Tear down the wall!

Of note: this blog will be the only one this week. I will be back next week with two blogs. If you comment on the blog, I will not be around to post your comments, or replies, until next week. Please bear with me—thx

If you read this blog often enough, you will have run across a few references to rock n roll songs. I’m in my late 50’s, so my teen years were in the 1970’s—the golden era of rock n roll. Sure, the 1960’s had the Beatles, the Stones, The Yardbirds and others. But the groups that survived the 1960’s really hit their stride by the early 1970’s. Right around that time, we saw even more talent arrive on the scene with the advent of experimental rockers like Pink Floyd, Led Zeppelin and Canadian homeboys, Rush. For those who feel the same enthusiasm about the ‘70’s rock bands as I do—there are some truly iconic albums that we could confidently say that, even after almost 50 years, are still wonders to behold. I could name a bunch of them (including Rush’s iconic 2112 – still considered one of the top 20 albums ever made) – but I took today’s topic title from Pink Floyd’s great progressive rock piece, “The Wall”.  Forgive my massive simplification of an iconic masterpiece, but I believe the story of the album was that of an individual named “Pink” who suffers depression and builds a wall to keep others out– his inevitable suffering leading to a loss of sanity. So how does this relate to the stock market?

I have made it fairly clear that the SPX would struggle to get through its technical resistance at 2800. I presented my short termed timing chart, as seen below, and presented a case for a bit of weakness on the SPX on BNN, and on my Feb. 13th blog.  Note the two sell signals (dashed red lines) between the last few days of February and the first days of March.

The current picture shows us a few things—keeping in mind that the chart below, like the short termed timing system chart above, is a daily chart. Daily charts are shorter termed by nature – making this more of a neartermed prognosis. Here’s what I see:

  • The SPX has broken its 200 day SMA on Friday. That’s one day. I look for at least 3 days to confirm the legitimacy of the break, but its something to be aware of.
  • The SPX hit 2800, and then, like magic, declined. Days before that, the neartermed timing indicator flashed two sell signals, per above. Coincidence? I think not…
  • Moneyflow –as illustrated by the moneyflow momentum indicator (top pane) and cumulative moneyflow (bottom pane) is slowing. This means that participation in the current rally is waning.
  • While we might expect to see the more whippy stochastics indicator (first pane below price chart) remaining overbought during the entirety of the recent sharp rally, it is more telling to see RSI (next pane down) pull back given its more contained nature. Even more importantly, MACD – which is a much longer termed indicator – is rounding over with a very defined cross through its own SMA. That is a lot more telling than the other two oscillators – it indicates that the current pullback may have a bit more room to go.

The takeaway

Last week, I noted that the Bear-o-meter had moved into neutral reading, up from a bearish reading. Recall that the Bear-o-meter is a mid-termed risk analysis tool. I don’t use it to tell me what is going to happen in the next 2 weeks. More for a picture of the current market risks, and for some possible predicable edge for the coming months if we have other technical chart patterns becoming more bullish or bearish. The neartermed model operates under a different premises. It is designed to provide very, very neartermed signals. If the Bear-o-meter was suggesting higher risk readings (i.e. 0-3 readings) AND a sell signal came out of the short termed timing system, you may get a stronger down move than if the Bear-o-meter was in the neutral zone – let alone the bullish zone. Because the Bear-o-meter is currently in the neutral zone, it doesn’t give us much of an edge in determining how deep the current correction will go. That’s why I will defer now to watching the market’s activity around the 200 day SMA. If the SPX remains below the 200 day SMA for a few more days—I might be inclined to believe that we might test or penetrate the December 24th lows. However, if the market moves over the 200 day SMA within a couple of days—I’m inclined to believe the market will either tread water near 2800 – and eventually blast through it to the upside.

Sorry I cannot be more “predictive” than that- but that is the status of things as they are right now. Watch that 200 day SMA – it will be a key component in market direction.

This week, I am off to Moab, Utah to do some mountain biking with my brother – something that I have not done for about a decade. The photo below is that of my last trip with him, in 2011. I must say that I am a little intimidated by the idea of riding a big bike over sandstone and rocks….. given that I haven’t been on a mountain bike since that trip!! Hopefully I will not come back in a body-bag (joking)!

6 Comments

  • Range bound market here. There’s money to be made here but only if your a trader

    Reply
  • Hi, if it’s a range-bound market right now, how do you know where a stock’s lower level of support is? Couldn’t a correction possibly come out nowhere in the near future aswell? Traders seem a little complacent after that skyrocket from December 2018 bottom out.

    Reply
    • Hard to say at this point Carrie. The SPX did break 2800–although its early in the game at this point. So if it stays over 2800 for a couple more days, it may just head on up to old 2900 highs and blow though that level thereafter. Or, it might just meander from 2700-ish support to 2800 if 2800 does not hold this week. Still at a point of inflection, IMO. This week is going to be telling…

      Reply
  • Dear Keith,

    As previously proposed, on daily basis chart, price touch the up bollinger band and RSI relatively overbought, which create environment for pull back? Could you make comment?

    Reply
    • Hi Sedat
      We got the three indicators lining up per my blog–and a small pullback. From there, the SPX has rebounded and blown through 2800 resistance. Currently, two of the three indicators (BB, Stochastics) are overbought -although stochastics hasn’t hooked down yet. RSI is approaching, but not at 70 (daily chart)–so its not yet overbought from this systems perspective. That could change soon, but it doesn’t meet the full criteria of my timing system as I write this response. Nonetheless, the market is showing overbought on the BB and stochastics as I mention, so there is still some case for a pullback–albeit a weaker case than if all three indicators were overbought.
      Hope that makes sense..

      Reply

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