Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

Stock Market Game Changing Action

Stock-Markets / Stock Markets 2015 Dec 14, 2015 - 04:18 PM GMT

By: Bob_Loukas

Stock-Markets

It appears as if the worm has finally turned for the equity markets. The S&P 500 recorded its largest weekly decline since August, and the broader risk markets took a beating. The price of Crude fell under $35 a barrel and high yield bonds took an absolute drubbing. Friday's big decline in equities was on extremely high volume - the highest in 6 weeks - and the volatility index (VIX) jumped 26% in its biggest one-day percentage increase of the year.

This past week's performance notwithstanding, we have been through enough face-ripping reversals in equities to know that, in the end, one move may prove meaningless to the broader trend. Volatility and reversals have been a characteristic of the 2015 market, so we need to consider the current action in that context. But if I can be so bold, I'd like to depart from my normal reliance on evidence to suggest that I have a "sense" that this time might be different for equities.


Commodities and the emerging markets are scaring the heck out of traders, and there is rampant fear that deflation will sweep through the markets. Compounding the problem at a time when the market seems vulnerable, the FED is universally expected to raise interest rates for the first time in almost a decade. This is why the FED's looming FOMC rate decision has really become the variable in the short term. The market is clearly saying that it cannot support a FED rate hike.

In the short term, the S&P is well within the timing band for a Half Cycle Low so we should expect a bounce next week regardless of longer term direction. But in my opinion, the bounce won't come to much - the damage is already done. The market has revealed its intentions.

Beyond my anecdotal narrative that the market is suddenly in trouble, there is bearish evidence in the Cycles. The S&P failed to make a higher high last week, which was the first clue that it might be topping. And on Friday, when it dropped below the last Daily Cycle Low (DCL), the S&P confirmed a failed, Left Translated Daily Cycle (DC) with a day 10 Cycle high. In addition, the 10dma has crossed below the 20dma. It's clear that equities have almost certainly topped for this Investor Cycle (IC), and future breaks are likely to come to the downside.

S&P500 Daily Chart

A fair question would be how it's possible for me to be relatively bullish one week, and then outright bearish the next. The answer is simple - I call the markets as they appear, and I am not married to my calls. My analysis offers a working framework that incorporates all that I know about the markets at the time. My goal is not to pick a market turn well in advance, nor am I interested in being able to declare that I was right about one call or another. I'm focused on making money, and that means using all available information and controlling risk. Being stubborn is how traders end up taking 10%, 20% or even 30% losses on a position, and that is not how I trade. I might miss a good trade, but I will never be caught over-extended in a losing position because I have clung to a public call about market direction.

I form my opinions by relying on what the Cycles are telling me at any given time, and then combine it with a view of the price action. I've said many times that price action is what matters most, and we always need to make sure our framework aligns with the most recent price action, be it bullish or bearish. Whenever price changes character or breaks below a key Cycle pivot, the market is signaling that an important development has occurred, and we ignore it at our risk.

In addition to the clear breach of key Cycle points this week, other alarming developments surfaced, highlighted by the strong reversal in equities and the new short-term declining trend. The high yield corporate debt market appears to be in serious trouble, and now rests at a multi-year low. The junk bond market is typically one of the first places capital flees once signs of trouble emerge, so the decline in the market is a real tell for equities.

Junk bonds have been flashing a warning signal about capital market conditions for some time. But a divergence the size of what we are seeing today becomes especially significant once the market begins to break in the direction of the divergence.

When markets fueled on liquidity and speculative leverage are rising rapidly, traders seem unconcerned with valuation, because booming markets are all about confidence and greed. But once the confidence is broken, liquidity suddenly dries up and ridiculous asset valuations quickly seem to make no sense to anyone. That has not occurred - yet - in the current equity markets, but junk bonds do illustrate how quickly an overheated market can lose its support.

HYG Weekly Chart

At any given time, there are various under-performing sectors that can be compared to the broader market. But no sector other than the Dow Transportation Index holds any real weight when identifying divergences between a sector and the general market. And in terms of the Transports, because Crude and energy prices are at seven-year lows, we would expect the Transports to be enjoying extremely favorable margins and higher equity prices. But that's not what's happening.

Before July's big S&P decline into an ICL, the DOW Transportation index diverged rapidly lower from the broader market. We see the same divergence today, this time between the Dow Transportation Index and the DOW Industrial Index. This is only secondary evidence, but is clearly supportive of a market that is in a downtrend.

Dow Transports Chart

When the market speaks, we need to listen. Markets often turn on a dime and this one is certainly no exception - what has changed from a few weeks back are the trend and the evidence from Cycles. The failure of the S&P to form a higher high on the Daily chart, and a very clear, powerful decline that left a failed DC tell us that a trend change has occurred and an intermediate decline is underway.

The market has traveled quickly from a potentially bullish setup to a possible Investor Cycle Top. Although it can always change, the trend is now distinctly downward, and there are still many weeks before we should expect an ICL. The big variable on every time frame is the FOMC meeting next week. But regardless of what the FED does, my bias is now firmly in the bearish camp. I believe the market could be in for a very sharp decline in the coming weeks/months, especially if the FED decides to raise rates at next week's meeting.

S&P500 Weekly Chart

Possible Trading Strategy

Longer term holders:

Once we see an oversold relief rally occur, back towards the 10 day moving average, you could look for a short trade that could be good to a weekly Cycle Low around the February time-frame.

Position Traders:

A scalp trade (long) is on offer here now, being the market is oversold and due a bounce in the 2nd half of this Daily Cycle. But the right play now is to allow the market to rebound, and then look for a Short position at around days 27-30 of the current Daily Cycle, probably in the 2,060-2,070 range on the S&P.

The Financial Tap publishes two member reports per week, a weekly premium report and a midweek market update report. The reports cover the movements and trading opportunities of the Gold, S&P, Oil, $USD, US Bond's, and Natural Gas Cycles. Along with these reports, members enjoy access to two different portfolios and trade alerts. Both portfolios trade on varying time-frames (from days, weeks, to months), there is a portfolio to suit all member preferences.

Try us out now, just $99 for a full 3 months of premium access. You're just 1 minute away from profitable trades! please visit: http://thefinancialtap.com/

By Bob Loukas

http://thefinancialtap.com

© 2015 Copyright  Bob Loukas - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules