What We're Reading

With all of America's 401k's flowing into equities and with CNBC continually saying bonds are the worst trade around, one has to determine if continuing to buy here is the smartest way to go or take partials, roll up your stops and raise cash rather than buying this top.

Technically the monthly chart shows MACD posed to bear cross although the month is far from over.  The bollinger band is flattening out which does not say to "buy" here but remain cautious and sit on hands.

Here TLT for a quick glance at the monthly and yeah, it's still selling.  Could see a temporary bounce (here or there) but overall, the trend is still down so equities (or cash) it is.

I believe traders are taking profits at this fibonacci extension ahead of the June FOMC meeting and why not.  The 10 year Treasury has been on a move and if the Fed doesn't raise (which most don't think it will) it can return to oversold and ramp up again before September.

QE is over.  I repeat; QE is over.  The market must

The majority of sector ETFs closed their week below their 50d with energy having filled the gap.....and found sellers waiting there.

SPX itself found sellers at $2100 (clearly we weren't the only ones selling) which is 17x earnings.  More and more are accepting reality that earnings have dropped the most in six years and the Fed (with no QE) will most likely begin to slowly raise interest rates in September.  Don't believe me, just ask Barclays.

• US dollar found buyers at the 10week sma, prior support.  Yes, they're taking profits.  Will it continue?  It's nonetheless weighing on U.S. earnings.
• China allowed further stocks to be shorted and talked of tightening margin lending.  They hit the sell button.
• Utilities are being held by their 50d - won't raise much if rates are going up.
• Transports are being held by their 20d bu the 50d is just overhead; waiting.
• For months money has been flowing into overseas markets searching for yield.
• Not to Greece though (although Putin le

According to BTIG Research, there remains cause to be concerned after the stock market's bounce last week.

For the first time since the October low, breakdowns have outnumbered breakouts. This is a byproduct of the 5% pullback in the SPX over the past two weeks, which naturally saw some stocks break support levels. We are inclined to worry about breakdowns when they are abundant (at least 10% of the SPX, more than this time around) and recurrent (outnumbering breakouts for at least 2-3 weeks).

This last occurred in October, when the market suffered deterioration in breadth that was significant enough to suggest a structural shift may be underway. For this reason, we would be inclined to use strength to sell stocks that previously broke down or stocks that have exhibited weak relative strength.

Looking closer at a few of the internals:  A 5-year weekly chart of T2107, or stocks which are above their 200d SMA, has made a lower high and appear to be rolling over again -  almost a

Volatility definitely increased leading up to this weeks quadruple witching and the S&P (400, 500 and 600) index re-balancing taking place tonight after the close.  Selling the last two weeks resulted in oversold conditions in the near term charts and massive short covering at the market as every fund and investment bank bought new shares (as they rebalanced ahead of the indexes), resulted in two astounding days of back to back two percent gains.  Bulls were partying in the streets but is it warranted?   Has anything truly changed? 

Yes, the Fed has reassured investors that they have no intention of raising rates any time soon which is what everyone wanted to hear but we still have a bull market which has had an incredible six-year run so just "who" is going to buy at these elevated levels for their 2015 portfolio?

I also do not believe that crude oil (and oil/gas companies) are out of the woods yet either.  There's that pesky $OVX which is the VIX for crude oil.  Note how it's not c

According to Ashraf Laidi:  The following sobering analysis on the S&P500 reinforces our expectations that recent record highs in US equity indices will not be revisited before at least six weeks.

A decline of at least 10% is expected to follow.

-        Last week’s 3.6% decline in the S&P500 single-handedly erased all of the prior seven weeks’ consecutive gains.

The last time the S&P500 erased at least three weeks’ of consecutive gains was the week after the October 2007 record. Stocks fell more than 50% thereafter and took six years to regain that high.

-        And for an unprecedented finding, last week’s S&P5 500 decline took place after SEVEN weekly consecutive gains, which had NEVER been seen before in the index.

Seven consecutive weekly gains have occurred in the past (Aug-Jul 1989, Aug-Sep 1993, Apr-May 1997, Feb-Mar 1998, Dec 2003-Jan 2004, Apr-May 2007, Mar-Apr 2009, Dec 2010-Jan 2011, Jan-Feb 2013), but never in any of those cases has the streak-breaking week fallen by more

Indeed, I've read much concern over this area as oil collapsed so it does merit a warning.  From ZeroHedge:

The S&P 500 Energy sector stocks are down over 12% year-to-date, tumbling over 3% today to fresh 20-month lows. The spread (or risk) of high-yield energy credits surged again today, breaking above 850bps for the first time... The overall high-yield credit market is being dragged wider by this contagion as hedgers try to contain the collapse that is possible. For now, the S&P 500 remains entirely ignorant of the fact that over a third of its CapEx was expected to come from this crushed sector...

According to DB

US private investment spending is usually ~15% of US GDP or $2.8trn now. This investment consists of $1.6trn spent annually on equipment and software, $700bn on non-residential construction and a bit over $500bn on residential. Equipment and software is 35% technology and communications, 25-30% is industrial equipment for energy, utilities and agriculture, 15% is transpor

Stock markets have enjoyed a banner half-decade, forcefully reclaiming the ground lost to the financial crisis, and then some. This vigorous performance has occurred thanks, above all else, to two key enablers: surging earnings and recovering valuations. On the surface, there is nothing especially questionable about either. Earnings naturally rise as economies grow, and valuations recover as risk aversion fades.

However, a closer examination reveals a significant vulnerability within this cozy equation. Corporate earnings growth has been, in a sense, too good – persistently outpacing both revenues and the economy. This has driven profit margins to multi-decade highs.

Worryingly, profit margins have long been assumed to be mean-reverting, arguing that these juicy gains may eventually have to reverse. Such a scenario would necessitate an eye-watering one-third decline in the S&P 500. With stakes as big as these, a clear sense of the downside risk is imperative. This report evaluates th

Let’s take a moment and put the market’s current trading action into perspective. Earlier this year bullish sentiment reached levels not seen in years or even decades depending upon data source. Market volatility had also fallen to levels not seen in years as the market was steadily making new all-times highs. S&P 500 actually went 63 trading days without a 1% percent daily move higher or lower. A feat last accomplished in 1995. And it has been more than three years without a 10% or greater S&P 500 correction. This is four times the average duration of time between corrections. Not to mention the market shrugged off tensions in Ukraine, Ebola in West Africa, the rise of ISIS in the Middle East, slowing global growth concerns and the Fed slowly easing up on stimulus. Honestly the market had gotten ahead of itself and was in need of a cool-off period. More likely than not, that is what it is doing.

Yes, weak economic data out of Asia and Europe is a concern as they are major U.S. tradin

“Is the S&P in a correction or Bear market Mom?” is the question I received from my daughter last night. She’s been learning the stock market slowly over the last five or so years and I cringe at times with the questions she poses however no question is a bad question. I’d rather she come to me than blindly follow some pundit or supposed guru to $99/month subscription. After all, if he/she is so smart – why do they even need to charge for anything?  Just sit back and enjoy the wealth.

While the big boys and their algorithms have their calculated strategy, this is how I explained it to her in my simple, 'laywomans' terms.  In my mind big money typically buys at major supports during a correction. They sit back and salivate at an opportunity to, not buy the dip, buy buy on the cheap and define their risk.

For me, I consider the monthly 20 SMA as you can see from my prior post on the subject here.

If only a correction, one would want to see SPX bounce off of the 20month or (the line in

Stock repurchase programs as well as dividends, are a great way to "return value to the shareholder" and also a way to "prop up" a stock price or keep funds in the game.  Unfortunately, nothing lasts forever and repurchase programs are unsustainable longer term.  At some point the market must heed the fundamentals, earnings growth and if margins contract, the positive effect of buybacks is lessened.   This from one of my favs, Variant Perception

A Ribbon Study consists of 8 or more Simple Moving Average plots having different lengths thus forming a "ribbon". The lengths of those averages are in an arithmetic progression relation: the increment of the progression is defined by the initial and the final Moving Average lengths.

The way I view a moving average, especially a large one, is that is the average price of stockholders who have held since "that" point in time.  So if you're looking at a 50d, it's the average price of shareholders who purchased in the last 50 days.  If it's a MONTHLY moving average............NOW you're talking funds who have skin in the game and HAVE had skin in the game for months or years.  I want to be one of them if I'm a long/hold investor.  I want to "buy" when they buy.

I've always felt, that from a long/holding investing point of view, this study can also be an interesting way to view a coming expansion, after a long market consolidation.  View these historical charts and give me your view.  Ex

Merely my observation of the S&P500 based on it's 20 year monthly chart.  It would appear most 'dips' were bought heavily at the 20month SMA with the 20month (off the low) SMA being the line in the sand..........at least on the last two 'bubbles'.

The 20m (off the low) then became overhead resistance. 

Just food for thought.  I have sent an alert for SPX at both levels in an effort to "buy like the big boys".  At least buying 'there' is limiting my downside risk (wink wink).  We could definitely bounce before then but the MACD looks to be rolling over somewhat and let's face it; October is a tough month.  I'm sincerely anticipating further volatility as even semiconductors and rails are exhibiting signs of selling.  I look forward to buying cheaper; aren't you?

The ECB left its key lending rates at record low levels, and the four-week moving average for initial claims is at an eight-year low.  That sounds like a pretty good setup for a stock market that worries about earnings prospects tied to a stronger dollar, loves the thought of central bank policy rates holding near the zero bound, and is anxious to see evidence the U.S. economy is gaining momentum.

Despite the setup, it has been a swing and a miss so far for the stock market, which has once again been greeted with steady, and broad-based, selling pressure.

ECB President Mario Draghi is getting a lot of blame for the disappointing price action based on reports that his presentation regarding the ECB's asset-backed securities purchase program was lacking and the impression from today's press conference that the ECB's ability to change the economic dynamic in the eurozone is also lacking.

There is some merit to the latter claim given the seeming lack of urgency to implement structural r

Pick any one of 10 difference reasons; does it really matter?

• Autumnal solstice
• End of quarter
• End of fiscal year
• Rosh Hashanah
• CALPERS beginning to liquidate hedge fund positions
• Curreny-related pressures
• Concern over weak earnings
• Weaker China growth
• Russia's asset seizure proposal
• EU growth concerns
• China's $10 in Biliion bogus trades
• QE taper
• Plain old valuation (nah, it's never that)

It is what it is.  (Click chart to enlarge) 

Small caps are definitely looking at the edge of a descending triangle.  Long TWM was recommended on this chart.

As warned previously, SPX has now broken $1979.  I have a sell signal in SPX.  Instead of buy the dips, I will be selling the rips with cover stop (alert) above $2003.00.   Be hedged or stay on the sidelines until after October 5th.  Work on your watch list of names you would like to buy.  Determine entry and exit points.  It's about time we got more than a 2-3% pullback.

If the stronger dollar persists, this wi

The weeks between Rosh Hashanah (which begins tonight at dusk) and Yom Kippur (October 4th) can be volatile ones with some traders taking time away from their desk to be at home with family and lower trading volumes exhibit themselves as a result.

While the old saying goes "never short a dull market", low volume tends to be bullish BUT there could also be a problem if there's no underlying bid, or bids are being lowered on a continual basis.

As of this moment, the September low is being tested; bears hoping to trigger stops below $1979 which would issue a wave of further selling.

It's important to understand the dynamics behind the candles on the screen, where stops lie and how the market has traded historically.  Be nimble or sit it out.

Data courtesy of the Stocktradersalmanac

Edited 9/24/14 7:40am

Market breadth has deteriorated badly once again. In fact, breadth hasn't been strong for several months (since early July).  Even last Friday, when the market gapped higher on the Alibaba (BABA) mania, breadth was negative — a divergence that proved to be significant so far this week.  Cumulative breadth has been a problem since July.  Were market makers (MM) merely propping up the market until the IPO went off?  Surely a market selloff leading up the launch could risk Alibaba founder Jack Ma to possibly post pone the event; a smear the market wouldn't want to face (not to mention unhappy investors).

I'm sure Jack Lew's comments at the G20 summit that he is pursuing methods to curb tax inversions (and soon) along with funds approaching end of their fiscal year is not helping matters. 

Cyclicals (XLY) and consumer staples (XLP) experienced big selling today; the former closing below it's 50d.  Retail (XRT) also closed below the 50d; filling the August gap howev

Just when the (last few remaining) bears were enjoying some market wide liquidation, China apparently launched some stealth QE of their own reversing AUD/JPY and sending markets plowing over weak bears.  From Bloomberg:

• CHINA’S PBOC STARTS 500B YUAN SLF TODAY, SINA.COM SAYS
• PBOC PROVIDES 500B YUAN LIQUIDITY TO CHINA’S TOP 5 BANKS: SINA
• PBOC PROVIDES 100B YUAN TO EACH BANK TODAY, TOMORROW WITH DURATION OF 3 MONTHS: SINA

According to Government Sachs

"This amount is roughly the same as a 50 bps cut to RRR for the whole banking system on a static basis.  Still, such an easing would be consistent with our expectation that (1) monetary policy will loosened amid the drastic slowdown in activity growth and falling inflation, and (2) full scale RRR and interest rate cuts are unlikely because they would be viewed as aggressive stimulus."

Toss in a little hint dropping from the Wall Street Journal's Fed-whisperer Jon Hilsenrath that that the "considerable period" language will

I'd be trading this bad boy to the long side.  In this seven year weekly chart, not only has it broken my three trend line rule, there was positive MACD convergence (as shorts began to massively cover) and the 200week SMA which was prior resistance, has now become support. 

It certainly appears that the "low" in low rates was in in 2013.

I should also note that the monthly chart is deeply oversold.  At some point, you simply run out of sellers.

I've long said that when in mortgage banking, we watched the 10yr. each week for direction of rates and we completely ignored the Fed raising or lowering rates.  They were a laggard; the 10yr was already there.

Yep.  If this were a stock, I'd be trading it long, buying at support or out of the short side completely.  Maybe not expecting anything spectacular in terms of upside but ROC would indicate no heavy selling; short covering more than anything else. 

I believe we've entered the phase in our bull market where "good news" is now bad new

Beware "Bear-Mageddon" says Mike O'Rourke, Chief Market Strategist at Jones Trading in this talk with Hedgeye's Keith McCullough.  Hat tip to StockBuz member Ed (@vette_ed) for this insight.  We miss you buddy!

Everyone knows our beloved five year rally seems to be weakening of late.  The big question is just "how" weak will it become.  If anyone tells you they know that answer, stop reading that website.  Certainly more and more sectors are now exhibiting profit taking even as fund managers lounge sipping Mai Tai's from their catamarans off the coast.  Indeed selling can beget more selling, however that doesn't mean we may not see a few days of buying to test overhead resistance and see if it holds; if the "top" is truly in.

Now is not a time (imo) to add to a long position.

Now is a time to be hedged or flat in a long portfolio.

Now is the time for day trades or brief swing trades.

Now is a time to let the charts show you direction.

A second enormous week of earnings lies before us.  While thus far companies are largely beat (which should be the case if they're well run), forward guidance hasn't been all that impressive from a sales growth perspective.

Buybacks and dividend increases