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.