Technical Observations On An Extremely Overbought Market With 123 Consecutive Closes Above The 55 DMA

Tyler Durden's picture

While John Noyce covers his usual fare of weekly FX technical developments, with an emphasis on the EURUSD, the AUDUSD, the USDSEK, the NZDUSD,  and broadly the extremely low level of implied vol in FX (unlike commodities - we expect a switch from commodity implied vol to FX very soon), as well as a very curious collapse in correlation between G10 FX implied vol basket, the VIX and the EURAUD spot. But the most notable observation is what may happen to stocks now that the 55 Day Moving Average is in danger of being breached for the first time in 123 days. The two key support trendlines are the August uptrend since August, which is at 1,300 and the 55 DMA, which is at 1,284. Should both of these be taken out, there is no technical support until the Jackson Hole level of mid 1,000s.

From Noyce:

  • The S&P has so far done the absolute minimum correction, in terms of it has tested the uptrend from the August ‘10 lows at 1,300
  • However, as discussed in a number of updates and client meetings over the last couple of weeks, the thing which “concerns” us in terms of it being a warning of a larger move is the fact that the market has been above the 55-dma for such an extreme period on a daily close basis.
  • With Wednesday’s close above the market having spent 123 consecutive daily sessions above this particular moving average (it hasn’t made a daily close below since 1st September ‘10). This is very extreme by historic standards and takes the S&P to a greater period above its 55-dma than that which equity markets in other regions (particularly Asia) managed before they began to correct over recent weeks.
  • The other notable point about the recent price action is the extreme move seen on Monday where the market posted its largest one-day %age decline since the recent rally began in earnest on 27th August ‘10.
  • In terms of levels from here;
    • The uptrend from the 27th August low’s at 1,300
    • A similar size correction to that which took place from the 5th November high to the 16th November low (in point terms) would target 1,290
    • The 55-dma stands at 1,284
  • In conclusion we’re by no means making an argument for a real “downtrend” in equities to begin, it’s too early to make that type of statement, but, the risks of a larger correction developing do seem quite high.

Also, the US is now more overstreteched than any other world markets:

  • The charts opposite show the same count of the number of days the market achieved above the 55-dma for the Kospi and Taiex (the Korean and Taiwanese benchmarks)
    • These two markets, from their lows in May ‘10, developed some of the cleanest and most steady trends of the various national benchmark indices in the Asian region. However, even given that backdrop, they only managed to achieved 111 and 109 consecutive daily closes above their respective 55-dmas before breaking back below on a daily close basis and correcting further.
    • With this in mind, just in pure comparison terms, the chances that the S&P achieves a daily close back below its 55-dma which stands at 1,284 seem quite high (as a reminder, up until Wednesday, the S&P has made 123 consecutive daily closes above its 55-dma).

On the other hand, with the market correlating about 0.9 with the size of the Fed's balance sheet, as was first demonstrated
on Zero Hedge, to say that charts, technicals, fundamentals, or
anything besides central planning matters, can seem naive to many.

Another interesting chart for those who still believe the VIX is still relevant (we believe the SKEW is much more important than the VIX, but that is a different story).

  • As always it’s difficult to calculate targets for the VIX, but the way the index is breaking quite impulsively higher from its recent wedge like consolidation against the April ‘10 lows and the fact that you can argue some sort of double bottom pattern is in place certainly warns that we could see further upside.

 

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
66Sexy's picture

terminal meltup is the endgame

AN0NYM0US's picture

I'm not sure of the relevance of technical analysis in the context of a rigged market fed by endless supplies of newly created $

Caviar Emptor's picture

Agree. The whole meltup proved it. Nobody did or even could trade of technicals because the signals operative under free market conditions never occurred. The Bernanke put and $7 billion liquidity per day was the only technical anybody needed to know. Fibo who??

ThreeTrees's picture

Indeed we have seen a tendency to pull back at the last second from breaking critical support but the fact also still remains that volume comes back on the downside.  Big volume and prices drop hard, that much hasn't changed.

Everyman's picture

Increasing Oil Prices is the game changer.  POMO and QE cannot take up the slack when the final oil issues surface.  If you fo to any oil blog they are all talking about the "Great Bull Oil market of 2011.  These guys are goig to be bidding up the price as speculation takes hold in the face of actual reduction of oil production because of the spreading contagion of rioting in the oil states.

Benny is now screwed, because all the increase in oil is taking out all the winding up he has been doing.  Gas hits the $3.50 average and this market slows considerably and all those Small Busniess change their positins, change their business plans, layoff a few more and the rest.  This all in the face of muni bond collapse, and the cities, states laying off hundreds of teachers and public servants.  Last I checked the total number of teachers proposed across the US for cuts between now and June is somewhere in the range of 200,000-300,000.  That is a big dent and will put the risk off trade into permanent in the numtual funds.  Add in the reduction of consumer spending brought on by gas increases and the perfect storm for the GD II.

Technical analysis is ccrewed, but the markets now cannot continue on this as the "new normal".  It is now the same as 2008, and the speculators will drive the oil up this time to $180 in the opinion of the oil speculator blogs.

Game over!

 

Cruel Aid's picture

The TA rule as of late, and what I got out of it, is that the 55 day is sacrosanct. Thru June AKA: QEIII. 

The 55 day rule is being tested right now and looks to have passed.

Self ass kicking is also in play here, as Ben is saying 'what are you waiting for, leverage up'.

rosiescenario's picture

...I am not sure of the relevance of any form of analysis under the current bogus market conditions.

AN0NYM0US's picture

on the topic of technical analysis -for weather geeks out there Bastardi left Accuweather but is still posting on twitter

http://twitter.com/BigJoeBastardi

gwar5's picture

Did they fire him for not being a shill for global warming or did he leave on his own?

snowball777's picture

The latter. Perhaps he sensed that being the Glenn Beck of weather was a tired routine.

http://www.mnn.com/lifestyle/arts-culture/blogs/accuweather-forecaster-j...

Mr. Anonymous's picture

"But the most notable observation is what may happen to stocks now that the 55 Day Moving Average is in danger of being breached for the first time in 123 days . . ."

 

Seriously?  The Fed will just buy more stocks.  Get over it.  The market is NEVER going down, at least not in nominal/significant terms.  NEVER.  The entire ponzi and the safety and power of the Powers That Be is tied into the markets.

 

The days of this market behaving anything like it has in the past ARE OVER.

eddiebe's picture

+ Manipulation is THE game. Our masters will continue to consolidate power and wealth. That is the driver, that is what is painting the charts.

66Sexy's picture

we wont be at "the top" until ZH starts frequently posting articles bullish on stocks

topcallingtroll's picture

Permabears are not necessarily reliable contrary indicators.

Tyler Durden's picture

Brilliant insight. Of course for that to happen, it would mean we believe central planning and market manipulation are viable strategies.

Cognitive Dissonance's picture

If Tyler changes his tune we can be assured space aliens sucked his brains out and replaced them with Federal Reserve Jello.

(Lime) Green is good.

RockyRacoon's picture

Gee, thanks, CD.   Now I gotta clean my keyboard.

dehdhed's picture

if tyler changes his tune, i'll probably move to the sidelines.   i'm sure there are other record setters out there but for me i've never known anyone to fight the tape longer than he has.

let the junks begin, all i can say is if you haven't cleaned up in the market lately then you too might be a 'zero' hedger

jimijon's picture

I disagree.. what didn't you understand about BTFD or PMs? It has worked very well for me.. and unlike the rest here, I happen to enjoy the technological iBoom that Apple has given to us tech geeks. Certainly has helped my income and I even like the 70/30 cut from the store. Sooo easy for us small timers.

dehdhed's picture

oh heck, i've been a total silver bull.  i'm pretty sure most of the posts i've made reflect that.   just saying that in the future there will be a lot of zero hedge posts today that will look brilliant, but the advice and conclusions won't be very profitable.

take your aapl for instance, i'm pretty sure tyler's done nothing but ridicule it all the way up.  he's a brilliant mind that completely missed that one too.  or at the very least, caused others to miss it.

tyler's a very rich source of information with just one major flaw.

 

Cognitive Dissonance's picture

Tyler hasn't "missed" anything because Tyler doesn't proffer stock buying tips or suggestions. He has consistently and repeated dismissed the basis for the run-up in stock prices as nothing more than manipulation and Ponzi economics. He has never said you can't take advantage of the insanity other than to say those who wish to play in this market are taking on much more risk than they are bargaining for.

His most direct observation has been that it's insane to think you can safely play in an insanely manipulated market. He never said you couldn't make money, only that the game is rigged and you can loose very quickly in a rigged game. His advice was to stay out of any game you know to be rigged. He has also said large profits can be made if you are nimble and reckless. The ultimate question he has posed is how to you keep those profits?

gwar5's picture

It seems to be official policy of TPTB to halt all American consumption by crashing the USD and redirecting global resources for Asian growth for the next century. 

The stock market is masking the quiet looting on Wall Street and the coming disaster. Open secret.

schrock's picture

Where are you guys ordering your gold and silver from these days? Anyone care to give a recomendation based on experience? Thanks!

topcallingtroll's picture

Golddealer.com Lowest buy and sell spreads anywhere when you add in the cost of shipping and insurance.

silvertrain's picture

Gainsville coins, shipping is high but I get it very quick  { a matter of a few days} which is very important to me..

rocker's picture

Apmex does it for me.  If I get lucky on a pull back will add to all. In order of dollar % over-weight. Silver, Gold, Palladium, then Platinum.   They are honest and you get a nice gift at Christmas.

Richard Head's picture

Just received my first order from Tulving.  His minimum order sizes are high but I think he has the lowest margins.  Have also used Apmex - good experiences with them also. 

schrock's picture

Thanks you guys! Appreciate it!

TeMpTeK's picture

I use Lear Capitol.. they are the cheapest Ive found on eagles, maples and rounds. They also pick up the phone unlike alot of online dealers....U can get free shipping and Insurance on your first order using this referral code "2B8CD". If you find anyone cheaper please tell.

 

falak pema's picture

To understand this chart one needs a comparable chart of money creation under QE-2, to see if there is any correlation, as professed by all the proponents of FED induced asset inflation since june 2010. Maybe the author could provide some inputs.

Tyler Durden's picture

We post updates to the Fed's balance sheet, to bank excess reserves, to M2 and MZM, and to the Adjusted Monetary Base every week. We also post an update to Shadow Banking liabilities (much more comprehensive than M3) every quarter.

Cognitive Dissonance's picture

Don't mind falak pema. He's still trying to find the "reply" button.

falak pema's picture

lol, thought I'd found it. I got the message. TY, TD. Will check out next update.

 

plocequ1's picture

Overbought? Technicals? I thought it was because of that POMO operation being performed everyday by those 4 dudes  with their Bloomberg terminals. Technicals? We dont need no steenking technicals.

Hulk's picture

Retail getting back in big time, after having missed the runup since 09. Just in time to get sheared again. The top is in...

topcallingtroll's picture

I havent seen much evidence of greater participation unless you are talking etf's. What are you looking at to say greater retail participation?

Caviar Emptor's picture

Less than a month's worth of positive mutual fund flows. Not much broad participation. But those lemmings who got in are already getting ulcers. 

Hulk's picture

Yes, its the rate they are getting back in, about $30B since the beginning of the year into mutuals and etf's...

MolotovCockhead's picture

Will remain overbought for quite some time to come, nobody to sell to since retail investors are not joining the party.

topcallingtroll's picture

Nobody to sell to is usually the time the market falls. I dont understand your logic

sabra1's picture

insiders wiil know beforehand when this thing comes down. they'll make a fortune shorting, and at the abyss, will buy everything on the cheap, owning everything, enslaving all!

topcallingtroll's picture

I guess my last yen years or so was random luck. I cant call shit anymore.

When I gave up my silver short that is when we had the correction. I have closed out all my bearish options positions and sold spxu. That means an intermediate top is just about in. I am just an ordinary contrary troll.

Now I am just living off past successes like the 40 year old high school quarterback.

However I am not going to be like jesse livermore. I know when to quit while I am ahead.

Balanced portfolio with a slight overweight to precious metals, emerging markets, small and mid caps, an emphasis on dividend payers, and a slight underweight to bonds. I got 20 more years until I need it.

virgilcaine's picture

The Mkt is stretched lika a balloon, the Money that was pumped into it can be Gone Much faster than it went in..

The decline is going to be swift falling thru 50 dma.. 100.. 200..like a runway elevator.

 

Maybe they just close the great stock markets like they did in Eqypt.. hasn't opened in a Month. You know those fabuloz Emerging Mkts.

Tense INDIAN's picture


NIFTY Updates both LONG term and very SHORT TERM::::

 

A bearish Picture for INDIA.......NIFTY would be good BUY at 3500 area:::

 

http://markettechnicals-jonak.blogspot.com/

 

 

topcallingtroll's picture

Yep. I would definitely buy in at 3500 assuming the fall was due to ordinary turmoil.