The 2021 Top

Empirical data shows market tops tend to occur before, during, or just after a holiday week.

Probably the most famous market top, was September 3rd, 1929.

That top was the Tuesday following the Labor Day weekend.

Now, we have another potential Tuesday top; February 16th. The Tuesday following the President’s Day Weekend.

While shiny object distractions abound; Game Stop (GME) hearings, Silver (SLV) squeeze, Bond (TLT) rout and more, the market may have quietly and without fanfare, put in the highs for the year.

Judging from the internet and YouTube chatter, everyone’s expecting some type of immediate crash.

Well, since everyone’s expecting it, it’s not likely to happen. Or more accurately, not the way anyone expects.

The last meltdown about a year ago was pretty much a straight-down affair. If we’ve seen the highs, what happened last time won’t happen this time.

That leaves at least two options:

  1. Gap down 15% – 30% or more, overnight.
  2. Slow, grinding decline, hardly noticeable until one day …

The chart of SPY below shows a possible Head & Shoulders, top formation. It’s still very early in the chart as even the head of the pattern’s not yet complete.

Nonetheless, it’s important to be ahead of the game and anticipate the next moves of the market.

Note the volume’s tapering off as we get into a possible head formation. If there’s to be a Right Shoulder, a textbook case will have volume fall away even more.

It’s about a half-hour to go before the open. SPY is trading down -0.65% to -0.80%, while TLT is unchanged.

If TLT makes a new daily high above 144.32, it’s a good sign we may have seen the bottom of that market.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Oil & Gas: Pivot Point Down

There is no economic recovery.

Fundamental data such as the latest EIA Report on crude inventories, were opposite of expectations. 

Opposite in a big way.

Inventories are building up as demand has evaporated.

At the bottom of that EIA link, is perhaps the most important data point of all. Global operating rig count is at all time lows … data since 1975.

Inventories are building up even in the face of collapsing rig counts.

Prior to that report, was anecdotal evidence (of the same) from comments made on ‘macro’ updates from Steven Van Metre.

Anecdotal evidence (if accurate) points to the possibility for investigation.  It does not, and can not (like macro itself) tell you “when”.

When is the move going to start?  When is the top or the bottom?  That’s where the technicals and reading the tape comes in.

What the tape is telling us now, is the ‘when’ may have been last week.  Specifically, the last three days of last week.

That’s when massive volume flowed into the inverse (2X inverse Oil & Gas Sector) fund, DUG.

From a weekly standpoint, volume was the highest since the week of February 9th, 2015.

Approximately $55-million traded hands last week as opposed to $25-million the week prior and $19-million the week before that (estimating average prices).

It’s evidence of significance with possible high volatility ahead.

The broker being used by the firm lists this trading vehicle (DUG) as “not marginable”.

The inference is, DUG is so volatile (both up and down) the broker is not willing to allow any of its own funds to be at risk for the trade.

That assessment is backed up by price action itself.  Just last month, on Monday, November 9th, DUG opened down -20% from the Friday before.

Even with the margin restriction, huge volume rolls in.

Moving on to the weekly chart of XOP (SPDR non-leveraged Oil & Gas fund), we’re at a confluence of trend-lines.

This is the low risk area or the danger point. 

Price action can go either way; the tape points to potential for a pivot point down (with DUG up) at or near this area on the chart.

At time stamp 16:28, in this report from Van Metre, the Put/Call ratio has exceeded the dot-com bubble levels of 1999 – 2000.

The XOP move higher under these conditions has the look of a huge short-squeeze.  Fundamentals are not there (in a big way) to support higher oil and gas prices.

There is no (and won’t be) recovery for years; even decades to come.

It took the Dow Industrials twenty five years (late 1954) to come back to 1929 levels.  

It’s highly likely we’re in a bear market set-up that’s an order of magnitude greater than ’29.

Stay Tuned

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

Prepping For The Downside

The more sophisticated market participants work the downside.  That’s where the biggest (and fastest) money is made.

shutterstock_242289160Trading books and specifically Reminisces of a Stock Operator, (first published in 1923) detail how the wealthiest traders in the world prefer downside action.

The markets are now stretched to obscene levels and could go higher, still.

Just this past week, we have interest rates breaking out to the up-side, a-la August, 1987.

Being long anything other than corn or wheat and the occasional down-trodden coal miner,  seems to be a high risk plan (not a recommendation).

Positioning for the downside in the appropriate market, might be a lower risk option than riding the insanity to the top … wherever that is.

Which brings us to inverse biotech fund, BIS.  The daily chart shows the well-heeled know something’s up.

2020-08-30_9-32-52-IBB-Daily-5-bar-lanscape-notesSpeculative volume for potential downside in biotech is increasing.  Last Friday’s volume in BIS was the highest in nearly four years.

BIS was trading higher throughout the entire session until the last few minutes.  It closed slightly lower for the day and thus colored the volume bar red.

That minor BIS downturn (up turn in IBB) can be traced directly to Amgen (AMGN) which is now part of the Dow 30, effective Monday the 31st.

It’s important to note that for the past four months, volume activity in IBB has remained relatively unchanged.  Not so with BIS.

We’re nearing the Labor Day Weekend during the next sessions.  The market will be closed on Monday, September 7th.

Back in the day of 1929, the market made its all time high on September 3rd, the Tuesday after the Labor Day Weekend.

 

Charts by StockCharts

Note:  Posts on this site are for education purposes only.  They provide one firm’s insight on the markets.  Not investment advice.  See additional disclaimer here.

September, 1929

The stock market peaked on September 3rd, 1929, the Tuesday after the Labor Day weekend.

Labor Day for 2020, is Monday, September 7th

The bond market has posted a double top and reversed.  Rates are moving up.

Now, the stock market is stretched, extended and rates are rising; similar to August 1987.

Antique-Ticker-borderThe problem is, it’s similar by an order of magnitude or more.

Remember in the most recent downturn, there were trading halts, brokerage server blow-ups and customer accounts going completely off-line.

In that situation, if someone is long and expecting to beat the herd on the way out, good luck.

The firm sponsoring these updates and analysis stopped trading the (equity) long side of the market years ago; recognizing at any moment, the entire system could break-down with any open positions effectively locked.

If there’s another large break with orders, positions, accounts ‘trapped’, for hours or possibly days; who wants to be on the long side of the market?