SPX Double Top or Breakout?

As speculated during the last post the market reaction to Trump's election marked an extreme sentiment low and a rally has ensued for the past couple of weeks.

American indices are now back at or exceeding previous highs so the important question has now become whether the indices are en route to an extended breakout or on the verge of a reversal leaving double tops and false breaks on the board? Most breaks are false so at the moment I have a bearish bias but personal sentiment is a poor basis for analysis!


BREADTH

Firstly for the NYSE...

The Russell2000 and Nasdaq Composite Index can both give leading indications however at the moment it's a very mixed message. The Russell has been on an absolute tear with a significant break to higher highs the Nasdaq has been quite subdued, as can been seen by the index ratios in the following chart.

The McClellan Oscillator has printed a spike low and moved above zero. There is a small -ve divergence which is perhaps worth noting but that's about all... This indicator can diverge for soooo long!

The summation index is a bit simpler... After an extended decline it has now turned up for the longest run since July.

The cumulative NYAD is setup for some -ve divergence for the first time in a long while.

The NYAD ema20 (my favourite!) is again above zero but does not share a -ve divergence with the NYMO.

Bullish Percent has moved up but is still a long way below its August highs... So a clear -ve div. to my mind.

New lows are strange... They moved up as the election dived into the election low but they continued to rise as the market rose. It's such a big discrepancy it makes me think that there's something wrong with the data.

New highs quite possibly have a clue... The have risen during the recent rally but are now set up for a -ve divergence.

For the ASX the story is similar to the above although the XJO has not rallied anywhere near as high and the Summation Index has not made the same clear reversal.


SENTIMENT

The NAAIM sentiment number did not drop below 50 and has now spiked back above 80... into 'high' territory.

The equity put/call ratio has made a sharp reversal and is relatively neutral. It could mark a price high here but it is certainly not showing signs for a price low.

The VIX is now down below 13 again. At a level where tops are possible but it can stay here for a long time of course.

The close back inside the Bollinger Bands again proved to be a good indication of a lasting price turn.

SUMMARY

Price is now 10 trading days up from the low so if this is to be a 12 trading day move there is still a couple more days left to run out.

The Russell is strong and the Nasdaq is weak.

NYMO has a tiny weakness but the NYSI is strong.

Cumulative NYAD is moving up, but is diverging overall.

Sentiment is overly bullish but the trend is strongly up.

So many conflicting signals!

I think it's best not to ignore the obvious here which is that there are no clear conclusions.

There are some divergences in play and sentiment is back to a high level but breadth is not collapsing so it would be wrong to expect a sudden or immediate reversal.

XJO

What a wild couple of days!

BHP and RIO were down 5% intraday yesterday and made a massive bearish engulfing candle but today look set to gap up 5 to 10 %. The broader market made the same engulfing candle and today is set to gap up by close to 200 points!!

This could be a significant low but such wild moves make it difficult to get on board (or exit!) in either direction.

One thing I noticed is that the XJO picked a very tidy place to bottom yesterday, double bottom and 62 % retracement. If today closes up (which seems almost certain) there will also be some momentum divergence and McClellan Oscillator divergence adding weigh to the argument for a low.

Are we nearly there yet?

The perennial question!

It's been a couple of weeks since my last post so it's time for a more thorough review of the market status.

First up is a monthly chart of the SP500. This chart shows the PMO indicator but the story is the same with the MACD, RSI or whatever your favourite momentum indicator happens to be. With the momentum divergence shown there should be no surprise if we are at the onset of a large and fast price drop, or even a long term trend reversal.

BREADTH

This is a 3 year chart of the SP500 with 52 week new highs and lows shown. New lows have ticked up a little but have a long way to go before reaching any kind of extreme level.

The same chart zooming in to the past six months... Price is approaching the lower Keltner Channel which might mean something.

Moving on to other breadth measures. Bulkowski's CPI indicator is indicating down, as you would expect.

Bullish Percent is hard down.

The McClellan Oscillator has reached an 'oversold' level. This indicator however can just as easily make a spike low as it can build a broad divergence so prices can potentially continue to fall for some time yet.

The Summation Index (as with the Bullish Percent above) is hard down with no signs of a reversal or divergence.

The cumulative NYAD is confirming the trend.

The ema20 of the NYAD data is again tracking as per the McClellan Oscillator... Now reaching oversold levels but no divergence in place as yet.

SENTIMENT

Lots of charts today...

First up is the VIX. The VIX has moved so fast that it has closed outside of the Bollinger Bands for four days in a row! A close back inside the BB's is used by many traders as a reliable signal of a reversal (both up and down) so it's definitely something to keep an eye on at the moment.

Next is the same chart of the VIX but zooming out a little. The current level has marked numerous lows in the past so a bounce is probably not far off.

I'm copying Tom McClellan's 'VIX' chart posted on Twitter this week as well. it's fairly self explanatory and very interesting!

Next is the CNN Fear-Greed indicator. It has definitely reached a 'low worthy' level. Keep in mind that this is a composite indicator so the notable move over the last week may be due in large part to the rapid rise of the VIX.

The AAII sentiment indicators are again neutral to my eye. I'm not a great fan of this data actually but it has given indications for some good lows in the past.

The Rydex sentiment measures still have a long way to fall!

The NAAIM Exposure Index, which I quite like, has definitely started to change teams but it has a way to go yet...

And lastly the ema20 of the Equity Put/Call data. It is definitely on it's way up but not yet 'extreme' to my mind.

SUMMARY

The trend is down and my bearish stance over the last couple of months has at least started to materialise.

A few important indicators have reached 'oversold' levels so a bounce some time soon should be expected however the overall setup is still a tad too bearish for me to go looking too closely on the long side.

A couple of cycle analysts more knowledgeable than myself have been calling for a November 8th/9th low so those calls are looking very good at the moment. Perhaps the current situation is similar to January 2008 and we have one or two heavy down days ahead of us to exhaust the move!