October 14, 2009
– Comments (11)
A few charts to illustrate my point.
All new P2 highs on the SPX, INDU, COMPQ and NDX (RUT just a couple of points shy)!! Dow at 10,000!! Whooo-Hoooo!!!
So that means the bulls are firmly in charge right!??!!.... Not so fast.Since the spike this morning, breadth quickly tapered off. And the breadth during the 3pm ramp... not impressing me.And how does breadth look during the rally since Oct 2nd? I would say "declining" is an apt description.Which makes the technicals at the top of this rally nothing to write home about. So are the bulls still firmly in charge? This is a question you should be asking yourself.
Sometimes it scares me when I se how much we think alike.............then I read one of your massive blogs with in depth analysis and i realize only in my dreams do we think alike. thanks for your work buddy. m
So are the bulls still firmly in charge?
Bulls have been in charge since March, bears just stayed in denial. The fundamentals will dictate in the end, and if we start to see inklings of revenue growth this Q and next, then no reason for the market not to continue its retracement. Additionally if emerging markets start to concentrate on consumption, via improving their personal standards of living (something I am still not completely sold on, but something that really should happen for their own sake), you have greater pressure on the continuation of the current uptick cycle.
Look at your S&P chart. The pattern seems pretty obvious since the March lows. You had one leg (or "hump" if you will) from March to July, now we are on the 2nd "hump" which will eventually "tail" down then uptick again on next the "hump" assuming fundamentals don't tank next year. Well that's my interpretation of "chart prognosticating" anyway ;p
Mark910, Dude, that is such a nice compliment! Thanks man!! No, I definitely agree, we do think alike. And your posts a few months ago looking at GDP components and quarterly changes are brilliant! I find myself agreeing with nearly everything you write in your morning posts (please pick those back up!). Thanks bro :)
awallejr, Fair points.
But I see a rally that has gone up 60% in 8 months, with both momentum and breadth declining pretty significantly in the second half of the rally.
However, we are in Q3 earnings and the bulls have needed little reason to continue the rally (I think Orville Reddenbacher came out with a new flavor popcorn in July and that sparked a 5% rally) ... :).
The market is no longer rising due to breadth, it is rising because most stocks have decreasing volatility and increasing support. Then, as good news and earnings reports come in a few big stocks can move higher while the others hold or only rise a bit and the market indexes can continue their rise bit by bit.
We are seeing decreasing volatility every month - showing A) increasing confidence in the market B) support for a longterm trend C) decreasing importance of day traders (who had a blast during 2008-2009) compared to large buy-and-hold.
The market is no longer rising due to breadth, it is rising because most stocks have decreasing volatility and increasing support. Then, as good news and earnings reports come in a few big stocks can move higher while the others hold or only rise a bit and the market indexes can continue their rise bit by bit.We are seeing decreasing volatility every month - showing A) increasing confidence in the market B) support for a longterm trend C) decreasing importance of day traders (who had a blast during 2008-2009) compared to large buy-and-holdI don't buy that premise for a continued sustainment of the rally, but lets take the volality aspect of your argument at face value.I agree, volatility has been steadily winding down as the rally continues up. But the VIX charts, especially the long term charts, have a very interesting story to tell.Read this post VIX Thoughts to Accompany a Few Count Options then this one Did The VIX Bottom?.Is this a bottom in the VIX? Maybe, maybe not. But as all the indices made the higher high at 3:30, the VIX did *not* make a lower low. This one data point does not make a trend, but it is a divergence.What will be *very* interesting will be if the VIX again does not break down if the markets make another move up to finish this current wave since Oct 2.We have seen several divergences of a lot of critical indicators (RSI and MACD - pretty important, TRIN and A/D - much more significant) but a major VIX divergence at new price highs would almost cinch a trend change in my mind.There are a lot of internals that are not as bullish as they used to be, which is really the point of this post. And it should give the bulls pause, especially those who are thinking about jumping in or substantially adding to longs here.
What I think is fooling people is all these companies reporting are cutting revenue, laying off employees, slashing production, less spending on R&D and any other cosat cutting in their overhead since last the last 2 quarters right? Now earnings come out ands they scream "YEAH Profits". Hmmm, that doesnt seem to add up...We dont care as investors because we are profitng on (hopeful) future returns. BUT, as a company owner it is not a position to be in and be happy about. Yes cutbacks during tough times are needed but these earning reports are VERY misleading to the average Joe!
Earnings reports will continue to bolster the bullish view, as the year over year comparisons in Q4 of 2009 and Q1 of 2010 will be compared to the worst quarters of 2008 and 2009. Look at Intel, they are predicting 20% growth in revenue over last year. And larger margins.
While we had a real tightening occurring in 2008 Q4 and 2009 Q1 - and those revenue, sales, profits, and earnings collapse looked horrible then, they'll make it very easy to have nice y/y gains during 2009 Q4 and 2010 Q1.
Thanks for the thoughtful response - I gave you a +1 for the nice blog, graphs and commentary. I'm not sure the VIX needs to go lower at this point, it may already have reached a bouncing bottom... We no longer have those gut-renching 4% up/down moves many times a week. 1% up or down is fine by me.
I have to say out of all the charts you've posted in your blogs, these are the most simple to follow. Also I love the commentary. "My 80 year old grandmother can do better ". Maybe the S&P 500 has been running so fast its out of "breadth".
Man I get lost while reading some of your posts. I've been reading them for a long time and I still don't know the correlations between the indices and what it means when there's a divergance, etc.
I keep reading them so that I can learn and I keep reccing them so you keep posting! Rec #16...
outoffocus, LOL! Thanks :) Yeah, this was one of the more fun posts I have written :)
Maybe the S&P 500 has been running so fast its out of "breadth".
LOL! Yes, exactly! :)
Thanks! I always appreciate the feedback! :).