Sunday, January 15, 2017

Bull Market or Just Bull

The market measured by the SPX has managed to gain a total of five points over the last month from 2278 when my Short Term Indicator joined the overall Indicator Scoreboard on December 11 pointing to an intermediate term top.  Last week I pointed that January would probably be manipulated in order to show a positive "January effect", so far so good.  One indicator that acts like the Hindenburg omen is a surge in the volume of VIX calls over 500k per day.  In 2015, there two such days in November and 5 in mid-December, the past two months saw two in December and four last week.  There is no specific timing involved, but a top is likely between options expiration and the EOM, then a significant decline to SPX 2100 or lower.  The trading range last week saw little change in sentiment except gold stocks.

The overall Indicator Scoreboard saw a very small uptick in bearish sentiment, but no change in overall posture.

The Short Term Indicator (VXX $ volume and Smart Beta P/C) is in a similar trending up, but bearish position.

Price and sentiment are relatively unchanged for bonds (TNX).

Sentiment for the gold miners (HUI) has dropped to an almost bearish low extreme although still a similar pattern to the early 2015 period.

Conclusion.  Although I still think we may have the "reflation rally" that everyone has been looking for the last three years, economic patterns show a clear lag between policy inception and effectiveness.  Typically a 6 to 12 month period is necessary to develop policy then another 12 to 18 months to see the full effect.  This means a low could be see by mid 2018 and a high by 2020.  If you think the stock market sees all, just remember the housing crisis.

Weekly Trade Alert.  A significant top is likely soon.  Look for the SPX to pop to 2285-90 next week with a short at 2285 and a stop at 2300.  Updates will be posted @mrktsignals if a trade is recommended or any change in outlook is necessary.

1 comment:

  1. Sound like February is going to be ugly Arthur. Do note, I think the first target on the way down with be 219.28 on the SPY. That's about 2200 SPX and it will make sense to bounce there. Then on down again to your 2100 target I guess. That low might not happen until March, unless they do this move down in another mini-crash like the 3 we had last year?