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Is The Bear Market Over? Watch The VIX
Tom Bowley | April 23, 2023 at 11:13 AM
http://stockcharts.com/articles/tradingplaces/2023/04/is-the-bear-market-over-watch-245.html
"The normal relationship between the Volatility Index ($VIX) and the S&P 500 is an inverse one. The easiest way to illustrate this is to pull up a chart showing both and their correlation coefficient:"
http://stockcharts.com/img/articles/2023/04/23/d0d1787b-c0ce-4d8c-abe1-20ee118c3fab.jpg
"The red arrows mark bottoms in the S&P 500 and they generally coincide almost perfectly with tops in the Volatility Index. In the bottom panel, the correlation coefficient tells us whether the SPX and VIX are moving in the same direction (positive correlation) or in the opposite direction (inverse or negative correlation). The latter is highlighted by the blue-shaded area. It should be fairly obvious that the VIX and SPX almost always move in opposite directions.
To fully understand the VIX, you need to have a basic understanding of stock options and how they work and are priced. Options are contracts that give option buyers the right to buy or sell a stock at a predetermined price (strike price) on or before a specified day (expiration day). The pricing of options is dependent on a number of factors, but two of the most important are the volatility of the individual stock and the time remaining on the contract.
The value of the VIX is based on the "expected volatility" of the S&P 500 over the next month. As I pointed out in the chart above, the VIX typically goes up when the S&P 500 goes down (inverse correlation, remember the blue-shaded area). That tells us that expected volatility will be higher during market downtrends. And, because the VIX is based upon expected volatility over the next month, the lower the VIX goes, the more bullish the signal for the S&P 500. The biggest moves higher in the S&P 500 have historically occurred when the VIX is dropping and extended bull markets are associated with historically-low VIX readings.
When I look at sentiment, I only like two signals. One is the VIX, because it looks at how market makers are pricing S&P options, which provides us a clue as to what market makers are expecting over the next month. The second is the equity-only put-call ratio ($CPCE), because it provides us a feel for the psyche of the retail trader. The latter is the best contrarian indicator in the stock market, in my opinion. Its predictive abilities are astounding. But let's stick with the VIX here for this article.
Bear markets require a number of things, but one significant need is fear. The more fear we have, the more volatile the stock market is, and the higher the VIX. That's how it works. That's why we see VIX readings in the 30s, 40s, and 50s at or near the bottom of bear markets. In 2008, during the height of the financial crisis, the VIX spiked to 90! At the other end of the spectrum, however, are bull markets that see the VIX tumble all the way back to single digits.
So where are we now? Well, here's what history tells us. When the VIX drops below 16-17, we are OUT of the current bear market and we should expect higher prices. The bottom's already been made and the falling VIX confirms the worst is behind us. Let's look at charts to see what I mean:"
2020 Pandemic
http://stockcharts.com/img/articles/2023/04/23/27ce6411-27c5-40d2-95fe-79d23fa82d4a.jpg
"Bear market ended in March 2020. VIX later reached below 16-17 level in June 2021. Confirmation."
2018 Trade War
http://stockcharts.com/img/articles/2023/04/23/10aa835c-5cbe-4d63-999d-a0ce2feccee0.jpg
"Do you see the rallies in November and December 2019? Note that they occurred after the VIX bottomed in the 16s. The February 2019 drop in the VIX below 16 confirmed a bottom was in."
2007-2009 Financial Crisis
http://stockcharts.com/img/articles/2023/04/23/627cb2fe-7fe8-4537-a3e7-41296d98b833.jpg
"This was not your normal bear market. First, it was the deepest bear market in nearly 8 decades, with the S&P 500 falling nearly 60%. There were "echoes" of fear for quite some time as the VIX remained elevated above 16 for an extended period. But once the VIX fell below 16, the depths of the bear market had already been reached."
2000-2002 Dot Com Bubble
http://stockcharts.com/img/articles/2023/04/23/6b9154ef-c12e-4651-a8c2-d19320f871a4.jpg
1998 Global Financial Crisis
http://stockcharts.com/img/articles/2023/04/23/f81aadd1-3ad2-4cb5-b2e8-1e92ddcff211.jpg
"The late-1990s was one of the craziest market runs in stock market history. It's also the only secular bull market period characterized by VIX readings consistently above 16. The best secular bull market in history (1980s-1990s) saw "irrational exuberance" at the end that led to the start of the 2000-2012 secular bear market."
1990 Persian Gulf War
http://stockcharts.com/img/articles/2023/04/23/f9878aa5-59dc-4aa0-a8db-24d9e3a0abbf.jpg
"This was a short-lived cyclical bear market that ended almost as quickly as it began.
So where are we now? What should we expect moving forward?"
2022 Return of Inflation
http://stockcharts.com/img/articles/2023/04/23/7697fe36-f6c3-4bbf-ae4c-92f6785b0f22.jpg
"Are we at the start of the secular bull market resumption - the one that began in 2013? Or has this rally set us up for more selling and a lower bottom ahead in a secular bear market?
Two great questions where most market participants have been firmly planted on one side or the other. Personally, I was looking for a cyclical bear market when 2022 began. I looked for a 2022 bottom and then an ensuing rally to all-time highs. So far, so good. Nothing has changed my view. Money has rotated feverishly in 2023 to "risk on" areas of the stock market:"
http://stockcharts.com/img/articles/2023/04/23/1ff252fc-c2b1-4da0-931f-80d9b1fe7cec.jpg
"The stock market is rising and being led by aggressive sectors. This is truly a sign of sustainability, in my view, and based on my many years of research.
Oh, and I'd LOVE to argue valuation right now with anyone. In fact, my EB Digest article tomorrow morning will reveal why I believe current market valuations are WAAAAY low and we're poised for a massive rally over the next decade. If you'd like to read this article and are not already an EB Digest subscriber, CLICK HERE to enter your name and email address. It's completely free and you may unsubscribe at any time."
Happy trading!
Tom
Weekly Stock Market Commentary 4/21/2023
By Lawrence G. McMillan
http://www.optionstrategist.com/blog/2023/04/weekly-stock-market-commentary-4212023
"Stocks are definitely having trouble with overhead resistance near 4200. This has been a resistance area since last August (it was a failed attempt to close the gap on the island reversal, noted by the circle on the chart in Figure 1). Then it halted the rally in February, and now it has seemingly halted the current rally. Thus, the $SPX chart is not bullish, in that there is not only the resistance at 4200, but resistance at 4300 as well.
As for support, there should be some in the 4050-4070 area, with further support below that in the 3970 area. A move below 3950, though, would be negative and should bring in heavier selling.
We are seeing overbought conditions in some of our indicators, but so far there have not been confirmed sell signals. For example, the equity-only put-call ratios are still on buy signals, but the weighted ratio is very near the bottom of its chart. That would place it in overbought territory.
Breadth has deteriorated (five of the last seven days have seen negative breadth), and so a sell signal is potentially setting up. Both breadth oscillators have generated sell signals, but we require further confirmation in the form of a second consecutive day (today). $VIX continues to decline. A big part of that, of course, is the deterioration in realized volatility.
The continuing decline in $VIX means that the trend of $VIX buy signal remains intact. It last went into effect inside the circle on the chart in Figure 4, when $VIX fell back below its 200-day Moving Average. This buy signal will remain in effect until $VIX rises back above its 200-day Moving Average, which is currently just above 23 and declining.
In summary, we are not carrying a "core" position, but we are trading positions in line with confirmed signals from our indicators."
S&P 500 (SPX), CBOE Market Volatility Index (VIX), 21-Day Equity Only Put Call Ratio (PC21), and Weighted 21-Day Equity Only Put Call Ratio (PC21 w) charts updated each Friday.
http://www.optionstrategist.com/sites/default/files/SPX.JPG?v=1682438515756
http://www.optionstrategist.com/sites/default/files/PC21.JPG?v=1682438515756
http://www.optionstrategist.com/sites/default/files/PC21_W.JPG?v=1682438515756
http://www.optionstrategist.com/sites/default/files/VIX.JPG?v=1682438515756
At what point does reality set in? First Republic made a profit this quarter on losses of ONE HUNDRED BILLION! Yup you heard right. The banks handed over 30 billion BUT they can withdraw that within FOUR MONTHS! Not a single mention of all the creditors and if they will be BAILED OUT!
Keep em comin. This is like telling you a new virus in China has appeared and it looks like a Pandemic is going to hit everyone. That was met with WHO CARES! The TRILLION DOLLAR and counting banking disaster where not a single person or institution will be penalized just had a brief statement about their great customer commitment. NO ONE I mean NOT THE FED or Government is saying what will happen to creditors money. POW! We do know that the 30 Billion from the big banks will withdraw their money in the 4 month deadline.
if "I" was a creditor at First Republic I would be watching the Christmas Movie "It's a wonderful life" again. The run on banks with no savings and loan that gest to keep the creditors money trusting they will get it back. oh look, I see a run right now.................
"So, all-in-all, still nothing to add. The market remains on the downward side of a pretty significant inflection zone, so if it continues to turn here, that could be significantly bearish -- but it may be awaiting the Fed before getting serious...."
http://www.pretzelcharts.com/
"On Friday, SPX dropped back into its target zone again, and again bounced:"
"This leaves everything in basically the same place it was on Friday for the near-term, and in basically the same place it's been for a while on the intermediate term:"
"There's been nothing to update about the NYA chart since April 3:"
"So, all-in-all, still nothing to add. The market remains on the downward side of a pretty significant inflection zone, so if it continues to turn here, that could be significantly bearish -- but it may be awaiting the Fed before getting serious one way or the other. Trade safe".
ONLY that the longer it is stuck in this tight range the more likely a violent decision will be made. How many more weeks can the structure be undecided. I would argue we never went out of the October bear cycle. I stated 2 weeks ago there would be NO WAY the market can rally on earnings, fear of fed, and most importantly fear the FED will not lower rates this year. How critical is it for the FED to lower rates this year? As critical as the Pandemic in China staying in China. The affect will be the same once realization occurs.
I promised myself to stay away during the roll over event. The recent INFLATIONARY data on manufacturing and service means the FED does NOT see a recession and therefore will NOT stop the hikes. Lets see if confirming data points over next 2 weeks make it a fait accompli.
The pressure on this market IMO is huge. I can't see any ability to mount a rally.
Nothing New to Add
http://www.pretzelcharts.com/
"Last update provided some near-term targets for SPX, which were both subsequently captured, with Target 2 then providing support:"
"Big picture, there's no change and there's just nothing new to say about these big picture charts yet:"
SPX:
"In conclusion, the market has (so far) reversed from its upside inflection, but now we're watching to see how that develops to determine whether it helps add confidence to blue 2/3 or not. Trade safe."
market is just balancing
balancing is waiting for info
day 4 of balancing
until we break above the balance area high or below balance area low
we chop and pin as many options as possible
i would not be surprised to see this range continue
the selling volume today was lowest in weeks
here is balance area rectangle
"....SPX managed to make an ever-so-slight new high for this move and then closed up a whopping 4 points (well, almost), continuing its trend of not trending."
http://www.pretzelcharts.com/
"Since last update, SPX managed to make an ever-so-slight new high for this move and then closed up a whopping 4 points (well, almost), continuing its trend of not trending.
So, still not a ton to add here, though I did create a near-term chart, since I could. "
"Blue 3 remains on the table, by a hair:"
"And NYA stalled again at the upper edge of its inflection zone:"
"Not much else to say about this market, but at least we have some near-term targets to watch. Trade safe."
ROLLING OVER! As sure as i was about TRANSITORY being a pathetic joke and the Pandemic not causing any market harm.
I NO LONGER see an extension to JULY for a crash but the start of a deep drop should happen on the second week of MAY.
In fact I will bet that the highs on all indices are in or within a fraction of a percent. I also see an immediate drop right HERE! No not a large one but one where there is no longer any traction for upside momentum. Earnings, economic data and INFLATION data will soon wake up the living dead.
VIX at extremes, projections for next two quarters are coming down, not up and is already a pathetic bet at a P/E of 19. CHINA as expected has surprised on the upside. The market takes this as a positive. it is a HUGE negative with Inflation. At best we see Stagflation here.
I actually have a pattern that if continues will place the DOW at the next low on 5/12. When preposterous reactions to a dire situation occurs that is the biggest warning flag you will ever get to trade off of. The known Pandemic with known infections and deaths and a 100 year old chart repeat gets ignored completely for 5 weeks with not a single major article or brokerage house sounding the alarm tells you we can mask and twist any situation to please our bias. ONE TRILLION swept under the rug with no consequences? In fact the street has concluded it HELPED their cause by tightening bank lending and concluding it will stop inflation.
I shouted, swore, begged people to follow my logic on the Pandemic but was told the TECHNICAL proved I was wrong. I am shouting today. There is a possibility that my MAY crash doesn't occur but it only guarantees a JULY one.
I have 4155 marked as resistance ...
also 4300.
I think it is important to keep track of these things but I don't know how much significance to give to them because I only trade stocks and every trade is a Buy-Write: buy the stock and sell its ATM or Overhead weekly Calls. At least that way I always have income, but the downside is that I sometimes miss a good portion of a lengthy trade higher.
most of the bank stuff
is already priced in, they got those numbers long before retail traders see em
the bears have had 2 days to sell and have accomplished 0
this is a C wave down and C waves run out of sellers
then boom boom up
never short the BIG H
https://schrts.co/fZwsjRHT
I see items like this and
I just imagine someone standing in an empty barren field,
facing the horizon and yelling -
with a bewildered, misguided passion.
https://investorshub.advfn.com/boards/read_msg.aspx?message_id=171704895
Bought puts earlier -
I have a feeling we're ready to break downward -
Does anyone have blind faith in non-bank earnings here ??
Intraday downward channel here developing - or trying to...
https://stockcharts.com/public/1684859
Home ›S&P 500 ›Weekly Stock Market Commentary 4/14/2023
Weekly Stock Market Commentary 4/14/2023
Posted on April 14, 2023 - 12:06pm
By Lawrence G. McMillan
The rally that began in mid-March is persisting. Market internals remain positive, and that is finally having enough of an effect on $SPX (and the market psyche) to push prices higher in a relatively slow manner. Even so, there is formidable overhead resistance at 4200 and 4300, so the $SPX chart will not be outright bullish until those levels are exceeded (in my opinion).
Below current levels, there is support at 4050 and then 3970 below that. However, if $SPX should fall below the mid-March lows of 3950, that would be a larger negative development that would probably once again call for a retest of the December low area of 3760 to 3850.
Equity-only put-call ratios continue to decline and thus they remain a bullish indicator for stocks. They won't turn bearish until they roll over and begin to rise. The Total put-call ratio is also declining, although that buy signal has a target of a 100-point rise in $SPX, and that target has been fulfilled with $SPX trading above 4150.
Breadth has not been as consistently bullish as the put-call ratios, but after some flirtations with sell signals, breadth has expanded again. Currently, then, both breadth oscillators are back on buy signals and are in overbought territory.
$VIX has continued to decline and is below 18 once again. The trend of $VIX buy signals remains in place. However, the "spike peak" buy signal has "expired."
We are not carrying a "core" position at this time, but have traded several positions in line with the internal indicators. We will continue to proceed in that manner until $SPX breaks out strongly.
Weekly Charts
S&P 500 (SPX), CBOE Market Volatility Index (VIX), 21-Day Equity Only Put Call Ratio (PC21), and Weighted 21-Day Equity Only Put Call Ratio (PC21 w) charts updated each Friday.
http://www.optionstrategist.com/sites/default/files/SPX.JPG?v=1681755720455
http://www.optionstrategist.com/sites/default/files/PC21.JPG?v=1681755720455
http://www.optionstrategist.com/sites/default/files/PC21_W.JPG?v=1681755720455
http://www.optionstrategist.com/sites/default/files/VIX.JPG?v=1681755720455
Lot of Bulls out this weekend..Predicting higher prices and a new bull market..
"...everything in pretty much the same place it was."
http://www.pretzelcharts.com/
SPX closed Friday's session down 8 points, leaving everything in pretty much the same place it was.
NYA was rejected from the 15,700ish zone on Friday's attempt, so we'll see if that's permanent or temporary:
"BKX has formed three waves up from its recent low (could still be in progress). The bigger question here is whether the entire decline marked a complete 5 down, or if we're in the midst of a nested third wave. Both options are longer-term bearish, but the first option could be near-term bullish."
"Finally, SPX has so far remained below the meaningful level (4196), so blue 2 is still hanging on as an option:"
"In conclusion, blue 3 is running out of real estate, but still on the table, so if it's going to show up, then it needs to start soon. The decline off Friday's high may have been impulsive, and so far, there's only three waves back up off Friday's low -- so this is something to watch early in the week. Trade safe."
Will This Massive Reverse Head & Shoulders Bottom Execute?
Tom Bowley | April 16, 2023 at 12:55 PM
http://stockcharts.com/articles/tradingplaces/2023/04/will-this-massive-reverse-head-623.html
"There are plenty of reversing patterns in technical analysis, but my personal favorite is the combination of a weekly positive divergence and a bottoming head & shoulders pattern. The positive divergence captures the slowing downside momentum and the head & shoulders provides confirmation that prices are indeed turning up. Keep in mind that a downtrend is nothing more than a series of lower highs and lower lows. When a potential neckline forms in a bottoming head & shoulders, it suggests that a prior "lower high" is being tested. The executed breakout then confirms that a new uptrend is underway.
During 2022, the worst-performing sector was communication services (XLC), the home of internet stocks ($DJUSNS), among others. Higher interest rates reduced the value of future earnings and earnings growth, but we're now seeing interest rates come down. As a result, the XLC is on the verge of a beautiful reversing pattern and potential breakout. Check this out:"
http://d.stockcharts.com/img/articles/2023/04/16/567082e5-5143-44bd-b49d-7242cff7f63d.jpg
"The bottom panel shows the XLC leading the stock market higher in 2023. I expect this to continue and the above breakout would certainly add to that likelihood.
I'm following one communication services stock, in particular, that could explode higher if I'm correct about the XLC gaining ground throughout 2023. I'll be writing about it in our free EB Digest newsletter on Monday morning. If you're not already subscribed, simply CLICK HERE to provide your name and email address and we'll get you set up and send along this stock. There is no credit card information required and you may unsubscribe at any time."
Happy trading!
Tom
Thanks RCKS...The H&S pattern on the Daily SPX chart says if it plays out the target is 4239...But I have never had one work for me..
"...still not much to add to the recent updates."
http://www.pretzelcharts.com/
"The market has continued to lurch around for the past week, making little progress, but not giving up its gains yet either:"
"NYA tagged the red horizontal. As noted previously, the current inflection zone stretches up to roughly 15,700:"
"In conclusion, still not much to add to the recent updates. Trade safe."
Bullish and balanced for the 5 thousand times. In fact guess what it is today tomorrow or in 10 years. Pandemic trillion dollar bank run inflation dismal quarterly earnings. All Great.
Me I call 4150 as the likely top and we rollover this month.
You just set a record ..:
5,000th post on this board.
Very interesting (for a non-trader posting on a stock trading board) as this board is supposed to be all about trading the SnP 500.
Please use your own effort or ignore it I know in these times spoon feeding is required but I am not open for service. Unreal. Btw the market today indicates we have seen the top and April will roll over into a dramatic May drop. If you can’t just look at both charts than perhaps the Pandemic also didn’t have a chart to use at the time did that take 5 weeks for someone to show you?
spx to bit coin
he does not know how to post it
he does not trade
https://schrts.co/NCCxwCHJ
Well then,
Please post two one-year charts with one pasted above the other.
One chart must be $SPX. The other one must be Bitcoin.
Use 1-day intervals. Then explain the correlation.
"After revisiting Friday's low, the market immediately began rallying, which continued until late in the session yesterday. Which means SPX is back to roughly the same price it was on Friday. Which means there's not a lot new to say yet."
http://www.pretzelcharts.com/
"In Monday's update (which was published Sunday night), I wrote:
I'm inclined to lean toward Friday's low being a b-wave, so suspect that low will be revisited/broken early this week.
I feel I need to mention that at the time I published that, futures were still trading in the ballpark of Friday's high. After I published, futures headed sharply lower -- then, by the cash open, the market gapped down and revisited Friday's low. So that was a hit and (when I actually made and published the call) was harder than it looked -- it just didn't end up being of much practical use for cash traders, unfortunately.
After revisiting Friday's low, the market immediately began rallying, which continued until late in the session yesterday. Which means SPX is back to roughly the same price it was on Friday. Which means there's not a lot new to say yet."
"Unlike SPX, NYA did manage to break a bit past its blue target. It remains within the current inflection zone until roughly 15,700+/-."
"Oil has continued rallying since last month's update:"
"In related news, the Fed's balance sheet spiked by about $400 billion from March 8 to March 22:"
"A little of that spike did roll off since March 22, but we'll all be waiting with bated breath to find out whether we're still "fighting inflation" -- or have decided to go back to fueling it. Interesting that they spent a year gradually and painstakingly rolling off the balance sheet, only to add half of it back in only two weeks.
I'm reminded of something I wrote in July of 2021:
The Federal Reserve has at last painted itself into its final corner -- or, to use another, perhaps more apt, metaphor: The Fed has placed itself on a treadmill from which there is no escape. There appears to be nothing it can do from here (other than a very modest taper) that won't immediately tank the markets. Even talk of such things spooks investors, which is why Powell has been so dovish of late. The Fed must keep rates low. It must continue QE (in one form or another) and continue buying Treasuries and Mortgage-Backed-Securities. The Fed cannot do anything but keep running at or near its current pace in perpetuity.
The Fed's new reality is like a treadmill-based parody of the movie Speed: If the Fed slows down too much, the market will implode, killing innocent economies in the process.
We just got a taste of exactly that with the SVB (et al) collapse. The Fed had to Speed up again, or risk more serious issues in the banking sector snowballing into a juggernaut. And that "catastrophe averted" was after the aforementioned modest taper.
And then that reminded me of something else from the same piece:
The Fed likes to talk about its "tools," but all its tools are currently running at full capacity just to keep the market from collapsing under its own weight. There are no more tools to call upon.
All it will take is a catalyst.
Later, people will blame the catalyst as if it were the "cause" (you and I know they will do this because they do it every time) -- but we'll know it was not the cause. Our short-sighted choices were the cause. Our inability to recognize, appreciate, and properly manage our good-fortune was the cause.
In short, we ourselves were the cause. We have met the enemy, and he is us. The catalyst will only be the trigger that forces the reckoning.
Last month, the market was all ready to begin collapsing under its own weight, but then the Fed ramped its "tools" right back up to "full capacity" and saved the day.
And all this made me again wonder about the second portion of the outlined equation, and to wonder if that's what the market is waiting on: A catalyst. China invades Taiwan, Russia uses nukes, commercial real estate collapses, that sort of thing. In other words, something that exposes just how weak and unprepared we really are right now.
Just food for thought. We'll see what the market does to close out the week. Trade safe."
bitcoin and spx
gdl of course had the top in early in this fed week
do not fight the fed
do not correlate very well a chart shows that
but if bitcoin sells hard it does creates selling
bitcoin does correlate better with gold
shane s.- fed juice guy
If you have followed BOTH they ruin in sync. I have a target for a momentum top on Bitcoin. I can assume they BOTH should STILL run in sync.
That's what on earth i am talking about. If Bitcoin can break above the target it seems LOGICAL to assume SP500 will also break above the 4158 recent highs. The most speculative stock out there is alive and healthy despite the internal destruction it has already received. IF speculation is alive the likelihood for SP500 to drop is low.
Lets see if both 4158 on SPX and 30,872 on Bitcoin gest taken out today!
Just curious ...
but what on Earth does BITCOIN have to do with $SPX which is what this message board is supposed to be all about? My thinking is that any discussion of BITCOIN is off-topic on this message board and should be deleted.
Taking a small step further, I'm a little more than perplexed why our country allows anything like BITCOIN to be used for any financial transactions in our country as it would be easy to use BITCOIN to obfuscate illegal activities (whether those activities happen outside or within our government).
The canary in coal mine BITCOIN. I have a target of 30,872 to be final top. NOW at 30,200. BIG JUMP over night and today.
A break above and it negates the dramatic drop scenario. If it gets close to target without going over it should indicate spent momentum.
Thanks RCK S..Looks like they are selling tech today...Just keep the rotation going.
"I'm inclined to lean toward Friday's low being a b-wave, so suspect that low will be revisited/broken early this week. If that's correct, it would keep the most bearish options on the table:"
http://www.pretzelcharts.com/
"Since last update, the market has continued its near-term churning within its even larger "lost year" of churning. I'm inclined to lean toward Friday's low being a b-wave, so suspect that low will be revisited/broken early this week. If that's correct, it would keep the most bearish options on the table:"
"Of course, after a ~year in a trading range, it gets hard to imagine the market doing anything other than running sideways for another 600 years, but that's how they getcha!
NYA does have a potentially-complete c (or 3) rally on the board:"
"In conclusion, everyone has had about enough of this endless grind, so we'll see if the market is ready to start doing something finally. It's at least worth mentioning that in the most bearish world, this setup would be exceedingly bearish; we'll see if the market negates this setup or not. Until then, there's just not much else to add. Trade safe."
Why Try To Call Tops And Bottoms? It's Easy!
Tom Bowley | April 09, 2023 at 12:49 PM
http://stockcharts.com/articles/tradingplaces/2023/04/why-try-to-call-tops-and-botto-694.html
"Okay, first when I say "it's easy", I'm not saying it's easy to call tops and bottoms. Instead, I'm say that answering that rhetorical question is easy. If you can call a top, you can exit equities with your capital completely intact. And if you can also time a bottom, you can reinvest at a much lower level. Isn't that a pretty easy and logical reason to seek out market tops and bottoms?
I recall all the negative YouTube reactions in early 2022 when I said the S&P 500 had topped and could drop 20-25% (actually dropped 28%). Many believed the stock market was their personal ATM machine as sentiment turned as bullish as I've ever seen it. Opponents said "you can't call a bear market if we haven't dropped 20%!" I found that response ludicrous. Are we seriously supposed to watch our investments drop 20% and then get out? The majority of cyclical bear market downside is over by the time they're down 20%.
Successful investing in stocks requires a heavy dose of perspective. Stock market history truly does repeat itself over and over. I'll never understand why so many people approach the stock market with so much negativity. It provides the absolute best avenue to grow your money over time. Take one look at this 75-year chart and explain why we should maintain a negative market bias:"
http://d.stockcharts.com/img/articles/2023/04/08/3d8ba4ea-88ee-45fc-9906-d23495ae6c60.jpg
"The bottom panel is quite interesting. It's the 24-month rate of change (ROC). Keep in mind that the S&P 500 has averaged gaining just over 9% per year since 1950. So the "normal" 2-year ROC would be roughly 18-19%. The 5 points that I've identified on the chart above highlight the 5 times when this 2-year ROC has hit 75%, which is quite simply unsustainable. There's a reason that we average going higher by 9% or so. Gross domestic product (GDP) plus inflation plus innovation is what produces those 9% gains over time. Moving higher by 75% over 2 years literally suggests to me, "reversion to the mean."
1950s
This was the first example (since 1950) of what happens when you make an unsustainable move to the upside. In this case, the next two years were a total wash - the S&P 500 went nowhere and included a cyclical bear market as prices dropped more than 20%:"
http://d.stockcharts.com/img/articles/2023/04/09/63fa49c5-aa0b-42cd-9de2-203f83e1b009.jpg
"Note that once the S&P 500 fell back to test its 50-month SMA, the cyclical bear market was over and the secular bull market of the 1950s/1960s resumed.
1987 Crash
It was more than three decades later before the S&P 500 again saw the type of upside move that begged for a significant correction. That occurred in September/October 1987 as the unsustainable advance of the prior 2 years was simply too much:"
http://d.stockcharts.com/img/articles/2023/04/09/78e9c606-3f8d-459c-8a64-6394bab44441.jpg
"The 1987 cyclical bear market turned out to be one of the fastest 36% drops in history, but it was, in part, foreshadowed by that unsustainable move higher from 1985-1987. Notice that the drop found support at its 50-month SMA, similar to the 1956-1957 decline.
The Late-1990s
There's a reason why it's referred to as the "dot com" era. The gains were as inflated as any time in history, except perhaps the euphoria just before the 1929 market crash and The Great Depression that followed. After the S&P 500 turned in its 75%+ gain over a 2-year period that ended in 1998, we saw a quick cyclical bear market, and then it ran another 55% higher over the NEXT 2 years. It took a secular bear market that included 2 of the worst individual bear markets (2000-2002 and 2007-2009) in history to iron out all the problems that the late-1990s advance created:"
http://d.stockcharts.com/img/articles/2023/04/09/f91b3473-37f7-4904-a1e6-64532fe2c24f.jpg
"The 1998 cyclical bear market turned out to be a small taste of what investors would be facing in 2000, after the huge advance in 1999, and it never breached the 50-month SMA. It wasn't just a short-term advance that investors had to pay for. It was the end of a two-decade secular bull market, which resulted in an extended period of financial pain, ushering in the next secular bear market.
2011 Rebound
After the depths of the financial crisis were found in 2009, Wall Street rebounded in a big way, generating yet another 75%+ move over the next 2 years:"
http://d.stockcharts.com/img/articles/2023/04/09/0a1b61b6-5a69-4c69-bc8c-654bef428dd0.jpg
"While the new bull market had not yet gotten started - that occurred in 2013 when we finally cleared the tops set back in 2000 and 2007 - the initial rebound was very, very swift, so another short-term drop of 20%+ was warranted and felt. In my view, this did not qualify as a bear market as it never began from an all-time high, but the consequence was the same. Note that the decline did move below the 50-month SMA, but never broke below the 2010 low.
2020 Post-Pandemic Advance
Many were caught completely off-guard by not only the 2020 stock market recovery, but more so by the magnitude of it. The 22-month advance from the March 2020 low through the January 2022 high was only topped by the euphoric 1920s - and there was going to be a price to pay. As I discussed at our MarketVision 2022 event, there were plenty of other warning signs, but the sheer magnitude of this advance suggested that caution be advised in anticipation of a potential cyclical bear market:"
http://d.stockcharts.com/img/articles/2023/04/09/f22572c4-92ca-4982-84b1-6116a10424f7.jpg
"Once again, we've seen the 50-month SMA provide excellent support and confirm - at least for now - that the 2022 bear market was, in fact, cyclical in nature. Should we see the S&P 500 move below the October 2022 low, then a re-evaluation would be in order.
Final Thoughts
Secular bull markets have historically lasted two decades, while secular bear markets typically unfold over a dozen or so years. So I thought it would be interesting to review a long-term chart of the S&P 500 with a 20-year ROC and a 12-year ROC beneath the price chart. Here it is:"
http://d.stockcharts.com/img/articles/2023/04/09/3b6b26b8-e7df-4abc-85a0-60a7def39fbb.jpg
"The green arrows in the 12-year ROC panel at the bottom show that the cumulative 12-year return is at roughly zero when new secular bull markets emerge. Meanwhile, those red directional lines highlight that secular bull markets end after a lengthy period of above-average market returns. Right now, our 20-year ROC is at 347%. That's an average annual return of 7.78%, compounded over 20 years. The AVERAGE S&P 500 return has been over 9% since 1950. Therefore, it's difficult for me to buy into the argument that the secular bull market has run its course. I believe we have much further to go. The 20-year ROC reached 750% in 1962 and was at 625% in 1969, when the 20-year secular bull market ended. The 1950s and 1960s had a compounded annual average return of 10.5%. The 1980s and 1990s had a compounded annual average return of 14.5%.
And I'm supposed to believe that this secular bull market has topped out at 7.78%? I don't think so."
Now is the time to STOP listening to media outlets like CNBC. They offer little substance and value. Instead, turn your attention to EarningsBeats.com. We kept our members out of harm's way throughout the cyclical bear market of 2022 and we said it was time to get back in the S&P 500 when it was 13% lower. Our next MAJOR event is this Saturday, April 15th at 10:00am ET. It's our "Bulls-Eye Forecast" event, where I'll provide you my latest expert opinion as to what you should expect over the balance of 2023 and into 2024. Best of all, it's a 100% FREE event. Registration is required and you may do so by CLICKING HERE.
I look forward to seeing you on Saturday!
Happy trading,
Tom
Stock Market Commentary 04/06/23
By Lawrence G. McMillan
"The fact that $SPX broke over the downtrend line that had existed for most of February and March doesn't necessarily mean that the $SPX chart is outright bullish, though, for there is formidable resistance at both 4200 and 4300. It's just not a bearish chart right now. Several indicators are overbought at this time, and some of them might be issuing sell signals soon. In addition, $SPX has advanced above its +3å "modified Bollinger Band."
There is minor support near 4050 with stronger support at 3970 (where the small gaps on the $SPX chart would be filled). A close below 3950 would be bearish, though, as it would more or less negate the positive work that was done over the past couple of weeks.
Equity-only put-call ratios remain on buy signals after faltering a bit this week. The ratios turned up modestly for a couple of days but have now moved back down to a new relative low as of yesterday thus solidifying the recent buy signals. The Total put-call ratio remains on a buy signal as well. These indicators will remain bullish for stocks as long the ratios continue to decline.
Breadth, however, has become something of a problem. Breadth was tremendously positive during the rally, with positive breadth on every one of the seven trading days between March 24th and April 3rd. Since then, however, there has been a vast deterioration in breadth, and the breadth oscillators are on the verge of rolling over to sell signals. They would do so if breadth is negative today.
$VIX continues to remain at low levels. That means the that the "spike peak" and trend of $VIX buy signals remain intact. The only potential problem is that $VIX is once again at or below 19. Over the past year, that has generally been an oversold condition that has manifested itself in a decline in $SPX sometimes minor, sometimes more serious.
Overall, we exited our "core" bearish position when $SPX rose above resistance at 4080, simultaneously breaking the downtrend line from February and March. However, the $SPX chart is not bullish. Meanwhile, we will continue to trade signals from our individual internal indicators as they arise."
Home ›Weekly Charts
Weekly Charts
S&P 500 (SPX), CBOE Market Volatility Index (VIX), 21-Day Equity Only Put Call Ratio (PC21), and Weighted 21-Day Equity Only Put Call Ratio (PC21 w) charts updated each Friday.
http://www.optionstrategist.com/sites/default/files/SPX.JPG?v=1681098935066
http://www.optionstrategist.com/sites/default/files/PC21.JPG?v=1681098935066
http://www.optionstrategist.com/sites/default/files/PC21_W.JPG?v=1681098935066\
http://www.optionstrategist.com/sites/default/files/VIX.JPG?v=1681098935066
UP UP and away! trillion dollar banking crisis, run on banks and the market immediately goes HIGHER! Dismal quarterly earnings as they continue to fall and the market goes HIGHER! How this quarter doesn't get positive BEAT on a 10 percent projected drop is beyond me. Rally over that for sure. Future projects get lowered once again? Positive for stock market. Expectations for both a stop in rate hikes and a subsequent lowering of rates is a given based on no real economic data supporting that. but hey the market will always find positive reasons to stay positive.
Like the last 7 years of TRUMPISM we still see only positive results even after 4 likely indictments. In fact the GOP is emboldened by it. Tennessee just ousted TWO of the THREE DEMOCRATS for protesting the assault rifle killing of children. They immediately got rid of 2 black men who became too uppity. the third person who did the EXACT SAME THING was not ousted. You already know why. A 60 year old WHITE WOMAN can't be touched in Tennessee. that's like a black man daring to look at a white woman. they know the consequence of that.
You the investor will read these words ignore them and find my post offense. If anyone wants to know why the market will follow the path of our dismantled republic all i can say is cover your eyes ears and mind. All seems to be coming to a head at the same time!
"SPX remains in the light blue circle inflection zone, so it remains to be seen if this will generate a reaction. If this is blue ii, then a reversal should be on the horizon. If it isn't, then it isn't, and we may know that soon enough, too."
http://www.pretzelcharts.com/
"I think we only need one chart today. Weeks ago, I said that "unless/until blue 2 is broken, we're going to presume we're in blue ii," and we're now at the "do or die" stage of that presumption, since blue 2 is not far overhead. So while Red 2 remains possible, it doesn't gain significant traction until blue 2 is broken."
"In conclusion, SPX remains in the light blue circle inflection zone, so it remains to be seen if this will generate a reaction. If this is blue ii, then a reversal should be on the horizon. If it isn't, then it isn't, and we may know that soon enough, too. This market has been tough because we've been stuck in a trading range for almost a year now, and patterns get increasingly difficult the longer a range continues. Trade safe."
The market has developed one note themes these last few years.
1 - Pandemic
2 - Inflation with the eventual realization it was not transitory
3 - Fed Funds Rate hitting critical mass at 4.5%?
4 - Speculative bets using the addicted notion that disinflation was here to stay. Bank Crisis resulted.
5 - Unanimous focus on anything and everything relating to Inflation. The Goldilocks scenario is now predominant theme.
6 - CHINA, not yet on the radar but will soon become the most watched cause for continued inflation.
For now and likely thru April we should stay in a belief that disinflation is about to reemerge. Without it this addicted stock market will go thru withdrawal symptoms. It will not be pretty. But we are getting our supply now to keep the market happy.
"I want to see if and how the market reacts to these inflection zones before commenting too much further, so we'll take a deeper dive on Wednesday."
http://www.pretzelcharts.com/
"Let's jump right into the charts, starting with NYA, which has now captured its second upside target box:"
"SPX is, interestingly, back into the inflection zone I mentioned a couple weeks ago:"
"In conclusion, I want to see if and how the market reacts to these inflection zones before commenting too much further, so we'll take a deeper dive on Wednesday. Trade safe."
BEWARE Leveraged ETFs: Invest With Caution
Tom Bowley | April 02, 2023 at 12:36 PM
http://stockcharts.com/articles/tradingplaces/2023/04/beware-leveraged-etfs-invest-w-662.html
The following was a special educational Daily Market Report that I sent to our EB.com members last week....
"I always refer to EarningsBeats.com as a "Research, Guidance, and Education Platform", because that's truly what we strive to be. HERE IS WHAT WE ARE NOT - REGISTERED INVESTMENT ADVISORS. I'd love to try to help everyone on an individual basis, but it's virtually impossible. There isn't enough time in the day for me to work with our members on a 1-on-1 basis and the even-bigger issue is that I'm not licensed to do so. It's vital to understand each individual's risk profile and tolerance before considering/implementing any type of investment or trading plan. Therefore, we're limited at EarningsBeats.com to providing each of you information in the form of market research, guidance, and education, and then what you do with it is completely up to you. I've learned a lot about the stock market over the years and my passion is teaching others what I've learned. I give plenty of credit to John Murphy, whose books taught me so much and inspired me to do the research that I've done over the years. Perhaps the biggest lesson I've learned is that we have all the information we need in the price action on the charts. We don't need an MBA in Finance. I honestly don't need my CPA license. The big Wall Street firms do all the heavy lifting and they essentially provide us personal reports based on the price action. We simply need to know how to use it.
In this special report, I want to focus on leveraged ETFs, providing you key information to help you better trade these products.
I've been requested on many occasions to keep everyone posted on my use of leveraged ETF products, specifically relating to the timing of purchase and sale. I don't mind discussing this when I believe it's appropriate to do so, but let me also say that I cannot be held responsible for anyone's personal decision to use these leveraged products. That's completely up to you. I discuss it to help further educate the use of such products. I am NOT recommending or advising any of our members to buy or sell ANY INVESTMENT PRODUCTS - EVER. I don't even like to use the words "recommending" or "advising", because I believe that's best left to those who manage money or are registered investment advisors.
So now that all of that is out of the way, let me discuss how leveraged ETFs are designed to work. First of all, there are two very important elements of leveraged products that you MUST be aware of:
They are designed to track at a 2x or 3x rate on a daily basis, not long-term
Holding leveraged ETFs for extended periods of time (especially during volatile periods) can and usually does result in "erosion" (meaning that your returns will be worse than promised - 2x or 3x)
I want to give you two examples - the first will be a long-term example, explaining why holding leveraged ETFs for the long-term makes little sense. The second will be a short-term example that hopefully highlights the PERFECT way to use leveraged ETFs.
Example 1 - Holding Long-Term
I called an S&P 500 bottom in June 2022. If you had timed your entry into the NASDAQ at the close on June 16, 2022, that would have represented darn-near perfect timing (a slightly-lower bottom printed in October, just below the June low):
As of the March 27th close, the QQQ had risen 14.64% from the June 16, 2022 close. That's awesome, but what if you had been aggressive and decided to purchase the QLD or, even better yet, the TQQQ. These leveraged ETFs track the QQQ at a 2x and 3x rate, respectively. You'd have made a KILLING, right? After all, that 14.64% return would balloon to 29.29% and 43.93% on the QLD and TQQQ, respectively - at least in theory. But how did the QLD and TQQQ actually perform? Here's how.....
QLD: +18.37% (should have been +29.29% in theory)
TQQQ: +16.98% (should have been +43.93% in theory)
During a period in which the QQQ gained more than 14%, the 3x leveraged ETF (TQQQ) barely outperformed the QQQ and it UNDERPERFORMED the 2x leveraged ETF (QLD)! In the end, you took on inordinate amount of risk and your results simply didn't justify taking that risk. If you want to see it on the chart, check this out using a 194-day rate of change (ROC):"
http://d.stockcharts.com/img/articles/2023/03/28/216bf63d-86c5-4f3e-8510-ab5677d82efb.jpg
"There were 194 trading days from June 16, 2022 through yesterday, March 27, 2023. Now, to prove the numbers that I gave you above on the QLD and TQQQ, here are those two charts using the same 194-day ROC:
QLD (2x leveraged ETF):"
http://d.stockcharts.com/img/articles/2023/03/28/2872a56a-a9af-419e-aff0-5b80670e0739.jpg
TQQQ (3x leveraged ETF):
http://d.stockcharts.com/img/articles/2023/03/28/464cce1e-9633-4ba0-945a-57df39c3389f.jpg
"Let me ask you a question. Do you feel differently about those leveraged ETFs now after reading this? I've been trying to educate folks that it makes no sense financially to take on the risk of leveraged ETFs and hold on for the long-term. However, not all is lost. The time when these ETFs do what they're supposed to do.....and then some.....is when the market is trending.
Example 2: Trading Short-Term
Timing is EVERYTHING with leveraged ETFs. Think about the best times to buy the QQQ. I'd say either on a major breakout or when it pulls back to key price or moving average support. The QQQ is currently in a cup and pulling back within a handle:"
http://d.stockcharts.com/img/articles/2023/03/28/0628a40e-486d-4212-9ef8-977b79288561.jpg
"If you're bullish, the pullback into a potential handle and the rising 20-day EMA provides an excellent opportunity to take a shot with leverage. My strategy is to use this short-term weakness to build a reasonably-sized leverage position. If the QQQ were to trade down below the 300 level, I'd likely take a fairly small loss on my leveraged position and move back entirely to the QQQ. If you're bullish and decide to use leverage, the decision whether to buy the QLD (2x) or TQQQ (3x) simply comes down to how much additional risk you're willing to assume.
Let me show you what happens when you catch an uptrend and you use leverage, because that's when leveraged products work really well. Back on Thursday, January 5th, I sent out a DMR (Special Report), highlighting that I was seeing positive correlation between the VIX and S&P 500 and that usually means a market reversal. The S&P 500 had been downtrending and I suggested that we could see a big rally out of nowhere and that I was using the opportunity to build a leveraged ETF position. If you bought the leveraged QLD or TQQQ at the close on January 5th and held through the entire uptrend that ended on February 2nd (19 trading days, so the charts below will show a 19-day ROC), you'd have done very well. How did the QQQ perform and how did those leveraged ETFs perform?"
QQQ:
http://d.stockcharts.com/img/articles/2023/03/28/cd974fb9-8b1c-49e5-89b4-ca18f01f2835.jpg
QLD:
http://d.stockcharts.com/img/articles/2023/03/28/4e63f3de-aa51-4d3d-8d33-c7e7bf6b1254.jpg
TQQQ:
http://d.stockcharts.com/img/articles/2023/03/28/669d41da-60ab-471a-b90f-14bc01acfb90.jpg
"In this example, the QQQ and the leveraged products gained the percentages shown below for the 19-day holding period:
QQQ: +19.17%
QLD (2x): +40.57% (should have been +38.34% in theory)
TQQQ (3x): +64.49% (should have been +57.51% in theory)
Not only did the leveraged products achieve their desired 2x and 3x returns, but they also exceeded them! You'd have made MORE than what was expected. While erosion is a problem over the long-term, because of volatility (ups and downs), compounding actually provides BETTER RETURNS when the trend is primarily in one direction.
If you're going to use leveraged products, you want to invest in them and hold while the trend is in play, then EXIT STAGE LEFT! Holding these products long-term can produce returns that are much worse than what you expect. They're not worth the risk of holding long-term.
Current Environment
I like shifting a portion of my QQQ investment to either the QLD or TQQQ now, because of the following:
Bullish cup with handle continuation pattern
Historical tendency (April is very bullish and the first half of calendar quarters - April 1 to May 15 - typically perform well)
Despite the weakness since mid-February, the VIX currently resides just above 20; fear is eroding
I can limit my risk as the QQQ is trading relatively close to its rising 20-day EMA
NONE of this guarantees us a higher market ahead. Trading success stems from patience, education, and managing risk. I believe the QQQ is a solid buy as it falls and approaches its rising 20-day EMA, which is currently just beneath 303. I've begun using leverage and will continue to do so down to the 20-day EMA. I will hold it unless the QQQ closes beneath 300. This is a prudent use of leverage, in my opinion. Many of you that are risk averse probably should simply stick with ETFs like the SPY or QQQ and avoid using leverage. But those of you that want to take on more risk for the potential of higher reward may find the use of leveraged products a major benefit - just pick your spots judiciously. I don't believe in the philosophy of buying leverage and holding it long-term. The ultimate reward is not worth the additional risk, in my opinion.
UPDATE:
After this email to EB.com members, the QQQ spiked 3.94% over the next four trading days. On the chart below, I should the 4-day ROC on the QQQ, QLD, and TQQQ. You can see that leveraged products work GREAT while trending higher:"
http://d.stockcharts.com/img/articles/2023/04/02/967438ef-fc1c-4517-b68a-d513ce69ba24.jpg
"My suggestion: Please be careful when using these leveraged ETF products. They most definitely can help a portfolio achieve more aggressive positive results when a trend is in place, but periods of volatility and consolidation will result in considerable erosion.
Pre-Announcement: Big Event on Saturday, April 15th
We are going to open up registration this week for a HUGE event on Saturday, April 15th. It'll be FREE to everyone and I'll be:
discussing the current technical state of the stock market
providing an update on sentiment and market manipulation
reviewing key historical and seasonal tendencies
and much, much more!
Seating will be limited, so if you'd like to ensure your spot, sign up for our FREE EB Digest newsletter (we'll send out invites to all EB Digest subscribers). Simply CLICK HERE and enter your name and email address. I'll see you on the 15th!"
Happy trading!
Tom
NASDAQ Breaks Out Again; 2 Stocks To Consider NOW
Tom Bowley | March 31, 2023 at 11:34 AM
http://stockcharts.com/articles/tradingplaces/2023/03/nasdaq-breaks-out-again-2-stoc-138.html
"U.S. equities are wrapping up the first quarter in grand style. The QQQ, which tracks the NASDAQ 100, is zeroing in on a 20% gain for the quarter, as I write this. We saw a huge rally in January 2023 and strong Januarys usually suggest a strong year ahead. Based on our Q1 performance, it'd be hard to argue at this point. There's more technical work ahead, which is to be expected after the completion of a cyclical bear market. If you follow the "20% rule", then the QQQ is now in a bull market, having moved up more than 20% from its low of 253.26 on October 13, 2022. That confirms the end of the 2022 bear market for the NASDAQ.
So, for now, let's assume the worst is behind us and we'll be looking at higher prices ahead. What stocks might we consider buying and why? Here are two that I like:
Amazon.com (AMZN)
If the stock market does well this year, it'll likely be due to the Fed hitting the brakes on interest rate hikes, promptly a lower 10-year treasury yield ($TNX) in the process. In that type of environment, I believe growth stocks will be where most of the leadership resides. Amazon.com (AMZN) certainly fits the bill. Technically, AMZN just broke out of a bullish inverse head & shoulders continuation pattern and broadline retailers ($DJUSRB) are finally showing relative strength:"
http://d.stockcharts.com/img/articles/2023/03/31/7998729d-a9be-4532-9993-781bd25b1edb.jpg
"There are a lot of positives here. Nothing has been confirmed yet, in terms of relative strength, but the improvement in 2023 is rather obvious. The February absolute and relative highs are key target levels. Moves above the February high would be extremely bullish.
ServiceNow (NOW)
NOW is breaking out of a similar bullish pattern, clearing key overhead price resistance. But does it sustain the move through today's close? That'll be what I'm watching, because if it does, I could see a nice run back to that February high.
To the downside, NOW held up in the support zone between price and gap support and is "NOW" poised to run:"
http://d.stockcharts.com/img/articles/2023/03/31/00ff83e6-d02e-412d-9918-a8cc40812d49.jpg
"Average volume on NOW is 1.58 million over the past 50 trading days. Today's volume is over 800,000 in the first 90 minutes, so we're seeing confirming volume. It's fairly simple - either today is going to be a meaningful breakout or it's going to be a false breakout. It just depends on where we close. NOW was leading the software group ($DJUSSW) higher in January. It's lagged badly during its recent consolidation, but the NOW relative strength line has begun turning higher again (blue circle) and a breakout could trigger much further relative strength ahead."
"I'll be hosting our latest market outlook on Saturday, April 15th at 10:00am ET. If you're unsure of the bull vs. bear market debate and where we currently stand, mark your calendar for our event. It'll be very educational and open to the public. We will be sending out invites to our entire FREE EB Digest community, along with our EarningsBeats.com members. Simply CLICK HERE and sign up with your name and email to save your spot!"
Happy trading!
Tom
Stock Market Commentary 03/31/23
By Lawrence G. McMillan
McMillan Option Mentoring
A rather large dichotomy is emerging in this market: the chart of $SPX remains bearish, while most everything else is taking on a bullish slant. This has happened before, and usually the negativity of $SPX wins out. However, each market cycle is different to some extent, so we will continue to watch these rather interesting developments.
The chart of $SPX still shows lower highs and lower lows since the beginning of February. The current rally is carrying up towards resistance at 4080, which has proven to be formidable so far. In fact, that resistance area extends from 4080 up to 4200, so $SPX would need to break out over 4200 in order to upgrade the chart's status to bullish.
Equity-only put-call ratios rolled over to buy signals about two weeks ago, and they remain on those buy signals currently. That will continue to be the case as long as the ratios are declining.
Breadth has been positive every day since we last published. That has confirmed new buy signals from the breadth oscillators and has already pushed them into overbought territory. New buy signals from the breadth oscillators often get overbought right away, and it is not necessarily a problem.
The entire complex of indicators having to do with volatility is bullish for stocks. There is a $VIX "spike peak" buy signal, where we have begun tightening the stops since $VIX has fallen so much. Also a trend of $VIX buy signal is in effect (circle on the chart in Figure 4).
So, we have are at something of a crossroads. Bulls can take heart from the various buy signals from the internal indicators and plenty of new bulls are showing up every day. However, unless $SPX can rally through the overhead resistance, the bears will still have a case.
this is a wave 3
1 tic has closed below 0
this is a trickle up goldilocks market. not too fast not too slow
complex ew traders try to make everything as complicated as possible
as soon as EW trader says it might go up unless it goes down and here is the
alternative count. They successfully confused everyone.
Using just price is 1980 thinking
so wave 3 with 3 gaps should do fib 1.61 golden ratio
"....the near-term bear count in SPX hasn't quite been invalidated, but it's on the ropes."
http://www.pretzelcharts.com/
"Since last update, SPX has made the previously-favored b-wave low count seem less likely:"
"NYA has captured its first upside target zone:"
"If NYA reaches 15400-15800, then that is a very significant inflection zone, so I would be interested to see how the market reacts to it.
In conclusion, the near-term bear count in SPX hasn't quite been invalidated, but it's on the ropes. NYA is now in the process of forming three waves up, and recall that three waves can be an ABC correction. The current wave can run higher, but be aware that this can become a very significant inflection and reverse. I'd like to see a bit more from the market before calling for a reversal, but just putting that option out there for now. Trade safe."
Realists and Common Sense during major discrepancies usually lose out to extreme exuberance supported by 40 years of disinflation and a mega hyperbolic stock market. The ease at which all debacles get resolved in a quick and profitable manner reinforces why we had a banking crisis to begin with. Speculative bets, greed and hubris have actually increased with the increase in past mistakes causing massive temporary damage and equally massive bailouts shortening that damage each time. The ability for governments to mitigate such disasters is due to the acceptance that they can always increase their balance sheet with massive debt and have it paid for using future disinflation cheaper costs.
As of TODAY the May meeting has a 60% chance of ZERO rate hikes. I expect that to reach 80 to 90% days before the meeting regardless of inflation data.
Without breaking any of the numerous EW paths how high can this current wave go? Anytime between May and early July we should see the actual top for a very long time. We have now entered the absurd extrema optimistic view disregarding the laws of nature and common sense. it has only one path left for resolution, a genuine crash scenario.
The setup is there. Absurd altered viewpoint that will ONLY get dispelled in one clean moment of stark realization, like jumping into a pool f very cold water on a hot day. The CRASH: Should have the old fashion signature of a 4 day drop and a 20 percent plunge.
I have ALWAYS predicted how this ends and am even more convinced after the 40 years disinflation mindset went so far in speculative bets that it assures us we are in the twilight zone. FED is in a Catch-22 and regardless of their actions going forward it will not prevent a crash. They have NO CONTROL over inflation as proof of the 80's. if they refuse to raise rates in an inflation cycle that wouldn't stop the damage to the economy and might even exacerbate it.
Let us pray that Inflation is dead. Let us pray that a trillion dollar debacle in banking system will tighten monetary policy enough to thwart inflation once and for all. Get some old fashion religion.
"....not much to add...... Trade safe."
http://www.pretzelcharts.com/
"Last update focused on the near-term potentials, and the market traded sideways/down since then, leaving everything unresolved. I've added the new relevant commentary to the near-term SPX chart:"
"No change in NYA:"
"Finally, I thought about adding this oil chart to Monday's update, then didn't, and I'm still uncertain about adding it now... but will anyway. Oil does NOT yet have an impulsive rally off the low, so keep that in mind, as this may be premature."
"In conclusion, not much to add beyond that. Trade safe."
Interesting insight. The Bank Crisis did for Inflation what the FED could not. that's their theory anyway. We are rallying because all competition to stocks is reversing. Dollar, Bonds, Oil.
Their notion that a bank run that was quickly squashed was enough to get the consumer to contract. The other argument is that banks own problems will force them to be more stringent on loans and present higher costs. They believe the crisis will stop inflation. China and the so called mixed economic readings makes no sense. they should be spending after a 2 year lockdown.
The beauty of a crisis is that any data point before that crisis will also be ignored. We should have a sideways to bullish run till early May at the earliest. heck it took 5 weeks for a known Pandemic to strike us.
"...(If bears are already in control, then we're already in a third wave that may not let bulls up for air for a while.)"
http://www.pretzelcharts.com/
"Everyone should understand the big picture potentials by now, so today will focus on the near-term.
Friday's update offered a near-term option that turned out to be the only chart we needed (at least, for Friday's action):"
"Zooming out a bit, the near-term options appear to be as follows:"
"And then zooming out a bit more, if bulls were to get their ABC (either immediately or after another low), then it could lead to another leg for the rally. (If bears are already in control, then we're already in a third wave that may not let bulls up for air for a while.)"
In conclusion, the first half of Friday's near-term speculative count was a hit, we'll see if the second portion of that count works out too, but be aware of NYA's tag of the second line (above) and the "alt: bull c" option on the second chart. Trade safe.
The NASDAQ Is Eyeing A Major Breakout Level
Tom Bowley | March 26, 2023 at 11:53 AM
https://stockcharts.com/articles/tradingplaces/2023/03/the-nasdaq-is-eyeing-a-major-b-43.html
"Ultimately, breaking out above the August 2022 high represents the key level to reverse the downtrend that began in early-January 2022. I like to use longer-term charts to determine whether we're currently trending higher or lower, and right now the downtrend is firmly in place:"
http://d.stockcharts.com/img/articles/2023/03/26/4ae4709f-8783-4192-8aed-16efeb966fcc.jpg
"The numbers on the above chart identify the lower highs and lower lows that remain in play. Until we clear that August high, the price chart remains bearish. The problem is that if you wait until the long-term price chart turns bearish in a cyclical bear market (January through October 2022), you ride at least half, if not more, of the downtrend. The same holds true when bottoms form. If we're waiting for price confirmation - clearing overhead price resistance a little below 340 - we will have missed the first 30% or more of the move higher.
That's why I do what I do. The price chart only tells us so much. We must be aware of the "under the surface" signals taking place to truly understand the likelihood of a market advance of decline. Despite the clear downtrend on the chart above, I'm VERY BULLISH and have been since June 2022.
If you had $100,000 invested at the end of 2021 and you shorted the S&P 500 (bought SH) when we turned bearish at EarningsBeats.com, that $100,000 would have grown to nearly $125,000. On June 17, 2022, we called a market bottom. Investing that $125,000 in the SPY at that time would have grown to roughly $137,000 as of Friday's close. That would be a total 37% gain in the last 15 months, while the S&P 500 still remains 16.7% below its close on December 31, 2021. That type of outperformance vs. the S&P 500 is life changing, when you further consider the compounding nature of investment returns.
I've spent the past several months explaining to our EarningsBeats.com members why I believe the stock market is heading a lot higher. There are a number of reasons from the positive divergence that appeared on the above weekly chart to extreme bearishness in the options world to serious accumulation by Wall Street. Throw in a very strong seasonal period that begins this week and you'll begin to understand why I'm looking short-term at a breakout in the QQQ. We've been threatening and it wouldn't take much buying from here to clear overhead resistance on the daily chart:"
http://d.stockcharts.com/img/articles/2023/03/26/986c8080-ed40-403b-9d3e-b695b899eb99.jpg
"Given the "under the surface" bullish signals, I'm simply waiting for the price action to confirm what I already believe is an uptrend that will result in all-time highs for our major indices later this year or early next. It will be spurred by growth stocks as the 10-year treasury yield ($TNX) continues to move lower.
I'll be featuring one industry group that will be a key leader during this next move higher. It's on the verge of its own breakout, one that will help to carry the NASDAQ much, much higher. If you'd like to receive this chart, simply CLICK HERE and sign up for our FREE EB Digest newsletter with your name and email address. There is no credit card required and you may unsubscribe at any time."
Happy trading!
Tom
THE OPTION STRATEGIST
FREE WEEKLY UPDATER
03/24/23
By Lawrence G. McMillan
https://www.optionstrategist.com/products/option-strategist-newsletter?mc_cid=7c89e76b47&mc_eid=4d62b38025
McMillan Option Mentoring
"As for the $SPX chart, it once again shows a lower high and lower low, since that February top. Moreover, the latest rally attempt, which began on March 13th, appears to merely be an oversold rally. It sprang from several rather severe oversold conditions, and it has now run into trouble at or just above the declining 20-day Moving Average a "classic" oversold rally.
There is currently resistance at 4040 (this week's high), but the stronger resistance is the entire area between 4080 and 4200 (the trading range from early February), which has already been tested once and held (in early March). Meanwhile, the broad support area from 3760 to 3850 (the range from late December 2022) is still in place. The most recent rally began from that area.
Equity-only put-call ratios surprisingly generated buy signals this week. The standard ratio (Figure 2) had moved to new highs on its chart, so it was in a very oversold state. Thus, a buy signal from that level is not too surprising. The weighted ratio, on the other hand, is still relatively low on its chart, but it rolled over enough that a buy signal occurred there as well.
Breadth has been terrible, and so both breadth oscillators remain on sell signals, and they remain in deeply oversold territory.
The signals and indicators surrounding volatility are general bullish at this time. There is a $VIX "spike peak" buy signal in place from March 14th and March 16th (overlapping signals). Moreover, with the mini-financial crisis seemingly past, $VIX itself is now back below its 200-day Moving Average, so that generates a new trend of $VIX buy signal.
Here's an interesting aside: I am one of the people surveyed in the CNBC Economic Survey. I think there are 30-some traders and economists surveyed. I am the only one who doesn't think inflation has already peaked! I find that very unusual. What this means, of course, is that if there are some bad inflation reports somewhere down the line, they could cause havoc, because everyone has already been acting on their beliefs that inflation has peaked.
As noted earlier, we are maintaining a "core" bearish position as long as the $SPX chart is in its current downtrend. In addition, we are trading confirmed signals around that "core.""
ONE TRILLION of bad loans? Really? No wonder the street is DESPERATE for lower rates. it has already been solved. Kind of illogical if you ask me. But you wont. the TRILLION dollar question: No one considers that the economy might spike even higher on inflation? Impossible all of a sudden? Gee, right before the Bank Crisis everyone was worried how high this sucker will go. NOW? I guess we got confirmation that inflation is dead.
Just cover your eyes when the governments own data comes out. Like the same logic on why a Pandemic this time around would have no consequences. If you can use that logic i guess todays will work.
Guaranteed 40/50% haircut all in 2023. The confirmation is EXACTLY how i called this would happen. EXACTLY! 40 years of Pavlovian response to disinflation is still here, and here to stay. To not even acknowledge MY prediction had come true is astonishing and then to pretend I have no clue what will happen is even more astonishing. Heck i could still be wrong but you have to admit I was ON THE RIGHT TRACK SO FAR. Coincidence. Pure and simple?
jxyzobrien..I hope I didn't run you off our board. That post about Trump was for one person.. Anyway I didn't mean it to be an insult but from your posts I assumed you were a great brother Republican...
Pretzel :
(1) Pretzel presents both a Bull and Bear case.
(2) Pretzel gives both Triggers and Targets
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