opposite i say so. My analysis can be flawed but if i have the LOGIC correctly it has to revert eventually to the norm.
gdl
Not picking a flight but I don't think we drop before year end. Maybe next year if the Fed push rates too much before the economy adjusts to what they have done already.
ONLY question I have: Will we have capitulation this month or in January.
Never saw a December crash before or even a dramatic slide. PPT will keep the holidays safe.
Economy: 30 year record on quitting jobs. Tightest longest job employment in decades. Wage growth and continued lower productivity is a trend intact. JOLTS report showing 10 million job openings begging for hire. Both travel and restaurant business is booming. 10 year note in last 5 days. from 3.90 to 4.22. Nasdaq pathetically trailing all other indices. Slew of reports came out by economists just in past 24 hours. ALL lowering by a lot 2023 earnings. Lowering form yesterdays assumptions.
Once again there is a timeline based on seasonality: Before the holidays. if we are to correct it has to be in next 12 trading days. Pessimism at extremes means nothing. we can drop from there and get more pessimistic. This market is screaming crash dead ahead (once again). Risk/reward demands a bet on a homerun play. 3200 is absolute minimum on this next drop.
I have been wrong before but i look for the homerun play. it is bases loaded. Will we get that grand slam homerun? Can't do it with bases empty. we have a good shot today.
"We're likely either setting up for a decent bear market rally, or for a significant decline."
http://www.pretzelcharts.com/
"Here's my conundrum: A couple weeks ago (and since), I published several updates urging bears to be cautious (though I ended those on November 2). The market then rallied until the Fed announcement, leaving me to wonder if that satisfied the near-term bullish instinct I had a couple weeks ago. But also leaving the charts in a state of near-term flux. This means I can't refer to the charts and say, "Oh, hey, this is clearly near-term bullish, so..." And neither can I say the opposite. The charts are essentially silent here (only on the near-term; the long-term is bearish), except in the sense that they're pretty bimodal: We're likely either setting up for a decent bear market rally, or for a significant decline.
But here's my real problem: My gut still says the market wants to rally some more, but I can't find much in the charts to justify that, and I have to present the charts as I find them. Part of trading and analysis is learning to sort out what's "personal feeling" from objective reality. The objective reality is that the charts are simply bimodal. My personal feeling is that the market wants to rally some more. The charts have to trump feeling, though.
This is also why I've stated several times that I'm open to whatever the market wants to do here -- because I am, as I don't value subjective reality above objective reality. But I wanted to at least attempt to clarify what I'm feeling, for whatever it's worth. With that out of the way, let's get to the charts.
Near-term, SPX is still above recent support:"
"BKX may offer an early warning to the broad market, in the event it were to sustain a breakout. If it does not sustain a breakout, then that last rally was a simple ABC corrective wave:"
"Big picture remains unchanged, but I've added a reference to BKX:"
"In conclusion, the charts remain bimodal heading into Election Day, at least for the near-term. The long-term remains bearish, since even an election outcome that might put DC into gridlock (gridlock is historically bullish for the economy -- strongly implying that the best thing for America almost always involves our government doing nothing) won't go back into the past to rewrite all the damage that has already been done. Trade safe."
The VIX Is Screaming to GET IN NOW!
Tom Bowley November 4, 2022
http://stockcharts.com/articles/tradingplaces/2022/11/the-vix-is-screaming-to-get-in-106.html
"My two favorite sentiment indicators are (1) the 5-day moving average of the equity-only put-call ratio ($CPCE) and (2) the Volatility Index. On September 6th, I wrote about the elevated CPCE likely providing a short-term market bottom and it did. The S&P 500 jumped 5% in a week. That same CPCE chart is elevated once again, potentially signaling another short-term market rally. I don't use the CPCE 5-day moving average as a long-term bottom signal as sentiment can reverse quickly. But check out the timing here:"
http://stockcharts.com/img/articles/2022/11/04/0d3bc4fb-a98f-42d1-9f83-de4401610336.jpg
"This isn't my opinion, it's reality. When we swing too far to the downside and options traders become too pessimistic, we bounce. That's been the history of the stock market.
Well, now the Volatility Index ($VIX) is joining the party. The VIX represents the "expected" volatility over the next month. From the Chicago Board Options Exchange (CBOE), here's how they describe the calculation of the VIX:
"CBOE calculates the VIX Index using standard SPX options and weekly SPX options that are listed for trading on CBOE options. Standard SPX options expire on the 3rd Friday of each month and weekly SPX options expire on all other Fridays. Only SPX options with Friday expirations are used to calculate the VIX Index. Only SPX options with more than 23 days and less than 37 days to the Friday SPX expiration are used to calculate the VIX Index. These SPX options are then weighted to yield a constant maturity 30-day measure of the expected volatility of the S&P 500 Index."
In other words, the CBOE looks ahead at the pricing of SPX options with roughly 30-day maturities to determine the "expected" volatility. As the S&P 500 sells off, expected volatility increases as premiums rise on the options that meet that 23 to 37 day criteria.
This is why there is usually an inverse relationship between the S&P 500 and the VIX. As prices drop, moves in the S&P 500 escalate, causing future options to become more expensive, thus increasing the VIX. The opposite typically holds true as well. Historically, the S&P 500 rises in a much more boring fashion, so as it moves up, the price of options is less expensive, resulting in a declining VIX. Again, it's that inverse correlation that we expect.
Occasionally, however, we see the S&P 500 and VIX move together, but it doesn't last long. It does provide interesting signals, though:"
http://stockcharts.com/img/articles/2022/11/04/a85bdce7-9153-41da-a1a4-682e22cb912f.jpg
"We've seen essentially three signals prior to the one that triggered yesterday. The March reversing signal worked beautifully. The August and October signals worked, but the first signal each of those two months saw a bit more upside before a 2nd signal corroborated the 1st. Selling kicked in after that 2nd signal. Now the S&P 500 is turning lower, BUT SO IS THE VIX. That's resulted in another positive correlation reading. We should expect to see the S&P 500 turn back higher.
Will we see another big rally ahead? There's certainly no guarantee, but both of my favorite sentiment indicators are pointing to that.
There's ONE LAST CHANCE for you to join me at tomorrow's FREE virtual live event, "Understanding Market Manipulation". The event begins at 10am ET, but you MUST register with your name and email address. CLICK HERE for more information and to register. And I'll see you tomorrow morning!"
Happy trading!
Tom
"....the big picture remains exceedingly bearish, but the market still has options near term...."
http://www.pretzelcharts.com/
"Last update expected that 3911 was an important inflection zone, and that the market would head lower, either in gray wave 4 or in the start of a new bear move. The market then headed significantly lower, as Powell basically said he's going to keep breaking things until morale improves, and then promised to go to fisticuffs with anyone who doubts his resolve.
Investor psychology is now pretty bearish, because the market is slow and stupid and is just now finally getting the picture. As I wrote back in May (yes, I'm probably going to refer to that piece again in the future), in Not Even the End of the Beginning:
[I]t seems the Fed only reaches its goals by continuing to feed volatility and destroying wealth until the economy is in recession. Thus, the Fed is not going to reverse course when the economy starts to struggle (unless inflation has abated), because they currently view a struggling economy as necessary to tame inflation. And the Fed won't bail the market out as it heads lower, because the Fed wants the market lower.
Now, with that out of the way... it's worth being aware that the market often likes to mess with the majority, and there are a lot of "newly-minted" bears after Powell's speech:"
"Big picture, I decided to try to simplify things as much as possible, for clarity:"
"Near-term, there may still be some value in the SPX trend line chart:"
"In conclusion, the big picture remains exceedingly bearish, but the market still has options near term, and blue 2 or red 2 (2nd chart) are still on the table and would be a lot of fun here, as it would really throw a lot of new bears off the trail. Also, I should add that in the event we are already in blue 3 of red 3... 3 of 3 is usually a crash wave, so be aware of that. Trade safe."
Tom Bowley November 2, 2022
"3 Things I'll Be Watching After Today's Fed Policy Statement"
"Like all of you, I'm just waiting. The Fed concludes its two-day meeting this afternoon and its latest policy decision will be released at 2pm ET. It's widely expected that the Fed will raise the fed funds rate by 75 basis points. Anything other than that would be a major surprise and would likely have significant short-term ramifications. The Fed tries to be very transparent, so I am looking at the market assuming that rate hike will take place and is already baked into market prices. But what will they say about December? About 2023? Are their rate hikes throughout 2022 working? Will they become more data dependent? Do they plan to slow their pace of hikes? Is there an end in sight?
Both the bond market and stock market are looking for direction. As we approach this big meeting and announcement, I will have my eyes on three key things:
10-Year Treasury Yield ($TNX)
In my humble opinion, the bond market is smarter than the stock market. If interest rates are jumping for the wrong reason (inflation), then the stock market usually takes its cue and sells off. There's a fairly strong positive correlation between the 10-year treasury yield ($TNX) and the S&P 500 over time. In other words, when yields rise, the stock market tends to rise along with it. The reason? Well, usually the TNX rising is due to a strengthening economy or the anticipation of a strengthening economy. A strengthening economy means more business for S&P 500 companies. Their revenues and profitability jump, driving share prices higher.
But that's not the reason for the TNX rising. While we can point out areas of strength in our economy, I think most will agree it's not a vibrant economy. We're holding our own. The recent positive Q3 GDP (+2.6%) is a positive, but it comes on the heels of two negative quarterly GDP readings. Nonfarm payrolls (we'll get the latest here on Friday) have remained positive, though not "off-the-charts" positive. Areas like housing, sentiment, etc. point to a difficult market environment.
I believe a big clue today will be whether the TNX jumps and breaks out above the recent yield high of 4.33% (bearish for equities) or whether the recent downtrend back to the 20-day EMA accelerates. A push in the TNX below 3.91% would signal a further drop in the TNX (bullish for equities). Here's a 3-month hourly chart to highlight these two levels to watch:"
http://d.stockcharts.com/img/articles/2022/11/02/280afdab-045e-4105-91b2-a32d309998cb.jpg
"Check out the RSI, which is sitting squarely at 50. Also, the hourly PPO is right on the zero line and the TNX is at the 50-hour SMA. Which way are we going to go? I have no idea. But it will be important.
The daily chart shows a negative divergence, which USUALLY results in a PPO centerline test and 50-day SMA test (pink arrows). If that were to occur, I'd be expecting a big absolute and relative rally in NASDAQ shares. But that's a GREAT BIG IF:"
http://d.stockcharts.com/img/articles/2022/11/02/fec666c1-1586-4401-9f85-fb2783fb0dda.jpg
"This chart highlights that negative divergence, but it also shows what higher interest rates have meant to the relative performance of NASDAQ stocks (vs. the more value-oriented S&P 500) throughout 2022. A potential change in Fed policy would very likely reverse this relationship. The Fed's policy statement will be scrutinized for ANY such signal.
S&P 500 Support & Resistance
3900 has proven, on many occasions, to be significant price support during downtrends in 2022, but also solid price resistance on recovery attempts. After the recent positive divergence formed, I indicated that 3900 was a likely target in the short-term. Well, we just opened near the 3910 two days ago before seeing another significant selling event. Therefore, a confirmed close or two above 3900 is required before growing more optimistic near-term. Meanwhile, if this truly is the start of an uptrend, then the now-rising 20-day EMA should provide us excellent support on further selling. Here's how all of this looks on a daily chart:"
http://d.stockcharts.com/img/articles/2022/11/02/7222c0f6-ec2d-4f19-a9ee-3d05ec4efb81.jpg
"The positive divergence led to a 50-day SMA test (blue arrow) and a test of the PPO centerline (blue circle). Now that we've arrived here, I believe momentum is telling us NOTHING about which way we'll go. Other signals may provide clues, but the PPO and price action is quite uncertain at this moment. The light-shaded red arrows (price resistance) and light-shaded green arrows (price support) highlight the number of times that 3900 has played a role in reversing price action. It just did it again this week.
So now I'm watching that 3900 level, which needs to be cleared from a bullish perspective. The 20-day EMA, currently at 3785 is the moving average that the bears are looking to take out. As I approach the Fed meeting today, do we close above 3900 or below the 20-day EMA first? While head fakes are always entirely possible, we need to respect whichever occurs. We can always adjust later if it turns out to be a false move. I get back to a saying from a long-term friend of mine.
"It's okay to be wrong, just don't be wrong for long!"
Market Rotation
The key for me here is (1) does the stock market move higher, while aggressive areas lag, or (2) does the stock market move lower, while aggressive areas lead? The former is bearish and the latter is bullish. Here's a chart that will provide me a few clues:"
http://d.stockcharts.com/img/articles/2022/11/02/3533de84-91b1-4fa3-be75-16976543ab32.jpg
"When I see the benchmark S&P 500 rising and key aggressive ratios declining, it's an indication that the stock market could be prepping for a significant market decline. This exact scenario played out in December 2021, just prior to the bear market of 2022. I have developed a way to look at this rotation on an INTRADAY basis, which provides a MUCH more bullish look into current rotation, but we can't completely ignore these red circles above. What happens to these ratios AFTER the Fed announcement. I want to see them turn higher.
There has been SO much manipulation in the U.S. equity market throughout 2022. Some of this manipulation we see every year, while some of it applies to this bear market alone. I'm going to share 3 areas of market manipulation that EVERY SINGLE INVESTOR OR TRADER should be aware of.
Our FREE "Understanding Market Manipulation" virtual event will be held LIVE this Saturday (November 5th) at 10am ET. You DO NOT want to miss this event as I'll be uncovering a few of Wall Street's best kept secrets. Even if you cannot make the event live on Saturday, we'll send out a recording to all those who register. CLICK HERE for more information and to register with your name and email address. Seating will be limited, so SAVE YOUR SEAT NOW!"
Happy trading!
Tom
All The Marbles
http://www.pretzelcharts.com/
"Last update concluded:
[I]n conclusion, we are at (3/c could have completed on Friday, though it would look a little better with a bit more upside first) or approaching a bear inflection zone, and it's going to be tricky, because even the bull count would likely correct lower from that inflection (in gray 4? on the second chart), so both counts will seem up in the air for a time.
Since then, we indeed got "a little bit more upside," and then "corrected[ed] lower from that" 3/c inflection. If you're a new trader, you'll have a lot of people tell you that calling for a little bit more upside followed by a turn -- and then having the market play out exactly that way -- isn't something you're "supposed" to be able to do. But here we are anyway, at the inflection, with things seeming "up in the air," and now the market does have options again (all week, I've said it's pointed higher -- that is finally not baked in anymore)."
"Bigger picture, we all need to be aware that in the event that inflection zone was the end, things can get extremely bearish from here:"
"In conclusion, this inflection zone is quite possibly playing for all the marbles for the immediate future. I would still prefer to see a bit larger bounce here (after gray 4 completes), but I can't draw that from the charts, because we do have three waves up and three up can end a corrective bounce (gray 4 only exists if the rally wants to become 5 waves up instead of 3) -- so the market has the option to go either way now, my own personal preferences notwithstanding. Trade safe."
Tom Bowley October 30, 2022
http://stockcharts.com/articles/tradingplaces/2022/10/the-most-important-stat-that-n-918.html
The Most Important Stat That No One Is Talking About
"Most of you are probably aware by now that I'm not a fan of CNBC, or any media for that matter. It's because their goals and objectives differ from mine. I want to educate. They want clicks, viewership, and ad revenue. Whatever it takes to achieve those goals is fair game for media outlets. No thank you, I'd rather golf.
If you don't believe that Wall Street manipulates the heck out of retail traders, then consider this. The NASDAQ 100 ($NDX) was 16,320 on December 31, 2021. It closed at 11,546 on Friday, October 28, 2022. That's a decline of 4,774 points, or 29.25%. Do you know that if you bought the QQQ (ETF that tracks the $NDX) at 2pm ET every day in 2022 and sold it at 4pm ET (close) that very same day, you'd be up 17.05% year-to-date? To me, this is one of the biggest reasons why I'm convinced this is a CYCLICAL bear market (short-term), not SECULAR (long-term). It's a solid indication of ACCUMULATION.
One of my sustainability ratios that I like to follow is the QQQ:SPY. The QQQ is more growth-oriented than the SPY, so a rising QQQ:SPY ratio would suggest that growth is more in favor and the opposite would be true when this ratio is declining. During a bear market, my expectation would be to see a declining QQQ:SPY ratio, signaling Wall Street's rotation from growth to value. When I called an S&P 500 bottom in mid-June 2022, one reason was the QQQ:SPY ratio relative to the direction of the S&P 500. Check out the divergence:"
http://d.stockcharts.com/img/articles/2022/10/30/1c899074-e14b-497d-9429-fd988e420c9e.jpg
"On the surface, it appears that money has rotated away from growth again - at least based on the QQQ:SPY ratio's new low. But I thought more about the intraday rotation, which is when institutions can actually buy and sell. I can assure you that institutional trades (potentially millions of shares) are not being placed at the opening bell as market orders.
So what does the INTRADAY rotation of QQQ:SPY look like? Well, I created a User-Defined Index (UDI) here at StockCharts and introduced it to our EarningsBeats.com members this past week. This IGNORES all opening gaps and shows the true rotation between QQQ and SPY throughout the trading day. The title of my UDI is "@SPYQQQ", but the actual calculation is based on QQQ:SPY. Here's what the intraday view looks like:"
http://d.stockcharts.com/img/articles/2022/10/30/0a1dca1f-77ec-4786-bc8b-08a0c6e57460.jpg
"This shows a completely different picture. Distribution seems to have remained rampant through the May low. However, since then, I see solid intraday rotation INTO the QQQ, not out of it. Gaps really mask the true rotation taking place and the manipulation that's allowing big Wall Street firms to prey and capitalize on retail traders.
And this is just the tip of the iceberg in terms of market manipulation. Those who are unaware of Wall Street's tactics are much more subject to the whipsaw action and psychological warfare that takes place during bear markets.
That's why I'm hosting our biggest event to date this Saturday, November 5th. If you'd like to attend (or receive a recording of) our FREE virtual "Understanding Market Manipulation" event, which will begin promptly at 10am ET, be sure to CLICK HERE for more information and to register for the event. It only takes a name and email address. Space is limited, so you need to sign up NOW!"
I hope to see you on Saturday!
Happy trading!
Tom
"Not A Fourth Wave" Confirmed
http://www.pretzelcharts.com/
"On 10/24, in an update titled More Cause for Bear Caution, I wrote multiple times that the rally didn't "feel" like a low degree fourth wave to me, implying that it was going to head more than a little bit higher, and that has since been confirmed.
I also wrote: "Big picture, presently I'm slightly leaning toward this either being the Big C wave that we've discussed a million times, or a nested 2nd wave," and presented the following chart, with the nested 2nd and the Big C wave terminuses shown in red and blue respectively:"
"Here's that same chart with the updated price action now:"
"SPX has gotten a lot closer to Red 2, but it's still not there yet, obviously. So that's the bull case, and it's the way I'm still slightly leaning -- but let's take a quick look at the bear case, which we'll discuss after the chart:"
"The bear case says that we've about completed 3 waves up (gray 3/c), and because three waves can complete a corrective move, it is indeed always possible for any structure to terminate at such an inflection. If we refer back to the first chart, we can also see that SPX is backtesting the lower rising black trend line -- so I'm not entirely closed to the idea that maybe this will be it for the bounce. I'm very much open to it, I'm just not presently leaning that way, as I wrote on the 24th.
So, in conclusion, we are at (3/c could have completed on Friday, though it would look a little better with a bit more upside first) or approaching a bear inflection zone, and it's going to be tricky, because even the bull count would likely correct from that inflection (in gray 4? on the second chart), so both counts will seem up in the air for a time. That said, I'm still slightly inclined to think bulls get more rally after that correction, but as I said, I'm very much open-minded to the bear potential, so when that correction occurs, I'll mark the zones to watch. Trade safe."
Tom Bowley #3 October 28, 2022
http://stockcharts.com/articles/tradingplaces/2022/10/today-marks-the-beginning-of-a-919.html
"Today Marks The Beginning Of An Overwhelmingly Bullish Period"
'While current technical conditions are "iffy" at best, I want to point out that we have just entered THE most bullish historical period of the year. The S&P 500 and NASDAQ can be broken down into 3 lengthy historical periods, in my view - the good, the not-so-bad, and the UGLY. Here is a breakdown on historical performance on the S&P 500 since 1950 (annualized returns shown):
The Good (October 27th close through January 18th close): +21.22%
The Not-So-Bad (January 18th close through July 17th close): +8.99%
The UGLY (July 17th close through October 27th close): -1.29%
That "Good" period has also ended higher than it began in 62 of the 71 years since 1950. Has it gone up every year? Ummm, no. 9 years since 1950, it's moved lower. But clearly the odds favor the bulls. For those in the "secular" bear market camp that believe prices are going to continue to spiral lower, you'll be happy to hear that the cyclical bear market of 2018 AND the financial-crisis-related secular bear market of 2008 were both years that did not follow the bullish historical pattern. So, by no means is this a slam dunk. I'm simply pointing out historical fact and bullish odds.
Technically, we do have a positive divergence on the weekly S&P 500 chart, so that would be one technical argument for higher prices a head on the S&P 500. Here's that weekly chart:"
http://d.stockcharts.com/img/articles/2022/10/28/b430657c-b818-43dc-95bb-2876f4b087f5.jpg
"When I see positive divergences form, I immediately consider the higher probability of a 50-period SMA test and/or a PPO centerline test (blue arrows). That's worth watching throughout Q4.
Now onto the NASDAQ.
Again, let's break down those 3 historical periods, but this time since 1971:
The Good (October 27th close through January 18th close): +23.53%
The Not-So-Bad (January 18th close through July 17th close): +12.25%
The UGLY (July 17th close through October 27th close): -5.58%
That's a HUGE disparity in performance and this is a trend that spans more than 50 years! (More than 70 years on the S&P 500) We need to understand that all days are NOT created equal in the stock market.
This is just one of MANY historical tendencies that you need to be aware of. Throw in the daily manipulation in the stock market throughout 2022 to favor those big Wall Street firms and it's a jungle for us retail traders. And no one cares about your money like you do. You MUST think objectively when making decisions about your trades and investments.
That's the reason we're having a SPECIAL virtual event next Saturday, November 5th on Market Manipulation. It is totally FREE (no credit card required), but you do need to register. Space is limited so SIGN UP NOW! For more information and to register, CLICK HERE."
Happy trading!
Tom
Tom Bowley Post #2 October 23, 2022
http://stockcharts.com/articles/tradingplaces/2022/10/my-sustainability-ratios-remai-577.html
"My Sustainability Ratios Remain Fairly Strong And Suggest We Be LONG, Not Short"
"I made a bold bottoming call on June 16th, just prior to a massive 700-point rally in the S&P 500. I didn't see the recent drop and double-bottom coming, however. Now that we've seen it, has anything changed? Are my signals still bullish? For me, nothing really has changed. There's been a slight deterioration in my sustainability ratios, but overall, I remain as bullish as ever. I believe the riskiest position right now is to remain short or in cash. At the beginning of the year, I said the riskiest position at the time was being long. Here's a quick look at the S&P 500, with several key ratios reflected in the panels beneath:"
http://d.stockcharts.com/img/articles/2022/10/23/15f0a37f-d5c9-44b0-be73-2bccc3a9f9e2.jpg
"As a refresher, the top formed as Wall Street firms rotated to defensive- and value-oriented areas of the market. The exact opposite has been occurring since May. Ignore it at your own peril. The QQQ:SPY ratio did make a new low (red circle), so that's the primary deterioration that I referred to earlier. The TRAN:UTIL ratio, however, has been surging higher lately (blue oval), so there's a bit of an offset there.
All of my other ratios are higher than they were in May/June and reflect Wall Street's desire to own more aggressive- and growth-oriented areas of the market. How can we interpret that as anything but bullish? If you ignored the topping signals, it should have been a lesson learned. I believe ignoring the current signals will only compound the first error.
The positive divergence (higher PPO with lower price) suggests an initial trip to 3900, which has proven to be a formidable resistance level. Last week, monthly options expiration was pointing to a strong week potentially for equities and the S&P 500 jumped 4.74%. The NASDAQ 100 ($NDX) spiked 5.78%. The weekly positive divergence on the NDX suggests a possible return trip to the August high:"
http://d.stockcharts.com/img/articles/2022/10/23/b44bca02-c62a-4eb1-b718-5e528ea24f64.jpg
"In my experience, when I see a positive (or negative) divergence, I look for a PPO centerline "reset" and/or a 50-period SMA test. That's where I've placed those blue arrows above and what I would expect here. Is it a guarantee? Of course not. I'm talking probabilities here.
There is one significant bearish consideration this week, however. The period from the October 21st close (Friday) to the October 27th close (this Thursday) represents the absolute worst week historically on the S&P 500 and NASDAQ 100 since 1950 and 1971, respectively. Here are the annualized returns of the NASDAQ 100 since 1971 by calendar day this week:
October 24 (Monday): -72.45%
October 25 (Tuesday): -47.26%
October 26 (Wednesday): -84.53%
October 27 (Thursday): -73.38%
I've been asked on occasion to explain how these numbers are calculated. I take all the October 24th trading days since 1971 (there have been 36 of them) and add the daily percentage gains/losses together and divide by 36 to get the average daily return. There are typically 253 trading days in a calendar year, so I take that average daily return and multiply by 253. If we do see historical weakness surface again this week, I believe it will provide us an EXCELLENT entry opportunity into some of our favorite stocks.
On Monday, I will provide one such growth stock in our FREE EB Digest newsletter that has hit significant long-term price support AND key channel support. Its risk reward profile is excellent and could lead to substantial profits, though it is an aggressive trade. If you're interested in learning more about this potential trade, CLICK HERE and provide your name and email address. We'll get you set up and be sure to send you that stock first thing in the morning. There is no credit card required and you may unsubscribe at any time."
Happy trading!
Tom
A Series of Tom Bowley posts starting with this one from 10/21/22
http://stockcharts.com/articles/tradingplaces/2022/10/do-we-have-a-big-drop-ahead-292.html
Do We Have A BIG Drop Ahead?
"I have a feeling that most of you would say "Yes, there's no way we've reached bottom."
Let me start by saying that calling tops and bottoms is GREAT if you get it right. For me, it's not about calling every stock market move perfectly; instead, it's about evaluating risk and trying to avoid the worst outcome. To give you a golf analogy, imagine that you're stepping up to a lengthy dogleg par-4 with water all the way down the right side from tee to green. The safe play is to aim left and leave a longer approach shot to the green. It would be a much easier hole, however, if you could fly it over the water and land it in the fairway, cutting off perhaps as much as 50 yards and leave a shorter approach shot into the green. The reward of such a shot is obvious, but you have to evaluate the risk of dropping it in the water.
Now back to the stock market. In December 2021, staying long in the market with all the warning signs I discussed back then was the equivalent of trying to drive the ball over the water. If you stayed long, you dunked a few in the water and probably made a 10 on the hole. However, if you chose safety back in December and moved to cash (or even shorted), then you probably walked off the hole with a par. Most everything in life is about evaluating reward vs. risk and then making a decision that makes sense to YOU. No one else. I can't tell you what the right decision is for you, but I know what risks I'm willing to take and which ones I'm not.
Listen, we're in a rough bear market, no doubt. I tried my best to warn back in December 2021 and throughout 2022 that the RISKS were extremely high on the long side. Did I know for a fact that the stock market was topping and would fall 25% over the next 9 months? Absolutely not. I just knew that water was all the way down the right side of the fairway from tee to green and I chose to play my shot WAAAY left. I didn't want to risk the water (being long in the market).
Now let's fast forward to where we are today. The S&P 500 has fallen 25%. Economic conditions have worsened. Inflation remains a problem. Interest rates are rising rapidly. The Fed is hawkish. What's to like, right? Well, I'd say the reward to risk has shifted considerably and that many of the issues/risks present in December 2021 are GONE. A lot of bad news is priced in. Is it enough? I'm not sure - we're going to find out together as we have another tee shot over water approaching.
But I believe that being in cash or being short right now is the equivalent of taking the risk to drive the ball over the water. History tells us that drops of 25% in the S&P 500 should be bought, not sold. Could it get worse from here? Absolutely. The market can do anything it wants. Just keep in mind that we've had 14 bear markets since 1950 and 3 have morphed into "secular", or long-term, bear markets that have lost 50% or more. The other 11 have been of the "cyclical", or short-term, variety. Of these 11, we've seen an AVERAGE of a 42% gain over the one-year period from its ultimate bottom. You DO NOT want to miss that rally, as it's the most powerful rally during a secular bull market.
In the most recent cyclical bear market in March 2020, during the COVID-19 pandemic, the S&P 500 jumped 78% in the year following its March 23, 2020 bottom. I don't believe we'll see that type of one-year return, but I absolutely believe a 40% rally off the bottom is likely. If we jumped 40% from where we sit today, the S&P 500 would be at an all-time just above 5000 in October 2023. Is it possible? Absolutely.
So, based on history, let's look at the S&P 500 and where we might be heading:"
http://d.stockcharts.com/img/articles/2022/10/21/7af0478a-659c-4317-b005-668ad43f9808.jpg
"So which way are we heading? Honestly, I don't know. However, based on all of my historical research and the current technical and sentiment signals I'm seeing -- namely, the elevated equity only put call ratio, positive divergences everywhere, bullish rotation since June, etc. -- I am of the opinion that being bearish right now is the equivalent of trying to drive the ball over the water and the "safe" play to the left side of the fairway is to be long.
It always comes down to how much risk you're willing to take to achieve your return objectives. The odds favored the bears in December and they favor the bulls now.
We'll be announcing a FREE virtual event on Saturday, November 5th, likely starting at 10:00am ET. Everyone on our FREE EB Digest will be invited. If you'd like a 3x per week newsletter with plenty of free events throughout the year, CLICK HERE and enter your name and email address. There's no credit card required and you may unsubscribe at any time."
Happy trading!
Tom
Pretzel :
(1) Pretzel presents both a Bull and Bear case.
(2) Pretzel gives both Triggers and Targets
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