The Smallest of Divergences

The NYSI (and ASX equivalent) has printed a very small negative divergence. On a longer time scale the NYSI divergences are looking very reliable but they are not quite so accurate when zoomed in to one or two weeks.

Longer term...

Brief update

I'm short on time and little has changed since last week so I'm keeping it brief again.

First up is a price chart of the SPX with a couple of comments.

As you can see from the above I don't have a lot of confidence in this year's breakout.

Next looking at the breadth:

• NYMO approached oversold levels and then the market bounced but the NYMO has now been brought back up to zero so it's currently neutral IMO.

• NYSI has continued it's trend down and simple message.

• The cumulative NYAD is still in an uptrend but is neutral in the short term.

• The NYAD ema 20 is currently tracking as per the NYMO so there is no additional information here.

The upshot of the above is that there's no material change in the breadth indicators or my thoughts since last week.

When markets again start moving rapidly or approaching double tops/bottoms then I will pay closer attention to other breadth indicators such as New Highs/Lows etc but for the most part and at the moment the indicators listed above are my 'four on the floor' for looking at breadth.

Sentiment indicators are little changed although the NAAIM exposure index has taken a bit of a dive. Nevertheless the overall contrarian view needs to be bearish so if the trend is down there will need to be a lot more of a sentiment shift before I think about changing my stance.

The Saturn-Node square has now passed with little effect so time will tell whether the expected effect is delayed or not.

ASX is same-same.


CONCLUSION

I'm of the view that the trend is down and I'm willing to give it another two to four weeks to show itself. In December however we will be getting to close to the Saturn-Uranus trine so I'll be expecting a significant rally leading into the end of December.

Happy Anniversary

The chart below shows the sky at 11 pm tonight...

The moon is about to hit its monthly opposition to Saturn and will also square with Neptune and the Lunar Node.

The 1987 crash low fell on October 19. Happy Anniversary!!

Looking good

My bearish call over the last couple of weeks is starting to show some signs of life. The next question of course is how low can it go?!

SENTIMENT

NAAIM sentiment actually ticked up in a down week and measured at 86.5.

CNN's composite sentiment indicator however has already moved to the opposite end of the sentiment spectrum.

So what to believe?

• The Rydex asset allocations still have a long way to fall and support the NAAIM interpretation of sentiment. 
• AAII sentiment readings continue to be unhelpful.
• Equity Put/Call ratio could swing either way.
• FAGIX:VUSTX is longer term bearish and short term bullish (but this indicator doesn't impress me for regular short term calls).

In summary... The market participants are continuing to show an excessively bullish bias.

NYSE BREADTH

The NYAD ema20 continues to trend down. It is well below zero but far from being an 'oversold' concern at the moment. 

Cumulative NYAD has continued to move down but isn't saying much.

NYMO is negative but the smallest of indications for a positive divergence is starting to show.

NYSI continues to show a hard trend down due to the negative NYMO at the moment.

SUMMARY

Given that: 

• Breadth is overall negative;
• Indicies are trending down;
• There are no solid signs of positive divergences forming;
• Price and breadth indicators are not yet oversold; and
• Sentiment is excessively bullish.

The conclusion is simple enough... The trend is down and there is every reason to expect that it will continue in that direction.

P.S.

ASX breadth indicators are telling the same story so I'm skipping my usual ASX analysis this week.

It is what it is...

This sideways market has frustrated most opinions over the past two weeks, including mine! The past week has seen quite a few good charts by other people though so I'd like to reproduce them here.

Firstly Bulkowski's CPI indicator. It has been chopping badly with false signals of late but for what it's worth it produced a bearish signal at Friday's close.

 The next chart was posted by The Euchre on Twitter... very interesting and also bearish.

The chart below is by Jason Goepfert who posts as "SentimenTrader" on Twitter.

Two consecutive inside weeks for the S&P500 is clearly a rare event. Note also that it has never done three inside weeks in a row.

Chris Carolan's analog charts below are based on the lunar calendar and carry an obvious message.

Tom McClellan should know a thing or two about interpretation of the McClellan Oscillator and posted the following chart a couple of days ago:

The above charts are my idea of good grist for the mill and clearly make it hard to imagine a bullish outcome from here. In any case however the most actionable information usually comes from one's own analysis...


WEEKLY REVIEW

First a couple of basic price charts. I've been tentatively bearish for the past two weeks and the market has thus far failed to prove me right or wrong.

One thing which has been strange however is the relative strength of the ASX since the mid September low. This is not 'important' information just yet but it is worth keeping track of.

NYSE Breadth

The NYMO is back below zero and the NYSI is already at a new low so take note.

Comments regarding the overall negative divergence from a couple of weeks ago also still apply.

The cumulative NYAD is starting to turn down and it's ema20 is now below zero, as would be expected.

Bullish percent is telling the same story as the NYMO, NYSI etc. however new highs and new lows are pretty much silent.

There is some slight relative weakness in the Russell and slight relative strength in the NASDAQ... So no clear signal here in either direction.

So in summary the NYSE breadth is bearish.

I've been saying that for two weeks but the indications are now simpler and the conclusion is much easier to reach.

This game and it's analysis can be easy... all you have to do is remember to wait!


ASX Breadth

Thanks again to Rolf for his breadth data.

To my eye the key points are:

1. One month new highs are showing negative divergence over the last couple of weeks.
2. One month new lows are showing a bit of an uptick.
3. The Summation Index has turned down slightly
4. The McClellan Oscillator peaked relatively low, then printed a negative divergence and has now dropped below zero again.

In short the ASX breadth data is telling the same story as the NYSE breadth data so same story = same conclusion.

Sentiment

Sentiment is little changed from last week.

Conclusion

1. Sentiment is bearish
2. Respectable analysts are bearish
3. Breadth is bearish
4. The NYSE has printed two consecutive inside weeks and has NEVER in it's history printed three in a row!
5. Yesterday Saturn squared the lunar node and is usually good for a significant depression of the "business curve" (McWhirter).

Given the above the odds are firmly in favour of a turn down and my expectation is that it will be a large one. I only wish it was always this simple!

Review

Last week's call for a turn down is only looking half right at the moment. The SP500 has not closed any higher but the asx did move higher after showing a couple of days of relative strength.

So where to now?

I came across a post on Twitter referencing a call by Bo Polny. In short he's calling for a crash and for last week's high on the 22nd to be 'THE' high. I confess that I find it too easy to like someone when they agree with me but his record (self published) does look impressive. In any case we'll see soon enough how close to the mark he might be.


NYSE Breadth

After a brief 'oversold spike' higher the market has thus far failed to follow through higher and the NYMO has oscillated around zero with some overall relative weakness. As a result the NYSI has not made any meaningful changes and continues to show a solid overall downtrend and will likely fail to show +ve divergence if the market dives back down to the recent lows.

On the positive side the NYAD ema20 is holding above zero for the most part so advancing stocks are still outweighing declining stocks.

The cumulative NYAD is still longer term bullish and at worst short term neutral.

The Nasdaq and Russell 2000 indicies have continued their neutral indications.

ASX Breadth

The ASX McLellan Oscillator is showing the slightest of -ve divergences however the Summation Index has not broken down from it's shallow uptrend. In this regard little has changed since last weekend however the index has now printed 12 trading days up from the mid September low so the odds of a high in place have just increased a little.


Sentiment

Sentiment is little changed from a week ago and remains overall contrarian bearish.

NAAIM sentiment has increased to a bit over 84 and Rydex asset allocations have also moved higher into contrarian bearish readings.

Until such time as there has been a significant price drop with it's attendant sentiment reversal I will continue to see the current setup as overall bearish for the market.


Summary

Little has changed from one week ago... The overall breadth setup continues to be bearish (although lacking the cumulative NYAD) and sentiment has moved to a slightly higher bullish reading.

My conclusion therefore remains the same... I continue to expect a major move down and the current absence of any potential for +ve divergence makes me inclined to think that the downtrend could last for quite some time.