Bits of evidence – not proof

Market Letter

August 16, 2016…………………………………………..

Hello!

The Dow, the S&P 500, and the NASDAQs had been trading generally sideways for at least two weeks in an overbought condition attended by extremely high bullish investor sentiment.  Then, as a child tests his parent for days on end, the bulls continued to challenge and prod, leading to several days of gap-up Opens which settled back into sideways moves for the rest of the day.  The situation was akin to that of an inflating balloon, in which the observer knows what the eventual outcome will be – the only question being When it will happen.  It’s too soon to be certain; but it may be that the balloon popped today.

In recent weeks and moonths, the Russell 2000 and the S&P 600 SmallCaps had been lagging the Dow, theS&P 500, and the NASDAQs; but recently they had caught fire and had set new Highs of their own, which signaled a return to the Bull party of the “man-in-the-street” investor.This phenomenon typically occurs at the very end of a bull trend, and is characteristic thereof.  It is a powerful warning that the party is ending.  It is also a signal that the “little guy” is about to be burned, unless he is very careful and fleet of action.

On the 60-minute chart of the NASDAQ Composite, please note the worry at the top, where a series of small downmoves (together) bearishly engulfed the single spike-bar to the top; and, especially, the Gap on the downswing which followed – and the relatively strong Down Close.

Please also note the clearly bearish cast of the topping-and-reversing pattern shown on the S&P 600 SmallCaps chart.

All of the factors cited above are bits of evidence – not proof – that the tide may have turned, to the downside.  I think that the odds favor a decline; and it could be substantial.  My suggestion is toseriously consider taking some of your chips off the table.

Silver seems to be especially vulnerable to a decline.  We can see what appear to be Exhauston Gaps on the way Up, and a large Rounded Top.  The most powerful argument lies in the Commitments of Traders chart, which shows that the Large Speulators (“hedge funds”) are in a higher Net Long position than EVER.  This situation cannot continue forever, or for much longer.  It is a recipe for a massive implosion.  The Silver bulls have been testing, testing, testing the limit.  The “little guy” is right in there too, Net Long; and when the dike finally breaks there will be a mass rush for the exits that will be a sight to beold; and not everyone will be able to escape unscathed.  I think that the “little guy”should call it a day, pack it in, and get out now.

Respectfully submitted.                                                                                                                    

CandleWave, LLC                                                                                                                

By William Kurtz, President

906 Whippoorwill Dr., Palm Harbor FL 34683 USA

Wkurtz1@verizon.net     info@CandleWave.com

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Past performance is not indicative of future results

SPY weekly chart with REI

The following chart is the weekly SPY.  Below is the REI (range expansion index by Tom DeMark)

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Rydex MMF @ a Low

 RYFXX - Rydex US Government Money Market

Since tracking the daily market capitalization of RYFXX, Friday August 12,2016 closed at a low since March 2009.
From March 2009, stock market highs have been accompanied by low amounts of cash in the Rydex Money Market Fund and stock market lows have been accompanied by high amounts of cash in the Rydex Money Market Fund.
The following are some lows and highs in the Rydex RYFXX money market fund that occurred near lows and highs in the stock market.

RYFXX   market capitalization
3-10-09   $1,367Mil  

4-4-12  $585Mil

6-18-12  $1,123Mil

5-24-13  $726Mil

6-24-13  $1,421Mil

12-5-13  $649Mil

2-10-14  $981Mil

9-15-14  $761Mil

10-16-14  $1,202Mil

1-5-15  $693Mil

1-30-15  $1,111Mil

3-10-15   $655Mil 

6-5-15   $667Mil

9-9-15   $1,434Mil


11-24-15  $700Mil

2-5-16  $1,066Mil

8-12-16  $495Mil  <------


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SPY weekly chart

Courtesy of eSignal

There are 4 windows in this chart:
1-price chart - blue is bullish and red is bearish
2-macd - circles added at crossovers
3-ADX - horizontal lines were added
4-short term indicator - vertical lines were added

Summary:
In the current week, so far, there is a bearish bias, but, no sell signal yet.
The price bars are still blue and still above the blue trend line.
The macd is still bullish & waiting for the histogram to flatten out and turn down.
The ADX is narrow and indicates a trend less market.  When the red line is above the blue line a red horizontal line was drawn and when the blue line is above the red line a green horizontal line was drawn.
The short term indicator is over bought and so the vertical line is currently red.
The bar chart indicates that an Elliott Impulse Wave is or maybe complete.  Since an EW is not complete until it is history, each time the market makes a nominal new high the EW count gets redrawn.

If we are not at a high we maybe close to a high. When the market does decide that it is tired and it wants to take a rest, you should see more evidence.  Right now only a caution light appears to be flashing.

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Picasso ST Cycle Dates

In this update only the dates will be mentioned with an "H" for high and a "L" for low.
The chart amplitude can and will be misleading at times.
In addition, it is the date that is most important rather than if that date is a projected high or low with amplitude as sometimes shown on the chart.
One important reason is because in some cases a date may invert and the amplitude and the "H" or "L" may not mean anything.
A low may actually turn out to be a high and visa versa.
Also it is very important that other tools always be used to confirm any potential ST Cycle Date.

Picasso Dates, always +/-
8/12 L
8/31 H
9/16 L
9/20 H

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Earl & Earl2

By Danny of LunaticTrader.com

Stock markets kept pushing higher and the recent lunar green period added 121 points to the Nasdaq. Will there be no letup?
Of course the market cannot keep climbing without any pullbacks, so we will get a letup and probably sooner rather than later. Lunar cycles have not done well so far this year, but the recent green period could mark the return of some normalcy in that department. A new red period is getting underway, so we will find out soon. Here is the current Nasdaq chart:

The Nasdaq has come very close to its all time high and may break it any day. But my technical indicators are indicating potential problems. The faster Earl (blue line) keeps weakening and may paint a bearish divergence soon. The slower Earl2 (orange line) is flattening out and may turn down any day. The MoM is starting to pull back from a major peak in the +8 euphoric zone. That's not a setup I want to buy, especially not when a new lunar red period is starting.
The LT wave for August is also indicating weakness after a possible top today (+/-1 day).

I wouldn't be too greedy at this point. It has been a great rally over the last 6 weeks, but trees don't grow into the sky. I will take some profits here and then see when the next buying opportunity comes along.

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SPY - Possible ST caution signs

Courtesy of eSignal

Above is the daily XIV which is above it's upper band today.
Usually it needs time to get back into the bands at lower prices.

Courtesy of eSignal

Courtesy of eSignal

Courtesy of eSignal

The three charts above are the SPY 240min, daily and weekly charts.  Today each has completed a "minimum" of 5 Elliott Waves.  This, if the wave does not change, is usually a heads up for some kind of counter trend move.  The time frame is not known until it starts to happen.  This is NOT guaranteed, as Elliott Waves are not fully confirmed until it is history.  That is why it is only raising a caution flag at this time.

Note that the months of August and September, in the past, have been weak months for the stock market.

Also note that several posts on this blog have indicated a "probable" rise into the year end due to the strong breadth seen in February and June along with some other factors.
So, at this time, it is likely that any pullbacks may become buying opportunities, but, not to be invested in blindly.  This stock market is eight years old and there are many indications that a top is in the making going back to late 2014.

To review stock market valuations, one good website to look at is  AdvisorPerspectives.com By Doug Short
One good article:
http://www.advisorperspectives.com/dshort/updates/Q-Ratio-and-Market-Valuation?utm_source=dshort_feed&utm_medium=rss&utm_campaign=graph_link

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Up 5 Straight Months !

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Picasso Dates Updated

Courtesy of eSignal

The blue, red & black dots in the above Picasso chart corresponds with the blue, red & black arrows in the top chart of the daily SPY.   Note that the forecast top and bottom dates all held except for one.  On occasion a date can and will invert.  This is what happened on July 15th when the stock market displayed strong internal breath.  That is why other indicators MUST be used with cycle dates.  NEVER trade cycle dates without first confirming those dates with additional tools.

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Earl & Earl2

By Danny / LunaticTrader.com

Markets kept up very well last week and stocks are still not in the mood for any pullback. That will obviously change some day, but when? I don't know how many under water shorts are still waiting for a decent chance to get out, but that could be one of the reasons why this market has refused to pull back since its new record highs.
Here is the current Nasdaq chart:

While the S&P 500 is at new highs the Nasdaq still has quite a few hurdles in front of it before it can do the same. The 5100-5200 area is heavy overhead resistance in this index.
The Earl index (blue line) has started pulling back from a major high, but the market is not coming along. Meanwhile a new lunar green period is starting, which normally favors further gains. But the lunar cycle hasn't worked well so far this year, so we better be careful. The slower Earl2 (orange line) is still headed higher, suggesting further gains in the pipeline.
I see a very mixed technical picture, so I am not going to commit too strongly either way at this point. The short term momentum is clearly up, but that can change very quickly. We will probably get more clarity soon.

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Where R We Now?

Courtesy of humblestudentofthemarkets.com

Courtesy of humblestudentofthemarkets.com

Courtesy of humblestudentofthemarkets.com

The above charts display the changing data in recent sentiment.  There is now data that supports/suggests that we may experience a short term market pullback or at least some kind of consolidation soon.

If and when there is a pullback, we would refer back to the post below on March 4,2016 titled 2016 Bull or Bear?.
Link    http://justsignals.blogspot.com/2016/03/2016-bear-or-bull.html

In that post the Escape Velocity is discussed.  Based on the data in that post, we should allow for a higher market in the second half of the year.




The July 6,2016 post, David Kostin of Goldman Sachs also suggests a sell-off could come in the next three months, Kostin expects some recovery in the market that would bring the S&P 5oo back up by the end of the year.

Link     http://justsignals.blogspot.com/2016/07/david-kostin-of-goldman-sachs.html

The ChaikinAnalytics charts posted on July 20,2016 also indicate a short term OB market.
Link     http://justsignals.blogspot.com/2016/07/charts-sly-iwm-qqq.html

So if a pullback develops we will look at the indicators at that time and if all looks according to plan, buy the dip.

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Dow's 9 day winning streak

Interesting data !

But do not forget that August is the next potentially weak month.

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charts: SLY IWM QQQ

Courtesy of ChaikinAnalytics.com

Courtesy of ChaikinAnalytics.com

Courtesy of ChaikinAnalytics.com

Each of the above charts share a common theme.  Higher highs in price, lower highs in the Chaikin Money Flow and Overbought. 

   

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Earl & Earl2

By Danny / LunaticTrader.com

The S&P 500 has reached new record highs and has kept up surprisingly well all week. Will this market just keep climbing without looking back? Maybe.
The S&P 500 chart may offer us a few clues:

There is no clear overhead resistance level at this point. But the Earl indicator (blue line) is turning down already and the MoM has reached very optimistic +8 level, which is quite rare. This suggests that we "should" get at least a bit of a pullback here.
When a market breaks out from a long sideways pattern it is classic to turn back and kiss the old support/resistance line before continuing in the direction of the breakout. In this case that would mean a drop back to ~2130. That's my current base scenario, given that we remain in a lunar red period. But of course we cannot rule out that the market may climb even further before taking a vacation.
This market is bullish until proven otherwise, and I wouldn't fight the trend. Let's see if we get that kiss.

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Weekly Stock Picks Updated

Posted on  Monday, July 4, 2016

Something new, Weekly stock Picks will be made based on taking a long position while the stock is at or near an Over Sold level.  These stocks display good technical strength including Chaikin Money Flow & Relative Strength.
As always, do you own due diligence !
CORE                          7/5/16 @   46.77   today  48.06 GAIN
FDP                             7/5/16 @   54.07   today  56.01 GAIN
GGAL                          7/5/16 @   30.67    today 32.16 GAIN
HTH                             7/5/16 @   20.41    today 21.97 GAIN
YWO  typo s/b TWO    7/5/16 @    8.47     today   8.61 GAIN
WWW                           7/5/16 @  19.94    today 22.89 GAIN
AVX                              7/5/16 @  13.33    today 13.82 GAIN
BDC                             7/5/16 @  58.07     today 72.01 GAIN
JEC                              7/5/16 @  48.65     today 52.29 GAIN
X                                  7/5/16 @  17.64      today 20.79 GAIN

Each of the stocks above are now short term over bought and are NOT on the weekly pick list anymore.
Usually a basket of stocks has some losers in them but these all were winners.

More weekly stock picks may be done going forward. 

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Fear & Greed Index

Courtesy of CNN/Money

Courtesy of CNN/Money

The above indicator has moved even further into the Extreme Greed area. 

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Earl & Earl2

By Danny / LunaticTrader.com

Markets kept climbing last week, and the S&P 500 came very close to new all time highs, which is what we called for. We may see a new S&P high today, even though a new lunar red period has started. But the LT wave for July projects highs on the 11th or the 26th, so let's see.
The Nasdaq is not so close to its all time high and here the question becomes if it can break out above the 5000 level and stay there. Here is the chart:

My 3 indicators are all pointing up and the Earl2 has painted a bullish divergence. So, the odds for a break above 5000 and a further climb look pretty good. But it may not come without some hesitation. So, I think we will see a new high for S&P 500, but then probably a bit of a pullback for the next 10 days. If that pullback is mild then the market will be well positioned to climb further in August.

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chart: % of DJIA stocks above 10 DMA

Courtesy of IndexIndicators.com

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charts: Fear & Greed Index

Courtesy of CNN/Money

Courtesy of CNN/Money

 

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SPY 4min chart

Courtesy of TradeStation

Red = sell signal & green = buy signals.  They have been working fairly well lately.

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Bond Yields

July 07, 2016

The 60-year cycle in interest rates has been operating for as long as interest rate data have reliably been collected.  And right now it is saying that we should be in an upward trend for interest rates, lasting until 2040.  So the negative interest rate policy (NIRP) being foisted upon us by the smart people who run the world’s central banks is running contrary to that cycle, and thus is storing up problems for the future.  Delaying the inevitable just makes the inevitable that much more painful once it gets here. 

The bottom of this current interest rate cycle is now going on being 6 years overdue, but that is not unusual.  Past cycle lows have seen rather broad patterns in yields before starting the upward phase. 

A cycle bottom had been due in 1890, and it appeared to have come in back in 1889, but then rates dropped even further into a low in 1900 before rising again toward the 1920 top.  And back in 1830 when another 60-year low was due, the actual low arrived 6 years prior in 1824, a low which was retested in 1830 which was on schedule.  So the point is that some significant variation is normal, and without disrupting the overall cycle. 

The Moody’s Aaa corporate bond yield used in this chart are available from https://fred.stlouisfed.org/series/AAA#.  The older data are a bit harder to come by, for those wanting to keep score at home. 

The 60-year cycle also shows up in other data series, and especially climate data.  See:

http://www.sciencedirect.com/science/article/pii/S0012825216300277

https://wattsupwiththat.com/2014/04/25/the-elusive-60-year-sea-level-cycle/

http://www.skepticalscience.com/loehle-scafetta-60-year-cycle.htm

 

So because the 60-year cycle shows up in both interest rates and global temperature data, it is not surprising that climate data are related to interest rate data, as discussed here:

http://www.mcoscillator.com/learning_center/weekly_chart/inflation_arriving_for_a_short_stay/

http://www.mcoscillator.com/learning_center/weekly_chart/a_cooling_planet_means_price_inflation/

 

Evidently, the warming planet is creating a bit of an anomaly in the inflation and interest rate data.  Warmer global average temperatures seem to be helping to keep inflation rates at a very low level, thereby helping to keep interest rates also at a low level.  This shows up in the CPI inflation rate, as shown in this chart:

If the CPI inflation rate is to continue following the pattern of global average temperatures, as it has since the CPI was created back in 1913, then that means prices should see a big downturn over at least the next 3 years, based on the 3-year leading relationship shown in this chart. 

Whether the Fed, the ECB, the Bank of Japan, and other central banks will follow that message is the great mystery that remains to be seen.  But the message for us now is that while the 60-year cycle’s trend says interest rates should be going upward, the global average temperature data say that we are not yet done with the deflationary period for prices of “stuff”, and thus global interest rates are going to stay low for a while.

Tom McClellan
Editor, The McClellan Market Report
www.mcoscillator.com
(253) 581-4889 

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Today's Setup Trades

Looking Over My Shoulder this is what you would see.

Courtesy or TradeStation

The green circle is where the OS area is and then wait for the histogram to turn up noted by the green arrow.
Always use stops in case you are wrong to help minimize losses.

The red circle is where the OB area is and then wait for the histogram to turn down noted by the red arrow.
Always use stops in case you are wrong to help minimize losses.

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David Kostin of Goldman Sachs

Goldman: Get ready for another stock market dive

It's been a shaky year so far for the stock market. A huge drop to start the year was followed by a monumental comeback, and now the market appears to have settled into a relatively stable, albeit uninspiring range.
A market sell-off between 5% and 10% should be coming soon, according to Goldman Sachs US Equity Strategist David Kostin. A mix of factors currently building up in the market, along with the market's recent history of pullbacks, should end with a drop in the next three months.

"Although investors appear complacent in the wake of Brexit, a maturing economic cycle with elevated valuations, decelerating buybacks, and growing political uncertainty provide the basis for potential market weakness in the second half," Kostin wrote.
There's a lot to break down there, but here's a quick refresher of Kostin's concerns:

• Valuations for stocks are well above their long-run averages, making them expensive. The 12-month forward price-to-earnings of the S&P 500 is 16.4x, whereas the average over the past 10 years is 14.3x. This increased valuation even drew the attention of the Federal Reserve.
• Buybacks have been a massive source of support for stocks — in fact, the only net source of demand. For instance, Bank of America Merrill Lynch said its corporate clients have bought back $20.6 million in stock on net, while retail investors, hedge funds, and institutional investors have sold a combined $38.1 million stocks on net. Tightening credit conditions and decreasing cash flows may dry up this source of support.
• Everyone is not only worried about Brexit, but also myriad political possibilities that are sowing the seeds of market uncertainty.

In addition to current trends, Kostin pointed to the historical falls in the stock market since the end of the financial crisis. Even in the past 12 months there have been significant drawdowns, in both August 2015 and the start of 2016. This pattern lead Kostin to gauge the severity of the drop.
"Most recent drawdowns have troughed at a forward P/E of roughly 15x," Kostin wrote.
"Given consensus bottom-up next-12-month EPS of $123, this same multiple would value the S&P 500 at roughly 1850, or 13% below its recent high of 2115 reached in early June. In 16 S&P 500 pullbacks of 5% or more since 2009, the S&P 500 has declined by a median of 7%, which would bring the S&P 500 to roughly 1950."

However, there is some good news here, Kostin said. While the sell-off would come in the next three months, Kostin expects some recovery in the market that would bring the S&P 5oo back to 2,100 by the end of the year. As of the market open on Wednesday, the index was trading at roughly 2,084.
There are a few reasons to expect the support, according to the Goldman strategist.
"At the same time, above-trend US economic growth, a return to positive but slow earnings growth, a cautious Fed, and the lack of investment alternatives around the globe will support equity prices without providing a catalyst for further upside," Kostin wrote.
So get ready for the fall, but also the bounce back.

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What's Next? One Opinion

By Danny/LunaticTrader

Most stock markets surged higher after the Brexit panic subsided. If you bought when others were fearful, as we suggested last week, then you must be smiling. The FTSE 100 climbed about 10% from its Monday lows and is already setting new highs for the year. US markets also rebounded strongly.
Is it now too late to buy? Let's have a look at the S&P 500:

We got the retest of the 2000 level I had been hoping for. And stocks bounced back very strongly off that level. That is bullish price action, but another revisit of the 2000 level would now quickly worsen the scenario. Being not far from new all time highs the market can be allowed some breathing space at this point, but not for too long. A continued failure to climb above the May 2015 highs would soon be punished with another sell-off. So, the market is entering a do-or-die situation.

Technically the setup is favorable with the Earl (orange line) and MoM indicators turning up again, and the slower Earl2 (blue line) at the verge of doing so. So a push to new highs is possible this week already and if it doesn't happen then another chance may come by early August.
If no new highs are seen before the middle of August then the odds will quickly shift towards another drop to ~1900. But I prefer to take things one step at a time, so let's first see what happens with the current market rally.

We also have the LT wave chart for July:

The wave did well in June. The high of the month came exactly on the 8th and a first low came on the 16th, just one day off with projected low on the 17th. The second low (expected on 23rd) came with a few days of delay, and was followed by new strength in the final days, as expected.
For July the wave suggests ongoing strength until the 11th, followed by weakness from the 13th until around 20th. The final week looks mildly positive again. Highest LT wave values come on the 6th and the 11th, with another possible peak on 26th. LT wave lows are projected for 16th and 20th. None of those highs and lows stand out as extreme values so it could turn out to be a sideways range period, especially from the 13th onwards.

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Past performance is not indicative of future results

This Weeks Stock Picks

Something new, Weekly stock Picks will be made based on taking a long position while the stock is at or near an Over Sold level.  These stocks display good technical strength including Chaikin Money Flow & Relative Strength.
As always, do you own due diligence !
CORE
FDP
GGAL
HTH
YWO  typo s/b TWO
WWW
AVX
BDC
JEC
X

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This has been posted for Educational Purposes Only.   Do your own work and consult with Professionals before making any investment decisions.  
Past performance is not indicative of future results