State of the Market Report 3/16/2016

Posted on Wednesday March 16, 2016
Today the upside target of 2030 (2032 to be exact) we talked about in my last post on 2/28/2016 was acquired virtually penny for penny. Although the current uptrend from the February lows is still in place and we do not have the price action evidence of a rollover, we are now at the very least neutral on the US Markets and are looking for a pullback that will likely pave the path for the rest of 2016. 
 
 If you remember of 2/28 we made the argument that things were very much aligned to see higher prices. Here  is the chart and  the points made to confirm the thesis back at the end of Feb. 
Inline image 7
 

The weight of the evidence says bounce should continue:
 Looking at the chart below:

  • Momentum is confirming price, in that it is moving higher with price, suggesting strength despite pockets of daily weakness like Friday. 
  • Notice on the below chart how the Feb 12 low had major momentum divergence which sparked this rally,
  • Notice in November we started to see the momentum move lower as price moved higher. That is the first sign of weakness we will look for and then let price action confirm it.
  • Right now, we have the opposite, momentum confirming price, suggesting higher prices ahead


Using the above momentum price observation as our guide:

  • I am targeting 2020 – 2030 area as an upside target which is 161.8 Retrace using the 2/16/16 high and 2/11/16 Low. 
  • Notice how in October that is the Fib we failed at basically penny for penny.  (It is also BTW the magic fib level the SPX failed at back in may using the 2007 high and 2009 bottom, this is shown on 2nd chart below)
  • 2025-2030 also coincides with the 10/20 Month moving average cross shown on 2nd chart below. Historically, in the last 2 bubble tops, we retest the cross area which we are in the process of doing now. 
  • 200DMA is currently at 2026

The above 4 bullet points tell me there is a magnet into those levels and I don’t see enough yet think otherwise and turn bearish and press shorts yet. 

 
 
 
 
 
Despite the expansion of Breadth during this rally, this is still a counter trend rally nearing it’s peak until proven otherwise and I am treating it that way. 
 
The evidence is as follows. 
1) We have acquired 2032 penny for penny today which is the 161.8 Fib retrace where the October rally failed. (1st chart below)
2) We are beginning to see signs of momentum divergence. (That is price is making higher highs without momentum confirmation. )
3) Market is significantly overbought. (1st chart)
4) The YTD gap fill is at 2043.94, just 15 points above today’s close. If we are to get there, expect selling pressure.
5) Market just above a “DECLINING 200DMA” In the same way we want to be buyers below a rising 200DMA we want to be sellers above a declining 200DMA.
6) We are retesting the area of the 10/20 Month Moving average cross that has been the top in the last 2 major market tops. (see 2nd chart)
7) The risk off asset, the Japanese Yen, has only consolidated during this global equity rally, suggesting rotation into risk on has not fully occurred. (see 3rd Chart).
8) Breadth measured by % of stocks above their 40 DMA is at levels that have typically indicated a near term top. Additionally, there is minor divergence there seen today. (see 4th Chart)
9) Options Expiration Week is coming to a close. They typical pattern is to rally into it to expire all puts worthless and then sell off afterwords. (see chart 5) 
 
The evidence suggests at the very least a pullback is due in the coming days. How that pullback is handled by the market will be important.
 
Future Support Levels to watch closely.
1) The first lines of defense are is the 1950 breakout level. I would expect that to hold on the first test. 
2) 1895ish (61.8 retrace) from Feb Bottom to Today’s High. 
3) 1812 Feb Low
4) 1740 Feb 2014 Low and 132.8 Fib Retrace
5) 1670 161.8 Fib Retrace 
 
Watching to see if the above levels can hold and make higher highs (particularly 1 and 2) will help the longer term bullish case, otherwise, this is a counter trend rally and the 2016 lows are not in yet.
 
 
Good Luck out there, and as usual use it or trash it at your own risk. It’s not advise, just keeping you in the technical know, because we all know, technicals lead fundamentals!
 
As always, any questions or debate is welcome 🙂
 
 
 
 
 
 
161.8 Fib tagged today. 
 

Inline image 2

 
 
10/20 Month Moving Avg Cross retest.
 
Inline image 3
 
 
YEN has only consolidated during this Rally
 
Inline image 4
 
 
% of Stocks above 40DMA at significant overbought levels.
 
Inline image 5
 
 
Options Expiration. Rally Into, Sell After.
 
Inline image 6
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