SPX S&P 500 and CPCE Put/Call Ratio Daily Charts; Complacency Signaling Near-Term Top is At Hand; Overbot; Rising Wedge; Negative Divergence Developing; Cyclical Bear Market

The charts above look like last evening's spaghetti. Markets remain erratic and unstable moving on coronavirus (COVID-19) news. Yesterday, promising treatments are announced including more success with GILD's Remdesivir. President Trump is trying to fast track the vaccine process. Some things may be difficult to rush, like staged drug trials, especially for a disease that is a bit complicated like covid and mutating 30 different times. One of the reasons New York was smacked hard was likely that the virus strain from Europe packed a bigger punch than the virus strain hitting the West Coast.

So stocks leap higher yesterday the S&P 500 catapulting 2.7% to early March highs. Everybody is all smiles and back-slapping each other. The Fed meeting was yesterday afternoon conducted remotely with Chairman Powell and the journalists obeying the stay-at-home government orders. Stocks are bullish 80% of the time the day or two in front of and going into the Fed meetings so yesterday was no surprise. Easy money rules the corrupt crony capitalism world, baby, grab yours before there isn't any left.

The wine was flowing like water on Wall Street yesterday. Traders were throwing darts at stock pages to make picks since all tickers are headed higher on central banker largess. There is no need to ever worry about stocks collapsing again since the Fed proved they can always save the day (can they?). The CPCE put/call chart shows the complacency and fearlessness in the stock market matching the levels back on 2/20/20 (red circles).

The put/call chart is a contrarian indicator. When folks are fat, dumb and happy, complacent, fearless, buying stocks with reckless abandon, that is exactly when the top is going to occur. The stock market has a way of wiping the smile off their bullish faces. Conversely, you want to buy when there is blood and carnage in the streets, the baby is thrown out with the bathwater, all hope is lost, alas, the end is nigh, goodbye cruel world, traders jump from windows; fortunately they are on the ground floor. When all this hopelessness and despair occurs, like the third week of March, the bottom is in.

The 21-day MA is useful for the put/calls. The CPCE crosses up through the 21 signaling time to sell the stock market, which was correct, and then price drops back through the 21 on 3/20/20 a day or so in front of the bottom in the stock market, which provided a nice heads-up for the bottom. Note how the CPCE comes up again a couple times but hits its head on the 21 and stumbles lower staying in the complacency region. People like to par-tay so pour the wine Harry and Agnes; it's time to buy stocks without a care in the world. The CPCE falls to 0.53. Wheeee. Whoopie.

The SPX chart shows the 2/20/20 high called out by the CPCE complacency and down she (SPX) went. During the March bottom, the green falling wedge, positive divergence with the chart indicators and the oversold RSI and stochastics create the bounce. However, the MACD was still weak and bleak in March when price printed the low so the MACD did not positively diverge; instead, it wants price to come back down to those lows again at some point forward. The price action in the chart is overridden by the positive virus drug news and the ongoing central banker joy.

So price rallies for the last 5 or 6 weeks off the March bottom into a rising wedge pattern which is bearish. The histogram, stochatics and money flow are each neggie d and the stochastics are overbot; all bearish indications. However, the RSI has punched out a higher high after yesterday's festival and the MACD also remains long and strong. Thus, the neggie d will conspire to spank price down for a day or so but it will want to come back up for another high in price since the RSI and MACD are still providing upside fuel. It will probably take either 2 or 4 days for price to jog down-up or down-up-down-up to print matching or higher price highs and provide time for the RSI and MACD to negatively diverge and seal the near-term top.

Price has violated the upper band and not yet returned to at least the middle band, which is also the 20-day MA at 2754 so that is on the table. The SPX took out the 50-day MA at 2779 this week and never looked back. That is a huge confluence of resistance above formed by the upper band and 100, 150 and 200-day MA's, as well as a gap fill, at 3006-3025; a gauntlet of resistance. Bears must hold the line at 3006-3025 and they will win the war in the weeks ahead. Bulls will ride to victory to new record highs this year if price starts running above 3025.

The ADX purple box verifies a very strong trend for the downside collapse in February and March. Of course this petered out as April began and price began running higher on word that Powell is in the basement of the Eccles Building running the money-printing presses 24/7. The ADX is stagnant at 19. This is surprising. For such a joyous and euphoric rally and everyone proclaiming that the coast is clear and it is time to par-tay, the ADX tells you that the rally is NOT a strong trend higher.

The Aroon green line is pegged into the ceiling at one hundo and the red line is smashed into the dirt at zero; both are maximum bullishness, there is no more bullish it can get, so there is only bearishness ahead. Look for a potential Aroon negative cross like February.

The pink 150-day MA at 3025 is sloping downward since early March signaling that the US stock market is in a cyclical bear market. Bulls need to move the 150-day higher so this key moving average line begins sloping upwards again to prove that the stock market is back into a cyclical bull pattern; it's not there yet.

The Q1 2020 GDP yesterday is down -4.8%; call it -5%. The brunt of the downside in economic activity, when everything was locked down, was the last 2 weeks of March. Calling the downturn March and assuming January and February are +3% annual growth each, and using a -5% GDP, solving for March yields a drop in that month of -21% in economic activity. This, then, would be expected for April and May. That's bigtime; Great Depression stuff. GDP numbers are notoriously revised many times, however, so the numbers will probably jump around all year long. Two consecutive negative quarters is one official definition of a recession, thus, in 90 days when we receive the Q2 2020 GDP (for April, May, June), if is a negative number, which it likely will be, the United States will be officially in recession.

What does all that mumbo-jumbo above mean? A near-term top in stocks will occur any day forward probably between Friday and Wednesday. The full moon peaks next Thursday (plant your garden seeds now during the waxing moon for plants that grow above ground) and stocks are usually buoyant through the full moon. The US Monthly Jobs Report is on Friday and everyone knows the news will be bad so it is somewhat expected. Otherwise, the week is light on data so earnings will play a role and of course the coronavirus pandemic.

The easy thing to do is not guess and simply wait for the RSI and MACD to go neggie d since that will tell you the top; it should be any day ahead. A jog of at least one down-back up is needed in price to see if the RSI and MACD will cooperate and throw in the towel. The trading volumes were strong during the selloff and price will need to come back down at some point forward and test those March lows to honor that high volume. If long and you enjoyed the rally, time to scale-out over next few days. If you want to go short, perhaps wait for the down-up jog in price and then open up a short position and begin scaling in perhaps on Friday or Monday. Of course, any coronavirus or central banker news, positive or negative, will impact stocks and the charts will adjust. This information is for educational and entertainment purposes only. Do not invest based on anything you read or view here. Consult your financial advisor before making any investment decision.