14 replies to this topic

[IYB]

Not a TOP?

I realize this is a very unconventional view - and a massively unpopular one even among some of the very best analysts. I suspect most will disagree....or worse. But despite the extreme short term overbought condition of markets {and we, too, were sellers on Friday}, the evidence just does not, from our humble analysis, support the "top is in" or even the "top is nigh" consensus that has seemed to form recently with regard the the Primary Bull Market. And we feel compelled to call it as we read it -- chips fall where they may. If the Bull Market top callers DO turn out to be right, we'll be more than pleased to join them when we get our sell signals. In fact, we'll be right there with them on the short side when we get an Intermediate Term (weekly) sell signal from the Seven Sentinels. But not until.

Below are some excerpts from this week's SevenSentinels.com weekend comments:
--------
We have found it interesting this week just how ubiquitous the "bull market top is at hand" idea has become recently, even.... or perhaps especially among some of the very best technical analysts in the business. As just one example, here is Carl Swenlin's view:

".... In fact, we can't even say that there has been a cycle crest yet, although, given the proximity of current prices to the tops in 2000 and 2007, it is likely that a long-term top will be put in soon....the ten-year trading range of the S&P 500 Index suggests that a major price top should be arriving sometime in the first half of 2013, maybe within three months."

That general view takes a whole lot of forms as we see constant warnings and predictions of impending doom for the Bull Market Cycle (or stock prices in general) based on currencies, oil, precious metals, cycles, volume, earnings, valuation, national debt, sequestration and all sorts of other very reasonable and logical arguments.

It is entirely possible that "they" are right. We will not assume otherwise. But neither will we accept that view unless or until the market tells us that indeed a real and lasting cyclical top is in and a bear market is underway. Over the years we have again and again seen that the most magnificent and profitable market moves occur precisely when the vast majority of traders and analysts are expecting the opposite. 1998-9 and 2006-7 come to mind as excellent examples of that last point. Fortunes were made, especially in the market leaders, during those periods.

Again, at very least, when the Bull Market peak truly is "in" and a Bear Market is underway, that Bear Market will be shown via the following chart by price trading below the declining 13 month ema, Monthly MACD on sell and CCI below zero, as we saw in late 2000 and early 2008, for example:

http://stockcharts.com/c-sc/sc?s=$SPX&p=M&yr=13&mn=6&dy=0&i=p21043597269&a=181755078&r=783.png

Please do NOT misunderstand. We are NOT arguing that we cannot possibly be in the vicinity of a Bull Market Peak currently. We are instead strongly suggesting that we are at a critical juncture here that could eventually develop into a long term top....OR....could develop into a magnificent bull market run during which the "public" who've hated every day, week and month of this Bull Market since the SPX 666 low in March 2009... finally begin to embrace this bull cycle and enthusiastically drive it higher.

Our overriding point here is this: We will let The Market --- not our biases, beliefs, expectations, or even preliminary cycle analysis--- make that call and tell us when, indeed, the "top is in" and the Bear Market is underway. If that happens this month or next, we'll be listening and will take action. If instead the opposite occurs, again we'll continue to ride the uptrend.

Meantime, let's review a few of the indications we've been observing this week that suggest that there is at least the possibility of a whole new leg upward - perhaps a massively profitable leg characterized by public embrace of the Bull Market - in coming weeks (though we will be reviewing latter in this article the extreme overbought Short Term condition which is likely to hold back bring on a Short Term correction /consolidation in days immediately ahead}.

Let's examine, for example, the percentage of NYSE stocks over their 200, 50 and 20 day moving averages NOW versus known cyclical top in the past 12 years- 2000 and 2007:





We've said here more times than we can count: "external follows internal as night follows day". A prime example of that is the percentage of stocks that are above their moving averages as we approach, then achieve, a market peak. That percentage peaks and starts falling long before the final price high. By the time price DOES peak, the percentage of stocks in uptrend mode will have shown very marked deterioration. External follows internal. Internal peaks early - price peaks later.

Carefully note the percentage of stocks above their 200-day ma's at the 2000 price peak and the 2007 price peak and compare those to current numbers. At the 2000 price peak the % had deteriorated to under 60. At the 2007 peak the % was only about 70. And currently? Currently that percentage is 85.40%. The message: the final price peak is very likely at least several months ahead still, at least as indicated by this measure. Now same comparison 50-day ma's. 2000 top: 70%. 2007 top: 79%. And now? Currently that % is 90.8. We are not even close- just yet, by this measure anyhow. And the 20-day ma's... At 2000 price peak reading: 75%. At 2007 price peak, 80%. And now? The current reading is 92.8%...not yet near what we the deterioration we need for a price peak.

And the NYSE advance-decline line? We all know the history there by now--- it peaks BEFORE price as in 2000 and 2007. And now? All Time Highs and sharply rising:

http://stockcharts.com/c-sc/sc?s=$NYAD&p=W&yr=13&mn=6&dy=0&i=t48294945004&a=271375935&r=1357504188957.png
--------------
Covered also in that article:

Now consider the McClellan Summation. Briefly stated, major market price peaks come when this measure has deteriorated to under 500 at new price peaks, as we see in 2000 when at final price peak McSum was only 250....
{chart}
...and 2007 price peak when McSum was only 150:
{chart}
....and now? Currently McSum is +533 and sharply rising........strongly suggesting that the cycle peak in prices could be at least many months down the road.
--------------------
Now let's talk about the short term extreme overbought condition and how we will trade....
--------------------
Finally, a quick word on the new Collective2 tracking account. .....We will be offering substantial discounts to SevenSentinels.com subscribers ......

[andiron]

In a normal market these observations are likely to hold...a la continuum mechanics... However in a thinly traded market, exposed to macro shocks, what you could get is a sudden fall (as in May 2010)..a la quantum mechanics... so it is the orderliness of the market that is in doubt...and a jolt could be as big as 300-400 SPX points... nonetheless, you have made good points....

[norton]

Hi Don! Just checking in here after many months. It seems anticipation of change in overall equity sentiment is nicely tradable at times. For example, this last short opportunity of selling off going into the "fiscal cliff" nonsense Yes we are in a bull void for now and any short term pull backs to previous support should be bought So we can and should trend higher from here, all is a go I agree with your outlook. But, let's talk about what is likely a very good short sale coming up to position for, the debt ceiling wrestling match due to start seriously taking over the media in some 30 days or so. Just as the fiscal cliff dance was a pretty easy short of some fast 50 SP points (for me anyway), my guess is so should the upcoming debt ceiling, and maybe a lot more points, 100+SP on the downside? Last time in August of 2011 the crisis took us to the rating downgrade and edged close to us defaulting to pay what congress had already spent, the markets took a terrible beating. Geithner has already sent his letter to congress advising we have already reached the debt ceiling and that he can selectively pay our bills for a couple more months only, taking us to end of Feb or so. SO, what the heck am i getting at? That we continue your well reasoned bull move for now and that sets up a terrific fast down move as the media drums up panic on no debt agreement. So when should one anticipate such a short sale, maybe mid Feb or so? And what might be the very best previous price resistance, all time highs years ago? That is how I see the upcoming change in sentiment and trading opportunity, you?

[IYB]

That is how I see the upcoming change in sentiment and trading opportunity, you?

Always a major treat to hear from you John! Yes your thoughts on how this will unfold in the next 60 days makes total sense. But from my perspective, I'd just make two points:

1. The upcoming debt fight will almost certainly cause some super trading opportunities just as you suggest - just as did the latest FC dance steps. But I still maintain that unless or until markets make new highs with weak internals as discussed here and divergent A-D line, etc -- and until we get the monthly trends in declining mode- the Primary Trend remains up despite that dance. That was the main point I was looking to communicate.

2. You know me--- I'll be reading the trends and the signals to tell me when to trade - and let others (like you my friend) figure out the why's and wherefore's of the dance ahead.

Thanks VM for the shout and I hope all well with you and yours, D

[norton]

Don, curious how were the internals you read right at the swing highs on around May 12 and the also the end of October last year when right when equity prices were at their swing highs prior to big drops? I assume internals were weak, signaling the ensuing declines? I know nothing of this, I guess i always assumed, wrongly, the market is usually technically strongest at highs of price......?

[thespookyone]

Good post, and I'm totally with you, D. "Go Figuire" LOL.

[IYB]

Don, curious

how were the internals you read right at the swing highs on around May 12 and the also the end of October last year when right when equity prices were at their swing highs prior to big drops?

I assume internals were weak, signaling the ensuing declines?

I know nothing of this, I guess i always assumed, wrongly, the market is usually technically strongest at highs of price......?

John, I assume you are talking about 2011 because that's when we had swings highs on May 12 and end of October-

Here are the signals for 2011, showing sell signals on May 13 and November 11. These were published in real time and are part of the public record:

SEVEN SENTINELS BUY SIGNAL DEC 23, 2011
SEVEN SENTINELS SELL SIGNAL NOV 9, 2011
SEVEN SENTINELS BUY SIGNAL OCTOBER 12, 2011
SEVEN SENTINELS SELL SIGNAL SEPTEMBER 28, 2011
SEVEN SENTINELS BUY SIGNAL AUGUST 29, 2011
SEVEN SENTINELS SELL SIGNAL AUGUST 2, 2011
SEVEN SENTINELS BUY SIGNAL June 27, 2011
SEVEN SENTINELS SELL SIGNAL MAY 13, 2011
SEVEN SENTINELS BUY SIGNAL MARCH 25, 2011
SEVEN SENTINELS SELL SIGNAL MARCH 7, 2011
SEVEN SENTINELS BUY SIGNAL FEBRUARY 8, 2011
SEVEN SENTINELS SELL SIGNAL JANUARY 20, 2011
--------------------
But in direct answer to your question, no internals are NOT strongest at the price highs. They are strongest at what I like to call the "internal high" which always precedes the price high by some time. That is to say internals begin to decline long before price - and this is why I say "external follows internal like night follows day." First internals decline followed later by price peaking and declining.

That the whole basis of everything I do, and why I call the concept of external following internal: "The most powerful trading concept on earth. Period"

But right now we are likely confusing readers by switching back and forth between discussion of the Primary Bull Bear Market Cycle, which typically runs 4-8 years, and Intermediate Term as identified by the Seven Sentinels Buy and Sell Signals and which typically run about 8-15 weeks peak to peak or trough to trough.

Prolly too much to try to cover in this string. Regards, D

Spooky- thanks and yep..... "go figure"

[norton]

got it, thanks Don!

[NAV]

That general view takes a whole lot of forms as we see constant warnings and predictions of impending doom for the Bull Market Cycle (or stock prices in general) based on currencies, oil, precious metals, cycles, volume, earnings, valuation, national debt, sequestration and all sorts of other very reasonable and logical arguments.

Leave the predictions to astrologers. Like you said, just trade the signals. Trading based on predictive analysis involves open ended risk and sleepless nights. Once you throw away the predictive aspect from your trading, it's becomes an easy job, almost a mundane, boring routine (but makes money nonetheless).

Edited by NAV, 06 January 2013 - 09:51 PM.

[pdx5]

Shorting opportunity for the year should present itself when the wrestling between the politicians reaches a feverish pitch in February, on the subject of debt ceiling increase. After another "deal" is reached, I expect to turn bullish or bearish for the remainder of year depending on what are the details in the deal. The fiscal cliff deal does not look bullish to my tired eyes. Every single worker's taxes went up. How is that a stimulus to the economy or cash levels of stock purchasers? Mine did'nt but I am irrelevant because only thing I really stimulate is golf club makers. Callaway & Taylormade forgot to send me a Christmas gift, they are such ingrates

Edited by pdx5, 06 January 2013 - 10:17 PM.