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Technical Analysts Warn "Sell Stocks", "Get Defensive", As Momo Weakens And Breadth Breaks Down

Tyler Durden's picture




 

Wondering why stocks are surging this morning - aside from Fischer's comments, OPEC rumors, Greek bank recaps, and JPY ignition? Perhaps it is the veritable swarm of professional technical analysts out with notes warning of significant problems ahead. From John Hussman's refined Hindenberg Omen and Carter Worth's "sell stocks, breadth is a problem," to Oppenheimer's warning of "seasonals and weak internals," and Louise Yamada's "stocks are vulnerable, keep cash on sidelines" warning - it appears today's early bounce is as much about contrarian oversold bounce as it is about any macro news. But with 73% of the largest 1000 stocks at least 5% off their highs, stocks remain fragile as they push back towards highs.

 

John Hussman

However, one could reasonably infer a very unfavorable signal about market internals if leadership, breadth, and participation were all uniformly negative at a point where the major indices were still holding up. 

 

 

 

Indeed, that’s exactly the situation in which a Hindenburg Omen becomes ominous. The chart below identifies the small handful of instances in the past two decades when this has been true.  

 

Cornerstone's Carter Worth (via Bloomberg)

“Plain and simple” the U.S. equity market has a breadth problem just as certain momentum stocks (AAPL, DIS, Biotech) are being sold; the message is to sell stocks, writes Cornerstone Macro technical analyst Carter Worth in note.

 

 

8 stocks with combined market cap of $1.47 trillion up 41% YTD vs S&P 500 +0.9%: Google, Facebook, Amazon, UnitedHealth, Walgreen, Nike, Starbucks, Regeneron, Netflix

 

Those momentum stocks either fully or near-fully exploited, while underperforming stocks (Energy, Materials, Industrials) showing no signs of turning higher

Oppenheimer

For the second time in three weeks, Oppenheimer technical analyst Ari Wald warning that weakening stock market internals and the headwinds of weak seasonal performance mean the S&P 500 likely headed down 5.2% to 1970.

 

Equity market breadth continues to narrow, momentum “waning” with “less offensive leadership”, Wald writes in note

 

Seasonals poor as Aug., Sept., Oct. are worst performing months of the year

 

 

 

Recommends hedging portfolio by buying volatility, adding shorts to long positions, buy Cons. Staples, build cash to buy stocks later

 

Sell stocks that are breaking down: BEN, BWA, CAB, CMI, DAR, DFS, DISCK, DOV, FAST, GPS, HST, IBM, RL, TROW, WCC, WFM

MKM

Last week’s outperformance by Utilities shows investor posture is shifting towards defensiveness and is a “cautious sign” for stocks; buy Utilities and sell REITs, writes MKM Partners technical analyst Jonathan Krinsky in note.

 

 

Utilities more defensive than REITs, so when Utilities relative strength vs REITs rises, signals defensive posturing by investors

 

Utilities outperformance occuring now was seen in 2007, 2011

 

Utility buys: ATO, ED, LG, NEE, NWE, OGS, PEG, PNY, PPL, SO, WGL, XEL
REIT sells: BXP, CMO, CUZ, FSP, HST, IRC, LPT, OFC, SKT, SLG, SNH, VNO

Louise Yamada

Equities remain “vulnerable” to further declines given narrowing stock market breadth,

 

 

 

...violation of uptrend lines off of 2009 lows and “depressed” volume readings, writes independent technical analyst Louise Yamada in August note.

 

 

 

 

Recommends keeping any cash on the sidelines for now; encourages “greater discipline, even defensive behavior” as more stocks show evidence of distribution

 

Relief rallies certainly possible for Dow Transports, Dow Utilities, S&P Energy, S&P Materials, S&P Industrials, however they all appear to be “fragile” and rallies “offer an opportunity to sell into strength” as declines in those areas have further to go

 

If equities unable to reach new highs and hold onto them, then charts could form right shoulder of head-and-shoulders top formation, similar what occured before 2011 cyclical bear

 

Investors can buy stocks in uptrends, though “many are parabolic, as money concentrates in outperformers”

Strateges Chriss Verrone

Investors should remain cautious as weak time of year for stocks and defensive portfolio positioning (given high quality, low beta stocks are gaining) signals stock market rallies can be sold into...

*  *  *

And then there is high yield decoupling...

 

And finally SocGen's Andy Lapthorne's bear market indicator flashing 100% probability...

Quality is now essentially price momentum and vice versa, and history tells us when these two strategies collide the omens are not usually good, as it is a phenomena usually associated with equity markets turning bearish. This becomes even more evident when they plug the factors into their bear market indicator...  

 

Simply put, we are in a bear market!

...when you view the US equity market through the prism of investment style performance (which as we stated earlier is one of the useful features of factor indices), you can see that investors are positioning themselves EXACTLY as you would expect if faced with an economic deceleration. The 20 day correlation between our US quality style and commodity prices has averaged ca. 60% since November last year, and prior to that the correlation was effectively zero.

 

So as we have said many times, investors may be buying equities because they have few alternatives, but they are clearly economically bearish.

Source: Societe Generale

 

 

 

 

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Mon, 08/10/2015 - 09:46 | 6409645 Glass Seagull
Glass Seagull's picture

 

 

On that VIX seasonality chart, why am I back at 07/15?

Mon, 08/10/2015 - 09:48 | 6409661 VinceFostersGhost
VinceFostersGhost's picture

 

 

It's a trap!

Mon, 08/10/2015 - 11:13 | 6410045 Haus-Targaryen
Haus-Targaryen's picture

Just wait for Janet Yellen to start printing again.  That'll show'em. 

Mon, 08/10/2015 - 10:36 | 6409882 Crocodile
Crocodile's picture

Stay out of the volatility patch; I say.

Mon, 08/10/2015 - 09:47 | 6409651 back to basics
back to basics's picture

In a grossly manipulated market all this technical analysis is meaningless. I

Mon, 08/10/2015 - 09:48 | 6409660 Raoul_Luke
Raoul_Luke's picture

BTFD!

Mon, 08/10/2015 - 09:49 | 6409664 silverer
silverer's picture

And this morning's Apple price spike was due to what?  A new Apple watch wristband option?

Mon, 08/10/2015 - 10:35 | 6409879 Crocodile
Crocodile's picture

Share buybacks and less likelihood the FED will raise rates...up is the new down and evil is the new good.

Mon, 08/10/2015 - 09:51 | 6409671 q99x2
q99x2's picture

BTFD the 5% is worth it.

Mon, 08/10/2015 - 10:19 | 6409673 Dr. Engali
Dr. Engali's picture

That's funny. People still believe we have markets.

 

Pity, I used to be a big fan of Louise Yamada's work. Too bad she doesn't understand that markets are a thing of the past. We have policy tools now.

I guess her job depends on her not understanding that fact.

Mon, 08/10/2015 - 10:33 | 6409868 Crocodile
Crocodile's picture

We do have markets; the difference is that the insider activity/rigging is no longer hidden.

Mon, 08/10/2015 - 10:54 | 6409963 Dr. Engali
Dr. Engali's picture

No, we don't have markets. In real markets you have actual price discovery. In fake manipulated markets you have pokicy tools that double as casinos.

Mon, 08/10/2015 - 12:15 | 6410370 SuperRay
SuperRay's picture

People do what keeps them viable.  Louise Yamada still does charting, Bill Maher the pimp still tries to pit republican vs democrat.  It's how he makes his money.  The Truth - People can't handle the truth! 

Mon, 08/10/2015 - 09:55 | 6409689 clade7
clade7's picture

Get defensive sounds like a highschool cheer.

Gee E Tee Dee E!

Eff E N S Eye V E!  Get Defensive!

Mon, 08/10/2015 - 09:56 | 6409697 buzzsaw99
buzzsaw99's picture

btfd, it's the maggot way

Mon, 08/10/2015 - 09:57 | 6409698 poland spring
poland spring's picture

When stocks go up like this today which we have seen many times before in the last several months, its gonna stay in the flag pattern all day long.  Guess no trading today.  Probably will go up the next few days till the 'buyer' is finished.

Mon, 08/10/2015 - 09:59 | 6409707 vote_libertaria...
vote_libertarian_party's picture

Sooooooo,,,the article says buy buy buy???  That what every interpretation is...by the bots.

Mon, 08/10/2015 - 10:05 | 6409736 Rodders75
Rodders75's picture

This is a much more balanced and rational view of things: intermediate bearish, ST long trade possible...the doom porn on ZH is getting a bit tiring; doesn't help us make money at any rate.

http://humblestudentofthemarkets.blogspot.ca/2015/08/you-cant-hurry-tops...

 

Mon, 08/10/2015 - 10:26 | 6409833 Crocodile
Crocodile's picture

It is called a "short squeeze"; the insiders and anyone else can see all the short positions that have been growing on the SPY and other places.  So it is a rinse and repeat.  What is different is the new highs are lower than the previous, which means they have to allow it to go lower in DJIA terms.  They better be careful because if they were to allow the DJIA to go below 17K, then they might create a panic that the HFT's cannot control; at least during regular market hours.

------------

Note the high this year on the DJIA was around 18,233 and we have come close a couple of times, but each time the DJIA gets close to 18K; it cannot be quite reach it...so it drops.  A new pattern is they are allowing 4-7 days in a row with a "minus" followed by 3-4 days of positive.  This feeds on the fear of collapse and allows for larger short squeezes.  These wild swings should have the volatility indexes rising, but they keep shorting it to slam it down because many people play that bet.  I suggest to anyone to quit playing that bet, for at least 3 times this year alone they have "killed" volatility like magic.

Mon, 08/10/2015 - 10:29 | 6409850 aquarian1
aquarian1's picture

market due to roll-over

Mon, 08/10/2015 - 11:31 | 6410154 HopefulCynical
HopefulCynical's picture

Technical anaylsis only works if fundamentals matter. Right now, they do not. Therefore, all of these bearish calls only serve to create the "wall of worry" which stocks will climb.

Until these bearish calls end, don't expect Mr. Market to fall out of bed.

Besides, the Pharisees haven't finished piling debt on the American economy yet, either. They're making damn sure that they can 'forclose' on the whole world before they'll let this bitch tank.

Mon, 08/10/2015 - 11:32 | 6410163 JoWazzoo
JoWazzoo's picture

Squeeze, squeeze, squeeze the Shorts

gently up the tape

Merrily, merrily, merrily

HFT & PPT is a dream

Buy, buy, buy the (f*cking) dip

back to the 50 DMA

HFT * PPT is a dream

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