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FED KILLS THE BEAR, for now


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#1 dTraderB

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Posted 03 February 2019 - 06:11 PM

Well, no, but you might be convinced after many bears gave up and converted to bulls after the FED's rather wimpish capitulation, or so it seems. 

Of course, you don't keep on trading short when the market is moving up but you may want stay alert when sentiment goes bullish extreme and then try to catch the markets on the way down. 

One of my posts in the Fall of 218 warned about the impending BEAR market and I am going to make a similar call, soon. 

Conditions are not yet perfectly right but the fizzling & frothing have begin and there aren't many sources of "good news" or catalysts left. 

 

For now, monitor the SPX 2010/15 resistance zone and the 200ma at 2742

 

Max upside for this rally is SPX 2760

 

Fed Kills The Bear... For Now
Summary

2018 was a year where the markets had begun to adjust for tighter monetary policy.

As our headline this week denotes - the shift in policy has temporarily put the bulls back into hibernation.

But, with the Fed now back to providing plenty of "accommodation" to the markets, even if it is only verbal at the moment, there is a bias to the upside for the markets currently.

saupload_SP500-MarketUpdate-1.png

 

Valuations are no longer cheap by historical standards, but instead are expensive by virtually every measure.

As Goldman Sachs pointed out recently, the market is pushing the 89% percentile or higher in 6 out of 7 valuation metrics.

saupload_Stock-Bond-Valuations.png

 

There is no longer a "pent-up" demand for equity ownership as households now have more equity exposure than at any other point in history.

saupload_Household-Equities-DPI-020119_t

Furthermore, the market is not grossly oversold and deviated well below long-term trends as it was in 2008. As Dana Lyons recently penned:

 

"We used exponential regression smoothing to find the 'best fit' trend line on the [Shiller data] series from 1871 (h/t to Doug Short for the concept.)

After finding the best fit trend line for the composite, we can measure how far above or below prices are at a given time. As it turns out, this past September saw the composite reach 122% above the trend line, i.e., it was 122% 'overbought'. In nearly 150 years, the only months that saw prices more overbought than that were those encompassing the 1999-2000 market top - the most excessive, bubbly top in U.S. market history."

 

saupload_tumblr_inline_pm7fnjzF5U1sq14jh

 

While markets can certainly remain extended for much longer than logic would predict, they cannot, and ultimately will not, stay overly extended indefinitely.

The important point here is simply this. While the Fed may have curtailed the 2018 bear market temporarily, the environment today is vastly different than it was in 2008-2009. Here are a few more differences:

  • Unemployment is 4%, not 10+%.
  • Jobless claims are at historic lows, rather than historic highs.
  • Consumer confidence is optimistic, not pessimistic.
  • Corporate debt is a record levels, and the quality of that debt has deteriorated.
  • The government is already running a $1 trillion deficit in an expansion not half that rate as prior to the last recession.
  • The economy is extremely long in a growth cycle, not emerging from a recession.
  • Pent-up demand for houses, cars, and other durables has been absorbed.
  • Production and Services measures recently peaked, not bottomed.
 

In other words, the world is exactly the opposite of what it was when the Fed launched "monetary accommodation" previously. Logic suggests that such an environment will make further interventions by the Fed less effective.

The only question is how long will it take the markets to figure it out?

 

https://seekingalpha...-kills-bear-now

 



#2 dTraderB

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Posted 03 February 2019 - 06:42 PM

"In the short-term the SPX has rallied to test the 61.8% Fib retracement of the Sept highs to Dec lows, which has been a target of mine since late Dec/early Jan. Over the last week we've been monitoring a bullish pennant on the daily SPX which finally broke out on Wed (this pattern measures to 2720 - 2735).  I've been targeting a range from 2714 - 2750, which includes the 61.8% Fib on the low end, and the 200 day MA on the high end (2741), and we are now in the bottom end of that range.  Therefore this is an area to be more cautious now, especially with the doji candlesticks that formed on Friday and 5 RSI divergence on the daily charts now.  In fact a short or exit to cash trigger could be generated on a move below Friday's doji low on the SPX below 2696.   Otherwise should prices continue their march higher I would be looking for a re-test and possible fake out move over the 200 day MA in order to suck in the rest of the masses.  The market has been on a tear all Jan with the SPX simply rising up the 9 day EMA in a V-ish type rally.  Remember I discussed this possibility weeks ago where a 'max pain' scenario would occur by a further rally not allowing the 'bulls' to get in and burning shorts.

 

As far as market indicators we follow, the VIX tagged its lower Bollinger Bands on Friday, which has been an area I was targeting for a while.  For the last year plus the VIX has managed to find support at its lower Bollinger Bands every time so we'll see if it does here or not.  However even if it goes lower, remember that a close below the lower BB's and then back above would technically be a VIX buy signal.         "



#3 dTraderB

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Posted 03 February 2019 - 06:47 PM

Now let’s go through the charts:

Firstly, markets remain in the neutral zone, still above the daily 50MA, but below the 200MA, and hence so far this rally remains an aggressive rally below the 200MA:

SPX200-2.png?resize=639%2C361&ssl=1

Speaking of fundamentals deteriorating, note that this recent rally went entirely against the most recent trend in the Baltic Dry Index which made a new low in January:

SPXBDI.png?resize=639%2C480&ssl=1

Over the past year declines in the Baltic Dry Index have led to reversals in $SPX. Also note $SPX reached its .618 fib on Friday and found resistance there. Resistance is now the name of the game on a lot of charts. $SPX has the daily 200MA above and following a 6 week uninterrupted rally $SPX is now also near its weekly 50MA:

SPXW-3.png?resize=639%2C478&ssl=1

These MA’s are important pivots. Given the size and uncorrected nature of this rally it is at increased risk of an at least short term reversal.

After all $BPSPX RSI is now the most overbought since January 2018 before the 10% February correction:

BPSPX-2.png?resize=639%2C566&ssl=1

And also note another time when the RSI spiked above 80 following a big sell-off: Following the 2015 correction. Back then markets squeezed slightly above the 200MA, consolidated and then corrected to new lows which then prompted the big global central bank rescue operation.

https://northmantrad...l-chairman-pow/



#4 dTraderB

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Posted 03 February 2019 - 06:51 PM

Carl's new BUY signal:

 

SPY Breakout and New BUY Signal
Carl Swenlin |  February 01, 2019 at 06:34 PM

 

On Thursday,  on expanding volume, SPY broke above the declining tops line drawn from the October Top, and at the same time it broke above the 200EMA. Then on Friday the SPY 20EMA crossed up through the 50EMA causing the IT Trend Model to change from NEUTRAL to a BUY signal. With this positive action, we should consider that the bull may have taken the helm, but there are some short-term caution signs.

15490600145642021119650.png

 

https://stockcharts....buy-signal.html



#5 dTraderB

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Posted 04 February 2019 - 06:18 AM

Tom McClellan @McClellanOsc
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With Feb. 1's positive A-D numbers added to the tally, the NYSE's A-D Line is now just 4618 net advancing issues from equaling its all-time high.

DyWu-aOUcAAKSsI.jpg
2:59 PM - 1 Feb 2019

 



#6 dTraderB

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Posted 04 February 2019 - 06:22 AM

BloombergVerified account @business
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Did the Fed cave to the markets? Yes and no, says Fed watcher @TimDuy https://bloom.bg/2DSImta  via @bopinion



#7 dTraderB

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Posted 04 February 2019 - 06:27 AM

Urban Carmel @ukarlewitz
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$SPX: weekly MACD positive cross from negative (lower panel) + closed above 20-week MA for first time since Oct 1 (blue circle). When these both happen, most often a bottom or at least higher highs ahead. With 1 exception, total fails only under 20-wma (red circle) 1/2

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DyXHDx0UYAAatAS.jpg
4:45 PM - 1 Feb 2019


#8 dTraderB

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Posted 04 February 2019 - 06:28 AM

Urban Carmel @ukarlewitz
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$SPX - a +15% uncorrected gain is at/close to the outer limits since 2009. Some consolidation/retracement should be expected ahead

Dyf3CcjU8AADOsk.jpg
9:30 AM - 3 Feb 2019


#9 dTraderB

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Posted 04 February 2019 - 06:30 AM

No, not as yet....

 

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Does this look like a bull trap to you? https://on.mktw.net/2DRsSpu 

DyhBXP3XQAY4hdh.jpg
2:55 PM - 3 Feb 2019


#10 dTraderB

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Posted 04 February 2019 - 07:32 AM

Quiet market, so far, had 1 NQ long trade.

 

  • The last time the Nasdaq had a January as strong as it did this year was in 2001, when it rose 12%. It then fell 22% in February of that year for its third-worst month ever, according to Dow Jones Market Data. The tech-heavy index edged lower 0.2% on the first day of February Friday, after rising 9.7% in January. 
     
  • On this day in 1994, without any warning, and just as investors were pouring billions of dollars into bonds, the Federal Reserve raised short-term interest rates for the first time in five years. By year-end, the Fed had hiked short-term rates by 2.5 percentage points—and Treasury bonds lost 7.8%, their worst return since 1967.

The bond rally suggests the stock rebound could reverse. U.S. stocks and bonds are rallying together, an atypical pattern that some investors worry suggests the January rebound in equities is fated to run up against a painful reversal.

Junk debt is back. Junk-rated bonds and loans are flying off the shelvesagain, easing recent worries that a credit-market freeze could harm the economy.

Investigators are expected to probe Deutsche Bank efforts to shed a loan to a Russian bank. Congressional investigators expect the House Financial Services Committee to examine Deutsche Bank’s efforts after the 2016 election to shed a loan it made to VTB Group, a large Russian state-owned bank.

China casts a shadow over the world’s largest index provider. MSCI last summer added stocks in China to one of its most prominent global benchmarks after it came under heavy pressure from the Chinese government.