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Technically Speaking - Bears Are Winning
Submitted by Lance Roberts via STA Wealth Management,
Over the last several months, I have been discussing the "consolidation" of the markets and the various support and resistance levels that have contained generally contained the markets since the beginning of this year. To wit:
"While the rally this week was nice, it failed to break back above resistance which it needs to do to reestablish the bullish trend. Currently, the markets have held the long-term bullish trend line that has remained intact since December of 2012 with two successful tests over the past month. That is bullish for now and indicates buyers are still in the market. However, there is a BATTLE being waged between the bulls and the bears as prices have continued to deteriorate from early-year highs. That battle should be resolved soon, and for now the bears have the advantage."
"Importantly, notice that the previous OVERSOLD condition in the lower panel is now back to OVERBOUGHT. This suggests that the current rally is likely near completion. This does not mean that the markets can't rally to new highs, they certainly could. However, the risk, for the moment is to the downside. As stated above, the BULLISH TREND remains intact which keeps portfolios allocated towards equities."
With that analysis, we can now update that chart to see how things have developed over the last week.
As you can see, the market is once again retesting that long-running 150-day moving average that has defined the "bullish trend" of the market since December of 2012. Of course, that month marked then Fed Chairman Ben Bernanke's announcement of the launch of QE3.
The Current Scorecard
This brings me to the ongoing conversation that I have been having with one of my favorite reporters over the last several weeks.
Q: Have we reached the trigger for a pullback here in the US? How concerned should investors be about the fallout from Greece?
The following answer refers to the updated chart above.
- The market held its primary bullish support trend line after breaking below the price consolidation that we have been discussing over the last several weeks. Bears score +1
- However, the market did hold its long-term uptrend at the 150-dma which has acted as important support for the market since late 2012. Bulls score +1
- The market then rallied and failed at the previous bullish consolidation support trend and turned lower last week. Bears score +1
- As shown in the lower part of the chart – the rally from the OVERSOLD condition at the 150-dma moved back into an OVER BOUGHT condition WITHOUT the market making a new high. Bears score +1
- Relative Strength (RSI) has been on the decline since last year as momentum has turned decidedly negative. This has been a non-confirmation of the bullish advance that historically has not ended positively. Bears score +1
At the open this morning, the market has once again test the 150-dma. If the market fails to hold that level by the end of the day, it is quite possible, given that the market is not OVERSOLD as of yet, that there could be further deterioration this week.
HOWEVER, as I have discussed many times in the past, for INVESTORS it is really only important where the markets close at the END OF THE WEEK. This is because for longer term investors it is the overall TREND of the market that we are ultimately concerned with.
Despite short-term volatility, which can be quite unnerving at times, portfolios must be allocated towards equity risk exposure as long as the overall market is still trending positively. When that positively biased trend changes to the negative, it is then that investors will want to become much more conservatively allocated. This is NOT MARKET TIMING. This is portfolio RISK MANAGEMENT. There is a massive difference between the two.
Therefore, even if the market breaks below 2080 today, as long as it closes above that level by the end of the week, then nothing has changed. A close BELOW that level will suggest that we are beginning a more significant correction toward the January lows of 2000.
Q. According to the "score card," the bears are winning. So, shouldn't investors be doing something now?
BEARS 4, BULLS 1
If this were a soccer game, we could most likely predict the winner. So, technically, yes, I could make the case for gathering up your belongings and leaving the stadium early to beat the traffic.
However, if you do leave the game early, i.e. SELL, you might be disappointed to find out on your ride home that the Bulls rallied back and scored 5 points in the last few minutes. It is not likely, but it is possible.
This is why we wait for the evidence to be presented before acting. The job of any investor is to make investment into one or more assets, and then manage the "risk" of owning that asset to create either:
- a "positive outcome" by garnering a "realized gain," or;
- to minimize the impact of a "negative outcome" by limiting "realized losses."
Currently, the technical deterioration in momentum and relative strength are suggesting that the market dynamics are far weaker than what the current price of the index suggests. As noted by GaveKal Research today:
"A correction is generally defined as any stock that is at least 10% off a recent high. If we look at a price performance over the past 200-days, 42% of all the stocks in the MSCI World Index are in a correction. Higher than you might have thought, right?"
There is sufficient cause for concern currently as the underlying weakness in the overall market is becoming much more pervasive. However, "guessing" at the outcome may leave you wishing you had stayed to see the "end of the game."
Is Greece The Thing?
Whether, or not, a Greek exit from the Eurozone or a potential debt default is "the thing" that sparks the next major correction in the markets is unknown. Historically, such a widely "known" event is generally already factored into the markets and has much less of an impact when that event eventually comes to fruition. As Art Cashin suggested this morning:
"I think China may be more important than Greece. Stick with the drill – stay wary, alert and very, very nimble."
That is exactly the right advice for both traders and longer term investors. For longer term investors, I have always suggested using weekly and monthly charts to more clearly define the current trend of the market. However, this also means these charts are only updated at the end of each week or month, so what happens TODAY is far less important that where the market closes at the end of the relevant period. The final chart below is the weekly chart of the market.
There are several important points in the chart above. First, since the implementation of QE3 the bulls have clearly been in charge maintaining the bullish trend line since the June, 2012 lows. Secondly, there have been numerous sell-offs along the way, none of which have resulted in the need to grossly reduce equity exposure from fully allocated levels as of yet. "Yet" being the "key word."
Finally, the bullish moving averages, which have acted as primary support along this entire advance currently remain intact. This suggests that currently, outside of normal portfolio management processes, portfolios should be maintained near target equity allocation levels.
However, it is worth noting that the longer term MACD sell signal is becoming more pronounced which suggests that the "bull case" is weakening markedly. Where this chart finishes the week will provide a clearer picture of whether it is time to "leave the stadium" or "hang around for a terrific comeback."
One thing is for sure...things are about to become much more interesting.
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Isn't this kind of like demonstrating why "the bear" is winning while the professional wrestling match is still going on in front of you?
If bears are winning, when do we get paid?
If you are a bear you should own gold and silver.
So you are getting paid.
Hold "cash".
Grow food.
Be patient.
News Alert: Tropical Storm Puerto Rico developing in the Caribbean.
hehe, theres a guy on CNBS right now 'giving us a reason to get out of bed in the morning and buy some stocks'.... Ill pass.
I still kinda expect some kind of half assed "save" that kicks the can again tomorrow, which, coupled with an epic short squeeze, pushes things higher. that would be par for the course for this clown show.
If the bears clean up the question becomes "How do we get paid?"
When Art Cashin changes his name to Art Cashout it's all over...
The Bulls win,sometimes.The Bears win, othertimes. But in reality TPTB wins,always.
How do they win? They live miserable lives while I farm and stack silver. I wouldn't trade my life for theirs anydqy.
Seen the price today?? Better stack faster.
"Winners"/"Losers": That's the idiocy of the system. Utter idiocy. It doesn't have to be this way.
Don't call me a "Communist" nor a "Socialist" unless you have ever lived in a 'system' free from market manipulation. Fuck all of you who think otherwise. Your 'free markets' are bullshit. Your gasoline prices are bullshit. Your food prices are bullshit.
Take note: Your water prices will be very real; potable water prices will go through the roof.
To have a market free from manipulation, you need a society free from politics. Thats not something our pyschopaths who parade as leaders are willing to countenance. But fuck em, fuck em all.
You would think gold and silver would be through the roof today...ho hum.
Obama Keeping gold and silver low on purpose so Dick-Holes on CNBC can say there is nothing to worry about.
A stonger dollar based on euro weakness is probably going to prevent gold and silver from rallying on this kind of thing. As big money seeks safety, it may go into the dollar, casuing it to surge, which would push gold and silver, priced in dollars, down even further. Id keep some dry powder handy.
There is still a lot of (misplaced) faith in the dollar right now. As other currencies like the euro tank, gold and silver may very well decline a good bit.
I am wondering too, while some are buying for security, aren't others selling for liquidity as the margin calls come in? Might even out or even drive commodities down.
That's the second completely dumbass thing I've seen you write today. There's probably more I haven't seen. You should stop commenting so as to not display your ignorance.
Obama doesn't know what the fuck is going on! He's just a puppet.
It's the Rotheschildes man!
I mean shit yeah we're winning! We're stacking bullion!
:)
I know, that I don't know, all the shit going on behind the scenes, trying to keep this shit boat afloat.
TRUST NOTHING.
NONE OF THEM ARE ON OUR SIDE.
When the levy breaks.
:)
Nothing will rush out as anything and everything worth owning will be in the hands of those who will own and control everything. We will sell it all to them for paper$ thinking we have protection which is no protection at all, just paper or 0/1s.
I'm a bear and I've lost my ass this year, but this makes me feel better
Looking at all this, I am happy I have real tools and machines with which I can make real things that other people need, want and appreciate.
Never see it coming?
Like the dot com bubble in 2000?
Like the real estate bubble in 2008?
Yepper, NOOOOOOOOOBODY saw those coming.
Retired old man. Put him in his hole.
its a risk off situation, therefore gold is down