S n P, NAS – A Change In Trend? None Apparent, But A Caveat.

Sunday  28 September 2014

There have been no articles here on the stock market since last February, Fat Lady Has
Yet To Sing.  Some Questions About YOUR Stocks?  A half-year later, there has still been
no singing, but the questions about how profitable any of your stock holdings are is still
very much pertinent ones to address.  If any of your stock holdings have not increased at
a rate proportionate to the averages of the indices, that could be a huge warning that
should not go unheeded.

We have shunned the stock market due to the takeover by the Federal Reserve, to put it
bluntly.  The central bankers have also been on the short-side of gold and silver in their
overt efforts to eliminate any competition to their fiat paper currency Ponzi scheme.  As
we refuse to participate and short PMs, due to central bank efforts, for the same reason,
we opted out of the long side of the stock market, except for a recent, very brief occasion.

What we know for certain is that over the past four years, many trusted and reliable stock
blogs have been salivating over and calling for the top of the market.  We stopped looking
at all stock sites a few years ago.  The simplicity of just following the trend was and has
not been in vogue with most traders.

A review of what the market has to say, these days, seems relevant.  While the larger time
frames are not saying a top has occurred, the up trends remain intact, it may be worth
considering that a topping process may be near, and they can take several months to
develop.  That said, there is no need to be looking at the short side of the market, yet, but
staying long without substantial profits in existing holdings could be an invitation for a
reduction in one’s net worth.

The number of quality, leadership stocks keeps getting smaller and smaller, and when the
leadership stocks are having difficulty showing a profit in such a protracted up trending
market, lesser quality stocks will be unable to sustain their current price levels.  This is
our caveat to being long in the stock market.  Not many paid heed to the market turn in
2007, with “last call” in 2008, but when the market turned it did not look back until it had
pared over 50% of its gains, on average.  Many stocks simply never survived.

When viewing the top in 2007, it did not look ominous, and the same can be said of the
current market conditions, not suggesting a top is in play.  The point is, people would not
pay attention.  Back then, there were more individuals in the market.  That does not hold
true for today.  It is more professionally dominated.  Professionals deal in large size.  Any
sustained turn lower would mean a stampede of huge orders, and the next decline, when
it starts, could be more severe than 2008.

Our point?  Better a year early that a day late.

A look at the charts and what the best and most reliable source, the market itself, has to
say:

Normally, we start with the higher time frames and work lower.  The daily comes first
because many remain focused on looking for a top to sell.  There are signs of concern over
the last several days of trading, but the Fed’s market has shown even greater EDM [Ease
of Downward Movement] in the past and was able to make new highs, [see July/August].

Here are our reasons for sounding a caution bell, [emphasis on the word caution].  The
net gains have been diminishing over the last several months.  The vertical bar on the left
side of the chart shows how the gains have been smaller, but it is not enough over which to
be concerned, at this point.  Price is at the high of a very long bull move, yet not all stocks
have shown gains commensurate with the rise.

Many stocks are not even showing profitable growth.  The  NAS, or tech sector, has been
doing its share of IPOs with stocks that have no income, only potential promise of growth.
Shades of 2007, when the NAS was making higher highs, speculators making money with
day trading the rage, yet most of the stocks composing the index were not profitable for
the year.  If one were to step back from the feeding frenzy to make easy money, the
situation then did not make financial sense.

Given how the Fed has been supporting this market, muscling it up for the past few years,
the poor economy, lack of growth, people out of work, depending on part-time jobs to
make a living, trillions of dollars in debt and growing, the velocity of money at a stand-
still, just like the economy, the current situation does not make financial sense now, either.
But that is just our opinion.  The market always has the final say.

The high of the move, 6 bars ago, is a red flag, at least until, or if it is negated.  What that
bar says is, price made a new high, but it closed under the opening and slightly lower than
the day before.  New market highs, and price closes lower on a bar that has a relatively
small range?  Volume increased on that down day [red vol bar, 6th from the right].  Look
at the high volume buy bars just to the left, when buyers were in control.  Sellers won the
battle that day.  Where are all the buyers at the highs?

The market activity is based on logic.  You need not be a “technical analyst” to follow what
information the market is conveying.  So follow along based on deductive reasoning and
nothing else.  Compare the volume of the two highest up days [green bars], with the vol
of the two down days [red bars], following the top.  Volume = effort.  Relative to the 2 up
bars in higher volume, price was able to sell off and erase the previous gains on much less
volume, effort.

At a point, all time highs, where buyers should be in control, sellers are having an easier
time moving the market lower.  From a common sense perspective, does it make sense?
Maybe, when put in context with the lack of net gain as depicted on the left side of the
chart.  [Maybe is not a sufficient reason for making an informed decision.]

On Wednesday, 3rd bar from right, price rallied and closed strongly on slightly less vol,
as it should in an up trend.  On Thursday, look at the sharp increase in volume and how
easily the market sold off.  The market is having some issues here.  Not enough to say the
trend has turn, but enough to give consideration to the potential of a topping process.

The loss in points over the last 5 TDs [Trading Days], was twice the previous down swing
loss over an 8 day period.  Twice the loss in almost half the time after new highs is a
message from the market.  The exact meaning of the message may not be known until
after the fact, in hind-sight, but the red flag is given in present tense and can be acted
upon in a defensive manner.

Price made a lower swing low, Friday.  If the next rally does not make a new high but
leaves behind a lower swing high, the daily trend will be in the process of changing.  The
change may be from an up trend to a sideways trend, there is no way of knowing.  All one
can know is that the market is sending messages, and with experience with messages
from past market conditions, it is important information.

Is the stock market putting in a top?  The answer to that is the same as we have been
saying for the past 4 years:  not yet, or at least not confirmed.  There are many who have
been trying to sell a market top for the past few years, without waiting for confirmation,
and their “tuition bills” for trying to be ahead of the market instead of following it, have
been high with nothing but losses.

 

ES D 28 Sep 14

It is clear that the trend is higher and uninterrupted on this higher time frame weekly
chart, and the potential issues addressed on the daily are almost of no concern here, with
the exception of the weakening of upward momentum denoted by the thin horizontal
lines off the swing highs.

What makes the shorting of net gains more meaningful as a possible red flag on his chart
is the synergy with the same observation on the daily.  The more congruence that exists
between different time frames, the more reliable are the potential signals being given by
the market.

ES W 28 Sep 14

On the highest of the three time frames, it is way too soon to suggest there is any potential
topping activity taking place in the market.  However, one has to keep in mind that the
higher time frames are not used for market timing.  Changes of trend take place on lower
time frames well in advance of changes on the higher time frames.

ES M 28 Sep 14

The daily NAS chart has nowhere near the volume of the S&P, so we do not show it.  What
is of interest is the clustering of closes combined with the bullish spacing.  Without the
Bullish Spacing [there is a gap between the last swing low made in August, and the last
swing high from February], we might view the clustering of closes with a little more of a
caution due to the read on the S&P e-mini daily chart.

There is one more observation that adds to the qualified caution of the clustering of
closes, as noted, and that is the wide range bar, strong close on increased volume from
two weeks ago.  There was no further upside follow through.  Offsetting that, to some
degree, is last week’s lower close, but the location of the close is mid-range the bar, and
that tells us buyers were active at the lows, preventing price from closing lower than it
did.

The market is constantly giving off pieces of information like we have been discussing.

ND W 28 Sep 14

Comments on the chart are clear and need not be repeated.

The market is full of these bits of information.  It is a matter of knowing how to read
the messages, an art more than a science, but at times there are clear patterns that
repeat over and over, and if you pay attention to these market distinctions, knowing
what to do and when becomes a lot easier, and it eliminates guesswork.  It does not
guarantee a profit to anyone, [there are no guarantees], but it gives one an incredible
edge in the likelihood of being in sync with developing market activity, and that is
where the money is made.

Just follow the market’s lead.

ND M 28 Sep 14

 

 

 

 

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