Post-Christmas Market Plunge Cash-In

It appears that some short-sellers have cashed in the past couple of days and have stalled the plunge in the SPX, as shown on the following weekly chart.

As at 2:00 pm ET today (December 27), price is consolidating intraday just above near-term support of 2400. Major resistance sits at 2600 (just below the weekly Ichimoku Cloud formation), while the next level of support sits at 2250, followed by major support at 2000.

Whether that cash will be deployed in any sustained and meaningful buying any time soon, or whether it's sitting ready for shorting again, remains to be seen. Conditions are very unstable, as depicted on the three technical indicators (each with an input value of "one" and in histogram format to illustrate that volatility and its strength).

Price on the SPX:VIX ratio is still below 80.00, as shown on the following daily ratio chart. As long as it remains below 100, we're going to see continued large, volatile daily gyrations in the SPX. A drop and hold below 60.00 would likely accompany a swift price-drop in the SPX to 2250 or 2000.

 

Merry Christmas 2018

The Queen's 2018 Christmas Message...

SPX Teeters On The Edge Of A Bear Market

The SPX gained 801.35 points from its November 8, 2016 close of 2139.56 (on the eve of the U.S. elections) to its all-time high of 2940.91 on September 21, 2018.

Since September 21, the SPX closed Monday (Christmas Eve) 589.81 points lower at 2351.10...a loss of 73.6% of those Nov/16 to Sept/18 points gained...and is now up by only 9.89% since November 8, 2016, as shown on the following percentage-gained graph.

The SPX is teetering on the edge of a bear market, as it is now -19.78% from its September high this year.

If we get a couple more days like Monday's, the SPX could easily reach its first support level of 2250 before the end of the year, as shown on the following monthly chart, and as I described in my post of December 22. Major support sits lower at 2000.

U.S. equity market gains made since Nov/16 are already being cannibalized by Washington gridlock and erratic Trump administration decisions and policies, as I warned in last month's post of November 9. Whether that is about to abate anytime soon is anyone's guess!

Mr. President, Wall Street's 2018

Mr. President, what Wall Street's vote of "non-confidence" looks like, so far, this year, as White House chaos, instability and political gridlock run rampant in Washington...

SPX: Each candle represents a period of one year

SPX:VIX Ratio: Each candle represents a period of one year

Merry Christmas, Mr. President!

US Real Estate Sector Nosedive

Further to my post of December 17, the percentage of S&P Real Estate stocks above their 200-day moving average has dropped below 50% to 37.5% (as of Friday's close), as shown on the following graphic. At 50% on that date, it was the "last man standing," apart from Utilities.

The monthly action of this percentage relative to its 200 MA is illustrated in chart form, as follows. While the SPX was making a new all-time high in September, the real estate stocks were on their way down.

The actual Real Estate Sector ($SSRE) is depicted on the following monthly chart. Price is approaching near-term support at 190.00. A drop and hold below that could see it drop to major support at 180.00, or lower.

The following monthly chart of the Real Estate ETF (IYR) shows that the first Fibonacci retracement support level sits at 70.50. A drop and hold below that could see it reach its next Fib level at 61.00.

Both the IYR and $SSRE are range-bound with a very large range for December. Further weakness in these would, no doubt, drag the S&P 500 Index (SPX) further down. The SPX gauges that I'm monitoring in the short term are described in my post of December 22. If we see the SPX stabilize or bounce, it will be important to see whether the real estate sector does, as well.

SPX 2400 Target Nearly Tagged...What's Next?

Further to my post of August 6, the SPX continued to rally to top out in September about 100 points shy of an upside target of 3033, but exceeded its first target of 2900, as shown on the following updated monthly chart. The high was 2940.91 and I doubt we'll see that matched before the end of December.

Since then, and as of Friday's close, the SPX has plummeted and it came within eight points of reaching its first major support level of 2400, as I described in my post of December 17.

The input value for each of the three technical indicators is shown as 'one' to illustrate the extreme downside momentum, rate-of-change, and average true range experienced, so far, this month. These either exceed or almost match the levels experienced during the 2008/09 financial crisis.

Whether we see a short-term bounce next week to close out the year is anyone's guess.

However, the RSI, MACD and PMO divergences (shown on the daily chart of the SPX:VIX ratio) compared to the ratio price is hinting that we may either see a bounce in the SPX or some stabilization soon.

If we see the SPX continue to plunge and these divergences wiped out, we may just see the SPX reach its next major support level of 2250, or lower to 2000, as described in my last post. A drop and hold of the ratio below 80 could hold the key to such a scenario being achieved...in short order.

2019 Market Forecast: World Market Slowdown

In last year's market outlook for 2018, I anticipated a rise of around 10% for the SPX. At its all-time high set on September 21, the SPX had risen by 9.62%, before it began to lose its gains for the year, and more.









At the time of today's analysis and post (December 17), you will see from the first percentages gained/lost graph that 7 of the 9 Major U.S. Indices are in negative territory year-to-date.

The second percentages gained/lost graph shows that 8 of the 9 Major Indices are in correction territory from September 21. In fact, the Russell 2000 and the Dow Transports are fast approaching a 20% bear market territory.

The following graph shows the percentages of stocks in the U.S. Major Sectors and Major Indices above their respective moving averages.

The only ones with 50% or more of their stocks above their 200-day moving averages are the S&P 500 Real Estate, S&P 500 Utilities, and Dow Utilities.

The one to note is the S&P 500 Real Estate Sector, which has precisely 50%. If we see further weakness in this sector sending it below that level, I've no doubt that we'll see broad weakness continue across all markets.

Each candle on the following three charts of the SPX represents a period of one month, one quarter, and one year, respectively.

All three charts show clearly the weakness that this index has experienced since September, the uncertainty that has gripped it all year, and the strength of this year's bearishness versus tepid bullishness.

Each candle on the following three ratio charts of the SPX:VIX ratio represents a period of one month, one quarter, and one year, respectively.

Price is currently sitting just above the 100 Uncommitted Zone...a zone, which, if broken and held to the downside, would see a swift selloff occur in the SPX and other U.S. Major Indices.

The extreme volatility and lack of bullish commitment, thus far this year, in the SPX is best illustrated by the yearly ratio chart. Its entire candle range for 2018 has encompassed both candles of 2017 and 2016, as well as good portions of all prior candles to 2010, and has set a new record high for annual ratio range.

CONCLUSIONS AND OUTLOOK FOR 2019

I think that 2019 is likely to bring the same level of volatility and uncertainty, not just in U.S. equity markets, but in other world markets and world politics, as well. I'm getting the impression that major world markets are doubting the ability of their respective political leaders and central banks to continue to stimulate markets to the same degree that they've enjoyed since 2009. In fact, even with all the tax cuts and removals of many regulations that we've seen this year in the U.S., markets are still down extensively. With central bankers tightening their monetary policies, and no further fiscal stimulus packages on the horizon in the U.S., I don't see a convincing bullish bias returning any time soon.

Depending on where both the SPX and SPX:VIX Ratio close at the end of December, I anticipate, either a slower level of equity accumulation, if there is much, to, potentially, propel the SPX to retest its prior all-time high of 2940.91, or to resume further declines, putting the SPX at 2400, or lower, as I've repeatedly mentioned since August and as I last described here. In fact, 2250 would be the next major support below that level, followed by 2000, as is evident on the above three charts of the SPX. 

Under the latter scenario, I'd expect money to rotate into bonds (which has already been the case over the past several months, as shown on the following monthly charts of 2/5/10/30-year bonds) and/or cash (U.S. $).

Good luck next year!

P.S. To see how markets ended in 2018, check out my post here.

The Major Inflection Point For The SPX

Further to my post of December 2, it's evident from the following daily charts of the four U.S. E-mini Futures Indices that they all broke and closed below both their "chaos zone" (the trio of future-offset 5, 8 & 13 MAs) and their 50 & 200 MAs, respectively, last week...a failure to hold above those major support levels.

Price on the SPX is currently hovering above 2600, as shown on the following monthly chart.

It's clearly a major inflection point for a couple of reasons...namely, it's a major price support level, and it's right along the upper edge (+1 standard deviation level) of a long-term regression channel from the lows of 2009.

As I stated in the above-mentioned post, the SPX is now in danger of dropping to its next major support level around 2400, as more fully illustrated in my post of August 6.

In fact, 2400 is...

• slightly below a confluence of two external Fibonacci retracement levels around 2473 and 2485
• just above the lower monthly Bollinger Band at 2372
• above a convergence of a -1 standard deviation level of the regression channel with a 161.8% external Fib level at 2347, and the 50-monthly moving average at 2332

Extreme weakness on accelerating downside momentum may just see price reach 2400, or lower, before, possibly, stabilizing.

Furthermore, price on the SPX:VIX ratio is well below the Bull/Bear Line-in-the-Sand level and is approaching the 100 level, which represents an extremely volatile zone, as shown on the following monthly ratio chart.

The momentum indicator closed at its lowest historic reading on this timeframe last Friday, confirming that extreme volatility is already present in this ratio.

A drop and hold below the 100 level on the SPX:VIX ratio, together with a drop and hold below 2600 on the SPX could very well see the SPX drop to somewhere around 2400 in short order.

U.S. Futures Sunday Gap Breakout

As I'm writing this on Sunday around 7:30 pm ET, the four U.S. E-mini Futures indices have gapped up and are currently trading above a "chaos zone" of a trio of future-offset 5, 8 & 13 moving averages (green, red & blue), as shown on the following daily charts of the YM, ES, NQ and RTY.

Both the YM and ES are above the 50 MA (pink) and 200 MA (yellow). Both the NQ and RTY are trading under the bearish influence of a moving average Death Cross formation. The NQ is slightly above its 50 MA, but slightly below the 200 MA, whereas the RTY is below both of those.

On a short-term basis, I'll be looking for price on all four E-minis to hold above, firstly the moving average trio and, secondly, their 50 MA to maintain a bullish bias, whereby we may, potentially, see them retest their highs of this year or even set new records before year end (the RTY will have to first break above its 50 MA).

Price on the following SPX:VIX monthly ratio chart popped back above the 150 Bull/Bear Line-in-the-Sand level on Friday.

We'll need to see it hold above 150 to corroborate a bullish bias and an advancement on the ES, as mentioned above.

Failure of the 4 E-minis and the SPX:VIX ratio to hold above these moving averages and price level, respectively, could see the SPX drop to 2400, as I recently described here.

"U.S. Growth Slowing In 2019 Q1 and Recession In 2019 Second Half"

David Prince of Harbinger Capital Markets Research talks with BNN/Bloomberg's Greg Bonnell about world markets in the following two videos, which aired on November 23...he's standing by his call for U.S. growth to slow in 2019 Q1 and for a recession in the second half of 2019.

This ties in with my posts pertaining to world market chaos, which can be read here...they describe the various market gauges that I'm monitoring on a variety of world markets and their potential outlooks.

Will U.S. Markets Rally Or Tank Into Year End?

Just a few words describe U.S. market action, so far, this year, as depicted on the following monthly, weekly and daily charts of the SPX (N.B. the 'input value' for both the momentum and rate-of-change indicators is shown as 'one' and in histogram format to emphasize the following)...

• indecisive
• increased expansion/contraction (fluctuation) of volatility (compared with 2016 and 2017)
• lack of convincing directional follow-through on a weekly and daily basis
• in other words, profits have been taken, but there is a hesitation to commit to a larger-scale sell-off

While the the weekly and monthly uptrends have not yet been broken, the weekly action has been lacklustre/non-committal, and the daily uptrend has been badly damaged.

I'd keep an eye on both the MOM and ROC indicators to see whether they begin to expand, and in what direction (using the aforementioned input value), and for how long, to determine their directional conviction/sustainability in the coming days/weeks, as we approach year end.

Additionally, it's worth monitoring the SPX:VIX ratio, as I most recently described here.

To support a convincing resumption of buying in the SPX, price on SPX:VIX will need to hold above the 150 level, the RSI will need to hold above 50, we'd need to see a sustained increase in the MACD histogram bars above its zero level, the PMO will need to rally and hold above its zero level, and the bearish moving average Death Cross formation will need to reverse and form a new bullish Golden Cross.

Otherwise, a drop and hold below 150 on this ratio could produce a larger-scale sell-off in the SPX (to, potentially, 2400, as I described here) on expanding (downside) momentum, rate-of-change, and volatility to, finally, break the weekly uptrend with conviction.

China's Shanghai Index & Yuan At Potential Inflection Points

My post of October 11 mentioned that China's Shanghai Index broke below a major monthly swing low level of 2638.30 and that it could be headed for its next major support level at 2260, or lower.

Since then, price has fluctuated in both directions and has been attempting to stabilize, but remains just below that former swing low...a potential major inflection point.

Overlayed on all of the following three charts of the USD/CNY forex pair is the Shanghai Index (shown in pink). After price peaked in January of this year, it began an 1,140 point decline, in divergence with a rally in the USD/CNY.

The following monthly chart of the USD/CNY forex pair shows that its price is also now at a potential inflection point...the last swing high set in January 2017, following the November 2016 U.S. Presidential election.

Both the momentum (MOM) and rate-of-change (ROC) indicators (of USD/CNY) have surpassed the January 2017 highs and are at historical highs on this timeframe...hinting at further strength on this timeframe.

On a weekly timeframe, both the MOM and ROC (of USD/CNY) have declined and remain just above the zero level in divergence with this latest price bounce, which began at the end of August...hinting at a potential pullback on this timeframe.

On a daily timeframe, both the MOM and ROC (of USD/CNY) have declined and are just below the zero level in divergence with this latest price bounce, which began at the end of August...hinting at a potential pullback on this timeframe.

In conclusion, both the Shanghai Index and the USD/CNY forex pair are at or near potential inflection points, so it's worth keeping an eye on both to see whether they, either continue to diverge, or whether they both reverse and begin to converge in the near term.

In this regard, monitor the action of the MOM and ROC indicators around their respective zero levels on both the daily and weekly timeframes for clues on direction and strength in the short and medium terms.

As an aside, it would also be interesting to hear whether any chatter arises about whether President Trump declares that China is manipulating its currency any time soon -- which seemed to have been discussed, then dismissed, following the 2016 election -- and whether, and to what extent, such talk affects both the USD/CNY and Shanghai Index.

World Market Headwinds Escalate On A Shift Away From Harmonic Globalism

INTRODUCTION

In my Market Forecast for 2018, I thought that, taking into consideration the uncertainty of the 2018 U.S. midterm elections, coupled with likely interest rate hikes, we'd probably see:

• volatility rise in 2018 and the SPX and other U.S. Major Indices gain only about half of what they gained in 2017, which would mean an approximate increase of 10% for the SPX
• that Technology would remain fairly strong, while Small-Caps would likely struggle more than Big-Caps
• that U.S. markets would continue to outperform other World markets (with the performance of their financials playing an important part)

WHAT HAS HAPPENED, TO DATE, IN 2018

At its all-time high set on September 21 of this year, the SPX had gained 9.62% year-to-date, as shown on the first percentage graph.

Since then, we've seen profits decline to a point whereby only 4.02% of those gains remain as of today's (Friday's) close, as shown on the second year-to-date graph.

You can see from the following daily SPX:VIX ratio chart that volatility increased greatly (doubled) this year, compared with 2017.

Watch for a bearish Death Cross moving average crossover form in the coming days. If that holds, as well as a drop and hold below 150, we'll see further selling occur in the SPX.

The following monthly charts of the S&P 500, Germany's DAX, France's CAC, Italy's FTSE MIB, India's Nifty 50, China's Shanghai, Australia's S&P/ASX, and the Nasdaq Composite Indices show that the Momentum indicator (MOM) has been in decline all year...MOM is below the zero level on all of them, hinting at further weakness ahead on this longer term timeframe, especially if we don't see strong, sustained, convincing buying come in soon.

The following percentage graph shows that, from the March 6, 2009 lows of the SPX (666.79) to Friday's close, the Nasdaq Composite has gained the most, while the Shanghai Index has gained the least.

The following year-to-date graph shows that the Nasdaq Composite is the strongest, while the Shanghai Index is in bear market territory.

Not shown on this graph is the Russell 2000 Index, which has only gained 0.91% YTD and has, in fact, struggled more than Big-Caps since it began to decline after August 31, at which point it had gained 13.37% from the beginning of the year. It's in correction territory.

The following one-month graph shows that buying has occurred in the Nifty Index, while selling has accelerated in the others.

The following monthly chart of the MSCI World Index shows that price pierced below the median of a long-term uptrending Andrew's Pitchfork formation on accelerating downward Momentum (MOM) and is attempting to bounce back to its median.

Failure to recapture and hold above its median, together with continued downward MOM, will indicate further weakness ahead for major world indices.

The following daily chart of the MSCI World Market Index (ex USA), shows how weak other world markets are in comparison with the U.S. markets.

Failure to recapture and hold above 1850 could see this Index retest its 1750 level. If that happens, I think we'll see further selling in the U.S. markets.

The following percentage graph shows that the MSCI World Market Index (ex USA) gained 101.09% from March 6, 2009 to Friday's close.

The following percentage graph shows that the MSCI World Market Index (ex USA) has lost 10.27%, so far this year, and is in correction mode.

CONCLUSIONS

Based on the combative political rhetoric I've seen leading up to and, especially, since the U.S. midterm elections this week, I think that will increase on all sides (Democrats, Republicans, media, and President Trump) until the 2020 elections. In fact, I think that will be like what we've witnessed in 2017/18 on steroids.

I'll go so far as to posit that Democrats have (unwittingly and conveniently) now become the President's scapegoat, so that when the U.S. economy slows in 2019 and shows signs of recession in 2020, he can simply blame Dems for obstruction, gridlock and a waste of taxpayer dollars on endless investigations into his administration. It will cannibalize some (or a considerable amount) of the economic and market gains made since the Presidential election in November 2016 under Trump, and he will accuse Dems of destructive governance and legislative failure as a platform on which to run in 2020.

A failure of U.S. and world markets to recapture convincing sustained buying and to reduce volatility, coupled with escalating domestic and foreign political unrest, as well as President Trump's trade wars and a world-wide shift from an embrace of harmonic globalism to a more divisive world order of nationalism/protectionism will signal, either continued market gridlock/consolidation, or escalating weakness.

Government, corporate, banking, and/or personal debt crises will determine exactly if/when the 9-year bull market bubble blows up, I think.

CLOSING REMARKS

Appearing in the Profile section on my trading blog is the following:

From volatile, whipsaw market action (as evidenced in the above charts and graphs), contentious world-wide political rhetoric and actions, weakening global financials, military buildups, and even increasingly severe weather disturbances, etc., so far this year, I'd say that all three of those behaviours are in retrograde to some degree or other. It's unlikely all of it will abate any time soon.

Buckle up!