May 1

Crazy up and down market the last few weeks. 60-min system back on a sell. The short-term VIX divergence observed in the last post is met with even more divergence recently. (Chart below has the inverse in the main panel as well as SPX)

Apr 3

My 60-minute system issued a sell signal this morning just after 10 am. I also think this is the end of the current up wave and that we are in store for a decent correction. And no, I don't think this is the 'top'. I think this is just a correction and the cyclical bull market will continue.

For anybody who cares, here are my wave counts:

Mar 9

No posts recently because there is not much to say. We had a very sharp volatile sell off at the end of Feb followed by an even sharper rally out of that low. This spike low and the subsequent rally out of it looks and feels something like the March 2011 correction going into the Apr-May 2011 rally and the March 2012 correction going into the Apr 2012 rally. I have no clue how it this plays out, but the seasonality plus the fact that this was a relatively small correction relative to a 3+ month surge makes me suspicious of a more severe correction in the near term (next several weeks).

However, I still maintain that we are not near the end of this cyclical bull market and that we have further to go. I am still not looking for 'the top' here.

Feb 25

Crazy busy day, could not watch the market in real time. The 60-minute system issued a sell signal on 2/20 and that has stayed intact (and re-confirmed today ... boy howdy). But the Daily System also issued a sell signal today. However, since I could not send the signal out in real time, I will enter the signal at the open tomorrow. Just letting you know the situation.

Feb 8

This move looks like it was consolidation after all. My target of 1530 from last week is still in effect. We'll see if the market can muster a rally much beyond that on this wave (of which I have my doubts).

Jan 15

Here are a few quick thoughts. I still don't have much to say on the markets right now. Like I said on December 18 the time to be bearish was over, and it was now time to be generally bullish.

We had a spike bottom in November on no daily divergence at all. But instead of that being part of a first leg down, it looks like that was all of the correction we were going to get. My 60-minute, Daily and now Weekly systems are all back on a buy signal. On top of that the Russell 2000 and Wilshire 5000 are back to recovery highs, S&P 500 is a point away, Dow Industrials not far behind, and the Nasdaq is still lagging a bit.

So whatever pullback comes in the near term, my feeling at this point is that it will not be the start of some significant downtrend. I think we have more upside before the next possible Intermediate term pullback (I will discuss my thoughts on that in a different post).

But for right now, here is my rough guess as to what the next several weeks could look like. I really do not think we will get a major pullback, and I do think the SPX wants to challenge 1500.

Jan 7

No updates recently because of the break, and because there hasn't been much to say. My 'analysis' from December 18 is still valid: No bearish setup has worked, no opinion on the short term, other than things being generally bullish.

The fiscal cliff nervousness resolved to the upside (simply because there was a decision) and we are back to new recovery highs (SPX a few points shy, Russell at new high, Nasdaq is not). My 60-minute and Daily Systems are on buy signals, and unless we have a major pullback this week (which I certainly am not anticipating) then the Weekly System will move back to a buy as well.

Dec 18

No bearish setup has worked at all the last two weeks. The 60-min system has turned around again and is back on a buy, and today the Daily system did the same thing. This Santa Rally is now looking and feeling like a much stronger rally. I have no opinion on the short term anymore, other than it being generally bullish.

Dec 10

No time today, very busy. 60-min system rolled back up and is now on a buy again. Looks like we will get a FOMC rally. It will be interesting to see if it turns back down again by the end of the week (which I think is likely). But whatever happens a few days from now, it looks like this rally is still not over.

Nov 30

60-min system is still on a buy signal, but that signal is weakening. Monday should be a telling day either way (is this consolidation before a new breakout above the 50 DMA, or has this sharp move up exhausted itself?).

Stepping back and thinking about the bigger picture: I have been of the opinion that we are now in an Intermediate degree correction, and I have been saying that this pullback will be like "the Apr-June 2010 pullback and not the May-Oct 2011 pullback" in terms of severity.

But I think there is a case to be made that it might be similar in form as well. Here are my current thoughts as to how this pullback might count like:

And here is a look at the Apr-June 2010 pullback. While the recent move down is not analogous to the 2010 'flash crash' in terms of severity, it is certainly similar in form (fast move that accelerated into a spike bottom without even a hint of divergence on a daily chart). The current move up is a sharp retracement to alleviate the deeply oversold condition from a local perspective, and I think it is similar to the move up in early May 2010:

Thoughts on the Fiscal Cliff

Everybody should read this post by Warren Mosler: more on the cliff. I very much agree with all of the macro observations he is making regarding the cliff and what it means for the stock market going forward. I do not think this was 'the top', I think that after a correction we will have a very nice dip to buy.

So, why do I think we will correct more? Why don't I think we are bottoming now? A few reasons: Because of the *uncertainty* associated with the fiscal cliff. Many pundits are saying that there will be some sort of 'deal' / the 'Grand Bargain' struck either before the end of the year or perhaps at the beginning of the year. The latter is the more interesting and 'uncertain' option being waved out. Basically the Democrats want us to go over the cliff 'just a little' to scare Republicans into some sort of deal. This is completely idiotic on two accounts:

1) The political machine has broken down and is playing chicken with the economy to pass legislation. In this regard the markets are reacting commensurately to this action, no one has any idea what to expect for tax planning going into the end of year. What will tax rates be for 2013? How long does this game of chicken get played? What if there really is no deal struck and the full force of the cliff goes all the way through 2013? Combined with a very dismal earnings season that started bad and got progressively worse (and a massive deficit reduction / full force of the fiscal cliff in 2013 would be bad news for corporate profits) has investors nervous for any delay in some sort of deal

2) There is no 'crisis' to begin with regarding the deficit. The private sector is still retrenched and is still saving (spending less than their income) due to the excesses (spending more than their income) accumulated during the housing bubble. They are rightfully repairing balance sheets. Unemployment is still very high but has been slightly coming down, which means that the private domestic sector is starting to come out of it shell but just barely. It is still fragile. Couple this with the fact that we have a trade deficit. Now in the macroeconomy there are three sectors: Government, Private Domestic and Foreign. The Foreign Sector is running a surplus (which is our trade deficit) and the Private Domestic Sector is running a surplus (saving more than their income to pay down debts) then by definition the Government Sector is running a deficit. And since the US won't magically start running trade surpluses any time soon and combined with the fact that the private sector is nowhere near done with its deleveraging cycle, the government will need to continue to run deficits for the next several years. This goal of trying to cut the deficit in the name of 'fiscal responsibility' will deprive the private domestic sector of income while they still need it desperately. The US Government is not a 'super-household', it issues its own currency. It never faces a 'solvency' constraint. The concept of 'fiscal sustainability' is inapplicable to the US Government. And because we have high unemployment and spare capacity (see the summary at the beginning of this post) we can 'afford' to continue these deficits before we start hitting the real constraint, which is inflation. There is no nominal constraint. For a very good and succinct presentation regarding the budget deficit, see this video by Stephanie Kelton. It is well worth 19 minutes of your time. (Update 11/16: Also read this well-timed post by Warren regarding the deficit).

Back to the markets, I still think there will be some sort of deal put in place regarding the fiscal cliff. Even mainstream economists agree that the full force of the fiscal cliff will put GDP negative in 2013 and virtually guarantee a recession. And while the parties are willing to play chicken with this issue, no one will want to accept responsibility for causing a recession.

Therefore I agree with Warren that the deficits although potentially lower will still be high enough to support aggregate demand (and corporate profits) and with the private sector still slowly coming out of its shell will also support aggregate demand (or be less of a drag as was the case in 2008-2011). Combined with the 'certainty' of a deal we should see a resumption of the cyclical bull market sometime early next year.

My take at any rate.

Nov 14

This move is starting to waterfall down as the 200DMA has been lost. This is looking extremely likely now that we are in the middle of an Intermediate Degree correction. As I have said previously, I expect the next intermediate degree pullback to be similar to the Apr-July 2010 pullback and not the May-Oct 2011 pullback.

I have updated my PPO chart with an overlay of the Apr-July 2010 pullback depth applied to the recent peak. I have also layed out how I think this may manifest, but more importantly the signals that I will be looking for on both the fast and slow Daily PPO indicators:

Nov 9

Today the Weekly Trend System went from long to short. Now before anybody reads too much into this, let's say what this does and doesn't mean:

1) This means that the conditions have been meet for a top signal
2) Having a top signal in place does not guarantee there will be a top

From my backtests with the Weekly System, it:

a) issued a few sell signals without actual tops between mid-80s to late-90s
b) issued a sell signal in mid 99 and it issued a buy in late 99 for a loss (no actual top)
c) issued a sell in late 2000 and a buy in late 2001 for a gain (actual top)
d) issued a sell in mid 2002 and a buy in late 2002 for a gain (continued selloff)
e) issued a sell in mid 2006 and a buy in late 2006 for a loss (no actual top)
f) captured most of the 2007-2009 selloff (actual top)

Getting a sell signal is far from a 'lock' in forecasting a major top. If I tried to tune out all the noise the system would be so slow to respond that the bear market correction would be halfway done before a sell was issued because they move so fast. So the system is set up to filter some 'noise' but is not so insensitive that it can't be faked out during volatile uptrends.

I certainly am NOT inclined to call 'the top' of this cyclical bull market since 2009 based on this weekly sell signal.

In fact, if I had to make a call right now, I would say this is closer to the 1999 or 2006 corrections in terms of analogy. That is assuming of course that this pullback is forming into an actual correction (some wave of Intermediate degree), which is by no means guaranteed at this point.

But I am just reporting what the systems are saying, do with them what you will. And if you choose to do nothing and ignore it, or even do the opposite of what it is saying, that's fine by me too.

Nov 7

So much for sure footing. 60-min system back on a sell.

Nov 1

60-min System moved from short to long yesterday morning.

For anybody who cares, here is my current thinking about what's happening:

Oct 19

And yet another gut-wrenching turn on little to no divergence. 60-minute system is back on a sell.

Oct 16

Man, the last month has been gut-wrenching for both bulls and bears. Crazy reversals with spike tops and bottoms on little to no divergence. But with yesterday's reversal at a key support level (and retest of the March high which now looks like some strong support) and a gap and run up today, I think the correction is over. Here are my thoughts:

Sep 25

See Thursday's post for what I think is happening: Sep 20

Yesterday morning the 60-minute System issued a sell signal (https://twitter.com/binve01/status/250225758616838144) and today has the look and feel of a breakdown. I think we will be correcting for the next couple of weeks.

Sep 12

I am back. The market churn turned out to be consolidation and the market broke higher. Daily and 60-min systems are still on buy signals.

Aug 31

Nothing to say, so I haven't said anything. Market is going sideways deciding what it wants to do, so I am waiting to see what happens and being patient during this period.

Have a Happy Labor Day!

Also, I will be unavailable most of the next two weeks. So if the market does anything of interest (and the Trend System responds with new signals) I will likely not be able to send out anything in real time. However I will reference when the signal occurred and let you know as soon as I can when it happens.