Blow-Off Move into Christmas
What a difference three trading days can make. Going into the close last Tuesday I checked my charts, my indicators, and concluded that a rebound rally was likely. Indeed, I took off a good percentage of my short positions right at the close. I recognized the S&P had breached its 2,000 price octave and the center 1 X 1 angle creating the likelihood of a snapback into Christmas. I almost advised a NEUTRAL outlook on the close in my Tuesday UPDATE but opted instead to hold the BEARISH advisory. Admittedly, the magnitude of the move of the last three sessions substantially exceeded what I was anticipating. Now, with several of the popular averages on the brink of new highs once again, what should we expect?
I still believe a major high is on the cusp – but pinning it down to the day has been my Achilles heel. Nevertheless, several things are worthy of focus: First, take note that, although the S&P 500 has continued to surge higher with each rally pulse, the XIV (inverse VIX ETF) has produced a series of lower peaks. That’s not trivial. As a general rule, the XIV tends to move higher in lock-step fashion with the S&P 500. But notice the glaring divergence since early July.
49.2 TD Cycle
On the DJIA chart I note an interesting trough-to-trough sequence. Note the recurring pattern of 49.2 and 79.6 trading days across the lows. Long term readers will recognize that this is related to my 39.8 / 79.6 TD cycle series by a factor of 1.236. The next occurrence – should the pattern continue – is due next week. Perhaps we see the DJIA, SPX at new highs – with numerous non-confirmations.
One more thing: December 2014: 146  months from the October 2002 bottom. 989  months from the July 1932 bottom. Fibonacci aficionados take note.
Bond prices of late have been marching in step with the equity market. That doesn’t always hold true, but lately it has been the case. It may well turn out we see both a high in bonds and stocks next week. I also note the propensity for bonds and stocks to reverse near solstices / equinoxes as well – we have the winter solstice on Sunday. Remember the 19-Sep-14H?
Sloppy price action to be sure. But despite the modest upside bias, I would not give a plug nickel for anything remotely metallic right now. And while going long might have netted some small profit since the early November lows, the better risk / reward has been on the sidelines.