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Major Market Index Fails Key Test

Tyler Durden's picture




 

Via Dan Lyons' Tumblr,

The blue chip Major Market Index failed to recapture a key breakdown level.

This post is about 2 weeks late, but still very pertinent in its message. We’ve written about the Major Market Index (XMI) on a couple occasions. Not widely followed, the XMI is an index of 20 of some of the largest blue chip industrial stocks in the U.S. market. While not a very broad index, it is influential, in terms of its constituents’ “name” recognition as well as their “weighty” impact on many of the averages.

The last time we posted something on the XMI was in June, taking note of a couple not-so-constructive developments on its chart. These would, of course, be a precursor to much greater weakness in the August-September decline. One of the key junctures during that period was the index’s early-August breakdown below its post-2009 UP trendline. That breakdown opened the gates to the steep losses later in the month.

Recently, amid the sharp post-September rally, the XMI returned to “kiss” the underside of the broken trendline. This was no happy reunion, however, as the result was a clear and precise rejection of price by the trendline.

 

image

 

What is the significance of this rejection? It simply suggests that prices will not return to the pace of advance that they enjoyed while they were above the trendline. It doesn’t necessarily mean that a new downtrend will begin in earnest. It could simply be that, notwithstanding the swift selloff following the August breakdown, prices could drift more or less sideways for some time. In fact, that may be the more likely outcome – should prices remain below the trendline.

We have been asked, given the relative obscurity of the index, what our rationale is for applying technical analysis to the XMI chart. Isn’t TA simply a self-fulfilling mechanism? Undoubtedly there is some of that. However, we do believe that there is a natural flow or pattern to prices, regardless of the amount of influence on the security by market participants. How else does one explain the post-2009 trendline with its perfectly conforming prices? Randomness?

Another piece of evidence to support the impact of Technical Analysis on a product like the XMI that has very little following is shown on the chart above. Readers may be familiar with our affinity for Fibonacci analysis in identifying potentially key levels on a chart. The accuracy of that analysis was evident on the XMI chart at its recent lows – even though few people are trading based off of it. The August low and September retest occurred in close proximity to the following key Fibonacci levels:

  • The 23.6% Fibonacci Retracement of the 2009-2014 Rally
  • The 38.2% Fibonacci Retracement of the 2011-2014 Rally
  • The 61.8% Fibonacci Retracement of the January 2013 breakout-2014 Rally

So along with providing a helpful idea of the important support area to watch to the downside, the behavior of the XMI relative to key technical analysis guideposts suggests that there is some sort of non-random order to market price movements.

Importantly, on the upside, the underside of the broken post-2009 UP trendline should present a challenge to the pace and potential of any rally in the Major Market Index. If that is the case, given the big names in the index, it could present a challenge to other areas and averages in the market as well. It also indicates that, while the recent market strength has been concentrated in the large caps, that strength is not so widespread among the class.

With these blue chips running into a challenge nearby, not to mention their relative under-performance for most of the year, it appears that the leadership among the mega-caps is even thinner than folks think. How much longer can that choice few number of leaders continue to prop up the market? That is another six-million dollar question.

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More from Dana Lyons, JLFMI and My401kPro.

 

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Wed, 11/18/2015 - 09:17 | 6808413 JustObserving
JustObserving's picture

How much longer can that choice few number of leaders continue to prop up the market? 

It is the not the leaders levitating stocks, it is the Fed and the PPT.

Wed, 11/18/2015 - 09:33 | 6808460 ShorTed
ShorTed's picture

None of those charts or Fib points of reckoning mean anything anymore.  It'll only collapse due to TPTB hubris.  Cash, PMs, Ammo, Booze and Cigarettes.

 

Wed, 11/18/2015 - 10:24 | 6808656 DeadFred
DeadFred's picture

It's bizarre that people can think the charts mean nothing and also say THEY are manipulating the markets. How do you think THEY manipulate markets? They do it by manipulating the stocks at the critical times when the charts indicate that manipulation will achieve the most. They support buy when a support level is reached and they buy to break through resistance. This post shows they aren't doing it in a broad enough manner to support the whole market and are slowly losing control. I agree. But we aren't there yet so no one go full-bear-retard right now.

Wed, 11/18/2015 - 11:53 | 6809013 MrSteve
MrSteve's picture

Expired one, bizarrely brilliant brainwerk! Say BOOYAH!

Wed, 11/18/2015 - 09:45 | 6808511 Big_Hitman
Big_Hitman's picture

My last pay check was $9500 working 12 hours a week online. My sisters friend has been averaging 15k for months now and she works about 20 hours a week. I can't believe how easy it was once I tried it out. This is what I do... www.wallstreet34.com

Wed, 11/18/2015 - 11:01 | 6808773 Michigander
Michigander's picture

Your sister and her friend could increase their percentages if they mention that they also swallow.

Wed, 11/18/2015 - 09:20 | 6808421 NoDebt
NoDebt's picture

I'm just waiting for the day that the index is up when all of the stocks in it are down.  Mock me at your peril.

 

Wed, 11/18/2015 - 09:33 | 6808458 Everybodys All ...
Everybodys All American's picture

Nothing will come as a surprise at this point if anyone has been watching this unfold over the last several years,

Wed, 11/18/2015 - 09:37 | 6808475 negative rates
negative rates's picture

I'm just waiting for the day, mock me at your OWN peril.

Wed, 11/18/2015 - 09:22 | 6808423 rubearish10
rubearish10's picture

Sorry but this is so 1987ish garbage.

Wed, 11/18/2015 - 09:29 | 6808441 semperfi
semperfi's picture

are you fucking kidding me? - does anyone think shit like this really matters in the new normal and its 100% full spectrum dominance central planning and control cartel (ie, the western central bank mafia)? - come out of your cave and see the light

Wed, 11/18/2015 - 09:38 | 6808478 FreeShitter
FreeShitter's picture

Meaningless charts.....this is a centrally planned ponzi.

Wed, 11/18/2015 - 09:40 | 6808488 I AM SULLY
I AM SULLY's picture

"HOUSE of TARDS" (coming soon)

http://iamsully.com/?p=15174

Wed, 11/18/2015 - 09:41 | 6808494 lester1
lester1's picture

No worries. The Federal Reserve will keep buying stocks with unaudited electronic money to prop up the stock market to keep investor confidence from collapsing.

 

Audit the Fed !!

Wed, 11/18/2015 - 09:47 | 6808514 Fukushima Fricassee
Fukushima Fricassee's picture

Governments own what once was a free market. They bought it with debt FIAT and they must keep buying and can never sell.

Wed, 11/18/2015 - 10:19 | 6808634 new game
new game's picture

what is to stop the fed, through proxy buyers, from manipulating/controlling the markets? oh, shit they are already doing that.

your chart is yesteryears plan, try again.

follow da print, dude.

 

Wed, 11/18/2015 - 10:44 | 6808719 allamerican
allamerican's picture

too much risk trading here on the s&p.  guy has no clue, maybe he'll go away.

Wed, 11/18/2015 - 11:47 | 6808976 Byte Me
Byte Me's picture

We trendlined some folks..

(I couldn't resist)

Wed, 11/18/2015 - 14:02 | 6809713 assistedliving
assistedliving's picture

just give me a chart of Yellen's post menopause HOT FLASH cycle.

all i need to know...everything else is NOISE

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