As Dickens wrote, "It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness....." We live in epic times. The euphoric bullishness is at record levels and it was on full display Friday after the jobs report. The SPX jumps +2.6% to 3194. The jobs number was a 2.5 million add rather than the 7.5 million loss of jobs expected. They only missed it by thhhhaaattt much, only by 10 million. It is comical. The BLS, that provides the data, says they are having a problem properly organizing and reporting the numbers. It was odd to see stocks rally on the good news since there would be an expectation of less central banker money which would usually create soggy stocks.
The answer is that President Trump wants to spend another trillion to pump the economy and markets even though things are supposedly the greatest ever. It's funny. S&P futures were up about +30 before the jobs report, then up +60 after the report and then the SPX ran 90 points higher when the president touted more stimulus. Easy money makes the world go 'round.
Something very special happened last week. In no other time in history has traders and investors been so complacent and fearless, and over-the-top euphorically bullish, and the SPX climbs +5% in five days. If you are a student of the market, it does not get any better than this. It is very likely that next week will be a historic week for the US stock market.
The CPC and CPCE continue carving out record lows verifying the rampant complacency along with the elevated NYMO and dropping VIX that has retreated from 85+ to a 23 handle. A near-term top is now. The happy jobs report and more importantly, promises of continued Fed monetary stimulus (Chairman Powell speaks Wednesday) and government fiscal stimulus, send equities vertical once the 200-day MA (10-mth MA and 12-mth MA) were taken out. The news has pumped the RSI and MACD to higher highs to extend the rally. All indicators must negatively diverge to tell you the firm top is in. Typical, the MACD is last to roll over and if positive news occurs for the ticker or index, the top can be extended by a couple days. The bulls are obviously gunning to keep the stock market elevated into hump day when Powell takes the stage.
The stock market is typically bullish moving through the full moon (about 65% of the time) which peaked at 3:12 PM EST yesterday. Stocks are typically bullish the couple days in front of and into the Fed meeting (about 80% of the time). Thus, the bulls have the wind at their backs. However, as stated above, these are epic times and something very historic may occur. Interestingly, the 5/6/10 flash crash was one decade ago and one month. It would be interesting to see a repeat. If ever markets were set up for a flash crash, it would be now.
The trading volume was robust for the Friday party but still unable to overtake the downside selling volume in late February and early March. With uber complacency and fearlessness in markets right now, with everybody and his bro bullish, and a big up day in prices, volume still lagged. That does not forebode well for the intermediate and long term. Ditto on the weekly chart with the selloff weeks in March at higher trading volumes than this week's big +5% rally.
The rising red wedge is ominous since the collapses from these patterns can be record-setting. The RSI and stochastics are both in overbot territory now agreeable to the pullback that the complacency demands to occur at any time. Indicators are neggie d except for the RSI and MACD. Therefore a couple jog moves are likely (price drops for a day then back up the next day for the RSI to go neggie d and then price drops for a day and back up the next when the MACD will go neggie d and the top is in). This scenario would place the top on Wednesday or Thursday timed with Chairman Powell. However, as Keystone keeps stressing, now like a broken record, the complacency wants immediate and swift prosecution of the bulls so the door remains open that stocks can simply collapse at any time, in the daily time frame. Sometimes price will place a matching top, say on Monday morning, and with that higher high, both the RSI and MACD may reverse and the top would be in immediately with the neggie d. It will be interesting to see how it plays out.
One thing for certain is that when things line up nicely they do not typically occur that way. It is too cute for the timing on the daily chart to peak when Powell is on tap in three days. And of course the stock market direction from there would be down due to the complacency. What may happen, since the complacency has been ongoing for over a week, and only now incrementally developing more complacency, is stocks simply collapse Monday, Tuesday and Wednesday, into the Powell presser. Then traders will be waiting on every Powell word hoping for a recovery in stocks but at that time, things could go either way. Do not be surprised if the SPX dumps over 100 points on Monday or Tuesday, or hey, perhaps on both days.
As previously mentioned, the SPX weekly chart shows indicators that remain long and strong so the weekly chart wants to see a matching or higher high in price on the weekly basis. Since the complacency is ongoing for many days, it is unlikely that the selloff in the daily time frame that is at hand right now will wait for the weekly chart to set up. With the Friday joy, the weekly chart is probably 3 or 4 weeks away from topping out. It can be monitored and updated as time progresses if the readership is interested.
Thus, the expectation is for a big sharp pullback for the week ahead, from 100 to 400 SPX points. But there is no stopping the bulls. After the flush lower for a few days, you will have to be nimble, since a sharp recovery will likely follow in subsequent days and bring the S&P 500 back up to a matching and higher high to satisfy the weekly chart, say mid to late month. The SPX weekly chart will likely top out later this month or early July and that will send equities lower for a multiple week period probably July and August will be soggy months for the stock market. So keep this in mind for the weekly basis. Keystone's 80/20 Rule says 8's lead to 2's and 2's lead to 8's. When the SPX recovers after the near-term selloff in the daily time frame, the SPX may seek 3220's as its top since the 3180 was breached (since it is less than 30 points away, the bulls may try to tag the 3220's on Monday; 3212 was the high last week).
Back to the near-term, the ADX is down at 18, despite the big rally, showing that the huge rally off the March bottom is NOT a strong trend higher. The rally in late 2019 into 2020 was a strong trend higher and the near -40% record-setting crash was a strong trend lower, but this recent rally is garbage from a strong trend perspective. The Aroon green line is buried in the ceiling with nowhere to go but down which would be bearish. Keep an eye on the February fractal for Aroon because that pattern may repeat creating the negative cross. Price violates the upper band so the middle band, which is also the 20-day MA, at 2984 is in play, as well as the lower band at 2790. The middle band is moving up to form a confluence with the 200-day MA at 3008 which could use a back kiss. For the selloff that will begin any minute due to the rampant complacency, it is reasonable to expect a potential quick flush down to 2984-3008.
Since the SPX monthly chart will likely remain cooked, the weekly chart will serve as the last chance corral to ditch your longs. Stocks likely take a big tumble in the days ahead, but then will recover again due to the positive weekly chart. The stock market will then make a bigtime top later this month or early July, which will likely be the top for the year, and perhaps a few years, at a minimum, many, many months. This will help those of you that prefer to trade long term. It would be prudent to scale out of all your longs over the next month and bring on shorts, for, say a year of pain ahead.
So lots of excitement is on tap. No one can see this stuff coming because they do not understand the technicals and even technicians will follow different charting disciplines and not even be aware of the drama ahead. Hopefully, some of the detailed discussion above helps you understand the inner workings of the markets a little better. Rest up this weekend and get ready for a wild ride ahead. A flash crash may occur. A Black Monday, or Black Tuesday, or Black Wednesday, etc..., may occur, take your pick. Powell may be sweating bricks come hump day.
For the big Friday orgy party, those of you that are short and stayed short are likely correct as are the traders adding to their shorts. Those that are long and remain long, and bot more longs, are likely wrong (on the daily basis due to the rampant complacency that wants to see a sharp selloff now). Comically, Friday was a day when the bulls were selling to the bulls. There are no bears left in the market. Some weak shorts were put on, by bulls wearing a bear costume, and those trades were immediately covered creating pops in the futures, and the longs that sold out during the week, and bragged about how smart they were on Thursday during the SPX selloff, ran back into the market on Friday regretting that they had sold. Were you one of these traders? You likely messed up and will find that out next week. The markets are so fearless the bulls are selling stocks to the bulls with no one worried about being fools.
Keybot the Quant remains long so obviously when the quant turns negative that will verify the downside. Keybot is not programmed to catch exact tops and bottoms but instead it travels the smoothest path possible through the trading year. Keystone's short-term trading positions, as per The Keystone Speculator, is short across the board (except for a couple of longs; DBA is a fave long going forward) waiting for the complacency smackdown.
History will likely be written this week and for the month overall since this is probably the last view we will have from the mountain-top area (stocks down hard on daily basis, then back up, and then top out on weekly basis in 3 or 4 weeks) and a year from now when we are down in the valley of gloom we will look up and hardly remember what was occurring right now. Good luck to everyone next week. The festivities begin Sunday evening at 6 PM EST when futures trade and Asian markets begin opening. 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.
No comments:
Post a Comment
Note: Only a member of this blog may post a comment.