"In Jeopardy" The Bull Market Is Breaking Bad-der

Tyler Durden's picture




 

Via Dana Lyons' Tumblr,

Today saw a slew of significant levels related to the post-2009 bull market break on several key stock indices.

Those of us who closely follow the stock market on a daily basis have a tendency to overestimate the importance of every little gyration. In reality, there are only a relatively few number of really key days in the market. These days are easily identified in hindsight, though, at times, we can sense their possible importance in real time (e.g., July 20 and August 24.) We bring this up because today had the potential makings of a key day in the stock market, in our view.

While the global markets were certainly volatile, a sense of the true consequence of today’s action is probably not gleaned from the popular indices like the S&P 500. Rather, let’s take a look at today’s developments via a few key indices that we monitor closely – and which we have mentioned several times in these pages over the past few months. Today’s potential price breakdowns among them threaten to undermine the sustainability of the post-2009 cyclical bull market.

1) Value Line Geometric Composite (VLG): The VLGC is an equal-weight index comprised of approximately 1700 stocks. It essentially tracks the median stock move in the market. As such, in our view, it provides the best assessment of the health of the broad U.S. stock market. And despite the fact that there are no VLG products actually trading anymore, it still adheres very well to most chart analyses.

On August 20, we noted the VLG’s break of its post-2009 Up trendline, a level we deemed “the most important line in the equity market”. Sure enough, the VLG would go on to lose another 7% over the next 3 days. In the late September re-test, the VLG managed to (barely) hold on to the next critical level around 435 on the chart, signified by a cluster of Fibonacci Retracements from the major post-2009 lows. It was this area that we called the “pass/fail” level for the U.S. equity market.

After a 1-day false breakdown in late September, the VLG reclaimed this area and launched into a month-long rally. In December, The VLG tested the level again, holding successfully again. Today may have brought the opposite result, i.e., a “failure” at that level.  The VLG closed today at 431. And while not a huge breach, the level is delineated precisely enough that we are confident that, as of now, this is a breakdown of the Fibonacci levels.

 

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What does it mean? Besides opening up potentially 12% of downside to the 382 area, it would signify a lower low on the chart. Lower highs and lower lows would signify a downtrend for the majority of stocks, threatening the extinction of the post-2009 bull market.

2) Value Line Arithmetic Index (VLA): Like the VLG, the VLA is an unweighted average of ~1700 stocks, taking the mean change among them. In December, we pointed out that the VLA was testing its post-2009 Up trendline. It was able to hold that area successfully then. Now, not so much.

 

image

 

Today saw the VLA close below its post-2009 Up trendline. While it is still above its corresponding 1st set of Fibonacci Retracement levels, this is a serious break of a support line that has been in place for nearly 7 years. The VLA is also closing in on its September lows, threatening a series of lower highs and lower lows here as well.

3) The Global Dow: The Global Dow is an unweighted average of 150 of the world’s largest companies. Thus, it provides a decent barometer of the global equity market. We have been closely tracking the Global Dow for the past 8 months as each significant development on its chart has been a consistent harbinger of what was to follow.

The Global Dow has been a hybrid of sorts of the 2 Value Line indices. It has threatened, but held, its post-2009 Up trendline several times since August (notwithstanding a brief false breakdown at the low in September. Additionally, it has held its well-defined post-2009 Fibonacci Retracement cluster, which has corresponded closely with the trendline over the past month. All of that has now gone by the wayside as the Global Dow broke below all of those levels today.

 

image

 

This does not guarantee a collapse by any means. But again, crucial levels that have served as support for the post-2009 bull market have been broken. Lower highs and lower lows are emerging. If you’ve been waiting for proof in the way of failing prices to consider the possibility that this bull market is in jeopardy, you now have solid evidence.

But…of course there are no guarantees of anything in these markets, in particular with the rash of false breakouts and breakdowns in recent years. If prices can reclaim these broken levels in very short order, i.e., in the next few days, perhaps a false breakdown can serve as a springboard for a nice bounce. That said, the indices above have already seen their share of tests and false breakdowns. Eventually, that will wear the key levels thin and leave them susceptible to a legitimate breakdown. That process may very well be in the works.

Lastly, was it a “key day”? We identified the likelihood of that possibility early this morning. But what did others think? Well, we took to Twitter to see what others thought. Here were the results of our poll:

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More from Dana Lyons, JLFMI and My401kPro.

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Thu, 01/07/2016 - 09:28 | 7010474 Omega_Man
Omega_Man's picture

sell it all!!! run for the hills! 

Thu, 01/07/2016 - 09:34 | 7010505 Looney
Looney's picture

<<<  Club the deer

<<<  Pet the deer

The market looks like the deer caught in the headlights…  ;-)

Looney

Thu, 01/07/2016 - 09:41 | 7010542 StackShinyStuff
StackShinyStuff's picture

And yet we are "off the lows"

Thu, 01/07/2016 - 09:54 | 7010648 Thought Processor
Thought Processor's picture

 

Down is the new up.

Thu, 01/07/2016 - 09:29 | 7010480 buzzsaw99
buzzsaw99's picture

:cue rally monkey:

Thu, 01/07/2016 - 09:29 | 7010482 buzzsaw99
buzzsaw99's picture

Value Line Geometric Composite (VLG)...

omg lolololololol!!!!!

Thu, 01/07/2016 - 09:30 | 7010483 Tjeff1
Tjeff1's picture

Down until QE4 is signaled by the FED in 2 months.

Thu, 01/07/2016 - 10:00 | 7010701 mister33
mister33's picture

i'm thinking there will be many market halts until they usher in QE4 personally, they won't go negative rates yet because it makes credit quality look bad... the best debt serfs are the ones with good credit

Thu, 01/07/2016 - 10:20 | 7010820 new game
new game's picture

not so sure as i think the fed wants the markets to keep interest rates low.

treasuries responding as prescibed by dr yellen. these fucks got a plan and ya aint included.

rates can not rise or they loose control-simply put.

no qe and moar 1/4 pointers coming imfo....

flat lined curve coming. ha on flat line-lol....

Thu, 01/07/2016 - 10:33 | 7010908 Tjeff1
Tjeff1's picture

"""i think the fed wants the markets to keep interest rates low"""

 

If they do this their so called "wealth effect" crumbles and yellen's chump Clinton goes to jail.   Not happening.  If the market tanks the FED will support it.   It is what they do.  It will only resolve when the dollar is trash, but that will take a few more years.

Thu, 01/07/2016 - 11:37 | 7011308 AdolfSchicklgruber
AdolfSchicklgruber's picture

No, this shit comes down this year.

Thu, 01/07/2016 - 11:54 | 7011460 new game
new game's picture

my response it they are attempting to find balance between equity prices and low rates while trying to normalize the fucking keynsian mess of bubblenomics they created; what can go wrong?- ha, china...

Thu, 01/07/2016 - 10:33 | 7010909 SilverDOG
SilverDOG's picture

QE to INFINITY !

Thu, 01/07/2016 - 09:31 | 7010490 InsanityIsWinning
InsanityIsWinning's picture

Fed jaw-boning is imminent today . . . 'closely monitoring situation'  tiny rally followed by sharp drop.  Then 'interest rate hike cycle done' bigger rally in oversold market followed by steeper plunge.  Rates then go to zero, QE back on the table . . . gold takes off

Thu, 01/07/2016 - 09:47 | 7010587 ghostzapper
ghostzapper's picture

Correct.  1969/1970ish was very key . . . . . . . . . . so the boys crashed through that overnight of course to take it away from most.  1930-1970 a bit of an air pocket on the charts.  Transalation - I would tread lightly in here until we see how they work with 1969/1970ish.  Could mess with that very quickly this AM.

Thu, 01/07/2016 - 09:32 | 7010498 mtndds
mtndds's picture

When HOUSING takes a dive then I will know things are starting to get serious.  Until then its party on!!!

Thu, 01/07/2016 - 09:32 | 7010501 Jason T
Jason T's picture

carnage should continue into next week even.  

The force is strong .. and there is no power great enough to stop it.

Thu, 01/07/2016 - 09:47 | 7010590 Vlad the Inhaler
Vlad the Inhaler's picture

Oversold indicators are a pretty strong force actually.

Thu, 01/07/2016 - 09:33 | 7010504 db51
db51's picture

Talking heads on Fox and CNN are telling everyone that it really isn't as bad as it looks....no need to panic.   Great buying opportunity.    lmfao

Thu, 01/07/2016 - 09:45 | 7010567 Curiously_Crazy
Curiously_Crazy's picture

It could be..

Market does it's initial downward trend, only to be saved by PPT around the 3pm mark. Then onto after market to start the new week in the green.

I never in all my years thought I'd say this, but to everyone bagging the shit outta the Chinese market manipulation just look at your own (and I'm talking globally here). A lot of zeros and ones can be printed for no cost...  until of course there are no buyers apart from CB's is when it all goes downhill quickly.

If your stuck in the Eurozone without the ability to print you're already shit outta luck.

Thu, 01/07/2016 - 09:36 | 7010516 jakesdad
jakesdad's picture

will there be an afternoon ppt "rally" or will they finally let nature take its course?

will tim cook make a surprise announcement?

will fed hint at a mea culpa?

 

expiring minds want to know!

Thu, 01/07/2016 - 09:52 | 7010634 Trucker Glock
Trucker Glock's picture

PPT ain't waiting till afternoon.  Fuckers.

Thu, 01/07/2016 - 09:37 | 7010522 firstdivision
firstdivision's picture

Wait til CU breaks and closes below $2, which we are currently doing.  Damn near 2008/2009 lows alread.

Thu, 01/07/2016 - 09:37 | 7010523 mandalou
mandalou's picture

Today may be that epic rally. We all know it will happen soon.

Thu, 01/07/2016 - 09:39 | 7010532 buzzsaw99
buzzsaw99's picture

fact. there are no markets just a bunch of naked shorts.

Thu, 01/07/2016 - 09:44 | 7010566 mandalou
mandalou's picture

yep poor bears. I don't even know one trader who holds a futures contract overnight in equities.

Thu, 01/07/2016 - 09:49 | 7010611 buzzsaw99
buzzsaw99's picture

drowning like polar bears after the ice all melted.

Thu, 01/07/2016 - 09:55 | 7010660 mandalou
mandalou's picture

Hey they blame weather all the time for a shitty quarter. So you are telling me Mr.CEO for 3 months everyday, the weather was shitty for your business to profit?

Thu, 01/07/2016 - 10:24 | 7010857 stilletto
stilletto's picture

Poor bears? I held several short futures overnight (no longs) and the profits this morning were delicious! Short on the Dow is a yummy 200point profit in the morning. May well buy another Dow short at 4.10pm after PPT jacks the price up for us to short it.

Thu, 01/07/2016 - 10:28 | 7010877 mandalou
mandalou's picture

very nice trade. Congrats. I usually trade crude. Sometimes play in NQ futures.

Thu, 01/07/2016 - 09:47 | 7010595 firstdivision
firstdivision's picture

I feel like there are not enough suckers that are going short anymore.  Can't squeeze em if you don't got em.  That's when the real collapse begins as no one is buying, and real sell orders are the only one's getting sent.

Thu, 01/07/2016 - 09:52 | 7010626 buzzsaw99
buzzsaw99's picture

that's the thing. what real sell orders? a couple hundred billion in sellling from j6p with his tiny 401K and a couple more by saudi arabia? against a trillion in corporate buybacks and yield starved pension funds who never sell? the real bear market will come but it will be a LONG process.

Thu, 01/07/2016 - 09:57 | 7010674 firstdivision
firstdivision's picture

The small sell orders will be having a huge effect on market prices when liquidty is vapor thin thanks to no one willing to buy.  Soon the FRB will be the market for equities, bonds, and other paper promises. 

Thu, 01/07/2016 - 10:18 | 7010819 buzzsaw99
buzzsaw99's picture

yep, they'll own it all some day but at inflated prices.

Thu, 01/07/2016 - 09:57 | 7010671 mandalou
mandalou's picture

Those charts Tyler even posts about the most short squeezed is even bullshit.

Thu, 01/07/2016 - 10:01 | 7010713 mister33
mister33's picture

have a cry why don't you

Thu, 01/07/2016 - 10:05 | 7010738 mandalou
mandalou's picture

For what?

 

 

Thu, 01/07/2016 - 10:23 | 7010844 buzzsaw99
buzzsaw99's picture

that's sen. boner you're thinking of. this is the bomb bomb bomb bomb bomb iran guy.

Thu, 01/07/2016 - 10:32 | 7010904 mandalou
mandalou's picture

In his defense they do kind of look alike.haha

Thu, 01/07/2016 - 09:56 | 7010658 optimator
optimator's picture

Sipping a coffeee at 33 Liberty street, and then to work at 7 minutes into the market.

Thu, 01/07/2016 - 10:02 | 7010719 mister33
mister33's picture

just to bask in the glory?

Thu, 01/07/2016 - 09:39 | 7010529 Collapsed_Elast...
Collapsed_Elastic_Pants's picture

To the moon Alice!

No popcorn, so a liverwurst sandwich and xanax will have to do.

Thu, 01/07/2016 - 09:42 | 7010557 youngman
youngman's picture

Now that China is down so much...you would think Walmart would be going to the moon...its not.....but their cost of goods just dropped 12%....

Thu, 01/07/2016 - 09:45 | 7010573 youngman
youngman's picture

China just said the circuit breakers are going off tomorrow....could be interesting....

Thu, 01/07/2016 - 09:48 | 7010596 Mae Kadoodie
Mae Kadoodie's picture

China announces they are removing circuit breakers. A bit of reverse psycology I guess.

Thu, 01/07/2016 - 09:51 | 7010627 Two Theives and...
Two Theives and a Liar's picture

Green by 3:30...looking forward to Kaiser Sousa's rant!

Thu, 01/07/2016 - 10:01 | 7010710 zeroaccountability
zeroaccountability's picture

Translation: Dao Tu Lo!

Thu, 01/07/2016 - 10:04 | 7010735 Tjeff1
Tjeff1's picture

Will go down now from 10AM to the Europe close.  Then up but still close negative down -0.5%.  Tomorrow will be up about .75%.  Monday will be a bloodbath.

Thu, 01/07/2016 - 10:08 | 7010763 scatha
scatha's picture

Forget the technical analysis. Global trade collapsing, global demand collapsing, global income minus debt obligation entered abyss. Global supply runs on overrev to fund preparation to coming regional or global wars. It is not technical issue or even market issue since markets long become gaming parlors for the rich. It is programmatic collapse of world economy into neo-feudal serfdom concocted by close circuit of world oligarchy via monetary system manipulation and global suspension of the rule of law.

Whether or not FED’s plunge protection team (Fed’s trading desk) save a day, a week, a month or another year it does not change hard economic facts of fundamental collapse of the mainstream economy And whatever left from the monopolized markets will be rattled in violent convulsion again and again since there is nothing behind all those bloated indexes or numbers.

What happening in China has been well described below 5 months ago namely their failure of transition from manufacturing to services amind global demand collapse including internal Chinese markets and hence the turnaround to competitively devalue Yuan in respect to dollar, yen, and other Asian currencies via direct means or through lowering interest rates, lowering reserves as well as fiscal stimulus. Yuan has at least 25% devaluation to go.

 

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